Yum! Brands Annual Report 2014

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FY2014 Annual Report · Yum! Brands

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Yum! Brands 2014 Annual Report

DEAR PARTNERS

Since our company was spun off from PepsiCo in 1997, I

have had the privilege of leading our quest to become the

Defining Global Company that Feeds the World. Over this

time, our compound annual shareholder return has been

16% and we have been recognized among elite global

companies for our leadership capability, recognition

culture and ability to perform across the globe.

Growth opportunities outlined in this report abound
at Yum! Brands. Although 2014 results fell short of
our expectations, I’m confident our growth model is
intact and we are well positioned to deliver at least
10% annual EPS growth on a sustainable basis.

David C. Novak
Executive Chairman of the Board,

Yum! Brands, Inc.

On January 1, I stepped down as CEO and will serve as

Executive Chairman and I’m pleased and proud that Greg

Creed will be my successor.

Greg has everything it takes to be an outstanding

CEO and take our company to the next level. First

and foremost, he walks the talk of our culture and will

continue to grow and develop it further. Next, he is a

visionary business leader with a 20-year track record

of success at Yum!. Over the past 9 years, Greg has

transformed Taco Bell into an industry leader, elevating

its esteem and establishing top-tier customer service

levels. He is a breakthrough thinker, launching day parts

like Fourth Meal and breakfast, and introducing major

product lines such as Doritos® Locos Taco and Cantina

Bell. Importantly, Greg has a passion for our global

CONTENTS

DEAR PARTNERS | 1

CHINA DIVISION | 2–5

business, with deep international experiences at Unilever

KFC DIVISION | 6

and at KFC and Pizza Hut in Australia and New Zealand.

He is a well-rounded executive, having previously served

as Yum! Brands Chief Operations Officer. There is no

doubt in my mind that he is fully qualified and equipped

with the knowledge, experience and positive energy we

need to lead the company going forward.

PIZZA HUT DIVISION | 7

TACO BELL DIVISION | 8

INDIA DIVISION | 9

ON THE GROUND FLOOR OF

GLOBAL GROWTH | 10-13

In this Annual Report, Greg will share his perspectives on

HUGE HEART | 14

the business and his vision for the company.

YUM! FUTURE BACK VISION | 15

YUM! DYNASTY GROWTH MODEL | 16

I AM TRULY HONORED...

...and grateful for the opportunity to lead Yum! Brands.

As CEO, I am privileged to lead a phenomenal business

with three iconic brands, vast global infrastructure and

the franchise capability necessary to facilitate growth.

In 2014 we grew full-year EPS 4% to $3.09 per share,

excluding Special Items. This was well below our 2014

full-year target of at least 20%. These results were heavily

skewed by the challenges handed to our biggest division

as we suffered two highly publicized supplier incidents

in two years in China. However, we know our brands are

resilient and continue to believe this setback is temporary.

After our first supplier incident, which negatively

impacted 2013, we recovered and delivered strong results

in the first half of 2014. Specifically, our China Division

operating profit increased 116% and Yum! EPS grew 27%

through our first two quarters, prior to Special Items. We

were convinced 2014 would be a year of at least 20% EPS

growth. The July Shanghai Husi supplier incident changed

all that. However, we are fully committed to achieving at

least 10% EPS growth in 2015 and I'm confident we have

the people and plans in place to deliver double-digit

growth going forward.

Greg Creed
Chief Executive Officer,

Yum! Brands, Inc.

CHINA DIVISION

Given our long-term positive outlook for China—and

our continued belief that our current sales issues are

temporary—we opened 737 new restaurants across the

country in 2014. We continued our disciplined approach to

development, shifting our new-unit program toward higher

return investments. In 2015, we plan to open 700 more

new units in China. In addition to the massive new-unit

opportunity we have with KFC and Pizza Hut Casual Dining,

we will continue to expand Pizza Hut Home Service as well.

I want to assure you our recovery in China is my top
priority and all hands are on deck to get the business
back on track as soon as possible.

We have a tremendous sales-leverage opportunity as China

sales recover and we fully expect to realize this over time.

I have great confidence in Sam Su, our Vice Chairman and

China division CEO, and his ability to capture this enormous

upside and win with even stronger brands in the world’s

fastest growing economy.

KFC CHINA

KFC is a beloved brand in China with a huge advantage

not only in scale, but also in innovation, quality and people

capability. As the #1 foreign brand in China, KFC has 4,800

units in 1,000 cities. This is more than twice the size of our

nearest competitor. Although 2014 average unit volumes

were 20% off their peak levels, restaurant level margins

were a respectable 15%. These fundamentals, even in a

challenging year, demonstrate we can open new units with

attractive returns for our shareholders. We know we have

work to do to regain consumers’ trust, and we're making

progress. Once we do, the opportunities are tremendous.

I have no doubt KFC will be an even stronger leading

brand as we evolve our strategy for the changing Chinese

consumer, making KFC more contemporary, engaged

and connected.

737

New Restaurants
in 2014

KFC has

4,800

Units in
1,000 Cities

We’ve learned from other setbacks that we must

innovate our way out, and that’s what we’re doing at

KFC China. Our successful menu revamp in the first half

of 2014 reinforced the fact that our customers love food

innovation. We’re going to build on this success and launch

two menu revamps in 2015, introducing new products

across our menu—breakfast, lunch, dinner and beverages.

And as always, we’ll continue to offer compelling value. In

December, we also started our initial rollout of premium

coffee in Shanghai KFC restaurants. The initial results are

encouraging and our freshly ground coffee has contributed

solidly to our breakfast and afternoon day parts.

Finally, digital customer engagement and mobile ordering

innovation will be central to KFC’s sales recovery in China.

We are applying our know-how across Yum! to elevate

KFC’s digital offerings. I am excited by the opportunities

we have to further enhance how we connect with our

customers through these platforms.

PIZZA HUT CHINA

Pizza Hut Casual Dining is recovering more quickly, as

it was not as severely impacted by the supplier event

as KFC. With 1,300 restaurants in 350 cities, we are the

number one western casual dining chain in China, with

a lead around 6:1 over our nearest competitor. We offer

an extensive menu across many categories and five-star

service at a three-star price. This translates to extreme

value for our customers and an experience they cannot

get anywhere else in China. In 2015, we intend to grow

same-store sales through constant innovation of our

core offerings while we grow our breakfast and late

night business.

Pizza Hut Home Service now has 250 restaurants in 35

cities and is the only “All Meal” replacement delivery brand

in China. Forty percent of our menu consists of Chinese

food. So not only are we delivering pizza, we’re also

delivering a full array of Chinese menu options.

Pizza Hut Casual
Dining has

1,300

Units in
350 Cities

6:1

Lead Over Nearest
Casual Dining
Competitor

In 2015, we will invest heavily in digital and mobile

innovation to further enhance the Pizza Hut Home

Service customer experience and grow same-store

sales.

Before I move on to our other divisions, I want to

provide some details around a further write-down of

our investment in Little Sheep. We recorded a non-

cash Special Item net charge of $361 million in the

fourth quarter of 2014. Acquired in 2012, Little Sheep

has clearly fallen well below our expectations and

has not yet achieved unit-level economics necessary

to justify the expansion we had envisioned for this

concept. We have a small, dedicated team focused on

improving this business—and pending the outcome of

these efforts, we will evaluate our options with Little

Sheep later this year.

Despite our recent challenges, we wouldn’t trade our

position in China with any other restaurant company.

Our category-leading brands, combined with a rapidly

expanding consuming class, lead us to believe we

remain on the ground floor of growth in the world’s

fastest growing economy.

As of January 1, 2014, we combined our Yum!
Restaurants International and U.S. divisions into
three global brand divisions: KFC, Pizza Hut
and Taco Bell. China and India remain separate
divisions given their strategic importance and
enormous growth potential.

KFC DIVISION

Globally our KFC business model is incredibly strong.

I love the combination of being the emerging markets

leader, being franchise led and having a line of sight to

double-digit operating profit growth well into the future.

KFC delivered a strong year of system sales growth led

by emerging markets like Russia, Africa and Thailand and

international developed markets like the UK, Continental

Europe and Australia. Demonstrating its global power as

an iconic brand, KFC set a new record for international

development, opening nearly 670 restaurants. The new

news for KFC is the U.S. business is performing much

better. The KFC U.S. business grew same-store sales 6% in
the 4th quarter and is poised for its best year in some time.

All of this sets up the KFC division for a solid 2015.

As strong as the global business is, I know it can be even

better. Our assets are underleveraged. We’re going to

remedy this by expanding operating hours, leveraging

digital and strengthening the core. We also expect the

recent improved performance in the U.S. to continue.

Micky Pant, our KFC CEO, deserves a lot of credit for

breakthrough leadership of this iconic brand. And with its

brand positioning of Always Original, I’m confident the best

is yet to come.

Turkey

Paraguay

Italy

Opened Nearly

670

International
Units in 2014

KFC is a new reporting division and includes all KFC
results outside of the China and India divisions.

PIZZA HUT DIVISION

Our global Pizza Hut division capped a year of record-

level international development, opening 465 new

international units. We expect to improve on this number

in 2015. Our focused brand structure is clearly paying

dividends with Pizza Hut development. However, Pizza

Hut is more than a new-unit story. In December, we

launched our new menu in the U.S. driven by the Flavor

of Now positioning. I absolutely believe we have the right

product and brand positioning.

However, sales were softer than we expected with our

initial launch. This is a long-term strategic initiative and

we are excited by the fact that people who tried our

new pizzas love them—repurchase intent is greater than

90%. We are working to drive more customer trial as

our advertising campaign evolves to drive sales through

sharper product and price offers. I know new Pizza Hut

CEO David Gibbs and his team are focused on getting the

advertising and pricing right to ensure that their brand-

building efforts are a success. We have a long runway

ahead of us and are making the decisions necessary to

drive future growth in the U.S. and globally.

PH consumer

photo

U.S.

Panama

Opened

465

International
Units in 2014

Pizza Hut is a new reporting division and includes all Pizza Hut results
outside of the China and India divisions.

U.S.

TACO BELL DIVISION

Taco Bell had a solid 2014, with strong system sales growth.

Our breakfast launch last spring was a success and we

continue to report strong margins. We had our strongest

rate of new-unit development in more than a decade with

236 new restaurants. 89% of these new restaurants were

opened by franchisees, demonstrating the brand’s attractive

unit economics. I’m also happy to see our mobile app launch

is off to a solid start—we’ve seen 2 million downloads so far.

I believe a lot of the momentum witnessed at Taco Bell is

attributable to its insight-driven Live Más brand positioning,

product development, advertising and social engagement

with core consumers. We are now applying this to KFC and

Pizza Hut around the world. And vice versa—all ideas don’t

have to come from the U.S. or from Taco Bell. For example,

we are taking a page from the success of our open-kitchen

Taco Bell restaurant in Bangalore, India and are planning

to open a similar restaurant in the U.S. in 2015. This sharing

of ideas globally is especially important as we work to

quickly spread good ideas worldwide. With Taco Bell CEO

Brian Niccol at the helm, we expect 2015 to be another

robust year at Taco Bell as we focus on expanding our

breakfast offering, further leveraging our digital and social

engagement platforms, generating more innovation across

all day parts and optimizing our presence through next-

India

generation footprints.

Opened

236

Units in 2014

Taco Bell is a new reporting division, which includes
all Taco Bell results outside of the India division.

INDIA DIVISION

In India, system sales increased 14%* for the year and we sustained a strong pace of

development, with 156 new restaurants. While we are outperforming the category in

India, macroeconomic conditions weighed on our overall results. Yum! India President

Niren Chaudhary is using this opportunity to strengthen our positioning with consumers

as well as our business model. This will set us up for success in a country which is

expected to become the largest consumer market in the world.

*India system sales growth excludes Mauritius from the prior year amounts to enhance comparability.

ON THE GROUND FLOOR
OF GLOBAL GROWTH

I could not be more confident in the huge growth

opportunities ahead for Yum! Brands. We have an international

franchise infrastructure of 1,000 franchisees, with 40% of our

international restaurants owned by franchisees who operate

more than one of our brands. We have focused equity in key

countries, and are growing in emerging markets with our

franchisees who are investing in the business and generating

significant royalties for Yum!. Our divisions are diversified

with a strong presence in developed markets, a lead in many

emerging markets, and global brand control. Our 100%

focused teams are now organized to deliver growth and

champion our culture. We also drive know-how sharing across

both geographic and brand borders. And with our massive

scale, we have supply chain purchasing advantages and an

ability to create big career opportunities for top talent. Going

forward we will further leverage the power of Yum!.

Everything we do will be focused on building three
global iconic brands people trust and champion.

I believe this is critical for delivering sustained and aggressive

growth and to recover from our challenges. Our powerhouse

brands must be boldly focused on the things that matter most

to consumers. There are a number of points to this evolution,

so let me explain.

KFC and Pizza Hut are clearly global category leaders. And

with 250 restaurants outside the U.S. and strong innovation

and operating capability, Taco Bell is growing its global

presence. Our brands are world renowned and respected,

and we will grow them consistently and sustainably when

our consumers and stakeholders do two things: Trust us and

Champion us. I believe they trust us when we are more open,

transparent and connected, especially in a world of fast-

moving social media and digital innovation. We also know

consumers trust us when we put them first in all we do and

show an unwavering commitment to food safety and integrity.

I believe they champion us when they understand while we are

not perfect, we are trying to be better each and every day on

1,000

International
Franchisees

South Africa

Russia

the things they care about in our food, people, community

and environment.

Everyone who has worked with me knows I believe only

brands with the very best insights will win. Winning means

having the courage to go after big ideas that disrupt the

status quo and make a distinct impact on the way our

brands will grow and build relationships with consumers.

To achieve this, I’m proud to share we are establishing a

more clear and compelling True North positioning for each

brand. For KFC, we’re Always Original. For Pizza Hut, we’re

Bringing More Flavor to Life, expressed as The Flavor of

Now and for Taco Bell, it’s Live Más. I couldn’t be more

excited about the clarity and relevance of this distinctive

positioning and the growth strategies that are setting us

up to carve out an even more relevant place in the lives

of our consumers. As I mentioned, I’m committed to the

same high standards of performance and innovation we’ve

established over the past 17 years. So going forward, I

expect our brands to behave in a way that:

■ Is Innovative and Elevating

■ Offers Value while demonstrating our Values

■ Is Disruptive but Distinctive

■ Is Genuine and Transparent

These are our brand filters. They act as our compass,

directing our path to building three global iconic brands

people trust and champion. I believe KFC, Pizza Hut and

Taco Bell are truly on the ground floor of global growth

and the power of Yum! is stronger than ever. I know we

have the right structure with 100% brand focused teams,

digital innovation, know-how sharing, operating capability

and franchise economics to deliver strong value and

performance for our shareholders over the long term.

U.S.

France

U.S.

When you consider the growth opportunity we

have with our brands, and the cash we return to our

investors, we believe our company is set up to provide

compelling total shareholder return over the long run.

And we continue to drive the three things that create

Yum! Restaurants Per Million People
shareholder value in retail:
in the Top Ten Emerging Markets

NEW-UNIT DEVELOPMENT

Our new-unit development opportunity in China and

other emerging markets remains the best in retail. We

plan to open 2,000+ new international restaurants in

2015, 90% of which will be opened by our franchisees.

SAME-STORE SALES GROWTH

We have over 41,000 underleveraged assets with

significant capacity to grow. We’re growing our brands

with a powerful combination of new sales layers,

expanded day parts, menu innovation, digital platform

development and strong value.

HIGH RETURNS

Our return on invested capital has consistently been

among the best in the retail industry. We generate

nearly $2 billion in annual franchise fees and

concentrate our investments in high-growth, high-

return businesses. We’ve announced plans to take

our franchise mix outside of China and India from 91%

to about 95% over the next three years through the

combination of selective refranchising and franchise

development. These actions, along with our expected

China sales recovery, should boost our return on

invested capital further.

Yum! Restaurants Per Million
People in the U.S.

Yum! Restaurants Per Million

People in the U.S.

Yum! Restaurants Per Million People
in the Top Ten Emerging Markets

91%

of Restaurants Outside
China and India are
Franchise Owned

Finally, we have a strong track record

of returning significant amounts of

cash to our shareholders in the form

of dividends and share buybacks. Over

the last 5 years, we’ve repurchased

61 million shares, representing a 13%

reduction in outstanding shares. We

also have a meaningful and growing

dividend. In 2014, we increased
our dividend 11%, marking the 10th

consecutive year we’ve increased our

dividend at a double-digit rate, one

of only 12 companies in the S&P 500

to do so.

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HUGE HEART

Last but not least, I want you to know I am proud of the way our

three iconic brands come together to show we’re a company with

a Huge Heart—opening doors, growing people and truly caring

about the world. Leading the world’s largest private sector hunger

relief effort, we set the bar high every year in support of World

Hunger Relief. We surpassed our own bold goal this year, raising

$40 million in cash and food donations for the United Nations

World Food Programme and hunger relief agencies. Since 2007,

our efforts have raised $600 million in cash and food donations

resulting in 2.4 billion meals going to people in need. Hunger is

the world’s most solvable problem and together we are making a

meaningful difference in peoples' lives.

I am equally as pleased that KFC, Pizza Hut and Taco Bell have

meaningful community engagement efforts that positively impact

the local communities where they live and work. Considering our

collective impact, Yum! Brands, Inc. was named among the 100

Best Corporate Citizens by Corporate Responsibility Magazine.

We were the only restaurant company that made the list. And

trust me, we are going to get better and more courageous every

day at delivering the high quality, high integrity contributions our

consumers most care about in our food, people, communities

and environment. I invite you to view our progress in our online

Corporate Social Responsibility report, at www.yumcsr.com.

Thank you to all of our team members, restaurant general

managers, franchisees, community partners and restaurant

support leaders who make this company so unique in its passion

for feeding the world. I also want to thank our Board of Directors,

with special gratitude to David Grissom, who has retired from our

Board after a number of years of dedicated service. At the same

time, I want to welcome Elane Stock to the Board.

After reading this Annual Report, I hope you clearly see the

strength of our business and the growth opportunities before us

to build three global iconic brands people trust and champion.

Cheers,

Haiti

Singapore

Greg Creed

Chief Executive Officer, Yum! Brands

future back
vision
the deﬁning global company
that feeds the world

famous recognition culture where everyone counts
Drive HWWT2 leadership principles every day!
Make it a magnet for the best talent

Be an “ABR black belt”…Be a “Know How junkie”

dynamic, vibrant brands everywhere with
one system operational excellence as our foundation
Make Customer Mania come alive for every customer in

every restaurant
Build dynasties in every country
Always connect with customers, always reach, always lead

a company with a huge heart
Open doors and grow each other

Truly care about the world…and save lives with the

World Food Programme

dynasty

growth model

our future back vision

Be the Defining Global Company That Feeds the World.

our goal

Be the Best in the World at Building Global Restaurant Brands!

our passion

Customer Mania... with our customers
front and center in everything we do

our formula
for success

People Capability First… satisfied
customers and profitability follow

how we lead with ABR and TPWY

Step Change Thinkers
Know How Builders
Action Drivers
People Growers

how we grow

Build Powerful Brands
Through Superior Marketing,
Breakthrough Innovation
and Compelling Value

Drive Aggressive Unit
Expansion Everywhere,
Especially in Emerging
Markets

Create Industry
Leading Returns Through
Franchising and Disciplined
Use of Capital

With a Foundation Built on
Winning Food and World
Class Operations

Build Leading Brands in
Every Significant Category
in China and India

Maximize Long-Term
Shareholder Value

how we win together

Believe in All People
Be Restaurant and Customer Maniacs…NOW!
Recognize! Recognize! Recognize!

Go for Breakthrough
Build Know How
Take the Hill Teamwork

...as one system

26MAR201222253896

YUM! Brands, Inc.
1441 Gardiner Lane
Louisville, Kentucky 40213

March 20, 2015

Dear Fellow Shareholders:

On behalf of your Board of Directors, we are pleased to invite you to attend the 2015 Annual Meeting of Shareholders
of YUM! Brands, Inc. The Annual Meeting will be held Friday, May 1, 2015, at 9:00 a.m., local time, in the YUM!
Conference Center at 1900 Colonel Sanders Lane in Louisville, Kentucky.

Once again, we encourage you to take advantage of the Securities and Exchange Commission rule allowing
companies to furnish proxy materials to their shareholders over the Internet. We believe that this e-proxy process
expedites shareholders’ receipt of proxy materials, lowers the costs of delivery and helps reduce the Company’s
environmental impact.

Your vote is important. We encourage you to vote promptly whether or not you plan to attend the meeting. You may
vote your shares via a toll-free telephone number or over the Internet. If you received a paper copy of the proxy card by
mail, you may sign, date and mail the proxy card in the envelope provided. Instructions regarding the three methods of
voting are contained on the notice or proxy card.

If you plan to attend the meeting, please bring your notice, admission ticket from your proxy card or proof of your
ownership of YUM common stock as of March 3, 2015 as well as a valid picture identification. Whether or not you
attend the meeting, we encourage you to consider the matters presented in the proxy statement and vote as soon as
possible.

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16MAR201218542623

15MAR201511442244

Sincerely,

18MAR200923080389

David C. Novak
Executive Chairman

10MAR201507325489

Greg Creed
Chief Executive Officer

Important Notice Regarding the Availability of Proxy Materials for the Shareholders Meeting to Be Held on
May 1, 2015—this notice and the proxy statement are available at www.yum.com/investors/investor_materials.asp.
The Annual Report on Form 10-K is available at www.yum.com/annualreport.

YUM! Brands, Inc.
1441 Gardiner Lane
Louisville, Kentucky 40213

Notice of Annual Meeting
of Shareholders

Friday, May 1, 2015 9:00 a.m.
YUM! Conference Center, 1900 Colonel Sanders Lane, Louisville, Kentucky 40213

ITEMS OF BUSINESS:

.................................................................................................................................................................................................................................................................................................................................................................................

(1)

To elect twelve (12) directors to serve until the 2016 Annual Meeting of Shareholders and until their respective successors
are duly elected and qualified.

(2)

To ratify the selection of KPMG LLP as our independent auditors for the fiscal year ending December 26, 2015.

(3)

To consider and hold an advisory vote on executive compensation.

(4)

To consider and vote on one (1) shareholder proposal, if properly presented at the meeting.

(5)

To transact such other business as may properly come before the meeting.

WHO CAN VOTE:

You can vote if you were a shareholder of record as of the close of business on March 3, 2015.

ANNUAL REPORT:

A copy of our 2014 Annual Report on Form 10-K is included with this proxy statement.

WEBSITE:

You may also read the Company’s Annual Report and this Notice and proxy statement on our website at www.yum.com/
annualreport and www.yum.com/investors/investor_materials.asp.

DATE OF MAILING:

This Notice, the proxy statement and the form of proxy are first being mailed to shareholders on or about March 20, 2015.

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15MAR201511442244

By Order of the Board of Directors

18MAR200923075097

Christian L. Campbell
Secretary

YOUR VOTE IS IMPORTANT

Under securities exchange rules, brokers cannot vote on your behalf for the election of directors or on executive
compensation related matters without your instructions. Whether or not you plan to attend the Annual Meeting, please
provide your proxy by following the instructions on your Notice or proxy card. On or about March 20, 2015, we mailed to our
shareholders a Notice containing instructions on how to access the proxy statement and our Annual Report and vote online.

If you received a Notice by mail, you will not receive a printed copy of the proxy materials in the mail, unless you request a copy.
Instead, you should follow the instructions included in the Notice on how to access and review the proxy statement and Annual
Report. The Notice also instructs you on how you may submit your vote by proxy over the Internet.

If you received the proxy statement and Annual Report in the mail, please submit your proxy by marking, dating and signing
the proxy card included and returning it promptly in the envelope enclosed. If you are able to attend the Annual Meeting and wish
to vote your shares personally, you may do so at any time before the proxy is exercised.

Table of Contents

PROXY STATEMENT

QUESTIONS AND ANSWERS ABOUT THE MEETING AND VOTING

GOVERNANCE OF THE COMPANY

MATTERS REQUIRING SHAREHOLDER ACTION

ITEM 1
ITEM 2
ITEM 3
ITEM 4

Election of Directors and Director Biographies (Item 1 on the Proxy Card) . . . . . . . . . . . . . . . .
Ratification of Independent Auditors (Item 2 on the Proxy Card) . . . . . . . . . . . . . . . . . . . . . . .
Advisory Vote on Executive Compensation (Item 3 on the Proxy Card) . . . . . . . . . . . . . . . . . .
Shareholder Proposal regarding a Policy on Accelerated Vesting upon a Change in Control
(Item 4 on the Proxy Card) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

STOCK OWNERSHIP INFORMATION

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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE AND LEGAL
PROCEEDINGS

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Summary Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All Other Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Grants of Plan-Based Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding Equity Awards at Year-End . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Option Exercises and Stock Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonqualified Deferred Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Potential Payments Upon Termination or Change in Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

DIRECTOR COMPENSATION

EQUITY COMPENSATION PLAN INFORMATION

AUDIT COMMITTEE REPORT

ADDITIONAL INFORMATION

14
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21

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48
50
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53
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58

YUM! Brands, Inc.
1441 Gardiner Lane
Louisville, Kentucky 40213

PROXY STATEMENT

For Annual Meeting of Shareholders To Be Held On

May 1, 2015

The Board of Directors (the ‘‘Board of Directors’’ or the ‘‘Board’’) of YUM! Brands, Inc., a North Carolina corporation (‘‘YUM’’ or the
‘‘Company’’), solicits the enclosed proxy for use at the Annual Meeting of Shareholders of the Company to be held at 9:00 a.m.
(Eastern Daylight Saving Time), on Friday, May 1, 2015, in the YUM! Conference Center, at 1900 Colonel Sanders Lane, Louisville,
Kentucky. This proxy statement contains information about the matters to be voted on at the Annual Meeting and the voting process,
as well as information about our directors and most highly paid executive officers.

QUESTIONS AND ANSWERS ABOUT THE MEETING
AND VOTING

What is the purpose of the Annual Meeting?

At our Annual Meeting, shareholders will vote on several important Company matters. In addition, our management will report on
the Company’s performance over the last fiscal year and, following the meeting, respond to questions from shareholders.

Why am I receiving these materials?

You received these materials because our Board of Directors is soliciting your proxy to vote your shares at the Annual Meeting. As
a shareholder, you are invited to attend the Annual Meeting and are entitled to vote on the items of business described in this
proxy statement.

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Why did I receive a one-page Notice in the mail regarding the Internet availability of proxy materials
this year instead of a full set of proxy materials?

As permitted by Securities and Exchange Commission
(‘‘SEC’’) rules, we are making this proxy statement and our
Annual Report available to our shareholders electronically
via the Internet. On or about March 20, 2015, we mailed to
our shareholders a Notice containing instructions on how to
access this proxy statement and our Annual Report and
vote online. If you received a Notice by mail you will not
receive a printed copy of the proxy materials in the mail,
unless you request a copy. The Notice instructs you on how
to access and review all of the important information
contained in the proxy statement and Annual Report. The

Notice also instructs you on how you may submit your proxy
over the Internet. If you received a Notice by mail and would
like to receive a printed copy of our proxy materials, you
should follow the instructions for requesting such materials
contained on the Notice.

We encourage you to take advantage of the availability of
the proxy materials on the Internet in order to help lower the
costs of delivery and reduce the Company’s environmental
impact.

Who may attend the Annual Meeting?

The Annual Meeting is open to all shareholders of record as of close of business on March 3, 2015, or their duly appointed
proxies. Seating is limited and admission is on a first-come, first-served basis.

What do I need to bring to attend the Annual Meeting?

You will need a valid picture identification and either an
admission ticket or proof of ownership of YUM’s common

stock to enter the Annual Meeting. If you are a registered
owner, your Notice will be your admission ticket. If you

2015 Proxy Statement

YUM! BRANDS, INC.

QUESTIONS AND ANSWERS ABOUT THE MEETING AND VOTING

received the proxy statement and Annual Report by mail,
you will find an admission ticket attached to the proxy card
sent to you. If you plan to attend the Annual Meeting, please
so indicate when you vote and bring the ticket with you to
the Annual Meeting. If your shares are held in the name of a
bank or broker, you will need to bring your legal proxy from
your bank or broker and your admission ticket. If you do not
bring your admission ticket, you will need proof of ownership
to be admitted to the Annual Meeting. A recent brokerage
statement or letter from a bank or broker is an example of
proof of ownership. If you arrive at the Annual Meeting
without an admission ticket, we will admit you only if we are
able to verify that you are a YUM shareholder. Your

admittance to the Annual Meeting will depend upon
availability of seating. All shareholders will be required to
present valid picture identification prior to admittance. IF
YOU DO NOT HAVE A VALID PICTURE IDENTIFICATION
AND EITHER AN ADMISSION TICKET OR PROOF THAT
YOU OWN YUM COMMON STOCK, YOU MAY NOT BE
ADMITTED INTO THE ANNUAL MEETING.

Please note that computers, cameras, sound or video
recording equipment, cellular and smart phones, tablets
and other similar devices, large bags, briefcases and
packages will not be allowed in the meeting room.

May shareholders ask questions?

Yes. Representatives of the Company will answer shareholders’ questions of general interest following the Annual Meeting. In
order to give a greater number of shareholders an opportunity to ask questions, individuals or groups will be allowed to ask only
one question and no repetitive or follow-up questions will be permitted.

Who may vote?

You may vote if you owned YUM common stock as of the close of business on the record date, March 3, 2015. Each share of YUM
common stock is entitled to one vote. As of March 3, 2015, YUM had 433,394,412 shares of common stock outstanding.

What am I voting on?

You will be voting on the following four (4) items of business
at the Annual Meeting:

•

The election of twelve (12) directors to serve until the next
Annual Meeting of Shareholders and until their respective
successors are duly elected and qualified;

•

The ratification of the selection of KPMG LLP as our
independent auditors
fiscal year ending
December 26, 2015;

the

for

An advisory vote on executive compensation; and

One (1) shareholder proposal.

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We will also consider other business that properly comes
before the meeting.

How does the Board of Directors recommend that I vote?

Our Board of Directors recommends that you vote your
shares:

•

FOR each of the nominees named in this proxy statement
for election to the Board;

•

FOR the ratification of the selection of KPMG LLP as our
independent auditors;

FOR the proposal regarding an advisory vote on
executive compensation; and

•

AGAINST the shareholder proposal.

How do I vote before the Annual Meeting?

There are three ways to vote before the meeting:

•

By Internet — If you have Internet access, we encourage
you
following
instructions on the Notice or proxy card;

to vote on www.proxyvote.com by

By telephone — by making a toll-free telephone call from
the U.S. or Canada to 1(800) 690-6903 (if you have any
questions about how to vote over the phone, call
1(888) 298-6986); or

•

By mail — If you received your proxy materials by mail,
you can vote by completing, signing and returning the
enclosed proxy card in the postage-paid envelope
provided.

If you are a participant in the Direct Stock Purchase Plan,
the administrator of this program, as the shareholder of
record, may only vote the shares for which it has received
directions to vote from you.

If you are a participant in the YUM! Brands 401(k) Plan
(‘‘401(k) Plan’’), the trustee of the 401(k) Plan will only vote

YUM! BRANDS, INC.

2015 Proxy Statement

QUESTIONS AND ANSWERS ABOUT THE MEETING AND VOTING

the shares for which it has received directions to vote from
you.

Proxies submitted through the Internet or by telephone as
described above must be received by 11:59 p.m., Eastern
Daylight Saving Time, on April 30, 2015. Proxies submitted
by mail must be received prior to the meeting. Directions
submitted by 401(k) Plan participants must be received by
12:00 p.m., Eastern Daylight Saving Time, on April 29,
2015.

Also, if you hold your shares in the name of a bank or broker,
your ability to vote by telephone or the Internet depends on
their voting processes. Please follow the directions on your

Inc.

(‘‘Broadridge’’)

notice carefully. A number of brokerage firms and banks
participate in a program provided through Broadridge
Financial Solutions,
that offers
telephone and Internet voting options. If your shares are
held in an account with a brokerage firm or bank
participating in the Broadridge program, you may vote those
shares telephonically by calling the telephone number
shown on the voting instruction form received from your
brokerage firm or bank, or through the Internet at
Broadridge’s voting website (www.proxyvote.com). Votes
submitted through the Internet or by telephone through the
Broadridge program must be received by 11:59 p.m.,
Eastern Daylight Saving Time, on April 30, 2015.

Can I vote at the Annual Meeting?

Shares registered directly in your name as the shareholder
of record may be voted in person at the Annual Meeting.
Shares held in street name may be voted in person only if
you obtain a legal proxy from the broker or nominee that
holds your shares giving you the right to vote the shares.

Even if you plan to attend the Annual Meeting, we
encourage you to vote your shares by proxy. You may still
vote your shares in person at the meeting even if you have
previously voted by proxy.

Can I change my mind after I vote?

You may change your vote at any time before the polls close
at the Annual Meeting. You may do this by:

•

Giving written notice to the Secretary of the Company
prior to the Annual Meeting; or

•

Signing another proxy card with a later date and returning
it to us prior to the Annual Meeting;

Voting again by telephone or through the Internet prior to
11:59 p.m., Eastern Daylight Saving Time, on April 30,
2015;

•

Voting again at the Annual Meeting.

Your attendance at the Annual Meeting will not have the
effect of revoking a proxy unless you notify our Corporate
Secretary in writing before the polls close that you wish to
revoke a previous proxy.

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Who will count the votes?

Representatives of American Stock Transfer and Trust Company, LLC will count the votes and will serve as the independent
inspector of election.

What if I return my proxy card but do not provide voting instructions?

If you vote by proxy card, your shares will be voted as you
instruct by the individuals named on the proxy card. If you
sign and return a proxy card but do not specify how your
shares are to be voted, the persons named as proxies on
the proxy card will vote your shares in accordance with the
recommendations of the Board. These recommendations
are:

•

FOR the election of the twelve (12) nominees for director
named in this proxy statement (Item 1);

•

FOR the ratification of the selection of KPMG LLP as our
independent auditors for the fiscal year 2015 (Item 2);

FOR the proposal regarding an advisory vote on
executive compensation (Item 3); and

•

AGAINST the shareholder proposal (Item 4).

What does it mean if I receive more than one proxy card?

It means that you have multiple accounts with brokers and/or our transfer agent. Please vote all of these shares. We recommend
that you contact your broker and/or our transfer agent to consolidate as many accounts as possible under the same name and
address. Our transfer agent is American Stock Transfer and Trust Company, LLC, which may be reached at 1(888) 439-4986.

2015 Proxy Statement

YUM! BRANDS, INC.

QUESTIONS AND ANSWERS ABOUT THE MEETING AND VOTING

Will my shares be voted if I do not provide my proxy?

Your shares may be voted if they are held in the name of a
brokerage firm, even if you do not provide the brokerage
firm with voting instructions. Brokerage firms have the
authority under the New York Stock Exchange rules to vote
shares for which their customers do not provide voting
instructions on certain ‘‘routine’’ matters.

The proposal to ratify the selection of KPMG LLP as our
independent auditors for fiscal year 2015 is considered a
routine matter for which brokerage firms may vote shares

for which they have not received voting instructions. The
other proposals to be voted on at our Annual Meeting are
not considered ‘‘routine’’ under applicable rules. When a
proposal is not a routine matter and the brokerage firm has
not received voting instructions from the beneficial owner of
the shares with respect to that proposal, the brokerage firm
cannot vote the shares on that proposal. This is called a
‘‘broker non-vote.’’

How many votes must be present to hold the Annual Meeting?

Your shares are counted as present at the Annual Meeting if you attend the Annual Meeting in person or if you properly return a
proxy by Internet, telephone or mail. In order for us to conduct our Annual Meeting, a majority of the outstanding shares of YUM
common stock, as of March 3, 2015, must be present in person or represented by proxy at the Annual Meeting. This is referred to
as a quorum. Abstentions and broker non-votes will be counted for purposes of establishing a quorum at the Annual Meeting.

How many votes are needed to elect directors?

You may vote ‘‘FOR’’ each nominee or ‘‘AGAINST’’ each
nominee, or ‘‘ABSTAIN’’ from voting on one or more
nominees. Unless you mark ‘‘AGAINST’’ or ‘‘ABSTAIN’’
with respect to a particular nominee or nominees or for all
nominees, your proxy will be voted ‘‘FOR’’ each of the
director nominees named in this proxy statement. In an
uncontested election, a nominee will be elected as a
director if the number of ‘‘FOR’’ votes exceeds the number

of ‘‘AGAINST’’ votes. Abstentions will be counted as
present but not voted. Abstentions and broker non-votes will
not affect the outcome of the vote on directors. Full details of
the Company’s majority voting policy are set out in our
Corporate Governance Principles at www.yum.com/
investors/governance/principles.asp and at page 7 under
‘‘What other significant Board practices does the Company
have? — Majority Voting Policy.’’

How many votes are needed to approve the other proposals?

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15MAR201511093851

The other proposals must receive the ‘‘FOR’’ vote of a
majority of the shares, present in person or represented by
proxy, and entitled to vote at the Annual Meeting. For each
of these items, you may vote ‘‘FOR’’, ‘‘AGAINST’’ or
‘‘ABSTAIN.’’ Abstentions will be counted as shares present
and entitled to vote at the Annual Meeting. Accordingly,

abstentions will have the same effect as a vote ‘‘AGAINST’’
the proposals. Broker non-votes will not be counted as
shares present and entitled to vote with respect to the
particular matter on which the broker has not voted. Thus,
broker non-votes will not affect the outcome of any of these
proposals.

When will the Company announce the voting results?

The Company will announce the voting results of the Annual Meeting on a Current Report on Form 8-K filed within four business
days of the Annual Meeting.

What if other matters are presented for consideration at the Annual Meeting?

As of the date of this proxy statement, our management
knows of no matters that will be presented for consideration
at the Annual Meeting other than those matters discussed in
this proxy statement. If any other matters properly come
before the Annual Meeting and call for a vote of

shareholders, validly executed proxies in the enclosed form
returned to us will be voted in accordance with the
recommendation of the Board of Directors or, in the
absence of such a recommendation, in accordance with the
judgment of the proxy holders.

YUM! BRANDS, INC.

2015 Proxy Statement

GOVERNANCE OF THE COMPANY

The business and affairs of YUM are managed under the direction of the Board of Directors. The Board believes that good
corporate governance is a critical factor in achieving business success and in fulfilling the Board’s responsibilities to
shareholders. The Board believes that its practices align management and shareholder interests.

The corporate governance section of the Company website makes available the Company’s corporate governance materials,
including the Corporate Governance Principles (the ‘‘Principles’’), the Company’s Articles of Incorporation and By-Laws, the
charters for each Board committee, the Company’s Worldwide Code of Conduct, the Company’s Political Contributions and U.S.
Government Advocacy Policy, and information about how to report concerns about the Company. To access these documents on
the Company’s website, www.yum.com, click on ‘‘Investors’’ and then ‘‘Corporate Governance’’.

Highlights of our corporate governance practices are described below.

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10MAR201517460448

2015 Proxy Statement

YUM! BRANDS, INC.

GOVERNANCE OF THE COMPANY

What is the composition of the Board of Directors and how often are members elected?

Our Board of Directors presently consists of 13 directors whose terms expire at this Annual Meeting. Ms. Hill will be retiring and is
not standing for re-election at the Annual Meeting.

As discussed in more detail later in this section, the Board has determined that 8 of the 12 current directors standing for re-election
are independent under the rules of the New York Stock Exchange (‘‘NYSE’’). Michael Cavanagh will become independent on
May 15, 2015. See page 9 regarding discussion of Mr. Cavanagh becoming independent.

How often did the Board meet in fiscal 2014?

The Board of Directors met 6 times during fiscal 2014. Each director attended at least 75% of the meetings of the Board and the
committees of which he or she was a member and that were held during the period he or she served as a director.

What is the Board’s policy regarding director attendance at the Annual Meeting of Shareholders?

The Board of Director’s policy is that all directors should attend the Annual Meeting and all 12 directors on the Board during the
2014 Annual Meeting were in attendance.

How does the Board select nominees for the Board?

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15MAR201511093851

for Board membership suggested by

The Nominating and Governance Committee considers
candidates
its
members and other Board members, as well as
management and shareholders. The Committee’s charter
provides that it may retain a third-party executive search
firm to identify candidates from time to time.

In accordance with the Principles, our Board seeks
members from diverse professional backgrounds who
combine a broad spectrum of experience and expertise with
a reputation for integrity. Directors should have experience
in positions with a high degree of responsibility, be leaders
in the companies or institutions with which they are affiliated
and are selected based upon contributions they can make
the Board and management. The Committee’s
to
assessment of a proposed candidate will include a review of
the person’s
independence,
judgment, experience,
understanding of the Company’s business or other related
industries and such other factors as the Nominating and
Governance Committee determines are relevant in light of
the needs of the Board of Directors. The Committee
believes that its nominees should reflect a diversity of
experience, gender, race, ethnicity and age. The Board
does not have a specific policy regarding director diversity.
The Committee also considers such other relevant factors
as it deems appropriate, including the current composition
of the Board, the balance of management and independent
directors, the need for Audit Committee expertise and the
evaluations of other prospective nominees, if any. In
connection with this evaluation, it is expected that each

the

full Board

Committee member will interview the prospective nominee
in person or by telephone before the prospective nominee is
presented
for consideration. After
completing this evaluation and interview process, the
Committee will make a recommendation to the full Board as
to the person(s) who should be nominated by the Board,
and the Board determines the nominee(s) after considering
the recommendation and report of the Committee.

We believe that each of our directors has met the guidelines
set forth in the Governance Principles. As noted in the
director biographies that follow this section, our directors
have experience, qualifications and skills across a wide
range of public and private companies, possessing a broad
spectrum of experience both individually and collectively.

Elane B. Stock was appointed to the Board effective
November 20, 2014. She is standing for election to the
Board by our shareholders for the first time. The full Board is
recommending her election as a director.

For a shareholder to submit a candidate for consideration by
the Nominating and Governance Committee, a shareholder
must notify YUM’s Corporate Secretary. To make a director
nomination at the 2016 Annual Meeting, a shareholder must
notify YUM’s Secretary no later than February 1, 2016.
Notices should be sent to: Corporate Secretary, YUM!
Brands, Inc., 1441 Gardiner Lane, Louisville, Kentucky
40213. The nomination must contain the information
described on page 67.

What is the Board’s leadership structure?

The Company’s Principles provide that the CEO may serve
as Chairman of the Board. These Principles also provide for

an independent Lead Director. Our Board believes that
Board independence and oversight of management are

YUM! BRANDS, INC.

2015 Proxy Statement

effectively maintained through a strong independent Lead
Director and through the Board’s composition, committee
system and policy of having regular executive sessions of
non-employee directors, all of which are discussed below
this section.

The Nominating and Governance Committee reviews the
Board’s leadership structure annually together with an
evaluation of the performance and effectiveness of the
Board of Directors. The Board retains the authority to modify
its Board leadership structure to address our Company’s
circumstances and advance the best interests of the
Company and its stockholders as and when appropriate.
The Board’s annual self-evaluation includes questions
open
regarding
communication and effectiveness of executive sessions.

the Board’s

opportunities

for

David Novak served as Chairman of the Board and CEO of
the Company until January 1, 2015. As discussed in more
detail in last year’s Proxy Statement, the Board believed
that combining these positions served the best interests of
the Company.

Effective January 1, 2015, the Board appointed Greg Creed
as CEO to succeed Mr. Novak. Contemporaneous with this
appointment, the Board appointed Mr. Novak Executive
Chairman. Under this structure, Mr. Creed is responsible for
leading the Company’s strategies, organization design,
people development and culture and for providing the
day-to-day leadership over operations, while Mr. Novak is

GOVERNANCE OF THE COMPANY

responsible for supporting the CEO on corporate strategy,
innovative business and brand building ideas along with
leadership development. As Executive Chairman,
Mr. Novak also takes leadership working with our Lead
Director in setting the agenda for meetings of the Board and
presides over Board meetings. The Board believes that,
given the proven leadership capabilities, breadth of industry
experience and business success of both Mr. Creed and
Mr. Novak as well as taking into consideration that
Mr. Creed is new to the CEO role, the Company is best
served at this point in time with a leadership structure that
separates the roles of CEO and Chairman of the Board.

The Board created a new position of Lead Director in
August 2012, after its annual review which included
engaging in dialogue and receiving input from a number of
major shareholders. The Lead Director position
is
structured so that one independent Board member is
empowered with sufficient authority to ensure independent
oversight of the Company and its management. The Lead
Director position has no term limit and is subject only to
annual approval by the independent members of the Board.
The Board has appointed Thomas Ryan to serve as the
Lead Director, and has concluded that Mr. Ryan, who also
chairs the Nominating and Governance Committee, has
provided effective oversight in this role. In addition, to
assure effective independent oversight, the Board has
adopted a number of governance practices discussed
below.

What are the Company’s governance policies and ethical guidelines?

• Board Committee Charters. The Audit, Management
Planning and Development and Nominating and
Governance Committees of the YUM Board of Directors
operate pursuant to written charters. These charters were
approved by the Board of Directors and reflect certain
best practices in corporate governance. These charters
comply with the requirements of the NYSE. Each charter
is available on the Company’s website at www.yum.com/
investors/governance/charters.asp.

• Corporate Governance Principles. The Board of
Directors has documented its corporate governance
guidelines
Inc. Corporate
the YUM! Brands,
Governance Principles. These guidelines as amended
are available on
the Company’s website at
www.yum.com/investors/governance/principles.asp.

• Ethical Guidelines. YUM’s Worldwide Code of Conduct
was adopted to emphasize the Company’s commitment

to the highest standards of business conduct. The Code
of Conduct also sets forth information and procedures for
employees to report ethical or accounting concerns,
misconduct or violations of the Code of Conduct in a
confidential manner. The Code of Conduct applies to the
Board of Directors and all employees of the Company,
including the principal executive officer, the principal
financial officer and the principal accounting officer. Our
directors and the senior-most employees in the Company
are required to regularly complete a conflicts of interest
questionnaire and certify in writing that they have read
and understand the Code of Conduct. The Code of
Conduct is available on the Company’s website at
www.yum.com/investors/governance/conduct.asp. The
Company intends to post amendments to or waivers from
its Code (to the extent applicable to the Board of Directors
or executive officers) on this website.

What other significant Board practices does the Company have?

• Private Executive Sessions. Our non-management
directors meet in executive session at each regular Board
meeting. The executive sessions are attended only by the
non-management directors and are presided over by the

Lead Director. Our independent directors meet in
executive session at least once per year.

• Role of Lead Director. Our corporate governance
guidelines require the election, by the independent

2015 Proxy Statement

YUM! BRANDS, INC.

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GOVERNANCE OF THE COMPANY

directors, of a Lead Director. The Lead Director position is
structured so that one independent Board member is
to ensure
empowered with sufficient authority
independent oversight of
its
management. The Lead Director position has no term
limit and is subject only to annual approval by the
independent members of the Board. Based upon the
recommendation of the Nominating and Governance
Committee, the Board has determined that the Lead
Director is responsible for:

the Company and

(a) Presiding at all executive sessions of the Board
and any other meeting of the Board at which the
Chairman
the
Chairman and CEO of any decisions reached or
suggestions made at any executive session,

is not present, and advising

(b) Approving in advance agendas and schedules for
Board meetings and the information that is
provided to directors,

(c)

requested by major shareholders, being
direct
consultations

and

If
available
for
communication,

(d) Serving as a liaison between the Chairman and the

independent directors, and

(e) Calling special meetings of the independent

directors.

• Advance Materials. Information and data important to
the directors’ understanding of the business or matters to
be considered at a Board or Board Committee meeting

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are, to the extent practical, distributed to the directors
sufficiently in advance of the meeting to allow careful
review prior to the meeting.

• Board and Committees’ Evaluations. The Board has
an annual self-evaluation process that is led by the
Nominating
and Governance Committee. This
assessment focuses on the Board’s contribution to the
Company and emphasizes those areas in which the
Board believes a better contribution could be made. In
addition,
the Audit, Management Planning and
Development and Nominating and Governance
Committees also each conduct similar annual
self-evaluations.

• Majority Voting Policy. Our Articles of Incorporation
require majority voting for the election of directors in
uncontested elections. This means
that director
nominees in an uncontested election for directors must
receive a number of votes ‘‘for’’ his or her election in
excess of the number of votes ‘‘against.’’ The Company’s
Corporate Governance Principles further provide that any
incumbent director who does not receive a majority of
‘‘for’’ votes will promptly tender to the Board his or her
resignation from the Board. The resignation will specify
that it is effective upon the Board’s acceptance of the
resignation. The Board will, through a process managed
by the Nominating and Governance Committee and
excluding the nominee in question, accept or reject the
resignation within 90 days after the Board receives the
resignation. If the Board rejects the resignation, the
reason for the Board’s decision will be publicly disclosed.

15MAR201511093851

What access do the Board and Board committees have to management and to outside advisors?

• Access to Management and Employees. Directors
have full and unrestricted access to the management and
employees of the Company. Additionally, key members of
management attend Board meetings
to present
information about the results, plans and operations of the
business within their areas of responsibility.

• Access to Outside Advisors. The Board and its
committees may retain counsel or consultants without
obtaining the approval of any officer of the Company in

advance or otherwise. The Audit Committee has the sole
authority to retain and terminate the independent auditor.
The Nominating and Governance Committee has the sole
authority to retain search firms to be used to identify
director candidates. The Management Planning and
Development Committee has the sole authority to retain
compensation consultants
for advice on executive
compensation matters.

What is the Board’s role in risk oversight?

The Board maintains overall responsibility for overseeing
the Company’s risk management, including succession
planning. In furtherance of its responsibility, the Board has
delegated specific risk-related responsibilities to the Audit
Committee and
the Management Planning and
Development Committee. The Audit Committee engages in
substantive discussions of risk management at its regular
committee meetings held during the year. At these
meetings, it receives functional risk review reports covering
significant areas of risk from senior managers responsible
for these functional areas, as well as receiving reports from

the Company’s Chief Auditor and the General Counsel. Our
Chief Auditor reports directly to the Chairman of the Audit
Committee and our Chief Financial Officer. The Audit
Committee also receives reports at each meeting regarding
legal and regulatory risks from management and meets in
separate executive sessions with our independent auditors
and our Chief Auditor. The Audit Committee provides a
summary to the full Board at each regular Board meeting of
the risk area reviewed together with any other risk related
subjects discussed at the Audit Committee meeting. In
addition, our Management Planning and Development

YUM! BRANDS, INC.

2015 Proxy Statement

Committee considers the risks that may be implicated by
our compensation programs through a risk assessment

conducted by management and reports its conclusions to
the full Board.

Has the Company conducted a risk assessment of its compensation policies and practices?

GOVERNANCE OF THE COMPANY

As stated in the Compensation Discussion and Analysis at
page 28, the philosophy of our compensation programs is to
reward performance by designing pay programs that
incorporate team and individual performance, customer
satisfaction and shareholder return; emphasize long-term
incentives; drive ownership mentality; and
require
executives to personally invest in Company stock.

In early 2015, the Management Planning and Development
Committee (the ‘‘Committee’’) oversaw the risk assessment
of our compensation programs for all employees to
determine whether
they encourage unnecessary or
excessive risk taking. In conducting this review, each of our
compensation practices and programs was reviewed
against the key risks facing the Company in the conduct of
its business. Based on
the Committee
concluded our compensation policies and practices do not
encourage our employees
take unnecessary or
excessive risks.

this review,

As part of this assessment, the Committee concluded the
following policies and practices of the Company’s cash and
equity incentive programs serve to reduce the likelihood of
excessive risk taking:

•

Our compensation system is balanced, rewarding both
short term and long term performance

Long term Company performance is emphasized. The
majority of incentive compensation for the top level
employees is associated with the long term performance
of the Company

•

Strong stock ownership guidelines are enforced for
approximately 400 senior employees

The annual incentive and performance share plans both
have caps on the level of performance over which no
additional rewards are paid

The annual incentive target setting process is closely
linked to the annual financial planning process and
supports the Company’s overall strategic plan, which is
reviewed and approved by the Board

Compensation performance measures set for each
division are transparent and tied to multiple measurable
factors, none of which exceed a 50% weighting. The
measures are drivers of returns and are transparent to
shareholders

The capital allocation process is driven by strategic
objectives, aligned with Division annual operating plans
and requires capital expenditure approval, ensuring
alignment with development and return requirements

The financial performance which determines employee
awards is closely monitored by and certified to the Audit
Committee and the full Board

The Company has implemented a robust recoupment
(clawback) policy

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How does the Board determine which directors are considered independent?

The Company’s Principles, adopted by the Board, require
that we meet the listing standards of the NYSE. The full text
of the Principles can be found on the Company’s website
(www.yum.com/investors/governance/principles.asp).

Pursuant to the Principles, the Board undertook its annual
review of director independence. During this review, the
Board considered transactions and relationships between
each director or any member of his or her immediate family
and the Company and its subsidiaries and affiliates. As
provided in the Principles, the purpose of this review was to
determine whether any such relationships or transactions
were inconsistent with a determination that the director is
independent.

As a result of this review, the Board affirmatively determined
that all of the directors are independent of the Company and
its management under NYSE rules, with the exception of
David C. Novak, Greg Creed, Jing-Shyh S. Su and
Michael J. Cavanagh. Messrs. Novak, Creed and Su are not

independent directors because of

their
considered
employment by
the Company. Under NYSE rules,
Mr. Cavanagh cannot be considered independent until
May 15, 2015 because Mr. Novak formerly served on the
Compensation Committee of JPMorgan Chase & Co.,
where Mr. Cavanagh was an executive officer.

the Company,

In determining that the other directors did not have a
material relationship with
the Board
determined that Messrs. Dorman, Ferragamo, Linen,
Nelson, Ryan and Walter and Mses. Graddick-Weir and Hill
had no other relationship with the Company other than their
relationship as a director. The Board did note as discussed
in the next paragraph that Kimberly-Clark Corporation,
which employs Ms. Stock, has a business relationship with
the Company; however, as noted below, the Board
determined that this relationship was not material to the
director or Kimberly-Clark Corporation.

2015 Proxy Statement

YUM! BRANDS, INC.

GOVERNANCE OF THE COMPANY

Elane B. Stock is the Group President of Kimberly-Clark
International, a division of Kimberly Clark Corporation.
During 2014, the Company paid Kimberly-Clark Corporation
approximately $2.6 million for paper products used in the
normal course of business in some of its restaurants. The
Board determined that these payments did not create a

material relationship between the Company and Ms. Stock
or the Company and Kimberly-Clark Corporation as the
payments represent less than one-tenth of 1% of Kimberly-
Clark Corporation’s revenues. The Board determined that
this relationship was not material to Ms. Stock or Kimberly-
Clark Corporation.

How do shareholders communicate with the Board?

Shareholders and other parties interested in communicating
directly with individual directors, the non-management
directors as a group or the entire Board may do so by writing
to
the Nominating and Governance Committee, c/o
Corporate Secretary, YUM! Brands, Inc., 1441 Gardiner
Lane, Louisville, Kentucky 40213. The Nominating and
Governance Committee of the Board has approved a
process for handling letters received by the Company and
individual directors, non-management
addressed
members of the Board or the Board. Under that process, the
Corporate Secretary of the Company reviews all such
correspondence and regularly forwards to a designated
individual member of the Nominating and Governance
Committee copies of all such correspondence (although we
do not
forward commercial correspondence and
correspondence duplicative in nature; however, we will
retain duplicate correspondence and all duplicate
correspondence will be available for directors’ review upon

time
received by

review a
the Company

forward correspondence directed

their request) and a summary of all such correspondence.
The designated director of the Nominating and Governance
Committee will
to
individual directors as he or she deems appropriate.
log of all
Directors may at any
correspondence
is
that
addressed to members of the Board and request copies of
any such correspondence. Written correspondence from
shareholders relating to accounting, internal controls or
auditing matters are immediately brought to the attention of
the Company’s Audit Committee Chair and to the internal
audit department and handled
in accordance with
procedures established by the Audit Committee with
below).
respect
Correspondence
to
Management Planning and Development Committee
matters are referred to the Chair of the Management
Planning and Development Committee.

such matters

shareholders

(described

relating

from

What are the Company’s policies on reporting of concerns regarding accounting?

The Audit Committee has established policies on reporting
concerns regarding accounting and other matters in
addition
to our policy on communicating with our
non-management directors. Any person, whether or not an
employee, who has a concern about the conduct of the
Company or any of our people, with respect to accounting,
internal accounting controls or auditing matters, may, in a
confidential or anonymous manner, communicate that
concern to our General Counsel, Christian Campbell. If any
person believes that he or she should communicate with our
Audit Committee Chair, Thomas C. Nelson, he or she may
do so by writing him at c/o YUM! Brands, Inc., 1441

Gardiner Lane, Louisville, KY 40213. In addition, a person
who has such a concern about the conduct of the Company
or any of our employees may discuss that concern on a
confidential or anonymous basis by contacting The Network
at 1 (800) 241-5689. The Network is our designated
external contact for these issues and is authorized to
contact the appropriate members of management and/or
the Board of Directors with respect to all concerns it
receives. The full text of our Policy on Reporting of
Concerns Regarding Accounting and Other Matters is
available on our website at www.yum.com/investors/
governance/complaint.asp.

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YUM! BRANDS, INC.

2015 Proxy Statement

What are the Committees of the Board?

The Board of Directors has standing Audit, Management Planning and Development, Nominating and Governance and
Executive/Finance Committees.

GOVERNANCE OF THE COMPANY

Name of Committee
and Members

Audit:
Thomas C. Nelson, Chair
Mirian M. Graddick-Weir
Bonnie G. Hill
Jonathan S. Linen
Elane B. Stock*

Number of Meetings
in Fiscal 2014

Functions of the Committee

•

•
•

•

Possesses sole authority regarding the selection and retention of
independent auditors
Reviews and has oversight over the Company’s internal audit function
Reviews and approves the cost and scope of audit and non-audit services
provided by the independent auditors
Reviews the independence, qualification and performance of the
independent auditors
Reviews the adequacy of the Company’s internal systems of accounting
and financial control
Reviews the annual audited financial statements and results of the audit
with management and the independent auditors
Reviews the Company’s accounting and financial reporting principles and
practices including any significant changes
Advises the Board with respect to Company policies and procedures
regarding compliance with applicable laws and regulations and the
Company’s Worldwide Code of Conduct and Policy on Conflicts of Interest
Discusses with management the Company’s policies with respect to risk
assessment and risk management. Further detail about the role of the Audit
Committee in risk assessment and risk management is included in the
section entitled ‘‘What is the Board’s role in risk oversight?’’ set forth on
page 8.

The Board of Directors has determined that all of the members of the Audit Committee are independent within the meaning of
applicable SEC regulations and the listing standards of the NYSE and that Mr. Nelson, the chair of the Committee, is qualified as
an audit committee financial expert within the meaning of SEC regulations. The Board has also determined that Mr. Nelson has
accounting and related financial management expertise within the meaning of the listing standards of the NYSE and that each
member is financially literate within the meaning of the listing standards of the NYSE.

*Elane B. Stock became an Audit Committee member effective January 22, 2015.

Name of Committee
and Members

Management Planning and
Development:
Robert D. Walter, Chair
David W. Dorman
Massimo Ferragamo
Thomas M. Ryan

Functions of the Committee

•

Oversees the Company’s executive compensation plans and programs and
reviews and recommends changes to these plans and programs
Monitors the performance of the chief executive officer and other senior
executives in light of corporate goals set by the Committee
Reviews and approves the compensation of the chief executive officer and
other senior executive officers
Reviews management succession planning

Number of Meetings
in Fiscal 2014

The Board has determined that all of the members of the Management Planning and Development Committee are independent
within the meaning of the listing standards of the NYSE.

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2015 Proxy Statement

YUM! BRANDS, INC.

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GOVERNANCE OF THE COMPANY

Name of Committee
and Members

Nominating and
Governance:
Thomas M. Ryan, Chair
David W. Dorman
Massimo Ferragamo
Robert D. Walter

Number of Meetings
in Fiscal 2014

Functions of the Committee

•

•
•

•

Identifies and proposes to the Board suitable candidates for Board
membership
Advises the Board on matters of corporate governance
Reviews and reassesses from time to time the adequacy of the Company’s
Corporate Governance Principles
Receives comments from all directors and reports annually to the Board
with assessment of the Board’s performance
Prepares and supervises the Board’s annual review of director
independence

The Board has determined that all of the members of the Nominating and Governance Committee are independent within the
meaning of the listing standards of the NYSE.

Name of Committee
and Members

Executive/Finance:
David C. Novak, Chair
Thomas C. Nelson
Thomas M. Ryan
Robert D. Walter

Functions of the Committee

•

Exercises all of the powers of the Board in the management of the
business and affairs of the Company consistent with applicable law while
the Board is not in session

Number of Meetings
in Fiscal 2014

—

How are directors compensated?

Employee Directors. Employee directors do not receive
additional compensation for serving on the Board of
Directors.

Non-Employee Directors Annual Compensation. The
annual compensation for each director who is not an
employee of YUM
‘‘Director
Compensation’’ beginning on page 61.

is discussed under

What are the Company’s policies and procedures with respect to related person transactions?

15MAR201511093851

immediate family members. Immediate family members are
spouses, parents, stepparents, children, stepchildren,
siblings, daughters-in-law, sons-in-law and any person,
other than a tenant or domestic employee, who resides in
the household of a director, director nominee, executive
officer or holder of 5% or more of our voting stock.

its

review,

After
the Nominating and Governance
Committee may approve or ratify the transaction. The
policies and procedures provide that certain transactions
are deemed to be pre-approved even if they will exceed
$100,000. These transactions include employment of
executive officers, director compensation, and transactions
with other companies if the aggregate amount of the
transaction does not exceed the greater of $1 million or 2%
of that company’s total revenues and the related person is
not an executive officer of the other company.

reviews

the best

the Company.

they are
and

The Board of Directors has adopted policies and
procedures for the review of related person transactions.
Under these policies and procedures, the Nominating and
Governance Committee
person
transactions in which we are or will be a participant to
interests of our
determine
if
shareholders
Transactions,
arrangements, or relationships or any series of similar
transactions, arrangements or relationships in which a
related person had or will have a material interest and that
exceed $100,000 are subject to the Committee’s review.
Any member of
the Nominating and Governance
Committee who is a related person with respect to a
transaction under review may not participate in the
deliberation or vote respecting approval or ratification of the
transaction.

Related persons are directors, director nominees, executive
officers, holders of 5% or more of our voting stock and their

YUM! BRANDS, INC.

2015 Proxy Statement

GOVERNANCE OF THE COMPANY

Does the Company require stock ownership by directors?

Yes, the Company requires stock ownership by directors.
The Board of Directors expects non-management directors
to hold a meaningful number of shares of Company
common stock and expects non-management directors to
retain shares acquired as compensation as a director until
at least 12 months following their departure from the Board.

YUM directors receive a significant portion of their annual
compensation in stock. The Company believes that the
the equity component of director
emphasis on
compensation serves to further align the interests of
directors with those of our shareholders.

How much YUM stock do the directors own?

Stock ownership information for each director nominee is shown in the table on page 26.

Does the Company have stock ownership guidelines for executives and senior management?

The Management Planning and Development Committee
has adopted formal stock ownership guidelines that set
minimum expectations
senior
management ownership. These guidelines are discussed
on page 43.

for executive and

The Company has maintained an ownership culture among
its executive and senior managers since its formation.
Substantially all executive officers and members of senior
management hold stock well in excess of the guidelines.

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2015 Proxy Statement

YUM! BRANDS, INC.

MATTERS REQUIRING SHAREHOLDER ACTION

ITEM 1

Election of Directors and Director Biographies
(Item 1 on the Proxy Card)

Who are this year’s nominees?

The twelve (12) nominees recommended by the Nominating and Governance Committee of the Board of Directors for election
this year to hold office until the 2016 Annual Meeting and until their respective successors are elected and qualified are provided
below. The biographies of each of the nominees below contains information regarding the person’s service as a director, business
experience, director positions held currently or at any time during the last five years, information regarding involvement in certain
legal or administrative proceedings, if applicable, and the experiences, qualifications, attributes or skills that caused the
Nominating and Governance Committee and the Board to determine that the person should serve as a director for the Company.
In addition to the information presented below regarding each nominee’s specific experience, qualifications, attributes and skills
that led our Board to the conclusion that he or she should serve as a director, we also believe that all of our director nominees
have a reputation for integrity, honesty and adherence to high ethical standards. They each have demonstrated business acumen
and an ability to exercise sound judgment, as well as a commitment of service to YUM and our Board. Finally, we value their
significant experience on other public company boards of directors and board committees.

There are no family relationships among any of the directors and executive officers of the Company. See ‘‘What are the
Company’s policies and procedures with respect to related person transactions?’’ at page 12. Director ages are as of the date of
this proxy statement.

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YUM! BRANDS, INC.

2015 Proxy Statement

MATTERS REQUIRING SHAREHOLDER ACTION

Michael J. Cavanagh is Co-President and Co-Chief Operating Officer for The Carlyle Group, a global investment firm. He
has held this position since 2014. He is also a member of the Executive Group and Management Committee of The
Carlyle Group. Prior to this, Mr. Cavanagh was the Co-Chief Executive Officer of the Corporate & Investment Bank of
JPMorgan Chase & Co. from 2012 until 2014. From 2010 to 2012, he was the Chief Executive Officer of JPMorgan
Chase & Co.’s Treasury & Securities Services business, one of the world’s largest cash management providers and a
leading global custodian. From 2004 to 2010, Mr. Cavanagh was Chief Financial Officer of JPMorgan Chase & Co.

SPECIFIC QUALIFICATIONS, EXPERIENCE, SKILLS AND EXPERTISE:
.................................................................................................................................................................................................................................................................................................
Operating and management experience, including as president and chief operating officer of a global investment
•
firm
Expertise in finance and strategic planning

•

11MAR201508572991
Michael J. Cavanagh

Age 49

Director Since 2012

Co-President and
Co-Chief Operating Officer
The Carlyle Group

Greg Creed is Chief Executive Officer of YUM. He has served in this position since January 2015. He served as Chief
Executive Officer of Taco Bell Division from January 2014 to December 2014 and as Chief Executive Officer of Taco Bell
U.S. from 2011 to December 2013. Prior to this position, Mr. Creed served as President and Chief Concept Officer of
Taco Bell U.S., a position he held beginning in December 2006. Mr. Creed served as Chief Operating Officer of YUM
from 2005 to 2006. He has served as a director of International Games Technology since 2010.

Operating and management experience, including as chief executive officer of Taco Bell
Expertise in strategic planning, global branding, franchising, and corporate leadership
Public company directorship and committee experience

11MAR201504422029
Greg Creed

Age 57

Director Since 2014

Chief Executive Officer, YUM

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David W. Dorman is the Non-Executive Chairman of the Board of CVS Health Corporation (formerly known as CVS
Caremark Corporation), a pharmacy healthcare provider. He has held this position since May 2011. He is also a
Founding Partner of Centerview Capital, a private investment firm, since July 2013. Until May 2011, he was the
Non-Executive Chairman of Motorola Solutions, Inc. (formerly known as Motorola Inc.), a leading provider of business
and mission critical communication products and services for enterprise and government customers. He served as
Non-Executive Chairman of the Board of Motorola, Inc. from May 2008 until the separation of its mobile devices and
home businesses in January 2011. From October 2006 to May 2008, he was Senior Advisor and Managing Director to
Warburg Pincus, a global private equity firm. From November 2005 until January 2006, he was President of AT&T Inc., a
company that provides Internet and transaction-based voice and data services (formerly known as SBC
Communications). He was Chairman of the Board and Chief Executive Officer of the company previously known as
AT&T Corp. from November 2002 until November 2005. Prior to this, he was President of AT&T Corp. from 2000 to 2002
and the Chief Executive Officer of Concert, a former global venture
created by AT&T Corp. and British Telecommunications plc, from 1999 to 2000. Mr. Dorman serves on the board of
Motorola Solutions, Inc., Georgia Tech Foundation and eBay Inc. He served as a director of AT&T Corp.
from 2002 to 2006.

SPECIFIC QUALIFICATIONS, EXPERIENCE, SKILLS AND EXPERTISE:
.................................................................................................................................................................................................................................................................................................
Operating and management experience, including as chief executive officer of global telecommunications-related
•
businesses
Expertise in finance, strategic planning and public company executive compensation
Public company directorship and committee experience
Independent of Company

•
•
•

13MAR201511372619

David W. Dorman

Age 61

Director Since 2005

Non-Executive
Chairman, CVS
Health Corporation

2015 Proxy Statement

YUM! BRANDS, INC.

MATTERS REQUIRING SHAREHOLDER ACTION

Massimo Ferragamo is Chairman of Ferragamo USA, Inc., a subsidiary of Salvatore Ferragamo Italia, which controls
sales and distribution of Ferragamo products in North America. Mr. Ferragamo has held this position since 1985.
Mr. Ferragamo served as a director of Birks & Mayors, Inc. from 2005 until 2007.

SPECIFIC QUALIFICATIONS, EXPERIENCE, SKILLS AND EXPERTISE:
.................................................................................................................................................................................................................................................................................................
Operating and management experience, including as chairman of international sales and distribution business
•
Expertise in branding, marketing, sales and international business development
•
Public company directorship and committee experience
•
Independent of Company
•

13MAR201511373906
Massimo Ferragamo

Age 57

Director Since 1997

Chairman, Ferragamo USA, Inc.

Mirian M. Graddick-Weir serves as Executive Vice President of Human Resources for Merck & Co., Inc., a
pharmaceutical company. She has held this position since 2008. From 2006 until 2008, she was Senior Vice President of
Human Resources of Merck & Co., Inc. Prior to this position, she served as Executive Vice President of Human
Resources and Employee Communications of AT&T Corp from 2004 to 2006. Ms. Graddick-Weir served as the
Executive Vice President of Human Resources of AT&T Corp. from 1999 to 2004. Ms. Graddick-Weir held various
executive positions throughout her career with AT&T, which began in 1981. Ms. Graddick-Weir served as a director of
Harleysville Group Inc. from 2000 until 2012.

Management experience, including as executive vice president of human resources for a pharmaceutical
company and a global communications services provider
Expertise in global human resources, corporate governance and public company compensation
Public company directorship and committee experience
Independent of Company

13MAR201511374639
Mirian M. Graddick-Weir

•
•
•

Age 60

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15MAR201511093851

Director Since 2012

Executive Vice
President Human
Resources
Merck & Co., Inc.

13MAR201511373539

Jonathan S. Linen

Age 71

Director Since 2005

Advisor to the
Chairman, American
Express Company

Jonathan S. Linen has been an advisor to the Chairman of American Express Company, a diversified worldwide travel
and financial services company, since January 2006. From August 1993 until December 2005, he served as Vice
Chairman of American Express Company. From 1992 to 1993, Mr. Linen served as President and Chief Operating
Officer of American Express Travel Related Services Company, Inc. From 1989 to 1992, Mr. Linen served as President
and Chief Executive Officer of Shearson Lehman Brothers. Mr. Linen is a director of Modern Bank, N.A. and The
Intercontinental Hotels Group.

SPECIFIC QUALIFICATIONS, EXPERIENCE, SKILLS AND EXPERTISE:
.................................................................................................................................................................................................................................................................................................
Operating and management experience, including as president and chief executive officer of global travel-related
•
services company
Expertise in finance, marketing and international business development
Public company directorship and committee experience
Independent of Company

•
•
•

YUM! BRANDS, INC.

2015 Proxy Statement

MATTERS REQUIRING SHAREHOLDER ACTION

Thomas C. Nelson has served as the President and Chief Executive Officer of National Gypsum Company, a building
products manufacturer, since 1999 and was elected Chairman of the Board in January 2005. From 1995 to 1999,
Mr. Nelson served as the Vice Chairman and Chief Financial Officer of National Gypsum Company. He is also a General
Partner of Wakefield Group, a North Carolina based venture capital firm. Mr. Nelson previously worked for Morgan
Stanley & Co. and in the United States Defense Department as Assistant to the Secretary and was a White House
Fellow. He serves as Director of Carolinas Healthcare System and as lead Director of Belk, Inc. Effective January 2015,
Mr. Nelson will serve as a director for the Federal Reserve Bank of Richmond.

Operational and management experience, including as president and chief executive officer of a building
products manufacturer
Senior government experience as Assistant to the Secretary of the United States Defense Department and as a
White House Fellow
Expertise in finance, strategic planning, business development and retail business
Public company directorship and committee experience
Independent of Company

•

•
•
•

13MAR201511375089

Thomas C. Nelson

Age 52

Director Since 2006

Chairman, Chief
Executive Officer and
President, National
Gypsum Company

David C. Novak has been Executive Chairman of the Board since January 1, 2015. Prior to this, Mr. Novak was Chairman
of the Board from 2001 to 2014, and Chief Executive Officer of YUM from 2000 to 2014. He served as President of YUM
from October 1997 to April 2012. Mr. Novak previously served as Group President and Chief Executive Officer, KFC and
Pizza Hut from August 1996 to July 1997, at which time he became acting Vice Chairman of YUM. Mr. Novak served as a
director of Bank One Corporation from 2001 until its merger with JPMorgan Chase & Co. in 2004. He continued serving
as a director of JPMorgan Chase & Co. from 2004 to 2012.

Operating and management experience, including as chairman and chief executive officer of the Company
Expertise in strategic planning, global branding, franchising, and corporate leadership
Public company directorship and committee experience

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David C. Novak

Age 62

Director Since 1997

Executive Chairman,
YUM

Thomas M. Ryan is the former Chairman and Chief Executive Officer of the Board of CVS Health Corporation, formerly
known as CVS Caremark Corporation (‘‘CVS’’), a pharmacy healthcare provider. He served as Chairman from April 1999
to May 2011. He was Chief Executive Officer of CVS from May 1998 to February 2011 and also served as President from
May 1998 to May 2010. Mr. Ryan serves on the boards of Five Below, Inc. and Vantive, Inc., and is an Operating Partner
of Advent International. Mr. Ryan was a director of Reebok International Ltd. from 1998 to 2005 and Bank of America
Corporation from 2004 to 2010.

Operating and management experience, including as chief executive officer of global pharmacy healthcare
business
Expertise in finance, strategic planning and public company executive compensation
Public company directorship and committee experience
Independent of Company

13MAR201511375950

Thomas M. Ryan

•
•
•

Age 62

Director Since 2002

Former Chairman and
CEO, CVS Health
Corporation

2015 Proxy Statement

YUM! BRANDS, INC.

MATTERS REQUIRING SHAREHOLDER ACTION

Elane B. Stock is Group President of Kimberly-Clark International, a division of Kimberly-Clark Corporation, a leading
consumer products company. She has held this position since 2014. From 2012 to 2014 she was the Group President for
Kimberly-Clark Professional. Prior to this role, Ms. Stock was the Chief Strategy Officer from 2010, when she first joined
Kimberly-Clark, to 2012.

SPECIFIC QUALIFICATIONS, EXPERIENCE, SKILLS AND EXPERTISE:
.................................................................................................................................................................................................................................................................................................
Global operating and management experience, including as group president of a consumer products company
•
Expertise in branding, marketing, sales, strategic planning and international business development
•
Independent of Company
•

11MAR201504415998

Elane B. Stock

Age 50

Director Since 2014

Group President
Kimberly-Clark
International

13MAR201511373217

Jing-Shyh S. Su

Jing-Shyh S. Su has been Vice Chairman of the Board since 2008. He is also Chairman and Chief Executive Officer of
YUM’s China Division, a position he has held since May 2010. From 1997 to May 2010, he was President of YUM’s China
Division. Prior to this position, he was the Vice President of North Asia for both KFC and Pizza Hut.

Operating and management experience, including as president of the Company’s China division
Expertise in marketing and brand development
Expertise in strategic planning and international business development

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Age 62

Director Since 2008

Vice Chairman, YUM!
Brands, Inc.,
Chairman and
Chief Executive
Officer of YUM’s
China Division

Robert D. Walter is the founder of Cardinal Health, Inc., a company that provides products and services supporting the
health care industry. Mr. Walter retired from Cardinal Health in June 2008. Prior to his retirement from Cardinal Health, he
served as Executive Director from November 2007 to June 2008. From April 2006 to November 2007, he served as
Executive Chairman of the Board of Cardinal Health. From 1979 to April 2006, he served as Chairman and Chief
Executive Officer of Cardinal Health. Mr. Walter also serves as a director of American Express Company and
Nordstrom, Inc. From 2000 to 2007, he was a director of CBS Corporation and its predecessor, Viacom, Inc.

Operating and management experience, including as chief executive officer, of global healthcare and service
provider business
Expertise in finance, business development, business integrations, financial reporting, compliance and controls

Public company directorship and committee experience
Independent of Company

•

•
•

13MAR201511374293

Robert D. Walter

Age 69

Director Since 2008

Founder and Retired
Chairman/CEO
Cardinal Health, Inc.

YUM! BRANDS, INC.

2015 Proxy Statement

MATTERS REQUIRING SHAREHOLDER ACTION

If elected, we expect that all of the aforementioned nominees will serve as directors and hold office until the 2016 Annual Meeting
of Shareholders and until their respective successors have been elected and qualified. Based on the recommendation of the
Nominating and Governance Committee, all of the aforementioned nominees are standing for re-election.

What is the recommendation of the Board of Directors?

The Board of Directors recommends that you vote FOR the election of these nominees.

What if a nominee is unwilling or unable to serve?

That is not expected to occur. If it does, proxies may be voted for a substitute nominated by the Board of Directors.

What vote is required to elect directors?

A nominee will be elected as a director if the number of ‘‘FOR’’ votes exceeds the number of ‘‘AGAINST’’ votes with respect to his
or her election.

Our policy regarding the election of directors can be found in our Corporate Governance Principles at www.yum.com/ investors/
governance/principles.asp and at page 7 under ‘‘What other significant Board practices does the Company have? — Majority
Voting Policy.’’

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2015 Proxy Statement

YUM! BRANDS, INC.

MATTERS REQUIRING SHAREHOLDER ACTION

ITEM 2

Ratification of Independent Auditors
(Item 2 on the Proxy Card)

What am I voting on?

A proposal to ratify the selection of KPMG LLP (‘‘KPMG’’) as our independent auditors for fiscal year 2015. The Audit Committee
of the Board of Directors has selected KPMG to audit our consolidated financial statements. During fiscal 2014, KPMG served as
our independent auditors and also provided other audit-related and non-audit services.

Will a representative of KPMG be present at the meeting?

Representatives of KPMG will be present at the Annual Meeting and will have the opportunity to make a statement if they desire
and will be available to respond to appropriate questions from shareholders.

What vote is required to approve this proposal?

Approval of this proposal requires the affirmative vote of a majority of the shares present in person or represented by proxy and
entitled to vote at the Annual Meeting. If the selection of KPMG is not ratified, the Audit Committee will reconsider the selection of
independent auditors.

What is the recommendation of the Board of Directors?

The Board of Directors recommends that you vote FOR approval of this proposal.

What were KPMG’s fees for audit and other services for fiscal years 2014 and 2013?

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The following table presents fees for professional services rendered by KPMG for the audit of the Company’s annual financial
statements for 2014 and 2013, and fees billed for audit-related services, tax services and all other services rendered by KPMG for
2014 and 2013.

Audit fees(1)

Audit-related fees(2)

Audit and audit-related fees

Tax fees(3)

All other fees

TOTAL FEES

2014

2013

$6,788,000

$6,340,000

615,000

7,403,000

438,000

—

360,000

6,700,000

980,000

—

$7,841,000

$7,680,000

(1)

(2)

(3)

Audit fees include fees for the audit of the annual consolidated financial statements, reviews of the interim condensed consolidated financial
statements included in the Company’s quarterly reports, audits of the effectiveness of the Company’s internal controls over financial
reporting, statutory audits and services rendered in connection with the Company’s securities offerings.
Audit-related fees include audits of financial statements of certain employee benefit plans, agreed upon procedures and other attestations.
Tax fees consist principally of fees for international tax compliance, tax audit assistance, and VAT and other tax advisory services.

YUM! BRANDS, INC.

2015 Proxy Statement

What is the Company’s policy regarding the approval of audit and non-audit services?

MATTERS REQUIRING SHAREHOLDER ACTION

The Audit Committee has implemented a policy for the
pre-approval of all audit and permitted non-audit services,
including tax services, proposed to be provided to the
Company by its independent auditors. Under the policy, the
Audit Committee may approve engagements on a
case-by-case basis or pre-approve engagements pursuant
to the Audit Committee’s pre-approval policy. The Audit
Committee may delegate pre-approval authority to one of its
independent members, and has currently delegated
pre-approval authority up to certain amounts to its Chair.

Pre-approvals for services are granted at the January Audit
considering
each
Committee meeting
pre-approvals, the Audit Committee reviews a description of
the scope of services falling within pre-designated services
and imposes specific budgetary guidelines. Pre-approvals
of designated services are generally effective for the

year.

succeeding 12 months. Any incremental audit or permitted
non-audit services which are expected to exceed the
relevant budgetary guideline must be pre-approved.

The Corporate Controller monitors services provided by the
independent auditors and overall compliance with the
pre-approval policy. The Corporate Controller reports
periodically to the Audit Committee about the status of
outstanding engagements,
including actual services
provided and associated fees, and must promptly report any
non-compliance with the pre-approval policy to the Chair of
the Audit Committee.

The complete policy is available on the Company’s
website at www.yum.com/investors/governance/media/
gov_auditpolicy.pdf.

ITEM 3

Advisory Vote on Executive Compensation
(Item 3 on the Proxy Card)

What am I voting on?

In accordance with SEC rules, we are asking shareholders
to approve, on a non-binding basis, the compensation of the
Company’s Named Executive Officers as disclosed in this
proxy statement.

the Compensation
to
We urge shareholders
Discussion and Analysis beginning at page 28, the
compensation tables beginning at page 46 and the narrative
discussion following the compensation tables.

read

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Our Performance-Based Executive Compensation Program Attracts and Retains Strong Leaders and Closely Aligns
with Our Shareholders’ Interests

Our performance-based executive compensation program
is designed to attract, reward and retain the talented leaders
necessary for our Company to succeed in the highly
competitive market for talent, while maximizing shareholder
returns. This approach has made our management team a
key driver in the Company’s strong performance over both
the long and short term. We believe that our compensation
program has attracted and retained strong leaders, and is
closely aligned with the interests of our shareholders.

In deciding how to vote on this proposal, we urge you to
read the Compensation Discussion and Analysis section of
this proxy statement, beginning on page 28, which
discusses in detail how our compensation policies and

procedures operate and are designed
to meet our
compensation goals and how our Management Planning
and Development Committee makes compensation
decisions under our programs.

Accordingly, we ask our shareholders to vote in favor of the
following resolution at the Annual Meeting:

RESOLVED, that the shareholders approve, on an
advisory basis, the compensation awarded to our
Named Executive Officers, as disclosed pursuant to
SEC rules, including the Compensation Discussion and
Analysis,
related
the compensation
materials included in this proxy statement.

tables and

2015 Proxy Statement

YUM! BRANDS, INC.

MATTERS REQUIRING SHAREHOLDER ACTION

What vote is required to approve this proposal?

Approval of this proposal requires the affirmative vote of a
majority of shares present in person or represented by
proxy and entitled to vote at the Annual Meeting. While this
vote is advisory and non-binding on the Company, the
Board of Directors and the Management Planning and
Development Committee will review the voting results and

consider shareholder concerns
their continuing
evaluation of the Company’s compensation program.
Unless the Board of Directors modifies its policy on the
frequency of this advisory vote, the next advisory vote on
executive compensation will be held at the 2016 Annual
Meeting of Shareholders.

What is the recommendation of the Board of Directors?

The Board of Directors recommends that you vote FOR approval of this proposal.

ITEM 4

Shareholder Proposal Regarding A Policy On
Accelerated Vesting Upon A Change In Control
(Item 4 on the Proxy Card)

What am I voting on?

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Amalgamated Bank’s LongView LargeCap 500 Index Fund
has advised us that it intends to present the following
shareholder proposal at the Annual Meeting. We will furnish
the address and share ownership of the proponent upon
request.

Accelerated Vesting

RESOLVED: The shareholders ask the board of directors to
adopt a policy that in the event of a change in control (as
defined under any applicable employment agreement,
equity incentive plan or other plan), there shall be no
acceleration in the vesting of equity awards to senior
executives, provided, however,
the board’s
Compensation Committee may provide in an applicable
grant or purchase agreement that any such unvested award
will vest on a partial, pro rata basis up to the time of the
senior executive’s termination, with such qualifications for
an award as the Committee may determine.

that

For purposes of this policy, ‘‘equity award’’ means an award
granted under an equity incentive plan as defined in
Item 402 of the SEC’s Regulation S-K, which identifies the
elements of executive compensation to be disclosed to
shareholders. This resolution shall be implemented so as
not to affect any contractual rights in existence on the date
this policy is adopted.

SUPPORTING STATEMENT

Yum! Brands grants senior executives several types of
equity awards that normally vest over several years. The
company states in its 2014 proxy that 80% of compensation
is ‘‘at-risk,’’ where the compensation paid is determined
based on the achievement of specified results.’’ The proxy
goes on to state, ‘‘We believe that all of our long-term
incentive compensation is performance-based.’’ However,
restrictions on the vesting of unearned equity awards are

YUM! BRANDS, INC.

2015 Proxy Statement

removed or ‘‘accelerated’’ if there is a change in control at
the Company and if, as to more recent equity awards, an
executive employment is involuntarily terminated.

We do not question that some form of severance payments
may be appropriate in a change-in-control situation. Indeed,
the Company already has provisions
for severance
payments to senior executives in the event of a change in
control. We are concerned, however, that the Company’s
current policies may permit windfall equity awards that are
unrelated to a senior executive’s performance.

According to last year’s proxy statement, a change in
control at the end of 2013, along with an executive’s
the vesting of
termination, could have accelerated
$22 million in unearned equity for David C. Novak, the
Chairman and CEO, and at least $6.2 million for other
senior executives.

We are unpersuaded that if a change in control should
occur, even with an involuntary termination, then an
executive somehow ‘‘deserves’’ unearned equity that he or
she did not earn. To accelerate the vesting of unearned
equity on the theory that an executive was denied the
opportunity to earn them seems inconsistent with a ‘‘pay for
performance’’ philosophy worthy of the name.

We do believe, however, that any acceleration of unearned
equity should be limited to acceleration on a pro rata basis
as of the executive’s termination date, with the details of any
pro rata award to be determined by the Compensation
Committee.

Other companies have adopted limitations on accelerated
vesting of unearned equity, including Apple, ExxonMobil,
Chevron, Intel, Microsoft, and Occidental Petroleum.

We urge you to vote FOR this proposal.

MATTERS REQUIRING SHAREHOLDER ACTION

Management Statement in Opposition to Shareholder
Proposal

What is the Company’s position regarding this proposal?

The Board of Directors recommends that shareholders vote
AGAINST this proposal.

employs

effective

the best

YUM
pay-for-performance
compensation program with many governance best
practices, including requiring double-trigger accelerated
vesting of equity awards upon a change in control. We
believe the elements of our program are appropriate and
serve
interests of our shareholders. The
Proponent’s proposal is unnecessary because our double-
trigger vesting practice does not create a ‘‘windfall’’ for our
executives, but aligns executive and shareholder interests.
Our practice fosters a sense of stability for the executive so
that he or she may remain objective and focused while
leading the Company during a critical and uncertain time,
and maintains our competitive edge when attracting and
fact, we believe
In
talent.
retaining high caliber
the Proponent’s proposal will misalign
implementing
executive and shareholder
incentivize
executives to pursue transactions or outcomes that are not
in the long-term interest of shareholders, or in the case of a
potential change in control, may incentivize the executive to
leave the Company.

interests and

Our double-trigger accelerated vesting practice does
not create a windfall for our executives.

We implemented double-trigger accelerated vesting in the
event of a change in control in 2013, based on shareholder
feedback received in 2012. Pursuant to our double-trigger
accelerated vesting practice, for awards made in 2013 and
beyond, an executive’s outstanding awards will only fully
and immediately vest if the executive is (1) employed on the
date of a change in control of the Company and (2) is then
involuntarily terminated without cause on or within two years
following the change in control by the surviving entity. No
windfall is created since an executive will not receive
accelerated vesting just because a change in control has
occurred, nor if he or she leaves voluntarily or is terminated
with cause.

Our double-trigger accelerated vesting treatment of
equity awards aligns executive and shareholder
interests during uncertain times.

Change in control transactions often mean a lengthy period
of uncertainty for the Company and its executives during a

time when the Company and its shareholders need
executives to avoid distraction and operate at their best.
The Proponent’s proposal, which contemplates that equity
vest on a pro-rata basis based on the period of time the
executive is employed with the surviving entity, does not
serve this need. Under the Proponent’s proposal, even after
leading the Company through a critical time, the executive
would have the expectation of the loss of a portion or all of
the value of any award granted after the Proponent’s
proposal is implemented. Importantly, this loss expectation
will misalign executive and shareholder interests and
incentivize executives to pursue transactions or outcomes
that are not in the long-term interest of shareholders, or in
the case of a potential change in control, may incentivize the
executive to leave the Company.

On the other hand, the Company has a pay philosophy with
a high emphasis on long-term incentive compensation
(currently, 70% of CEO’s compensation and 50% of other
NEOs’ compensation). The executive’s long-term incentive
pay only creates value when the Company’s stock price
increases and with favorable shareholder expectations.
Therefore, we believe our practice of double trigger
acceleration is an appropriate and powerful incentive for an
executive to remain focused and vigilant in achieving a
strategic transaction that maximizes shareholder value. It
avoids conflicts of interest that could arise while leading a
significant organizational change and, importantly, will help
retain management during the uncertainties of a change in
control.

Implementing Proponent’s proposal will put the
Company at a competitive disadvantage.

Implementing

We compete for talent with our peers and must have a
competitive compensation program to attract, retain and
motivate executives.
the Proponent’s
proposal puts the Company’s competitive edge at risk
because double-trigger accelerated vesting is a dominant
governance practice. We benchmarked this practice well
before implementation and it is employed by many of our
peer companies. If we must implement the Proponent’s
pro-rata vesting proposal, we are at risk of losing our
executives to competitors and not attracting new high
caliber talent.

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2015 Proxy Statement

YUM! BRANDS, INC.

MATTERS REQUIRING SHAREHOLDER ACTION

Why does the Company oppose the proposal?

In short, the Board believes that the Company’s current
executive compensation program and employment of
double-trigger accelerated vesting of all unvested awards is
appropriate and effective by aligning the interests of our
executives and our shareholders and maintaining our ability
to compete for and retain talented executives. Adoption of

the Proponent’s proposal could potentially impact our ability
to deliver maximum value to our shareholders during a most
critical time.

For the reasons above, the Board of Directors recommends
you vote AGAINST this proposal.

What vote is required to approve this proposal?

Approval of this proposal requires the affirmative vote of a majority of the shares present in person or represented by proxy and
entitled to vote at the Annual Meeting.

What is the recommendation of the Board of Directors?

The Board of Directors recommends that you vote AGAINST this proposal.

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YUM! BRANDS, INC.

2015 Proxy Statement

STOCK OWNERSHIP INFORMATION

Who are our largest shareholders?

This table shows ownership information for each YUM shareholder known to us to be the owner of 5% or more of YUM common
stock. This information is presented as of December 31, 2014, and is based on a stock ownership report on Schedule 13G filed by
such shareholders with the SEC and provided to us.

Name and Address of Beneficial Owner

Vanguard

100 Vanguard Blvd.
Malvern, PA 19355

Blackrock Inc.

55 East 52nd Street
New York, NY 10022

Number of Shares
Beneficially Owned

Percent
of Class

23,009,091(1)

5.25%

21,914,678(2)

(1)

(2)

The filing indicates sole voting power for 759,979 shares, sole dispositive power for 22,307,722 shares and shared dispositive power for
701,369 shares.
The filing indicates sole voting power for 18,308,022 shares, shared voting power of 19,740 shares, sole dispositive power of 21,894,938
shares and shared dispositive power of 19,740 shares.

How much YUM common stock is owned by our directors and executive officers?

This table shows the beneficial ownership of YUM common
stock as of December 31, 2014 by

•

each of our directors,

each of the executive officers named in the Summary
Compensation Table on page 46, and

•

all directors and executive officers as a group.

Unless we note otherwise, each of the following persons
and their family members have sole voting and investment
power with respect to the shares of common stock
beneficially owned by him or her. None of the persons in this
table holds in excess of one percent of the outstanding YUM
common stock. Directors and executive officers as a group
beneficially own approximately 2%. Our internal stock
ownership guidelines call for the Chairman to own 336,000
shares of YUM common stock or stock equivalents.
Guidelines for our other NEOs call for them to own 50,000

shares of YUM common stock or stock equivalents within
five years following their appointment to their current
position.

The table shows the number of shares of common stock
and common stock equivalents beneficially owned as of
December 31, 2014. Included are shares that could have
been acquired within 60 days of December 31, 2014
through the exercise of stock options, stock appreciation
rights (‘‘SARs’’) or distributions from the Company’s
deferred compensation plans, together with additional
underlying stock units as described in footnote (4) to the
table. Under SEC rules, beneficial ownership includes any
shares as to which the individual has either sole or shared
voting power or investment power and also any shares that
the individual has the right to acquire within 60 days through
the exercise of any stock option or other right.

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2015 Proxy Statement

YUM! BRANDS, INC.

STOCK OWNERSHIP INFORMATION

Name

David C. Novak

Michael J. Cavanagh

David W. Dorman

Massimo Ferragamo

Mirian M. Graddick-Weir

Bonnie G. Hill

Jonathan S. Linen

Thomas C. Nelson

Thomas M. Ryan

Elane B. Stock

Robert D. Walter

Jing-Shyh S. Su

Patrick J. Grismer

Greg Creed

Scott O. Bergren

Beneficial Ownership

Number
of Shares
Beneficially
Owned(1)

Options/
SARS
Exercisable
within
60 Days(2)

Deferral
Plans Stock

Total
Beneficial
Units(3) Ownership

Additional
Underlying
Stock
Units(4)

Total

328,796

1,415,552

1,334,279

3,078,627

1,083,785

4,162,412

10,000

56,901

53,429

—

3,855

28,054(5)

8,288

37,243(6)

—

108,301

162

10,574

411

15,630

5,610

15,630

—

6,914

380,101(7)

1,331,590

19,558(8)

38,681

36,897

119,328

303,372

271,842

—

10,162

67,475

7,379

5,254

17,541

72,729

43,130

107,133

34,532

141,665

—

11,961

—

4,587

—

1,748

4,618

411

31,446

43,684

13,898

57,460

—

9,681

17,263

35,641

36,051

30,287

2,494

10,092

48,709

79,325

49,949

87,747

2,494

115,215

23,586

138,801

1,711,691

214,664

1,926,355

138,886

343,801

313,357

24,926

61,950

67,125

163,812

405,751

380,482

All Directors and Executive Officers as a Group

(21 persons)

1,195,291

4,639,136

1,492,203

7,326,630

2,003,171

9,329,801

(1)

(3)

(4)

(5)

(6)

(7)

(8)

Mr. Novak, 33,132 shares
Mr. Grismer, 7,957 shares
all executive officers as a group, 51,160 shares

Shares owned outright. These amounts include the following shares held pursuant to YUM’s 401(k) Plan as to which each named person has
sole voting power:
•
•
•
The amounts shown include beneficial ownership of shares that may be acquired within 60 days pursuant to stock options and SARs
awarded under our employee or director incentive compensation plans. For stock options, we report shares equal to the number of options
exercisable within 60 days. For SARs, we report the shares that would be delivered upon exercise (which is equal to the number of SARs
multiplied by the difference between the fair market value of our common stock at year-end and the exercise price divided by the fair market
value of the stock).
These amounts shown reflect units denominated as common stock equivalents held in deferred compensation accounts for each of the
named persons under our Director Deferred Compensation Plan or our Executive Income Deferral Program. Amounts payable under these
plans will be paid in shares of YUM common stock at termination of directorship/employment or within 60 days if so elected.
The amounts shown include units denominated as common stock equivalents held in deferred compensation accounts which become
payable in shares of YUM common stock at a time (a) other than at termination of directorship/employment or (b) after 60 days. For
Mr. Novak, those amounts also include vested restricted stock units. For Mr. Su, amounts also include restricted stock units awarded in 2010
that will vest in 2015.
This amount includes 23,616 shares held in a trust.
These shares are held in a trust.
This amount includes 278,361 shares held indirectly.
This amount includes 11,600 shares held in trusts.

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(2)

YUM! BRANDS, INC.

2015 Proxy Statement

SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
LEGAL PROCEEDINGS

Section 16(a) of the Securities Exchange Act of 1934, as
amended, requires our directors, executive officers and
persons who own more than 10% of the outstanding shares
of YUM common stock to file with the SEC reports of their
ownership and changes in their ownership of YUM common
stock. Directors, executive officers and greater-than-ten
percent shareholders are also required to furnish YUM with
copies of all ownership reports they file with the SEC. To our
knowledge, based solely on a review of the copies of such
reports furnished to YUM and representations that no other
reports were required, all of our directors and executive
officers complied with all Section 16(a) filing requirements
during fiscal 2014.

In 2013, three shareholder derivative actions were filed (one
on May 9, 2013 in Jefferson Circuit Court, Commonwealth
of Kentucky, and one on each of May 21, 2013 and
December 9, 2013 in the U.S. District Court for the Western
District of Kentucky) against certain current and former
officers and directors of the Company. Generally, the
matters assert claims of breach of fiduciary duty, waste of
corporate assets and unjust enrichment in connection with
an alleged failure to implement proper controls in the
Company’s purchases of poultry from suppliers to the

Company’s China operations and with an alleged scheme to
mislead investors about the Company’s growth prospects in
China. The two actions in the U.S. District Court for the
Western District of Kentucky have been consolidated. By
agreement of the parties both the consolidated federal court
actions and the state court action have been temporarily
stayed pending the appeal of the dismissal of a related
securities class action suit against the Company and certain
executive officers. The derivative actions and the securities
class action suit are described in the Company’s Annual
Report on Form 10-K for the year ended December 27,
2014 in Part 1, Item 3, Legal Proceedings and Note 18,
Contingencies, to the Consolidated Financial Statements
included in Part II, Item 8, and in previous SEC filings.

Pursuant to North Carolina law, our Restated Articles of
Incorporation and indemnification agreements with our
directors, the Company shall indemnify and may advance
and/or reimburse certain expenses of our current and
former officers and directors incurred in connection with
defending these actions. Each of the current and former
officers and directors is required to provide an undertaking
to repay such expenses if it is ultimately determined that he
or she is not entitled to indemnification.

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2015 Proxy Statement

YUM! BRANDS, INC.

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Introduction

This Compensation Discussion and Analysis (‘‘CD&A’’) focuses on the compensation of the following Named Executive Officers
(‘‘NEOs’’) for 2014 and describes our executive compensation philosophy and program, the decisions of the Management
Planning and Development Committee (the ‘‘Committee’’) under this program and factors considered in making those decisions.

Name

Title

David C. Novak

Chairman of the Board and Chief Executive Officer of YUM

Patrick J. Grismer

Chief Financial Officer of YUM

Jing-Shyh S. Su

Vice Chairman of the Board of YUM and Chairman and Chief Executive Officer of YUM Restaurants China

Greg Creed

Chief Executive Officer of Taco Bell Division

Scott O. Bergren

Chief Executive Officer of Pizza Hut Division and Chief Innovation Officer of YUM

We will first provide a brief executive overview, including a discussion of the pay of YUM’s new Chief Executive Officer (‘‘CEO’’),
Greg Creed, which became effective January 1, 2015.

We will then discuss and analyze the following topics:

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CEO Pay

How Compensation Decisions Are Made

Elements of Executive Compensation Program

Compensation Policies & Practices

15MAR201511093851

Executive Overview

In 2014, YUM’s overall performance was below expectations.
Although we experienced strong earnings growth in the first
half of the year, we did not achieve our full-year earnings per
share growth target, as second-half results for our China
division were heavily impacted by adverse supplier publicity.

While these overall results were disappointing, YUM
delivered strong results in the following areas, which built
long-term shareholder value and enhanced shareholder
returns:

•

Opened a record 2,034 new restaurants outside the U.S.,
with 80% of this development occurring in high-growth
emerging markets. Over 80% of new restaurants in the
KFC, Pizza Hut and Taco Bell divisions were opened by
franchisees, generating high returns for YUM.

•

The KFC division grew same-store sales 3% and
operating profit 9%
international
through
performance and an improving US business.

robust

The Taco Bell division launched breakfast, a new value
menu, innovative products and mobile ordering, fueling
3% same-store sales growth and 5% operating profit
growth.

Increased quarterly dividend by 11%, marking the tenth
consecutive year of dividend increases at a double-digit
percentage rate.

YUM! BRANDS, INC.

2015 Proxy Statement

YUM’s Compensation Philosophy

Our compensation program is designed to support our long-
term growth model, while holding our executives
accountable to achieve key annual results year after year.

YUM’s compensation philosophy for the NEOs is reviewed
annually by
following
the Committee, and has
objectives:

the

•

Reward performance — The majority of NEO pay is
performance based and therefore at risk. We design pay
programs that incorporate team and individual performance,
customer satisfaction and shareholder return.

Emphasize long-term value creation — Our belief is
simple, if we create value for shareholders, then we share
a portion of that value with those responsible for the
results. We believe that all of our long-term incentive
compensation is performance based. Stock Appreciation

Relationship between Company Pay and Performance

EXECUTIVE COMPENSATION

Rights/Options (‘‘SARs/Options’’) reward for value creation
which over time is a function of our results and the
favorable expectations of our shareholders. Performance
Share Unit (‘‘PSU’’) awards reward for superior relative
performance as compared to the S&P 500. Both vehicles
encourage executives to grow the value of the Company
with a long-term perspective in mind.

Drive ownership mentality — We require executives to
personally invest in the Company’s success by owning a
substantial amount of Company stock.

Retain and reward the best talent to achieve superior
shareholder results — To be consistently better than
our competitors, we need to recruit and retain superior
talent who are able to drive superior results. We have
structured our compensation programs to be competitive
and to motivate and reward high performers.

•

To focus on both the short and long-term success of the Company, our NEOs’ compensation includes a significant portion,
approximately 80%, that is ‘‘at-risk’’ pay, where the compensation paid is determined based on Company results. If short-term
and long-term financial and operational goals are not achieved, then performance-related compensation will decrease. If goals
are exceeded, then performance-related compensation will increase. As demonstrated below, our target pay mix for NEOs
emphasizes our commitment to ‘‘at-risk’’ pay in order to tie pay to performance.

CEO TARGET PAY MIX—2014

ALL OTHER NEO TARGET PAY MIX—2014

Base Salary
11%

Long-Term
Equity Incentive
70%

Annual Bonus
19%

At-Risk
89%

Annual Bonus
25%

Base Salary
25%

Long-Term
Equity Incentive
50%

At-Risk
75%

4MAR201521365491

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2015 Proxy Statement

YUM! BRANDS, INC.

EXECUTIVE COMPENSATION

Based on the Company’s 2014 performance, cash compensation was significantly below target. This was primarily due to below
target results at our China and Pizza Hut divisions. Cash compensation (base salary and annual bonus) was 48% below target for
the CEO and on average 24% below target for the other NEOs. As shown to the right, bonus payouts to four out of the five NEOs
were below target.

NEO ACTUAL BONUS VS. TARGET

)

(

a
u

t
c
A

126%

Target
Bonus

22%

37%

NOVAK

GRISMER

30%

33%

CREED

BERGREN

6MAR201514275530

Long-term incentive grants are valued based on grant date value and are meant to be incentive opportunities based on future
performance. Therefore, values in the Summary Compensation Table do not represent the value that may ultimately be realized
by the executive. Realized value will be determined by actual performance over succeeding years. This means that, consistent
with our pay-for performance philosophy, in the case of SARs/Options, our stock price must increase and, in the case of PSUs, we
must attain certain performance thresholds before our executives realize any value. As shown below, our 2011 PSU award under
our Performance Share Plan did not pay out to our NEOs in 2014 since the earnings per share compound annual growth rate
(‘‘EPS CAGR’’) during the 2011 – 2013 performance cycle did not reach the required minimum threshold of seven percent (see
discussion of PSUs at page 41).

ALL NEO PSU VALUE FOR 2011 – 2013 PERFORMANCE CYCLE

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Total Value Granted(1)

3-Year EPS
CAGR Target

3-Year EPS
CAGR Actual

Realized Value

$1.5MM

10% 5.5%

$0$0$0$0

6MAR201514275387

(1)

Amount is the sum of the grant date values awarded to each NEO, rounded to the nearest $25,000 as follows: Mr. Novak ($773,000), Mr. Su
($325,000), Mr. Creed ($205,000), and Mr. Bergren ($190,000). Mr. Grismer did not receive a PSU grant in 2011. He began participating in
the Performance Share Plan in 2012.

YUM! BRANDS, INC.

2015 Proxy Statement

EXECUTIVE COMPENSATION

Compensation Changes for 2015

The Committee did not make any significant changes to its compensation policies to take effect in 2014; however, in May 2014 as
discussed at page 7, the Company announced that effective January 1, 2015, Mr. Novak would retire as the Company’s CEO. As a
result, Mr. Creed became the Company’s new CEO and Mr. Novak became the Company’s Executive Chairman. Thus, the
Committee made significant compensation changes for 2015, including changes to CEO pay. These changes, described below,
continue to reinforce the pay-for-performance objective that our compensation programs have demonstrated for many years.

•

CEO pay will be consistent with our executive compensation philosophy for our other NEOs. The Committee has
determined that Mr. Creed’s compensation as CEO beginning in 2015 will target the 50th percentile for base salary, 75th percentile
for annual bonus and 50th percentile for long-term incentive compensation, which is consistent with our philosophy for our other
NEOs. Because Mr. Creed is new to his role, for 2015 the Committee set Mr. Creed’s total direct compensation below the median
of our Executive Peer Group, as shown in the chart set forth below.

2015
Benchmarking
Philosophy

2015 CEO Pay

2015 CEO Pay
vs. Peer Group

Base

50th percentile

$1,100,000

<50th percentile

Target Bonus

75th percentile

$1,650,000

50th percentile

Long-Term
Incentive

50th percentile

$4,300,000

<50th percentile

13MAR201517061556

•

Executive Chairman pay will target median compensation philosophy. Based on the Committee’s review of a variety of
external and internal factors, the Committee will target total compensation and set pay at the 50th percentile for Mr. Novak in his
new role as Executive Chairman. His pay will align with benchmarking data for the Executive Chairman position, which was based
on executive chairs in the Fortune 250 who were not founders of their companies. Based on this philosophy, the Committee set
Mr. Novak’s total target compensation for 2015 at $5 million, setting his salary at $1 million, bonus target at 100% of salary and
long-term incentive pay (split 75% SARs and 25% PSUs) at an economic value of $3 million. In making this decision, the
Committee took into consideration Mr. Novak’s responsibilities as described at page 7 and his expected substantial contribution
to the Company in 2015 including supporting Mr. Creed, as the Company’s new CEO.

Updated the Company’s Executive Peer Group. The Committee removed Office Max, Darden and JC Penney and added
Starwood, Hilton, Office Depot and Kraft to the Executive Peer Group (as defined on page 35) in order to better align the size of
the peer group companies with YUM.

Reduced ownership guidelines to align with market best practice. Our ownership guidelines in effect for 2014 are described
at page 43. The Committee determined it was appropriate to lower the guidelines beginning in 2015 to be more in line with market
practice. The guidelines in effect prior to 2015 had been in place for many years and based on the Company’s stock price increase
over these years had resulted in the guidelines exceeding market practice by quite a wide margin. For 2015, Mr. Creed and
Mr. Novak will each be required to own 100,000 shares and our Chief Financial Officer and division presidents will each be
required to own 30,000 shares. As a multiple of salary, this represents over six times for Mr. Creed and Mr. Novak and over three
times for the Chief Financial Officer and division presidents. At these multiples of salary, the new guidelines are above the median
for the Company’s peer group.

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2015 Proxy Statement

YUM! BRANDS, INC.

EXECUTIVE COMPENSATION

Key Executive Compensation and Governance Practices

We employ compensation and governance best practices that provide a foundation for our pay-for-performance program and align
Company and shareholder interests.

We Do

We Don’t Do

✗

Employment agreements

Re-pricing of SARs/Options

Grants of SARs/Options with exercise price less than FMV
of common stock on date of grant

Permit executives to hedge or pledge Company stock

Payment of dividends or dividend equivalents on PSUs
unless or until they vest

Excise tax gross-ups upon change in control

✓

Independent compensation committee (Management
Planning & Development Committee), which oversees the
Company’s compensation policies and strategic direction

Directly link Company performance to pay outcomes

Executive ownership guidelines reviewed annually against
Company guidelines

Broad Board discretion to ‘‘clawback’’ compensation if
executive’s conduct results in significant financial or
reputational harm to Company

Make a substantial portion of NEO target pay ‘‘at risk’’

Double-trigger vesting of equity awards upon change in
control

Utilize independent Compensation Consultant

Incorporate comprehensive risk mitigation into plan design

Periodic review of Executive Peer Group to align
appropriately with Company size

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15MAR201511093851
✓

Limit perquisites

✓

Evaluate CEO and executive succession plans

Conduct annual shareholder engagement program to
obtain feedback from shareholders and consider in annual
compensation program design

YUM! BRANDS, INC.

2015 Proxy Statement

EXECUTIVE COMPENSATION

Chief Executive Officer Pay For 2014

Our compensation program is designed to support our long-
term Company growth model, while holding our executives
accountable to achieve key annual results year after year.
Our CEO is compensated in accordance with this long-term,
pay-for-performance perspective and, as discussed on
page 29, the Committee set 89% of Mr. Novak’s 2014 target
pay at risk.

Every January, the Committee makes decisions about the
CEO’s target compensation based on performance and
market competitiveness. For 2014, the Committee determined

that our CEO’s target cash compensation, consisting of base
salary and target bonus, was competitive compared to our
Executive Peer Group and did not increase these elements. In
regards to actual cash compensation for 2014, our CEO’s pay
decreased by 18% compared to the prior year, due to a 45%
decline in annual bonus. His annual bonus reflects below
target performance. As demonstrated below and on page 34,
our CEO’s cash compensation correlates with earnings per
share growth, which is our primary business performance
metric.

CEO CASH COMPENSATION VS. EPS GROWTH

Cash
Compensation

$8,000,000

$6,000,000

$4,000,000

$2,000,000

EPS
Growth

20%

10%

-10%

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2010

2011

2012

2013

2014

Base Salary

Annual Bonus

EPS Growth

12MAR201503111646

The Committee did not make any changes to Mr. Novak’s target direct compensation for 2014. Mr. Novak’s actual direct
compensation, comprised of base salary, bonus paid and annual long-term incentive award value remained relatively flat from
2010 – 2012 but decreased by 26% in 2013 and decreased another percentage point in 2014 as a result of his reduced annual
bonus. Although not included in the calculation of 2014 actual direct compensation, our CEO’s PSU award was not paid out since
the average earnings per share during the 2011 – 2013 performance cycle did not reach the required minimum average growth
threshold of seven percent. Consequently, Mr. Novak realized no value for the award which had a grant date value of $773,000
and was included in the calculation of his actual direct compensation for 2011 (shown below). Further, our CEO’s SARs will only
provide value to him if shareholders receive value through stock price appreciation. As demonstrated on page 34, our CEO’s
actual direct compensation, like cash compensation, tracks earnings per share growth.

2015 Proxy Statement

YUM! BRANDS, INC.

EXECUTIVE COMPENSATION

Direct
Compensation

$15,000,000

$10,000,000

$5,000,000

CEO DIRECT COMPENSATION VS. EPS GROWTH

No PSU Payout(1)

No PSU Payout based
on current TSR(1)

EPS
Growth

20%

10%

-10%

2010

2011

2012

2013

2014

Base Salary

Annual Bonus

SARs

PSUs

13MAR201500030573
EPS Growth

(1)

The 2011 and 2012 PSU awards did not pay out. The 2013 and 2014 PSU awards, described at page 41, will not pay out if the Company’s
current TSR ranking against the S&P 500 continues.

How Compensation Decisions Are Made

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Shareholder Outreach, Engagement and 2014 Vote on
NEO Compensation

15MAR201511093851

At our 2014 Annual Meeting of Shareholders, 95% of votes
cast on our annual advisory vote on NEO compensation
were in favor of our NEOs’ compensation program, as
disclosed in our 2014 proxy statement. These results
represented an overwhelming majority support. While the
Committee did not make any changes to our 2014
compensation program or policies as a result of this vote,
we continued our shareholder outreach program to better
understand our investors’ opinions on our compensation
practices and have the opportunity to answer their
questions. In 2014, members of our management team from
compensation, investor relations and legal continued to be
directly involved in engagement efforts that served to
reinforce our open door policy. The efforts included:

•

Reaching out to the top 25 shareholders, representing
ownership of approximately 46% of YUM shares

Meeting with shareholders representing 16% of YUM
shares

Dialogues with proxy advisory firms

Investor road shows and conferences

Presenting shareholder feedback to the Committee

YUM! BRANDS, INC.

2015 Proxy Statement

Our annual engagement efforts facilitate communication
with and participation by many of our shareholders. The
Committee carefully considers shareholder and advisor
feedback, among other factors discussed in this CD&A, in
making its compensation decisions. Shareholder feedback
has influenced and reinforced a number of compensation
design changes over the years. The Company and the
Committee appreciate the feedback from our shareholders
and the proxy advisory firms and plan to continue these
engagement efforts.

Role of the Committee

Compensation decisions are ultimately made by
the
Committee using its judgment, focusing primarily on each
NEO’s performance against his financial and strategic
objectives, qualitative factors and the Company’s overall
total
performance. The Committee
compensation of each NEO and retains discretion to make
decisions that are reflective of overall business performance
and each executive’s strategic contributions to the business.
In making its compensation decisions, the Committee
typically follows the annual process described below:

considers

the

EXECUTIVE COMPENSATION

January

Committee Annual Compensation Process

•

Evaluates CEO and other NEO performance and approves bonus and Performance Share Plan actions for the prior year

Approves annual and long-term performance goals and metrics and total compensation package of CEO and other NEOs for the current
year

(cid:2)

Committee consults with independent members of Board regarding total compensation decisions for CEO and decisions are reviewed
and ratified by the independent members of Board

Committee consults with and relies on CEO for in-depth review of performance of the other NEOs as well as competitive market
information

•

Approves bonus and performance share plan metrics, targets, and leverage for the current year with recommendations from
management

•

Reviews tally sheets

March

•

Completes compensation risk assessment

Reviews ownership guidelines and adherence to ownership guidelines

Conducts independence analysis of compensation consultant retaining sole authority to continue or terminate its relationship with outside
advisors, including consultant

•

Reviews and approves inclusion of CD&A in proxy statement

July

•

Mid-Year update to full Board on CEO’s progress against goals

September

•

Reviews compensation trends

Reviews market analysis of Director compensation and makes recommendations to Board (bi-annually)

November

•

Reviews competitive analysis/benchmarking for CEO and all CEO direct reports

Reviews bonus and performance share plan metrics, targets, and leverage recommendations for the following year

Evaluates feedback from shareholders and proxy advisors.

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Role of the Independent Consultant
The Committee’s charter states the Committee may retain
outside compensation consultants, lawyers or other advisors.
The Committee retains an independent consultant, Meridian
Compensation Partners, LLC (‘‘Meridian’’), to advise it on
certain compensation matters. The Committee has instructed
Meridian that:
•

it is to act independently of management and at the
direction of the Committee;
its ongoing engagement will be determined by the
Committee;
it is to inform the Committee of relevant trends and
regulatory developments;
it is to provide compensation comparisons based on
information that is derived from comparable businesses
of a similar size to the Company for the NEOs; and
it is to assist the Committee in its determination of the
annual compensation package for our CEO and other
NEOs.

•

The Company considered the following factors, among
others, in determining that Meridian meets the criteria to
serve as the Committee’s independent compensation
consultant:
•

Meridian did not provide any services to the Company
unrelated to executive compensation.

•

Meridian has no business or personal relationship with
any member of the Committee or management.

Meridian’s partners and employees who provide services
to the Committee are prohibited from owning YUM stock
per Meridian’s firm policy.

Comparator Compensation Data

Our Committee uses an evaluation of how our NEO target
and actual compensation levels compare to those of similarly
situated executives at companies
that comprise our
executive peer group (‘‘Executive Peer Group’’) as one of the
factors in setting executive compensation. The Executive
Peer Group is made up of retail, hospitality, food, specialty
eatery, and nondurable consumer goods companies and
quick service restaurants, as these represent the sectors with
which the Company is most likely to compete for executive
talent. Companies from these sectors must also be reflective
of the overall market characteristics of our executive talent
market, relative leadership position in their sector, size as
measured by revenues, complexity of their business, and in
some cases global reach.

2015 Proxy Statement

YUM! BRANDS, INC.

EXECUTIVE COMPENSATION

Executive Peer Group

The Committee established the current Executive Peer Group for all NEOs at the end of 2013 for pay determinations in 2014. The
2014 Executive Peer Group includes:

McDonald’s Corporation

Nike Inc.

OfficeMax Inc.

Staples Inc.

Starbucks Corporation

Unilever USA

Historically and during 2014, the Company has generally
targeted pay for the CEO at the 75th percentile of the market
due to Mr. Novak’s sustained results. Specifically, 75th
percentile total cash and total direct compensation. The
Company has a philosophy for all other NEOs to target the
50th percentile for base salary, 75th percentile for target
bonus and 50th percentile for long-term incentives. When
benchmarking for determining target bonus percentage, we
use the average of our NEOs’ last three year’s actual bonus
paid rather than target bonus. When benchmarking and
making decisions about the CEO’s SARs/Options, we use a
grant date fair value based on the full 10-year term rather
than the expected term of all SARs/Options granted by the
Company. This methodology is a more appropriate method
to determine the award amount as it better reflects the actual
historical holding pattern for SARs/Options granted to our
CEO. Our CEO receives fewer shares under this practice
than if we used the expected term of all SARs/Options
granted by the Company.

Our CEO’s and other NEOs’ (except for Mr. Grismer) target
total direct compensation was at or above the 75th percentile
of our Executive Peer Group for 2014 due to sustained long-
term results. Mr. Grismer’s compensation is set consistent
with our philosophy. It is important to emphasize that this
is
the competitive positioning of our compensation
opportunities. Realized pay, however, is driven substantially
by Company performance, as discussed on page 30.

As discussed on page 31, for 2015, the Company changed
the compensation targets for the new CEO to be consistent
with the philosophy for its other NEOs and set his 2015 total
target direct compensation below the median of our
Executive Peer Group.

AutoZone Inc.

Avon Products Inc.

H.J. Heinz Company

J.C. Penney Company Inc.

Campbell Soup Company

Kellogg Company

Colgate Palmolive Company

Kimberly-Clark Corporation

Darden Restaurants Inc.

Gap Inc.

General Mills Inc.

Kohl’s Corporation

Macy’s Inc.

Marriott International

At the time the benchmarking analysis was prepared, the
Executive Peer Group’s median revenues were $14.9 billion
and enterprise value was $18.8 billion, while YUM’s were
estimated at $21.6 billion (calculated as described below)
and $33 billion respectively.

for managing

For companies with significant
franchise operations,
measuring size can be complex. There are added
complexities and
the
responsibilities
relationships, arrangements, and overall scope of the
franchising enterprise,
in particular, managing product
introductions, marketing, driving new unit development, and
customer satisfaction and overall operations improvements
across the entire franchise system. Accordingly, in calibrating
size-adjusted market values, which values are as of the last
completed fiscal year at the time of study, our philosophy is to
add 25% of franchisee and licensee sales to the Company’s
revenues to establish an appropriate revenue benchmark.
The reason for this approach is based on our belief that the
correct calibration of complexity and responsibility lies
between corporate-reported revenues and system-wide
revenues.

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15MAR201511093851

Competitive Positioning

Meridian provided the Executive Peer Group compensation
data to the Committee and it was used as a frame of
reference for establishing compensation targets for base
salary, annual bonus and long-term incentives for all of the
NEOs at the beginning of 2014. However, this data is not the
only factor considered for our NEOs’ compensation, and it
does not supplant the analyses of the individual performance
of all of the NEOs. Because the comparative compensation
information is one of several factors used in the setting of
executive compensation, the Committee applies discretion in
determining the nature and extent of its use.

YUM! BRANDS, INC.

2015 Proxy Statement

EXECUTIVE COMPENSATION

Elements of Executive Compensation Program

Our annual executive compensation program has three primary pay components: base salary, annual performance-based cash
bonuses and long-term equity performance-based incentives. We also offer retirement and other benefits.

Element

Base salary

Annual Performance-Based Cash Bonuses

Objective

Attract and retain high-caliber talent and provide a fixed level of
cash compensation.

Motivate high performance and reward short-term Company,
team and individual performance.

Form

Cash

Long-Term Equity Performance-Based
Incentives

Align the interests of executives with shareholders and
emphasize long-term results.

SARs/Options & PSUs

Retirement and Additional Benefits

Provide for long-term retirement income and basic health and
welfare coverage.

Various

Details on each program element follow.

Base Salary

We provide base salary to compensate our NEOs for their primary roles and responsibilities and to provide a stable level of annual
compensation. A NEO’s actual salary varies based on the role, level of responsibility, experience, individual performance, future
potential and market value. Specific salary increases take into account these factors. In addition, salary increases may be
warranted based on a promotion or change in the responsibilities of the NEO. The Committee reviews the NEOs’ salary and
performance annually.

Based on the Committee’s review, the following actions were taken regarding base salary for 2014:

NEO

Novak

Grismer

Creed

Bergren

2014
Base Salary

Action

Reason

$1,450,000

No change

No change since existing total cash compensation is at our target philosophy

$ 715,000

10% increase

Adjustment aligns base salary more closely with our target philosophy

$1,100,000

No change

No change since existing base salary is above our target philosophy

$ 750,000

No change

No change since existing base salary is above our target philosophy

$ 725,000

No change

No change since existing base salary is above our target philosophy

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Annual Performance-Based Cash Bonuses

Our performance-based annual bonus program, the Yum Leaders’ Bonus Program, is a cash-based plan. The principal purpose
of the Yum Leaders’ Bonus Program is to motivate and reward team and individual performance that drives shareholder value.

The formula for calculating the performance-based annual bonus under the Yum Leaders’ Bonus Program is:

Base Salary (cid:3)

Target Bonus
Percentage

(cid:3)

Team Performance
(0 – 200%)

(cid:3)

Individual Performance
(0 – 150%)

(cid:4)

Bonus Payout
(0 – 300%)

2015 Proxy Statement

YUM! BRANDS, INC.

EXECUTIVE COMPENSATION

Bonus Targets

Based on the Committee’s review, the following actions were taken regarding bonus targets for 2014:

NEO

Novak

Grismer

Creed

2014 Target
Bonus Percentage

Action

Reason

160% No change

100% No change

115% No change

100% No change

No change since existing total target cash compensation is at our target
philosophy

No change since existing annual incentive target opportunity is at our target
philosophy

No change since existing annual incentive target opportunity is above our
target philosophy

Bergren

100% Increase from 85% Adjustment aligns annual incentive target opportunity with our target

philosophy

Team Performance

The Committee established team performance measures,
targets and weights in January 2014 after receiving input
and recommendations from management. The objectives
were also reviewed by the Board to ensure the goals
support the Company’s overall strategic objectives.

The performance objectives were developed through the
Company’s annual financial planning process, which takes into
account division growth strategies, historical performance, and
the expected future operating environment. These projections
include profit growth to achieve our EPS growth target.

15MAR201511093851

When setting targets for each specific team performance
measure, the Company takes into account overall business
goals and structures the target to motivate achievement of
desired performance consistent with our EPS growth
commitment to shareholders.

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A leverage formula for each team performance measure
magnifies the potential impact that performance above or
below the performance target will have on the calculation of
annual bonus. This leverage increases the payouts when
targets are exceeded and
reduces payouts when
performance is below target. There is a threshold level of
performance for all measures that must be met in order for
any bonus to be paid. Additionally, all measures have a cap
on the level of performance over which no additional bonus
will be paid regardless of performance above the cap.

The performance targets are comparable to those we
disclose to our investors and, when determined to be
appropriate by our Committee, may be slightly above or below
disclosed guidance. Division targets may be adjusted during
the year when doing so is consistent with the objectives and
intent at the time the targets were originally set.

YUM! BRANDS, INC.

2015 Proxy Statement

Detailed Breakdown of 2014 Team Performance

The team performance targets, actual results, weights and overall performance for each measure for our NEOs are outlined below.

EXECUTIVE COMPENSATION

TEAM PERFORMANCE

Target

Actual

Earned Award
as % of Target Weighting

Final Team
Performance

NEO

Measures

Novak, Grismer Weighted Average Divisions’ Team

Factors(1)

Earnings Per Share Growth
(excluding special items)

FINAL YUM TEAM FACTOR

Operating Profit Growth(2)

System Sales Growth(2)

System Gross New Builds

20%

34%

20%

650

(8)%

737

System Customer Satisfaction

Weighted Average(5)

Total Weighted Team Performance —
China Division

FINAL CHINA TEAM FACTOR(3)

Creed

Operating Profit Growth(2)

System Same-Store Sales Growth

System Net Builds(6)

Customer Operations Review and
Evaluation (CORE)

System Customer Satisfaction

Total Weighted Team Performance —
Taco Bell

Final Taco Bell Team Factor(3)

Chairman’s Incentive Points(4)

FINAL TACO BELL TEAM FACTOR

100

84%

66%

180

84%

68%

Bergren

Operating Profit Growth(2)

System Same-Store Sales Growth

System Net Builds(7)

302

(13)%

(1)%

282

System Customer Satisfaction

Weighted Average(8)

Total Weighted Team Performance —
Pizza Hut Division

FINAL PIZZA HUT TEAM FACTOR(3)

200

101

200

120

148

155

50%

20%

10%

40%

20%

10%

50%

15%

20%

15%

105

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(1) Weighted average based on each Division’s contribution to overall segment operating profit of YUM in 2013, not including 10 Chairman’s

(2)

(3)

(4)

Incentive Points given to Taco Bell.
Excludes the impact of foreign exchange.
Final team factor reflects 75% division and 25% YUM weighting.
As recommended by the Chairman and approved by the Committee, Taco Bell received 10 additional discretionary points for sharing know-
how across divisions, mobile application rollout, breakfast rollout, restaurant culture leadership, and profit growth performance in the face of
strong commodity headwinds.

(5) Weighted average of each Brand’s Team Factor based on number of restaurants.
(6)

Includes US units only. Excludes licensed units.
Excludes US licensed units.

(7)

(8) Weighted average of each subsidiary business unit’s Team Factor based on number of restaurants.

2015 Proxy Statement

YUM! BRANDS, INC.

EXECUTIVE COMPENSATION

Individual Performance

Our Board, under the leadership of the Committee Chair,
approved Mr. Novak’s goals at the beginning of the year and
conducted a mid-year and year-end evaluation of his
performance. These evaluations included a review of his
leadership pertaining to the achievement of his goals that
included business results, leadership in the development and
implementation of Company strategies, and development of
Company culture and talent.

The Committee determined
that Mr. Novak’s overall
performance for 2014 was below target, as YUM’s financial
results were below target, and awarded him an individual
performance factor of 65. This individual performance factor,
combined with YUM’s team factor of 34, resulted in Mr. Novak
receiving 22% of his target bonus. This determination was
based on
the Committee’s subjective assessment of
Mr. Novak’s performance against his goals including (without
assigning a weight to any particular item):

•

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Not achieving EPS growth target of 20%; EPS increased
by 4%(1)

China Division’s below target sales and profit results,
including the poor performance of Little Sheep, a
subsidiary of the China Division

All divisions failed to make their operating profit plans for
the year

KFC and Taco Bell increased system sales by 6% and
4% and operating profit by 13% and 5% respectively,
despite strong commodity headwinds(2)

Over 2,000 new builds outside the US and increased
development in the US driven primarily by Taco Bell’s 180
net new builds

15MAR201511093851

•

YUM’s continued
operational excellence with continued
compliance and customer satisfaction metrics

improvements

in one system
focus on

•

Development of strong
fostering
customer-focused employee culture in the Company

leaders and

the

Continued commitment to corporate social responsibility
through the World Food Programme and other hunger
relief organizations.

Individual performance of the NEOs (other than the CEO) is
based upon the Committee’s subjective assessment of each
NEO’s performance for the year, including consideration of
specific objective individual performance goals set at the
beginning of the year. The CEO provides the Committee with

Summary of Earned Annual Incentives for 2014

his evaluation of each of the NEO’s performance and
recommends an
the
Committee.

individual performance rating

For Mr. Grismer, the Committee determined his performance
as the Chief Financial Officer was on target and approved a
110 individual performance factor. Despite below target
Company financial performance, the Committee determined
that Mr. Grismer positively impacted the Company’s long-
term opportunities by driving Company-wide strategic growth
priorities and division initiatives and also successfully
executing the Company’s financial strategies. Mr. Grismer’s
individual performance factor, combined with a team factor of
34, resulted in him receiving 37% of his target bonus.

For Mr. Su, the Committee determined his overall individual
performance for 2014 was below target and approved a 65
individual performance factor. This was based upon the
China Division not achieving operating profit and system
sales growth targets, driven by adverse publicity of an
improper food handling incident by a former supplier and
poor performance of the China Division’s Little Sheep
business. The Committee also recognized that China
Division’s productivity improvements and new store builds
were important achievements in 2014 that will aid future
performance. Mr. Su’s individual performance factor,
combined with a team factor of 46, resulted in him receiving
30% of his target bonus.

individual performance

For Mr. Creed, the Committee determined his overall
individual performance for 2014 was above target and
approved a 130
factor. This
determination was based upon his overall leadership of
Taco Bell: growing US same-store sales 3% for the year
driven in part by breakfast sales, new product innovation
and promoting brand differentiation through a focus on
digital media. Mr. Creed’s individual performance factor,
combined with a team factor of 97, resulted in him receiving
126% of his target bonus.

individual performance

For Mr. Bergren, the Committee determined his overall
individual performance for 2014 was below target and
approved a 90
factor. This
determination was based on the Pizza Hut division not
achieving operating profit or system same-store sales growth
targets. Mr. Bergren’s
factor,
combined with a team factor of 37, resulted in him receiving
33% of his target bonus.

individual performance

(1) Prior to Special Items
(2) Prior to foreign currency translations

The table below summarizes how the formula was applied and the actual amounts earned for 2014 performance.

NEO

Novak

Grismer

Creed

Bergren

Base Salary
Year End 2014

Target Bonus
Percentage

Team
Performance

Individual
Performance

Bonus Paid for
2014 Performance

$1,450,000 (cid:3)
$ 715,000 (cid:3)
$1,100,000 (cid:3)
$ 750,000 (cid:3)
$ 725,000 (cid:3)

160% (cid:3)
100% (cid:3)
115% (cid:3)
100% (cid:3)
100% (cid:3)

34% (cid:3)
34% (cid:3)
46% (cid:3)
97% (cid:3)
37% (cid:3)

65% (cid:4)
110% (cid:4)
65% (cid:4)
130% (cid:4)
90% (cid:4)

$512,720

$267,410

$378,235

$945,750

$241,425

YUM! BRANDS, INC.

2015 Proxy Statement

Long-Term Equity Performance-Based Incentives

EXECUTIVE COMPENSATION

long-term

to encourage

to our NEOs

performance-based

equity
We
provide
compensation
long-term
decision making that creates shareholder value. To that
end, we use vehicles that motivate and balance the
tradeoffs between short-term and long-term performance.
Performance-based long-term equity compensation also
serves as a retention tool.

Our NEOs are awarded long-term incentives annually
based on the Committee’s subjective assessment of the
following items for each NEO (without assigning weight to
any particular item):

•

Prior year individual and team performance

Expected contribution in future years

Consideration of the market value of the executive’s role
compared with similar roles in our Executive Peer Group

•

Achievement of stock ownership guidelines

Stock Appreciation Rights/Stock Options

In general, our SARs/Options have ten-year terms and vest
over at least four years. Each SAR/Option award was granted
with an exercise price based on the closing market price of the
underlying YUM common stock on the date of grant.

Each year, the Committee reviews the mix of long-term
incentives to determine if it is appropriate to continue
predominantly using SARs/Options as the long-term incentive
vehicle. The Committee continues to choose SARs/Options
because they emphasize the Company’s focus on long-term
growth and they reward employees only if YUM’s stock price
increases. For each NEO, the breakdown between SAR/
Option award values and PSU award values can be found
under the Summary Compensation Table, page 46 at
columns e and f.

2014 Long-term Incentive Awards

Performance Share Plan

Under the Company’s Performance Share Plan, the PSU
awards granted in 2014 are earned based on the Company’s
3-year average total shareholder return (‘‘TSR’’) relative to the
companies in the S&P 500. Incorporating TSR supports the
Company’s pay-for-performance philosophy while diversifying
performance criteria and aligning our NEOs’ reward with the
creation of shareholder value. The threshold and maximum
are aggressively set, exceeding market best practice. The
target, threshold and maximum shares that may be paid out
under these awards for each NEO are described at page 48.
The target grant value for the CEO is 25% of his total long-term
incentive award value and for the other NEOs is 20% of their
total long-term incentive award value.

For the performance period covering 2014 – 2016 calendar
years, each NEO will earn a percentage of his target PSU
award based on the achieved TSR percentile ranking as set
forth in the chart below:

TSR Percentile Ranking
Payout as % of Target

<40% 40% 50% 70% 90%
0% 50% 100% 150% 200%

Dividend equivalents will accrue during the performance
period and will be distributed as incremental shares but only in
the same proportion and at the same time as the original
awards are earned. If no awards are earned, no dividend
equivalents will be paid. The awards are eligible for deferral
under the Company’s Executive Income Deferral Program. As
discussed on page 30, PSU awards granted in 2011 did not
pay out since YUM did not attain the minimum performance
threshold (these awards would have paid out during 2014 had
the Company’s average earnings per share during the
2011 – 2013 performance period reached
the required
minimum average growth threshold of seven percent).

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Based on the Committee’s assessment as described above, the Committee set the following 2014 values for long-term incentive
awards, including SARs/Options and PSU awards, for each NEO:

NEO

Novak

Grismer

Creed

Bergren

2014
Grant Value

Reason

$7,150,000(1)

$1,825,000(1)

$2,350,000(1)

$1,675,000(1)(2)

$1,450,000(1)(2)

Award brought his total direct compensation to our target philosophy

Awarded at above target philosophy based on his sustained long-term results in role

(1)

2014 grant values are rounded to the nearest $25,000 to reflect the Committee approved valuation figures.

(2) Mr. Creed and Mr. Bergren’s 2014 grant values exclude their 2014 Chairman’s Awards of $1,200,000 (rounded to the nearest $25,000 to
reflect the Committee-approved valuation figures). Mr. Creed received his award in February 2014 based on his superlative leadership in
helping Taco Bell achieve strong 2013 results and Mr. Bergren received his award in February 2014 in recognition of his multi-year
contributions to drive brand innovation across all divisions.

2015 Proxy Statement

YUM! BRANDS, INC.

EXECUTIVE COMPENSATION

Retirement and Other Benefits

Retirement Benefits

We offer several types of competitive retirement benefits.

The YUM! Brands Retirement Plan (‘‘Retirement Plan’’) is a
broad-based qualified plan designed to provide a retirement
income based on years of service with the Company and
average annual earnings. Mr. Novak is the only NEO who
actively participates in the Retirement Plan. Mr. Creed and
Mr. Bergren are not active participants in the Retirement
Plan; however, each maintains a balance in the Retirement
Plan from the years that he was a participant.

The Pension Equalization Plan (‘‘PEP’’) is offered to
employees at all levels who meet the eligibility requirements,
and is a ‘‘restoration plan’’ intended to restore benefits
otherwise lost under the qualified plan due to various
governmental limits. This plan is based on the same
underlying formula as the Retirement Plan. Mr. Bergren is the
only NEO who currently participates in the PEP. Mr. Novak
ceased participating in the PEP in 2012.

For executives hired or re-hired after September 30, 2001,
the Company implemented the Leadership Retirement Plan
(‘‘LRP’’). This is an unfunded, unsecured account-based
retirement plan which allocates a percentage of pay to an
account payable to the executive following the later to occur
of the executive’s separation of employment from the
Company or attainment of age 55. As discussed in the
Summary Compensation Table at footnote 5, beginning in
2013, Mr. Novak started receiving an allocation to his LRP
account equal to 9.5% of his base salary and target bonus
and will receive an annual earnings credit on his account
balance equal to 120% of the applicable federal rate. For
2014, Mr. Grismer and Mr. Bergren were also eligible for the
LRP. Under the LRP, they receive an annual allocation to
their accounts equal to a percentage of their base salary
and target bonus (9.5% for Mr. Grismer and 28% for
Mr. Bergren) and an annual earnings credit of 5%.

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through

for certain
The Company provides retirement benefits
international employees
the YUM! Brands
International Retirement Plan (‘‘YIRP’’) and the Third Country
National Plan (‘‘TCN’’). The YIRP is an unfunded, non-qualified
plan that provides benefits similar to, and pursuant to the same
terms and conditions as, the Retirement Plan without regard to
Internal Revenue Service limitations on amounts of includible
compensation and maximum benefits. The TCN is an
unfunded, unsecured account-based retirement plan that
provides an annual contribution floor of 7.5% of salary and
target bonus and an annual earnings credit of 5% on the
balance. The Company can add an additional 7.5%, for a
maximum total contribution of 15% annually. Mr. Su is the only
NEO who participates in the YIRP. Mr. Creed is the only NEO
who participates in the TCN. Under this plan, Mr. Creed
receives an annual contribution equal to 15% of his base
salary and target bonus and an annual earnings credit of 5%.

Benefits payable under these plans are described in more
detail beginning on page 53.

YUM! BRANDS, INC.

2015 Proxy Statement

Medical, Dental, Life Insurance and Disability
Coverage

We also provide other benefits such as medical, dental, life
insurance and disability coverage to each NEO through
benefit plans, which are also provided to all eligible U.S.-
based salaried employees. Eligible employees can
purchase additional life, dependent life and accidental
death and dismemberment coverage as part of their
employee benefits package. Our broad-based employee
disability plan limits the annual benefit coverage to
$300,000.

Perquisites

Mr. Novak and Mr. Creed (beginning in 2015) are required
to use the Company aircraft for personal as well as business
travel pursuant to the Company’s executive security
program established by the Board of Directors. The Board’s
security program also covers Mrs. Novak and Mrs. Creed.
The Board has considered past instances of potential safety
concerns for the CEO and their spouses and based on a
security study completed by a security expert and the
expert’s advice decided to require Mr. Novak and Mr. Creed
to use the corporate aircraft for personal travel. We do not
provide tax gross-ups on the personal use of the Company
aircraft. Beginning in 2015, the Committee has approved
timeshare arrangements for Mr. Novak and Mr. Creed with
respect to their personal use of aircraft. The arrangement
provides that upon the executive reaching $200,000 in
incremental costs for his personal use, the executive’s
timeshare agreements will be triggered and any incremental
costs for personal use above $200,000 will be reimbursed to
the Company in accordance with the requirements of the
Federal Aviation Administration regulations.

The Company pays for the cost of the transmission of home
security information from Mr. Novak’s home to our security
department.

Mr. Su receives perquisites related
to his overseas
assignment which were part of his original compensation
package and ratified by the Committee. The Committee
reviewed these benefits during 2014 and has elected to
continue to provide them noting that this practice is consistent
with how we treat other executives on foreign assignment.
Mr. Su’s agreement stipulates that the following will be
provided:

•

Housing, commodities and utilities allowances

Tax preparation services

Tax equalization to Hong Kong with respect to income
attributable to certain SARs/Options exercises and to
distributions of deferred income

Upon retirement from the Company, Mr. Su will be required
to reimburse the Company for the tax reimbursements for
certain SARs/Options exercises, if any, made within six
months of his retirement.

EXECUTIVE COMPENSATION

Compensation Policies & Practices

YUM’s Executive Stock Ownership Guidelines

The Committee has established stock ownership guidelines for approximately 400 of our senior employees, including the NEOs.
If a NEO or other executive does not meet his or her ownership guidelines, he or she is not eligible for a long-term equity incentive
award. In 2014, all NEOs and all other employees subject to guidelines met or exceeded their ownership guidelines.

NEO

Novak

Grismer

Creed

Bergren

Ownership Guidelines

Shares Owned(1)

Value of Shares(2)

Multiple of Salary

336,000

40,000

50,000

2,746,860

44,484

407,615

102,379

108,640

$200,108,751

$ 3,240,659

$ 29,694,753

$ 7,458,310

$ 7,914,424

138

(1)

(2)

Calculated as of December 31, 2014 and represents shares owned outright, vested RSUs and all RSUs awarded under the Company’s
Executive Income Deferral Program.
Based on YUM closing stock price of $72.85 as of December 31, 2014.

Payments upon Termination of Employment

The Company does not have agreements with its executives
concerning payments upon termination of employment
except in the case of a change in control of the Company.
The Committee believes these are appropriate agreements
for retaining NEOs and other executive officers to preserve
shareholder value in case of a potential change in control.
The Committee periodically reviews these agreements and
other aspects of the Company’s change-in-control program.

The Company’s change-in-control agreements, in general,
entitle NEOs terminated other than for cause within two
years of the change in control, to receive a benefit of two
times salary and bonus. The terms of these change-in-
control agreements are described beginning on page 59.

In 2013, the Company eliminated tax gross-ups for
executives, including the NEOs, for any excise tax due
under Section 4999 of the Internal Revenue Code and
implemented a ‘‘best net after-tax’’ approach to address any
potential excise tax imposed on executives. If any excise tax
is due, the Company will not make a gross-up payment, but
instead will reduce payments to an executive if the reduction
will provide the NEO the best net after-tax result. If full
payment to a NEO will result in the best net after-tax result,
the full amount will be paid, but the NEO will be solely
responsible for any potential excise tax payment. Also,
effective for equity awards made in 2013 and beyond, the
Company implemented ‘‘double trigger’’ vesting, pursuant
to which outstanding awards will fully and immediately vest
only if the executive is employed on the date of a change in
control of the Company and is involuntarily terminated
(other than by the Company for cause) on or within two
years following the change in control.

In case of retirement, the Company provides retirement
benefits described above and life insurance benefits (to
employees eligible under the Retirement Plan), the continued
ability to exercise vested SARs/Options and the ability to vest
in performance share awards on a pro-rata basis.

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With respect to consideration of how these benefits fit into
the overall compensation policy, the change-in-control
benefits are reviewed from time to time by the Committee
for competitiveness. The Committee believes the benefits
provided in case of a change in control are appropriate,
support shareholder interests and are consistent with the
policy of attracting and retaining highly qualified employees.

YUM’s Stock Option and SAR Granting Practices

Historically, we have awarded non-qualified SARs/Options
grants annually at the Committee’s January meeting. This
meeting date is set by the Board of Directors more than six
months prior to the actual meeting. The Committee sets the
annual grant date as the second business day after our
fourth quarter earnings release. The exercise price of
awards granted under our Long-Term Incentive Plan
(‘‘LTIP’’) is set as the closing price on the date of grants. We
make grants at the same time other elements of annual
compensation are determined so that we can consider all
elements of compensation in making the grants. We do not
backdate or make grants retroactively. In addition, we do
not time such grants in coordination with our possession or
release of material, non-public or other information.

Grants may also be made on other dates the Board of
Directors meets. These grants generally are Chairman’s
Awards, which are made in recognition of superlative
performance and extraordinary impact on business results.

Management recommends the awards be made pursuant to
our LTIP
the Committee
the Committee, however,
determines whether and to whom it will issue grants and
determines the amount of the grant. The Board of Directors has
delegated to Mr. Novak and Anne Byerlein, our Chief People
Officer, the ability to make grants to employees who are not
executive officers and whose grant is less than approximately
13,000 SARs/Options annually. In the case of these grants, the
Committee sets all the terms of each award, except the actual
number of SARs/Options, which is determined by Mr. Novak

2015 Proxy Statement

YUM! BRANDS, INC.

limitation) short sales as well as any hedging transactions in
derivative securities (e.g. puts, calls, swaps, or collars) or
other speculative transactions related to YUM’s stock.
Pledging of Company stock is also prohibited.

Deductibility of Executive Compensation

The provisions of Section 162(m) of the Internal Revenue
Code limit the tax deduction for compensation in excess of
$1 million paid to certain NEOs. Performance-based
compensation is excluded from the limit, however, so long
as it meets certain requirements. The Committee intends
that the annual bonus, SARs/Options, RSU and PSU
awards satisfy the requirements for exemption under
Internal Revenue Code Section 162(m).

For 2014, the annual salary paid to Mr. Novak exceeded
$1 million. The Committee sets Mr. Novak’s salary as
described under ‘‘Base Salary’’ above. The other NEOs were
in each case paid salaries of $1 million or less, except for
Mr. Su whose salary exceeded $1 million; however, the
Committee noted that Mr. Su’s compensation is not subject to
United States tax rules and, therefore, the $1 million limitation
does not apply in his case. The 2014 annual bonuses were all
paid pursuant to our annual bonus program and, therefore,
we expect will be deductible. For 2014, the Committee set the
maximum individual award opportunity based on a bonus
pool for the NEOs and the next two highest paid executive
officers (Mr. Grismer is not included for purposes of our pool
since under IRS rules the Chief Financial Officer pay is not
subject to these limits.) The bonus pool for 2014 is equal to
1.5% of operating profit (adjusted to exclude special items
believed to be distortive of consolidated results on a year-
over-year basis — these are the same items excluded in the
Company’s annual earnings releases). The maximum payout
opportunity for each executive was set at a fixed percentage
of the pool. Based on the Company’s operating profit of
$1.577 billion, the bonus pool was set at approximately
$23 million and the maximum 2014 award opportunity for
each NEO was based on their applicable percentage of the
pool (Mr. Novak(cid:4)30%, Mr. Su(cid:4)20%, Mr. Creed(cid:4)20% and
Mr. Bergren(cid:4)10%) (under the terms of the shareholder
approved plan no executive may earn a bonus in excess of
$10 million for any year). The Committee then exercised its
negative discretion in determining actual incentive awards
based on team performance and individual performance
measures as described above.

Due to the Company’s focus on performance-based
compensation plans, we expect most compensation paid to
the NEOs to continue to qualify as tax deductible.

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EXECUTIVE COMPENSATION

and Ms. Byerlein pursuant to guidelines approved by the
Committee in January of each year.

Limits on Future Severance Agreement Policy

The Committee has adopted a policy to limit future
severance agreements with NEOs or our other executives.
The policy requires the Company to seek shareholder
approval for future severance payments to a NEO if such
payments would exceed 2.99 times the sum of (a) the
NEO’s annual base salary as in effect immediately prior to
termination of employment; and (b) the highest annual
bonus awarded to the NEO by the Company in any of the
Company’s three full fiscal years immediately preceding the
fiscal year in which termination of employment occurs or, if
higher, the executive’s target bonus. Certain types of
payments are excluded from this policy, such as amounts
payable under arrangements that apply to classes of
employees other than the NEOs or that predate the
implementation of the policy, as well as any payment the
Committee determines is a reasonable settlement of a claim
that could be made by the NEO.

Compensation Recovery Policy

The Committee has amended and restated the Company’s
Compensation Recovery Policy (i.e., ‘‘clawback’’) for stock
awards beginning in 2015 and annual bonuses awarded for
calendar years after 2014. Pursuant to this amended and
restated policy, the Committee may require executive officers
(including the NEOs) to return compensation paid or may
cancel any award or bonuses not yet vested or earned if the
executive officers engaged in misconduct or violation of
Company policy that resulted in significant financial or
reputational harm or violation of Company policy, or
contributed to the use of inaccurate metrics in the calculation
of incentive compensation. Under this policy, when the Board
determines
recovery of
compensation is appropriate, the Company could require
repayment of all or a portion of any bonus, incentive payment,
equity-based award or other compensation, and cancellation
of an award or bonus to the fullest extent permitted by law.

its sole discretion

that

Hedging and Pledging of Company Stock

Under our Code of Conduct, no employee or director is
permitted to engage in securities transactions that would
allow them either to insulate themselves from, or profit from,
a decline in the Company stock price. Similarly, no
employee or director may enter into hedging transactions in
the Company’s stock. Such transactions include (without

YUM! BRANDS, INC.

2015 Proxy Statement

Management Planning and Development Committee Report

The Management Planning and Development Committee of the Board of Directors reports that it has reviewed and discussed with
management the section of this proxy statement headed ‘‘Compensation Discussion and Analysis’’ and, on the basis of that
review and discussion, recommended to the Board that the section be incorporated by reference into the Company’s Annual
Report on Form 10-K and included in this proxy statement.

THE MANAGEMENT PLANNING AND DEVELOPMENT COMMITTEE

EXECUTIVE COMPENSATION

Robert D. Walter, Chair
David W. Dorman
Massimo Ferragamo
Thomas M. Ryan

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2015 Proxy Statement

YUM! BRANDS, INC.

EXECUTIVE COMPENSATION

The following tables provide information on the compensation of the Named Executive Officers (‘‘NEOs’’) for our 2014 fiscal year.
The Company’s NEOs are our Chief Executive Officer, Chief Financial Officer and our three other most highly compensated
officers for our 2014 fiscal year determined in accordance with SEC rules.

Summary Compensation Table

Change in
Pension
Value and
Nonqualified
Deferred
SAR Incentive Plan Compensation

Non-Equity

Option/

Stock

Salary Bonus Awards Awards Compensation
($)(4)

($)(2)

($)(3)

($)(1)

($)

All Other
Earnings Compensation
($)(6)

($)(5)

Total
($)

(c)

(d)

(e)

(f)

(g)

(h)

(i)

Year

(b)

Name and
Principal Position

(a)

David C. Novak

Chairman and Chief
Executive Officer of YUM

Patrick J. Grismer
Chief Financial
Officer of YUM

Jing-Shyh S. Su

Vice Chairman of the
Board of YUM and Chairman and Chief
Executive Officer of YUM Restaurants China

2014 1,450,000
2013 1,450,000
2012 1,450,000

2014
2013
2012

707,500
638,462
500,308

2014 1,100,000
2013 1,100,000
2012 1,088,462

— 1,925,037 5,228,142
— 1,568,655 5,255,519
— 773,022 5,625,960

— 350,019 1,475,973
— 114,098 1,765,138
493,551
— 1,014,347

— 450,045 1,907,966
— 342,294 1,765,123
— 385,029 2,467,739

Greg Creed

2014
Chief Executive Officer of Taco Bell Division(7) 2013

750,000
750,000

— 325,048 2,561,957
— 203,735 1,323,839

Scott O. Bergren

2014

725,000

— 275,035 2,333,972

Chief Executive Officer of Pizza Hut Division
and Chief Innovation Officer of YUM(8)

512,720
939,600
4,584,320

267,410
277,875
—

378,235
614,790
2,039,813

945,750
1,511,625

241,425

202,360
17,351
1,345,665

9,087
3,977
6,115

1,956,023
727,430
5,537,865

45,680
7,348

127,083

689,028 10,007,287
776,268 10,007,393
389,388 14,168,355

142,114
179,480
104,652

2,952,103
2,979,030
2,118,973

5,035,711 10,827,980
5,768,264 10,317,901
5,042,547 16,561,455

345,068
238,737

4,973,503
4,035,284

428,872

4,131,387

Amounts shown are not reduced to reflect the NEOs’ elections, if any, to defer receipt of salary into the Executive Income Deferral (‘‘EID’’) Program or into the
Company’s 401(k) Plan.
Amounts shown in this column represent the grant date fair values for performance share units (PSUs) granted in 2014, 2013 and 2012 and, for Mr. Grismer,
restricted stock units (RSUs) granted in 2012. Further information regarding the 2014 awards is included in the ‘‘Grants of Plan-Based Awards’’ and
‘‘Outstanding Equity Awards at Year-End’’ tables later in this proxy statement. The grant date fair value of the PSUs reflected in this column is the target payout
based on the probable outcome of the performance condition, determined as of the grant date. The maximum potential values of the PSUs is 200% of target. For
2014, Mr. Novak’s PSU maximum value at grant date fair value would be $3,850,074; Mr. Grismer’s PSU maximum value would be $700,038; Mr. Su’s PSU
maximum value would be $900,090; Mr. Creed’s PSU maximum value would be $650,096; and Mr. Bergren’s PSU maximum value would be $550,070. In 2012,
Mr. Grismer did not receive a PSU award since he became a NEO after PSU awards were granted for that year. Mr. Grismer was instead permitted to defer his
annual incentive award into RSUs under the Company’s EID Program. Under the EID Program (which is described in more detail beginning on page 55), an
executive may defer his or her annual incentive award and invest that deferral into stock units, RSUs, or other investment alternatives offered under the EID
Program. An executive who elects to defer his or her annual incentive award into RSUs receives additional RSUs equal to 33% of the RSUs acquired with the
deferral of the annual incentive award (‘‘matching contribution’’). As a result, for 2012, the amount in that column represents the deferral of 100% of Mr. Grismer’s
annual incentive award ($760,760), plus his matching contribution ($253,587).
The amounts shown in this column represent the grant date fair values of the stock options and stock appreciation rights (SARs) awarded in 2014, 2013 and
2012, respectively. For a discussion of the assumptions and methodologies used to value the awards reported in column (e) and column (f), please see the
discussion of stock awards and option awards contained in Part II, Item 8, ‘‘Financial Statements and Supplementary Data’’ of the 2014 Annual Report in Notes
to Consolidated Financial Statements at Note 14, ‘‘Share-based and Deferred Compensation Plans.’’ For Mr. Creed and Mr. Bergren, this column also includes
each of their 2014 Chairman’s Awards with a grant date fair value of $1,199,984. See the Grants of Plan-Based Awards table for details.
Except as provided below and in footnote (2) above, amounts in this column reflect the annual incentive awards earned for the 2014, 2013 and 2012 fiscal year
performance periods, which were awarded by our Management Planning and Development Committee (‘‘Committee’’) in January 2015, January 2014 and
January 2013, respectively, under the Yum Leaders’ Bonus Program, which is described further in our Compensation Discussion and Analysis (‘‘CD&A’’)
beginning at page 28 under the heading ‘‘Annual Performance-Based Cash Bonuses’’. Pursuant to SEC rules, annual incentives deferred into RSUs under the
EID Program and subject to a risk of forfeiture are reported in column (e). If the deferral or a portion of the deferral is not subject to a risk of forfeiture, it is reported
in column (g). In 2012, Mr. Grismer elected to defer 100% of his annual incentive ($760,760) into RSUs resulting in nothing to report for him in this column for that
year.
The amounts listed in this column for Mr. Novak, Mr. Creed and Mr. Bergren, reflect the aggregate increase in actuarial present value of each of their accrued
benefits under the YUM! Brands Retirement Plan (‘‘Retirement Plan’’) during the 2014 fiscal year (using interest rate and mortality assumptions consistent with
those used in the Company’s financial statements). Effective January 1, 2012, the Committee discontinued Mr. Novak’s accruing nonqualified pension benefits
under the YUM! Brands, Inc. Pension Equalization Plan (‘‘PEP’’) and, effective January 1, 2013, replaced his PEP benefit with a pension account determined
under the Leadership Retirement Plan (‘‘LRP’’). The amount transferred to his LRP-based pension account effective January 1, 2013 was $27,600,000

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2015 Proxy Statement

EXECUTIVE COMPENSATION

(representing his December 31, 2012 estimated lump amount under PEP). Mr. Novak now receives a market rate of interest on his LRP account plus an annual
benefit allocation equal to 9.5% of his salary plus target bonus.
For Mr. Su, amounts in this column reflect the aggregate increase in actuarial present value of age 62 accrued benefits under the Yum International Retirement
Plan (‘‘YIRP’’) during the 2014 fiscal year. See the Pension Benefits Table at page 53 for a detailed discussion of the Company’s pension benefits. Mr. Grismer
was hired after September 30, 2001, and is ineligible for the Company’s Retirement Plan. Mr. Creed and Mr. Bergren are not active participants in the Retirement
Plan but each maintains a balance in the Retirement Plan from the two years (2002 and 2003) and six years (1992-1998) respectively during which he was a
participant.
For Messrs. Grismer, Creed and Bergren, amounts in this column also represent the above market earnings as established pursuant to SEC rules which have
accrued under each of their accounts under the LRP for Messrs. Grismer and Bergren and the Third Country National Plan (‘‘TCN’’) for Mr. Creed, which is
described in more detail beginning at page 55 under the heading ‘‘Nonqualified Deferred Compensation’’.
Amounts in this column are explained in the All Other Compensation Table and footnotes to that table, which follows.
No amounts are reported for Mr. Creed for 2012 since he was not a NEO for that year.
Mr. Bergren became a NEO in 2014. No amounts are reported for Mr. Bergren for 2012 and 2013 since he was not a NEO for those years.

(6)

(7)

(8)

All Other Compensation Table

The following table contains a breakdown of the compensation and benefits included under All Other Compensation in the
Summary Compensation Table above for 2014.

Name

(a)

Novak

Grismer

Creed

Bergren

Perquisites and
other personal
benefits
($)(1)

(b)

300,032

—

221,139

68,813

—

Tax
Reimbursements
($)(2)

Insurance
premiums
($)(3)

LRP/TCN
Contributions
($)(4)

Other
($)(5)

(c)

—

991

4,762,222

13,469

—

(d)

27,108

5,273

21,286

9,708

22,872

Total
($)

(g)

(e)

(f)

358,150

3,738

135,850

—

689,028

142,114

— 31,064

5,035,711

225,000

28,078

406,000

—

345,068

428,872

(1)

(2)

(3)

(4)

(5)

Amounts in this column include for Mr. Novak and Mr. Creed: incremental cost for the personal use of Company aircraft ($300,032 and $68,813 respectively) —
we calculate the incremental cost to the Company of any personal use of Company aircraft based on the cost of fuel, trip-related maintenance, crew travel, on
board catering, landing and license fees, ‘‘dead head’’ costs of flying planes to and from locations for personal use, and contract labor; and for Mr. Su: expatriate
spendables/housing allowance ($221,139).
Amounts in this column reflect payments to the executive of tax reimbursements. For Mr. Su, as explained at page 42, this amount represents the Company-
provided tax reimbursement for China income taxes incurred on deferred income distributions and stock option exercises which exceed the marginal Hong Kong
tax rate and a tax equalization settlement amount related to income for 2012. For Mr. Grismer, this amount represents the adjustment and equalization of foreign
tax payments incurred with respect to income recognized in 2014 that was attributable to a previous international assignment. For Mr. Creed, this amount
represents Company-provided tax reimbursement for his relocation to Company headquarters in preparation of his new position as CEO effective January 1,
2015.
These amounts reflect the income each executive was deemed to receive from IRS tables related to Company-provided life insurance in excess of $50,000. The
Company provides every salaried employee with life insurance coverage up to one times the employee’s salary plus target bonus.
For Messrs. Novak, Grismer and Bergren, this column represents Company’s annual allocations to the LRP, an unfunded, unsecured account based retirement
plan. For Mr. Creed, this column represents the Company’s annual allocation to the TCN, an unfunded, unsecured account based retirement plan.
This column reports the total amount of other benefits provided, none of which individually exceeded the greater of $25,000 or 10% of the total amount of these
benefits and the perquisites and other personal benefits shown in column (b) for each NEO. These other benefits include: home security expense, home leave
expenses, personal use of Company aircraft, tax preparation assistance and relocation.

2015 Proxy Statement

YUM! BRANDS, INC.

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EXECUTIVE COMPENSATION

Grants of Plan-Based Awards

The following table provides information on stock options, SARs, RSUs and PSUs granted for 2014 to each of the Company’s
NEOs. The full grant date fair value of these awards is shown in the Summary Compensation Table at page 46.

Name

(a)

Novak

Grismer

Creed

Bergren

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(3)

Estimated Possible Payouts
Under Non-Equity Incentive Under Equity Incentive Plan

All Other Option Exercise or
Estimated Future Payouts Awards; Number Base Price
of Securities of Option/
SAR

Awards(2)

Plan Awards(1)

Grant Threshold
($)

Date

Target Maximum Threshold Target Maximum
(#)

($)

(#)

Underlying
Options
(#)(3)

Grant
Awards Date Fair
($/Sh)(4) Value($)(5)

(b)

(c)

(d)

(e)

(f)

(g)

(h)

(i)

(j)

(k)

2/5/2014
2/5/2014
2/5/2014
2/5/2014
2/5/2014
2/5/2014
2/5/2014
2/5/2014
2/5/2014
2/5/2014
2/5/2014
2/5/2014
2/5/2014
2/5/2014
2/5/2014
2/5/2014
2/5/2014

0 2,320,000 6,960,000

715,000 2,145,000

0 1,265,000 3,795,000

750,000 2,250,000

— 27,290

54,580

— 4,962

9,924

— 6,380

12,760

725,000 2,175,000

— 4,608

9,216

— 3,899

7,798

299,607

70.54

84,583

70.54

109,339

70.54

78,050
68,767

64,985
68,767

70.54
70.54

5,228,142
1,925,037

1,475,973
350,019

1,907,966
450,045

1,361,973
1,199,984
325,048

1,133,988
1,199,984
275,035

Amounts in columns (c), (d) and (e) provide the minimum amount, target amount and maximum amounts payable as annual incentive
compensation under the Yum Leaders’ Bonus Program based on the Company’s performance and on each executive’s individual
performance during 2014. The actual amount of annual incentive compensation awards are shown in column (g) of the Summary
Compensation Table on page 46. The performance measurements, performance targets, and target bonus percentages are described in the
CD&A beginning on page 28 under the discussion of annual incentive compensation.
Reflects grants of PSU awards subject to performance-based vesting conditions under the LTIP in 2014. The PSU awards vest on
December 31, 2016 and PSU award payouts are subject to the Company’s achievement of specified relative total shareholder return
(‘‘TSR’’) rankings against its peer group (which is the S&P 500) during the performance period ending on December 31, 2016. The
performance target for all the PSU awards granted to the NEOs in 2014 is a 50% TSR percentile ranking for the Company, determined by
comparing the Company’s relative TSR ranking against its peer group as measured at the end of the performance period. If the 50% TSR
percentile ranking target is achieved, 100% of the PSU award will pay out in shares of Company stock, subject to executive’s election to defer
PSU awards into the EID Program. If less than 40% TSR percentile ranking is achieved, there will be no payout. If the Company’s TSR
percentile ranking is 90% or higher, PSU awards pay out at the maximum, which is 200% of target. The terms of the PSU awards provide that
in case of a change in control during the first year of award, shares will be distributed assuming target performance was achieved subject to
reduction to reflect the portion of the performance period following the change in control. In case of a change in control after the first year of
the award, shares will be distributed assuming performance at the greater of target level or projected level at the time of the change in control
subject to reduction to reflect the portion of the performance period following the change in control.
Amounts in this column reflect the number of SARs and stock options granted to executives during the Company’s 2014 fiscal year. SARs
allow the grantee to receive the number of shares of YUM common stock that is equal in value to the appreciation in YUM common stock with
respect to the number of SARs granted from the date of grant to the date of exercise. For each executive, the grants were made February 5,
2014. SARs/stock options become exercisable in equal installments on the first, second, third and fourth anniversaries of the grant date;
except, however, 68,767 SARs granted to Mr. Creed become exercisable on the fifth anniversary of the grant date and 68,767 SARs granted
to Mr. Bergren become exercisable in equal installments of 20% per year on the first, second, third, fourth and fifth anniversaries of the grant.
The terms of each SAR/stock option grant provide that, in case of a change in control, if an executive is employed on the date of a change in
control and is involuntarily terminated on or within two years following the change in control (other than by the Company for cause) then all
outstanding awards become exercisable immediately.

YUM! BRANDS, INC.

2015 Proxy Statement

EXECUTIVE COMPENSATION

(4)

(5)

Executives who have attained age 55 with 10 years of service who terminate employment may exercise SARs/stock options that were vested
on their date of termination through the expiration dates of the SARs/stock options (generally, the tenth anniversary following the SARs/stock
options grant dates). Vested SARs/stock options of grantees who die may also be exercised by the grantee’s beneficiary through the
expiration dates of the vested SARs/stock options and the grantee’s unvested SARs/stock options expire on the grantee’s date of death. If a
grantee’s employment is terminated due to gross misconduct, the entire award is forfeited. For other employment terminations, all vested or
previously exercisable SARs/stock options as of the last day of employment must be exercised within 90 days following termination of
employment.
The exercise price of the SARs/stock options granted in 2014 equals the closing price of YUM common stock on the grant date, February 5,
2014.
Amounts in this column reflect the full grant date fair value of the PSU awards shown in column (g) and the SARs/stock options shown in
column (i). These amounts reflect the amounts to be recognized by the Company as an accounting expense and do not correspond to the
actual value that will be recognized by the NEOs. The grant date fair value is the amount that the Company is expensing in its financial
statements over the award’s vesting schedule. Beginning in 2013, the Company granted PSU awards with market-based conditions
requiring valuation using a Monte Carlo simulation. For SARs/stock options, fair value of $17.45 was calculated using the Black-Scholes
value on the February 5, 2014 grant date. For additional information regarding valuation assumptions of SARs/stock options, see the
discussion of stock awards and option awards contained in Part II, Item 8, ‘‘Financial Statements and Supplementary Data’’ of the 2014
Annual Report in Notes to Consolidated Financial Statements at Note 14, ‘‘Share-based and Deferred Compensation Plans.’’ There can be
no assurance that the SARs/stock options will ever be exercised or PSU awards paid out (in which case no value will be realized by the
executive) or that the value upon exercise or payout will equal the grant date fair value.

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EXECUTIVE COMPENSATION

Outstanding Equity Awards at Year-End

The following table shows the number of shares covered by exercisable and unexercisable stock options, SARs, and unvested
RSUs and PSUs held by the Company’s NEOs on December 31, 2014.

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Option/SAR Awards(1)

Stock Awards

Number of
Securities
Underlying
Unexercised

Number of
Securities
Underlying Option/
SAR
Unexercised
Options/ Options/SARs Exercise
(#)
SARs (#)
Grant Date Exercisable Unexercisable

Option/

Price Expiration
Date

($)

SAR Have Not
Vested
(#)(2)

Number
of Shares

Market
Value of
or Units Shares or
Units of
of Stock

incentive
plan awards:
Number of
unearned
shares, units
That Stock That or other rights
that have not
vested
(#)(4)

Equity Equity incentive
plan awards:
market or
payout value
of unearned
shares, units
or other rights
that have not
vested
($)(3)

Have Not
Vested
($)(3)

(b)

(c)

(d)

(e)

(f)

(g)

(h)

(i)

1/19/2007
1/24/2008
2/5/2009
2/5/2010
2/4/2011
2/8/2012
2/6/2013
2/5/2014

1/19/2007
5/17/2007
1/24/2008
2/5/2009
5/21/2009
2/5/2010
2/5/2010
2/4/2011
2/8/2012
2/6/2013
2/6/2013
2/5/2014

1/28/2005
1/26/2006
1/19/2007
1/24/2008
1/24/2008
2/5/2009
2/5/2010
2/4/2011
2/8/2012
2/6/2013
2/5/2014

490,960
428,339
575,102
623,925
372,190
188,664
90,239
—

19,938
16,262
20,079
33,830
15,853
34,424
—
18,330
16,551
18,942
—
—

65,039
124,316
132,918
107,085
267,712
202,977
172,118
106,925
82,754
30,307
—

—
—
—
—

124,064(i)
188,664(ii)
270,717(iii)
299,607(iv)

—
—
—
—
—
—

43,030(v)
6,110(i)
16,551(ii)
56,828(iii)
45,462(vi)
84,583(iv)

—
—
—
—
—
—
—

35,642(i)
82,755(ii)
90,924(iii)
109,339(iv)

$29.61
$37.30
$29.29
$32.98
$49.30
$64.44
$62.93
$70.54

$29.61
$33.20
$37.30
$29.29
$33.21
$32.98
$32.98
$49.30
$64.44
$62.93
$62.93
$70.54

$22.53
$24.47
$29.61
$37.30
$37.30
$29.29
$32.98
$49.30
$64.44
$62.93
$70.54

1/19/2017
1/24/2018
2/5/2019
2/5/2020
2/4/2021
2/8/2022
2/6/2023
2/5/2024

1/19/2017
5/17/2017
1/24/2018
2/5/2019
5/21/2019
2/5/2020
2/5/2020
2/4/2021
2/8/2022
2/6/2023
2/6/2023
2/5/2024

1/28/2015
1/26/2016
1/19/2017
1/24/2018
1/24/2018
2/5/2019
2/5/2020
2/4/2021
2/8/2022
2/6/2023
2/5/2024

—

115,760

8,433,116

16,119

1,174,244

14,374

1,047,146

187,150 13,633,878

26,110

1,902,114

YUM! BRANDS, INC.

2015 Proxy Statement

EXECUTIVE COMPENSATION

Name

(a)

Creed

Bergren

Option/SAR Awards(1)

Stock Awards

Number of
Securities
Underlying
Unexercised

Number of
Securities
Underlying Option/
SAR
Unexercised
Options/ Options/SARs Exercise
(#)
SARs (#)
Grant Date Exercisable Unexercisable

Price Expiration
Date

($)

Number
of Shares

Market
Value of
or Units Shares or
Units of
of Stock

incentive
plan awards:
Number of
unearned
shares, units
That Stock That or other rights
that have not
vested
(#)(4)

Equity Equity incentive
plan awards:
market or
payout value
of unearned
shares, units
or other rights
that have not
vested
($)(3)

Vested
(#)(2)

SAR Have Not Have Not
Vested
($)(3)

Option/

(b)

(c)

(d)

(e)

(f)

(g)

(h)

(i)

1/24/2008
2/5/2009
2/5/2010
2/4/2011
2/8/2012
2/6/2013
2/5/2014
2/5/2014

1/24/2008
2/5/2009
2/5/2009
2/5/2010
2/4/2011
2/8/2012
2/6/2013
2/5/2014
2/5/2014

107,085
169,148
172,118
91,650
41,377
22,730
—
—

133,856
135,318
67,659
81,756
61,100
37,239
17,048
—
—

—
—
—

30,550(i)
41,378(ii)
68,193(iii)
78,050(iv)
68,767(vii)

—
—
—
—

20,367(i)
37,240(ii)
51,145(iii)
64,985(iv)
68,767(viii)

$37.30 1/24/2018
2/5/2019
$29.29
2/5/2020
$32.98
2/4/2021
$49.30
2/8/2022
$64.44
2/6/2023
$62.93
2/5/2024
$70.54
2/5/2024
$70.54

$37.30 1/24/2018
2/5/2019
$29.29
2/5/2019
$29.29
2/5/2020
$32.98
2/4/2021
$49.30
2/8/2022
$64.44
2/6/2023
$62.93
2/5/2024
$70.54
2/5/2024
$70.54

—

17,162

1,250,252

—

14,314

1,042,775

(1)

(2)

(3)

(4)

Except as follows, all options and SARs listed above vest at a rate of 25% per year over the first four years of the ten-year option term. For
Mr. Grismer, the awards listed as expiring on May 17, 2017 and May 21, 2019 were each granted with 100% vesting after four years. Certain
awards expiring for Mr. Grismer on February 5, 2020 (43,030 SARs) and February 6, 2024 (45,462 SARs), for Mr. Su on January 24, 2018
(267,712 options), and for Mr. Creed on February 5, 2024 (68,767 SARs), were each granted with 100% vesting after five years. For
Mr. Bergren, the award expiring on February 5, 2024 (68,767 SARs) vests 20% per year over five years.
The actual vesting dates for unexercisable awards are as follows:
(i)

Remainder of unexercisable awards will vest on February 4, 2015.

(ii) One-half of the unexercisable award will vest on each of February 8, 2015 and 2016.
(iii) One-third of the unexercisable award will vest on each of February 6, 2015, 2016 and 2017.
(iv) One-fourth of the unexercisable award will vest on each of February 5, 2015, 2016, 2017 and 2018.
(v)

Unexercisable award will vest on February 5, 2015.
(vi) Unexercisable award will vest on February 6, 2018.
(vii) Unexercisable awards will vest on February 5, 2019.
(viii) Unexercisable award will vest 20% per year and will vest on each of February 5, 2015, February 5, 2016, February 5, 2017, February 5,

2018 and February 5, 2019.

Amounts in this column represent RSUs that have not vested. For Mr. Su, the 187,150 RSUs represent a 2010 retention award (including
accrued dividends) that vests after five years. For Mr. Grismer, this amount represents deferral of his 2012 bonus into the EID Program’s
Matching Stock Fund.
The market value of these awards are calculated by multiplying the number of shares covered by the award by $72.85, the closing price of
YUM stock on the NYSE on December 31, 2014.
The awards reflected in this column are unvested performance-based PSU awards with three-year performance periods that are scheduled
to vest on December 31, 2015 or December 31, 2016 if the performance targets are met. In accordance with SEC rules, the PSU awards are
reported at their maximum payout value.

2015 Proxy Statement

YUM! BRANDS, INC.

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EXECUTIVE COMPENSATION

Option Exercises and Stock Vested

The table below shows the number of shares of YUM common stock acquired during 2014 upon exercise of stock option and SAR
awards and vesting of stock awards in the form of RSUs and PSUs, each including accumulated dividends and before payment of
applicable withholding taxes and broker commissions. For 2014, Mr. Grismer had 8,808 RSUs vest. The 2011 PSU awards for the
2011-2013 performance cycle were not paid out since the average earnings per share during the performance cycle did not reach
the required minimum average growth threshold of seven percent. Therefore, there is nothing to report for the NEOs in
columns (d) and (e) for PSUs.

Option/SAR Awards

Stock Awards

Name

(a)

Novak

Grismer

Creed

Bergren

Number
of Shares
Acquired on
Exercise
(#)

Value
Realized on
Exercise
($)

Number
of Shares
Acquired on
Vesting
(#)

(b)

(c)

340,002

24,211,587

11,116

65,039

821,693

3,476,751

—

Value
Realized
on
Vesting
($)

(e)

—

(d)

—

9,126(1)

667,202

—

(1)

These RSUs represent Mr. Grismer’s deferral of his 2011 bonus, which was deferred in 2012 and vested in 2014, under the Company’s
Executive Income Deferral Program.

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2015 Proxy Statement

EXECUTIVE COMPENSATION

Pension Benefits

The table below shows the present value of accumulated benefits payable to each of the NEOs, including the number of years of
service credited to each NEO, under the YUM! Brands Retirement Plan (‘‘Retirement Plan’’), the YUM! Brands, Inc. Pension
Equalization Plan (‘‘PEP’’), and the YUM! Brands International Retirement Plan (‘‘YIRP’’) determined using interest rate and
mortality rate assumptions consistent with those used in the Company’s financial statements.

2014 FISCAL YEAR PENSION BENEFITS TABLE

Name

(a)

Novak(i)

Grismer(ii)

Creed(iii)

Bergren(iv)

Plan Name

(b)

Retirement Plan(1)

Pension Equalization Plan(2)

—

International Retirement Plan(3)

Retirement Plan(1)

Pension Equalization Plan(2)

Number of Years of
Credited Service
(#)

Present Value of
Accumulated Benefit(4)
($)

Payments During
Last Fiscal Year
($)

(c)

—

(d)

1,598,356

—

20,459,770

154,835

351,896

168,202

(e)

—

(i)

Mr. Novak no longer receives benefits under the PEP. The Management Planning and Development Committee discontinued Mr. Novak’s
accruing pension benefits under the PEP effective January 1, 2012 and replaced this benefit, effective January 1, 2013, with a benefit
determined under the Leadership Retirement Plan (‘‘LRP’’), an unfunded, unsecured, deferred account-based retirement plan. See
footnote (5) to the Summary Compensation Table at page 46 for more detail.

(ii) Mr. Grismer is not accruing a benefit under these plans because he was hired after September 30, 2001 and is therefore ineligible for these

benefits. Mr. Grismer participates in the LRP.

(iii) Mr. Creed is not an active participant in the Retirement Plan but maintains a balance in the Retirement Plan for the two years (2002 and
2003) during which he was a participant in the plan. As discussed at page 42, Mr. Creed participates in the Third Country National plan, an
unfunded, unsecured deferred account-based retirement plan.

(iv) Mr. Bergren is not an active participant in the Retirement Plan but maintains a balance in the Retirement Plan for six years of accrued benefit
(1992 – 1998) during which he was a participant in the plan. As of February 14, 1998, Mr. Bergren no longer accrues a benefit under the
Retirement Plan or the PEP. Mr. Bergren participates in the LRP.

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(1) YUM! Brands Retirement Plan

The Retirement Plan provides an integrated program of
retirement benefits for salaried employees who were hired
by the Company prior to October 1, 2001. The Retirement
Plan replaces the same level of pre-retirement pensionable
earnings
for all similarly situated participants. The
Retirement Plan is a tax qualified plan, and it is designed to
provide the maximum possible portion of this integrated
benefit on a tax qualified and funded basis.

Benefit Formula

Benefits under the Retirement Plan are based on a
participant’s final average earnings (subject to the limits
under Internal Revenue Code Section 401(a)(17)) and
service under the plan. Upon termination of employment, a
participant’s normal retirement benefit from the plan is equal
to

A. 3% of Final Average Earnings times Projected

Service up to 10 years of service, plus

B. 1% of Final Average Earnings times Projected

Service in excess of 10 years of service, minus

.43% of Final Average Earnings up to Social
Security covered compensation multiplied by
Projected Service up to 35 years of service

the result of which is multiplied by a fraction, the numerator
of which is actual service as of date of termination, and the
denominator of which is the participant’s Projected Service.

Projected Service is the service that the participant would
have earned if he had remained employed with the
Company until his normal retirement age (generally age 65).

If a participant leaves employment after becoming eligible
for early or normal retirement, benefits are calculated using
the formula above except that actual service attained at the
participant’s retirement date is used in place of Projected
Service.

Final Average Earnings

A participant’s final average earnings is determined based
on his highest five consecutive years of pensionable
earnings. Pensionable earnings
the
participant’s base pay and annual incentive compensation
from the Company, including amounts under the Yum

the sum of

2015 Proxy Statement

YUM! BRANDS, INC.

EXECUTIVE COMPENSATION

Leaders’ Bonus Program. In general, base pay includes
salary, vacation pay, sick pay and short term disability
payments. Extraordinary bonuses and lump sum payments
made in connection with a participant’s termination of
employment are not included.

Vesting

A participant receives a year of vesting service for each year
of employment with the Company. A participant is 0%

Early Retirement Eligibility and Reductions

vested until he has been credited with at least five years of
vesting service. Upon attaining five years of vesting service,
a participant becomes 100% vested. All NEOs eligible for
the Retirement Plan or YIRP are 100% vested.

Normal Retirement Eligibility

A participant is eligible for normal retirement following the
later of age 65 or 5 years of vesting service.

A participant is eligible for early retirement upon reaching age 55 with 10 years of vesting service. A participant who has met the
requirements for early retirement and who elects to begin receiving payments from the plan prior to age 62 will receive a reduction
of 1⁄12 of 4% for each month benefits begin before age 62. Benefits are unreduced at age 62.

The table below shows when each of the NEOs became eligible for early retirement and the estimated lump sum value of the
benefit each participant would receive from YUM plans (both qualified and non-qualified) if he retired from the Company on
December 31, 2014 and received a lump sum payment.

Name

David C. Novak

Jing-Shyh S. Su

Greg Creed

Scott O. Bergren

Earliest Retirement
Date

November 1, 2007

May 1, 2007

August 1, 2012

April 1, 2006

Estimated Lump
Sum from a
Qualified Plan(1)

Estimated Lump
Sum from a Non-
Qualified Plan(2)

1,592,262

—

183,828

349,730

—

20,602,718

—

167,166

Total Estimated
Lump Sum

1,592,262

20,602,718

183,828

516,896

(1)

(2)

The Retirement Plan
The YIRP for Mr. Su and the PEP for Mr. Bergren

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The estimated lump sum values in the table above are
calculated assuming no increase in the participant’s Final
Average Earnings. The lump sums are estimated using the
mortality table and interest rate assumptions in the
Retirement Plan for participants who would actually
commence benefits on January 1, 2015. Actual lump sums
may be higher or lower depending on the mortality table and
interest rate in effect at the time of distribution and the
participant’s Final Average Earnings at his date of
retirement.

Lump Sum Availability

Lump sum payments are available to participants who meet
the requirements for early or normal retirement. Participants
who leave the Company prior to meeting the requirements
for Early or Normal Retirement must take their benefits in
the form of a monthly annuity and no lump sum is available.
When a lump sum is paid from the plan, it is calculated
based on actuarial assumptions for lump sums required by
Internal Revenue Code Section 417(e)(3).

(2) YUM! Brands, Inc. Pension Equalization Plan

The PEP is an unfunded, non-qualified, defined benefit plan
that complements the Retirement Plan by providing benefits
that federal tax law bars providing under the Retirement
Plan. Benefits are generally determined and payable under

YUM! BRANDS, INC.

2015 Proxy Statement

the same terms and conditions as the Retirement Plan
(except as noted below) without regard to federal tax
limitations on amounts of includible compensation and
maximum benefits. Benefits paid are reduced by the value
of benefits payable under the Retirement Plan.

Participants who earned at least $75,000 during calendar
year 1989 are eligible to receive benefits calculated under
the Retirement Plan’s pre-1989 formula, if this calculation
results in a larger benefit from the PEP. This formula is
similar to the formula described above under the Retirement
Plan except that part C of the formula is calculated as
follows:

C. 12⁄3% of an estimated primary Social Security
amount multiplied by Projected Service up to
30 years

Retirement distributions are always paid in the form of a
lump sum. In the case of a participant whose benefits are
payable based on the pre-1989 formula, the lump sum value
is calculated as the actuarial equivalent to the participant’s
50% Joint and Survivor Annuity with no reduction for
survivor coverage. In all other cases, lump sums are
calculated as the actuarial equivalent of the participant’s life
only annuity. Participants who terminate employment prior
to meeting eligibility for early or normal retirement must take
their benefits from this plan in the form of a monthly annuity.

(3) YUM! Brands International Retirement Plan

The YIRP is an unfunded, non-qualified defined benefit plan
that covers certain international employees who are
designated by the Company as third country nationals.
Mr. Su is eligible for benefits under this plan. The YIRP
provides a retirement benefit similar to the Retirement Plan
except that part C of the formula is calculated as the sum of:

a) Company

financed State benefits or Social

Security benefits if paid periodically

b) The actuarial equivalent of all State paid or
mandated lump sum benefits financed by the
Company

c) Any other Company financed benefits that are
attributable to periods of pensionable service and
that are derived from a plan maintained or
contributed to by the Company or one or more of
the group of corporations that is controlled by the
Company.

EXECUTIVE COMPENSATION

Benefits are payable under the same terms and conditions
as the Retirement Plan without regard to Internal Revenue
Service limitations on amounts of includible compensation
and maximum benefits.

(4) Present Value of Accumulated Benefits

For all plans, the Present Value of Accumulated Benefits
(determined as of December 31, 2014) is calculated
assuming that each participant is eligible to receive an
unreduced benefit payable in the form of a single lump sum
at age 62. This is consistent with the methodologies used in
financial accounting calculations. In addition, the economic
assumptions for the lump sum interest rate, post retirement
mortality, and discount rate are also consistent with those
used
financial accounting calculations at each
measurement date.

Nonqualified Deferred Compensation

reflected

Amounts
the Nonqualified Deferred
Compensation table below are provided for under the
Company’s Executive Income Deferral (‘‘EID’’) Program,
Leadership Retirement Plan (‘‘LRP’’) and Third Country
National Plan (‘‘TCN’’). These plans are unfunded,
unsecured deferred, account-based compensation plans.
For each calendar year, participants are permitted under the
EID Program to defer up to 85% of their base pay and up to
100% of their annual incentive award. As discussed
beginning at page 42, Messrs. Novak, Grismer and Bergren
are eligible to participate in the LRP. The LRP provides an
annual allocation to the accounts of Messrs. Novak and
Grismer equal to 9.5% of each of his salary plus target
bonus and to Mr. Bergren equal to 28% of his salary plus
target bonus. As discussed beginning at page 42, Mr. Creed
is eligible to participate in the TCN. The TCN provides for an
annual allocation to Mr. Creed’s account equal to 15% of his
salary plus target bonus.

EID Program

Deferred Investments under the EID Program. Amounts
deferred under the EID Program may be invested in the
following phantom investment alternatives (12 month
investment returns are shown in parentheses):

•

YUM! Stock Fund ((cid:5)1.54%*)

YUM! Matching Stock Fund ((cid:5)1.54%*)

S&P 500 Index Fund (13.61%)

Bond Market Index Fund (5.93%)

Stable Value Fund (1.40%)

Assumes dividends are not reinvested.

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All of the phantom investment alternatives offered under the
EID Program are designed to match the performance of
actual investments; that is, they provide market rate returns
and do not provide for preferential earnings. The S&P 500
index fund, bond market index fund and stable value fund
are designed to track the investment return of like-named
funds offered under the Company’s 401(k) Plan. The YUM!
Stock Fund and YUM! Matching Stock Fund track the
investment return of the Company’s common stock.
Participants may transfer funds between the investment
alternatives on a quarterly basis except (1) funds invested in
the YUM! Stock Fund or YUM! Matching Stock Fund may
not be transferred once invested in these funds and (2) a
participant may only elect to invest into the YUM! Matching
Stock Fund at the time the annual incentive deferral election
is made. In the case of the Matching Stock Fund,
participants who defer their annual incentive into this fund
acquire additional phantom shares (called restricted stock
units (‘‘RSUs’’)) equal to 33% of the RSUs received with
respect to the deferral of their annual incentive into the
YUM! Matching Stock Fund (the additional RSUs are
referred
‘‘matching contributions’’). The RSUs
attributable to the matching contributions are allocated on
the same day the RSUs attributable to the annual incentive
are allocated, which is the same day we make our annual
stock appreciation right grants. Eligible amounts attributable
to the matching contribution under the YUM! Matching
in column (c) below as
Stock Fund are
contributions by the Company (and represent amounts
actually credited to the NEO’s account during 2014).
Beginning with their 2009 annual incentive award, NEOs
are no longer eligible to participate in the Matching Stock
Fund.

included

to as

2015 Proxy Statement

YUM! BRANDS, INC.

Section 409A of the Internal Revenue Code. In general,
Section 409A requires that:

•

Distribution schedules cannot be accelerated (other than
for a hardship)

•

To delay a previously scheduled distribution,

–

A participant must make an election at least one year
before the distribution otherwise would be made, and

The new distribution cannot begin earlier than five
years after it would have begun without the election
to re-defer.

With respect to amounts deferred prior to 2005, to delay a
distribution the new distribution cannot begin until two years
after it would have begun without the election to re-defer.

Investments in the YUM! Stock Fund and YUM! Matching
Stock Fund are only distributed in shares of Company stock.

LRP

LRP Account Returns. The LRP provides an annual
earnings credit to each participant’s account based on the
value of participant’s account at the end of each year. Under
the LRP, Mr. Novak receives an annual earnings credit
equal to 120% of the applicable federal interest rate.
Mr. Grismer and Mr. Bergren receive an annual earnings
credit equal to 5%. The Company’s contribution (‘‘Employer
Credit’’) for 2014 is equal to 9.5% of salary plus target bonus
for Mr. Novak and Mr. Grismer and 28% for Mr. Bergren.

Distributions under LRP. Under the LRP, participants
age 55 or older are entitled to a lump sum distribution of
their account balance
their
separation of employment. Participants under age 55 with a
vested LRP benefit combined with any other deferred
compensation benefits covered under Code Section 409A
exceeds $15,000, will not receive a distribution until the
calendar quarter that follows the participants 55th birthday.

the quarter

following

EXECUTIVE COMPENSATION

RSUs attributable to annual incentive deferrals into the
YUM! Matching Stock Fund and matching contributions vest
on the second anniversary of the grant (or upon a change of
control of the Company, if earlier) and are payable as
shares of YUM common stock pursuant to the participant’s
deferral election. Unvested RSUs held in a participant’s
YUM! Matching Stock Fund account are forfeited if the
participant voluntarily terminates employment with the
Company within two years of the deferral date. If a
participant terminates employment involuntarily, the portion
of the account attributable to the matching contributions is
forfeited and the participant will receive an amount equal to
the amount of the original amount deferred. If a participant
dies or becomes disabled during the restricted period, the
participant fully vests in the RSUs. Dividend equivalents are
accrued during the restricted period but are only paid if the
RSUs vest. RSUs held by a participant who has attained
age 65 with five years of service vest immediately. In the
case of a participant who has attained age 55 with 10 years
of service, RSUs attributable to pre-2009 bonus deferrals
into the YUM! Matching Stock Fund vest immediately and
RSUs attributable to the matching contribution vest on a pro
rata basis during the period beginning on the date of grant
and ending on the first anniversary of the grant and are fully
vested on the first anniversary.

Distributions under EID Program. When participants elect
to defer amounts into the EID Program, they also select
when the amounts ultimately will be distributed to them.
Distributions may either be made in a specific year —
whether or not employment has then ended — or at a time
that begins at or after the executive’s retirement, separation
or termination of employment.

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Distributions can be made in a lump sum or up to 20 annual
installments. Initial deferrals are subject to a minimum two
year deferral. In general, with respect to amounts deferred
after 2005 or not fully vested as of January 1, 2005,
their distribution schedule,
participants may change
provided the new elections satisfy the requirements of

YUM! BRANDS, INC.

2015 Proxy Statement

EXECUTIVE COMPENSATION

TCN

TCN Account Returns. The TCN provides an annual earnings credit to each to each participant’s account based on the value of
participant’s account at the end of each year. Under the TCN, Mr. Creed receives an annual earnings credit equal to 5%. For
Mr. Creed, the Employer Credit for 2014 was equal to 15% of his salary plus target bonus.

Distributions under TCN. Under the TCN, participants age 55 or older with a balance of $15,000 or more, are entitled to a lump
sum distribution of their account balance in the quarter following their separation of employment. Participants under age 55 who
separate employment with the Company will receive interest annually and their account balance will be distributed in the quarter
following their 55th birthday.

Name

(a)

Novak

Grismer

Creed

Bergren

Executive
Contributions
in Last FY
($)(1)

Registrant
Contributions
in Last FY
($)(2)

Aggregate
Earnings in
Last FY
($)(3)

Aggregate
Withdrawals/
Distributions
($)(4)

(b)

939,600

277,875

614,790

2,074,125

—

(c)

358,150

135,850

—

225,000

406,000

(d)

100,369

26,630

168,463

308,443

103,137

(e)

12,387

29,719

4,949,209

1,478,019

12,721

Aggregate
Balance at
Last FYE
($)(5)

(f)

232,612,208

2,888,799

4,350,845

9,271,429

9,822,950

(1)

(2)

(3)

(4)

(5)

Amounts in column (b) reflect amounts that were also reported as compensation in our Summary Compensation Table filed last year or,
would have been reported as compensation in our Summary Compensation Table last year if the executive were a NEO.
Amounts in column (c) reflect Company contributions for EID Program matching contribution, LRP and/or TCN allocation as follows:
Mr. Novak, $358,150 LRP allocation; Mr. Grismer, $135,850 LRP allocation; Mr. Creed, $225,000 TCN allocation; and Mr. Bergren,
$406,000 LRP allocation. See footnote 5 of the Summary Compensation Table for more detail.
Amounts in column (d) reflect earnings during the last fiscal year on deferred amounts. All earnings are based on the investment alternatives
offered under the EID Program or the earnings credit provided under the LRP or the TCN described in the narrative above this table. The EID
Program earnings are market based returns and, therefore, are not reported in the Summary Compensation Table. For Messrs. Grismer and
Bergren, of their earnings reflected in this column, $9,087 and $55,905 respectively were deemed above market earnings accruing to each of
their accounts under the LRP. For Mr. Creed, of his earnings reflected in this column, $16,726 were deemed above market earnings accruing
to his account under the TCN. Mr. Novak receives a market rate of interest on his account under the LRP. For above market earnings on
nonqualified deferred compensation, see the ‘‘Change in Pension Value and Nonqualified Deferred Compensation Earnings’’ column of the
Summary Compensation Table.
All amounts shown in column (e) were distributed in accordance with the executive’s deferral election, except in the case of the following
amounts distributed to pay payroll taxes due upon their account balance under the EID Program, LRP or TCN for 2014.

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Grismer

Creed

Bergren

12,387

29,718

70,778

12,721

Amounts reflected in column (f) are the year-end balances for each executive under the EID Program, TCN and the LRP. As required under
SEC rules, below is the portion of the year-end balance for each executive which has previously been reported as compensation to the
executive in the Company’s Summary Compensation Table for 2014 and prior years.

Novak

Grismer

Creed

Bergren

87,578,135

2,500,045

3,798,759

4,519,162

—

2015 Proxy Statement

YUM! BRANDS, INC.

EXECUTIVE COMPENSATION

Potential Payments Upon Termination or Change in
Control

The information below describes and quantifies certain
compensation that would become payable under existing
plans and arrangements if the NEO’s employment had
terminated on December 31, 2014, given the NEO’s
compensation and service levels as of such date and, if
applicable, based on the Company’s closing stock price on
that date. These benefits are in addition to benefits available
generally to salaried employees, such as distributions under
the Company’s 401(k) Plan, retiree medical benefits,
disability benefits and accrued vacation pay.

Due to the number of factors that affect the nature and
amount of any benefits provided upon the events discussed
below, any actual amounts paid or distributed may be
different. Factors that could affect these amounts include
the timing during the year of any such event, the Company’s
stock price and the executive’s age.

for any

reason other

If one or more NEOs
Stock Options and SAR Awards.
than
terminated employment
retirement, death, disability or following a change in control
as of December 31, 2014, they could exercise the stock
options and SARs that were exercisable on that date as
shown at the Outstanding Equity Awards at Year-End table
on page 50, otherwise all options and SARs, pursuant to
their terms, would have been forfeited and cancelled after
that date. If the NEO had retired, died or become disabled
as of December 31, 2014, exercisable stock options and
SARs would remain exercisable through the term of the
award. Except in the case of a change in control, no stock
options or SARs become exercisable on an accelerated
basis. Benefits a NEO may receive on a change of control
are discussed below.

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Executive Income Deferral Program. As described in
more detail beginning at page 55, the NEOs participate in
the EID Program, which permits the deferral of salary and
annual incentive compensation. The last column of the
Nonqualified Deferred Compensation Table on page 57
includes each NEO’s aggregate balance at December 31,
2014. The NEOs are entitled to receive their vested amount
under the EID Program in case of voluntary termination of
employment. In the case of involuntary termination of
employment, they are entitled to receive their vested benefit
and the amount of the unvested benefit that corresponds to
their deferral. In the case of death, disability or retirement
after age 65, they or their beneficiaries are entitled to their
entire account balance as shown in the last column of the
Nonqualified Deferred Compensation table on page 57.

In the case of an involuntary termination of employment as
of December 31, 2014, each NEO would receive the
following: Mr. Novak $202,267,298; Mr. Grismer
$2,201,021; Mr. Su $4,350,845; Mr. Creed $8,036,363; and
Mr. Bergren $5,996,863. As discussed at page 57, these
amounts reflect bonuses previously deferred by the

YUM! BRANDS, INC.

2015 Proxy Statement

executive and appreciation on these deferred amounts (see
page 55 for discussion of investment alternatives available
under the EID). In Mr. Novak’s case, over 80% of his
balance is invested in Company RSUs, which he will receive
in the form of Company stock following his retirement. The
other NEOs’ EID balances are invested primarily in RSUs.
Thus, Mr. Novak and the other NEOs’ EID account balances
represent deferred bonuses (earned in prior years) and
appreciation of their accounts based primarily on the
performance of the Company’s stock.

Leadership Retirement Plan. Under the LRP, participants
age 55 are entitled to a lump sum distribution of their
account balance following their termination of employment.
Participants under age 55 who terminate with more than five
years of service will receive their account balance at their
55th birthday. In case of termination of employment as of
December 31, 2014, Mr. Novak would have received
$30,344,910. Mr. Grismer would receive $687,778 when he
attains age 55 and Mr. Bergren would have received
$3,826,087.

the quarter

Third Country National Plan. Under the TCN, participants
age 55 or older are entitled to a lump sum distribution of
their
their account balance
termination of employment. Participants under age 55 who
terminate will receive interest annually and their account
balance will be distributed in the quarter following their
55th birthday. In case of termination of employment as of
December 31, 2014, Mr. Creed would have received
$1,235,066.

following

for any

reason other

If one or more NEOs
Performance Share Unit Awards.
terminated employment
than
retirement or death or following a change in control and prior
to achievement of the performance criteria and vesting
period, then the award would be cancelled and forfeited. If
the NEO had retired, or died as of December 31, 2014, the
PSU award would be paid out based on actual performance
for the performance period, subject to a pro rata reduction
reflecting the portion of the performance period not worked
by the NEO. If any of these terminations had occurred on
December 31, 2014, Messrs. Novak, Grismer, Su, Creed
and Bergren would have been entitled to $2,212,622,
$234,374, $493,299, $313,610 and $260,138, respectively,
assuming target performance.

Pension Benefits. The Pension Benefits Table on page 53
describes the general terms of each pension plan in which
the NEOs participate, the years of credited service and the
present value of the annuity payable to each NEO assuming
termination of employment as of December 31, 2014. The
table on page 54 provides the present value of the lump sum
benefit payable to each NEO when they attain eligibility for
Early Retirement (i.e., age 55 with 10 years of service)
under the plans.

Life
the
Insurance Benefits. For a description of
supplemental life insurance plans that provide coverage to
the NEOs, see the All Other Compensation Table on
page 47. If the NEOs had died on December 31, 2014, the
survivors of Messrs. Novak, Grismer, Su, Creed and
Bergren would have received Company-paid life insurance
of $3,360,000; $1,430,000; $2,365,000; $1,500,000; and
$1,450,000,
this arrangement.
Executives and all other salaried employees can purchase
additional life insurance benefits up to a maximum
combined company paid and additional life insurance of
$3.5 million. This additional benefit is not paid or subsidized
by the Company and, therefore, is not shown here.

respectively, under

in Control. Change

in control severance
Change
agreements are in effect between YUM and certain key
executives (including Messrs. Novak, Grismer, Su, Creed
and Bergren). These agreements are general obligations of
YUM, and provide, generally, that if, within two years
subsequent to a change in control of YUM, the employment
of the executive is terminated (other than for cause, or for
other limited reasons specified in the change in control
severance agreements) or
terminates
employment for Good Reason (defined in the change in
control severance agreements to include a diminution of
duties and responsibilities or benefits), the executive will be
entitled to receive the following:

the executive

•

a proportionate annual incentive assuming achievement
of target performance goals under the bonus plan or, if
higher, assuming continued achievement of actual
Company performance until date of termination,

a severance payment equal to two times the sum of the
executive’s base salary and the target bonus or, if higher,
the actual bonus for the year preceding the change in
control of the Company, and

outplacement services for up to one year following
termination.

In March 2013, the Company eliminated excise tax
gross-ups and implemented a best net after-tax method.
See the Company’s CD&A on page 43 for more detail.

The change in control severance agreements have a
three-year term and are automatically renewable each
January 1 for another three-year term. An executive whose
employment is not terminated within two years of a change
in control will not be entitled to receive any severance
in control severance
payments under
agreements.

the change

Generally, pursuant to the agreements, a change in control
is deemed to occur:

(i)

if any person acquires 20% or more of the Company’s
voting securities (other than securities acquired directly
from the Company or its affiliates);

EXECUTIVE COMPENSATION

(ii)

if a majority of the directors as of the date of the
agreement are replaced other
in specific
circumstances; or

than

(iii) upon the consummation of a merger of the Company or
any subsidiary of the Company other than (a) a merger
where the Company’s directors immediately before the
change in control constitute a majority of the directors
of the resulting organization, or (b) a merger effected to
implement a recapitalization of the Company in which
no person is or becomes the beneficial owner of
securities of the Company representing 20% or more of
the combined voting power of
the Company’s
then-outstanding securities.

In addition to the payments described above, upon a
change in control:

•

All stock options and SARs granted prior to 2013 and held
by the executive will automatically vest and become
exercisable. For all stock options and SARs granted
beginning in 2013, outstanding awards will fully and
immediately vest following a change in control if the
executive is employed on the date of the change in
control of the Company and is involuntarily terminated
(other than by the Company for cause) on or within two
years following the change in control. See Company’s
CD&A on page 43 for more detail.

All RSUs under the Company’s EID Program held by the
executive will automatically vest.

All PSU awards under the Company’s Performance
Share Plan awarded in the year in which the change in
control occurs will be paid out at target assuming a target
level performance had been achieved for the entire
performance period, subject to a pro rata reduction to
reflect the portion of the performance period after the
change in control. All PSUs awarded for performance
periods that began before the year in which the change in
control occurs will be paid out assuming performance
achieved for the performance period was at the greater of
target
level of
performance at the time of the change in control, subject
to pro rata reduction to reflect the portion of the
performance period after the change in control, except
that
in 2013,
executives must be employed with the Company on the
date of the change in control and involuntarily terminated
upon or following the change in control and during the
performance period. See Company’s CD&A on page 43
for more detail.

for PSU awards granted beginning

level performance or projected

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YUM! BRANDS, INC.

EXECUTIVE COMPENSATION

If a change in control and each NEO’s involuntary termination had occurred as of December 31, 2014, the following payments or
other benefits would have been made or become available.

Severance Payment

Annual Incentive

Novak
$

Grismer
$

Su
$

Creed
$

Bergren
$

$ 7,540,000

$ 2,860,000

$ 4,730,000

$4,523,250

$2,900,000

2,320,000

715,000

1,265,000

1,511,625

725,000

Accelerated Vesting of Stock Options and SARs

7,885,976

3,208,794

2,689,878

2,083,063

1,609,157

Accelerated Vesting of RSUs

—

1,216,024

13,633,878

—

Acceleration of PSU Performance/Vesting

2,212,622

234,374

493,299

313,610

260,138

Outplacement

TOTAL

25,000

19,983,598

8,259,192

22,837,055

8,456,548

5,519,295

If a change in control without an involuntary termination had occurred as of December 31, 2014, the following benefits would have
become available.

Novak
$

Grismer
$

Su
$

Creed
$

Bergren
$

Accelerated Vesting of Stock Options and SARs

$ 4,508,371

$ 1,998,691

$ 1,535,339

$1,067,441

$ 792,381

Accelerated Vesting of RSUs

Acceleration of PSU Performance/Vesting

—

1,216,024

13,633,878

—

TOTAL

4,508,371

3,214,715

15,169,217

1,067,441

792,381

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YUM! BRANDS, INC.

2015 Proxy Statement

DIRECTOR COMPENSATION

As described more fully below, this table summarizes compensation paid to each non-employee director during 2014.

Name

(a)

Cavanagh, Michael

Dorman, David

Ferragamo, Massimo

Graddick-Weir, Mirian

Grissom, David(1)

Hill, Bonnie

Linen, Jonathan

Nelson, Thomas

Ryan, Thomas

Stock, Elane

Walter, Robert

Fees Earned or
Paid in Cash
($)

Stock Option/SAR
Awards
($)(3)(4)

Awards
($)(2)

All Other
Compensation
($)(5)

(b)

(c)

— 170,000

—

85,000

— 170,000

— 190,000

— 195,000

— 180,833

— 185,000

(d)

32,814

—

32,814

31,930

32,814

Total
($)

(f)

(e)

— 202,814

10,000

212,814

— 202,814

5,000

207,814

10,000

7,250

210,064

10,000

212,814

10,000

232,814

— 227,814

— 212,764

10,000

227,814

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(1) Mr. Grissom retired from the Board effective as of the date of the Company’s 2014 annual meeting held May 1, 2014.
(2)

Amounts in column (c) represent the grant date fair value for annual stock retainer awards granted to directors in 2014.
Amounts in column (d) represent the grant date fair value for annual SARs granted in fiscal 2014. For a discussion of the assumptions used
to value the awards, see the discussion of stock awards and option awards contained in Part II, Item 8, ‘‘Financial Statements and
Supplementary Data’’ of the 2014 Annual Report in Notes to Consolidated Financial Statements at Note 14, ‘‘Share-based and Deferred
Compensation Plans.’’
At December 31, 2014, the aggregate number of options and SARs awards outstanding for each non-management director was:

(3)

(4)

Name

Cavanagh, Michael

Dorman, David

Ferragamo, Massimo

Graddick-Weir, Mirian

Hill, Bonnie

Linen, Jonathan

Nelson, Thomas

Ryan, Thomas

Stock, Elane

Walter, Robert

Options

SARs

—

6,252

— 28,150

—

8,391

5,056

28,150

5,056

28,150

— 19,733

5,056

28,150

—

1,927

— 21,717

(5)

Represents amount of matching charitable contributions made on behalf of the director under the Company’s matching gift program and/or
the amount of charitable contribution made in the director’s name.

The Company uses a combination of cash and stock-based
incentive compensation to attract and retain qualified
candidates to serve on the Board. In setting director
compensation, the Company considers the significant
amount of time that directors expend in fulfilling their duties
to the Company as well as the skill level required by the
Company of members of the Board. The Board typically
reviews each element of director compensation every two
years.

In 2014, the Management Planning and Development
Committee of the Board (‘‘Committee’’) benchmarked the
Company’s director compensation against director

compensation from the Company’s Executive Peer Group
discussed at page 36 as well as published survey data from
the National Association of Corporate Directors for the
largest 200 companies in the S&P 500. Data for this review
was prepared for the Committee by its independent
consultant, Meridian Compensation Partners LLC. This
data revealed that the Company’s director compensation
was below the 50th percentile against both benchmarks and
that the retainers paid to the Lead Director and the
Chairpersons of the Audit Committee and the Management
Planning were consistent with market practice. Following its
to change director
review,

the Board elected not

2015 Proxy Statement

YUM! BRANDS, INC.

DIRECTOR COMPENSATION

compensation or the retainers paid to the Chairpersons or
Lead Director during 2014 and determined that it will review
them again in 2015.

Employee Directors. Employee directors do not receive
additional compensation for serving on the Board of
Directors.

Non-Employee Directors Annual Compensation. Each
director who is not an employee of YUM receives an annual
stock grant retainer with a fair market value of $170,000 and
an annual grant of vested SARs with respect to $150,000
worth of YUM common stock (‘‘face value’’) with an exercise
price equal to the fair market value of Company stock on the
date of grant. Directors may request to receive up to
one-half of their stock retainer in cash. The request must be
submitted to the Chair of the Management Planning and
Development Committee. For 2014, Bonnie Hill requested
and received approval by the Committee Chair for a cash
payment equal to one-half of her stock retainer. Directors
may also defer payment of their retainers pursuant to the
Directors Deferred Compensation Plan. Deferrals are
invested in phantom Company stock and paid out in shares
of Company stock. Deferrals may not be made for less than
two years. In recognition of their added duties, the Lead
Director of the Board (Mr. Ryan in 2014) receives an
additional $25,000 stock retainer annually, the Chair of the
Audit Committee (Mr. Nelson in 2014) receives an
additional $20,000 stock retainer annually and the Chair of
the Management Planning and Development Committee
(Mr. Walter in 2014) receives an additional $15,000 stock
retainer annually.

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15MAR201511093851

Initial Stock Grant upon Joining Board. Non-employee
directors also receive a one-time stock grant with a fair
market value of $25,000 on the date of grant upon joining
the Board, distribution of which is deferred until termination
from the Board.

Stock Ownership Requirements. Similar to executive
officers, directors are subject
to share ownership
requirements. The directors’ requirements provide that
directors will not sell any of the Company’s common stock
received as compensation for service on the Board until the
director has ceased being a member of the Board for one
year (sales are permitted to cover income taxes attributable
to any stock retainer payment or exercise of a stock option
or SAR).

Matching Gifts. To further YUM’s support for charities,
non-employee directors are able to participate in the YUM!
Brands, Inc. Matching Gifts Program on the same terms as
YUM’s employees. Under this program, the YUM! Brands
Foundation will match up to $10,000 a year in contributions
by the director to a charitable institution approved by the
YUM! Brands Foundation. At its discretion, the Foundation
may match director contributions exceeding $10,000.

Insurance. We also pay the premiums on directors’ and
officers’ liability and business travel accident insurance
policies. The annual cost of
this coverage was
approximately $2 million. This is not included in the tables
above as it is not considered compensation to the directors.

YUM! BRANDS, INC.

2015 Proxy Statement

EQUITY COMPENSATION PLAN INFORMATION

The following table summarizes, as of December 31, 2014, the equity compensation plans under which we may issue shares of
stock to our directors, officers and employees under the 1999 Long Term Incentive Plan (‘‘1999 Plan’’), the 1997 Long Term
Incentive Plan (the ‘‘1997 Plan’’), SharePower Plan and Restaurant General Manager Stock Option Plan (‘‘RGM Plan’’).

Plan Category

Equity compensation plans approved by security holders

Equity compensation plans not approved by security holders(4)

TOTAL

Number of
Securities To
be Issued Upon
Exercise of
Outstanding
Options, Warrants
and Rights

Weighted-
Average
Exercise Price
of Outstanding
Options,
Warrants and
Rights

Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (a))

(a)

16,017,266(1)

255,917

16,273,183(1)

(b)

46.41(2)

54.69(2)

46.68(2)

(c)

6,445,530(3)

7,730,305

14,175,835(3)

(1)

Includes 5,329,592 shares issuable in respect of RSUs, performance units and deferred units.

(2) Weighted average exercise price of outstanding options and SARs only.
(3)

Includes 3,222,765 shares available for issuance of awards of stock units, restricted stock, restricted stock units and performance share unit
awards under the 1999 Plan.
Awards are made under the RGM Plan.

(4)

What are the key features of the 1999 Plan?

The 1999 Plan provides for the issuance of up to
70,600,000 shares of stock as non-qualified stock options,
incentive stock options, SARs, restricted stock, restricted
stock units, performance shares or performance units. Only
our employees and directors are eligible to receive awards
under the 1999 Plan. The purpose of the 1999 Plan is to
motivate participants to achieve long range goals, attract
and
incentives
competitive with other similar companies and align the
interest of employees and directors with those of our
shareholders. The 1999 Plan is administered by the
Management Planning and Development Committee of the
Board of Directors (the ‘‘Committee’’). The exercise price of

retain eligible employees, provide

a stock option grant or SAR under the 1999 Plan may not be
less than the average market price of our stock on the date
of grant for years prior to 2008 or the closing price of our
stock on the date of the grant beginning in 2008, and no
options or SARs may have a term of more than ten years.
The options and SARs that are currently outstanding under
the 1999 Plan generally vest over a one to four year period
and expire ten years from the date of the grant. Our
shareholders approved the 1999 Plan in May 1999, and the
plan as amended in 2003 and again in 2008. The
performance measures of the 1999 Plan were re-approved
by our shareholders in May 2013.

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What are the key features of the 1997 Plan?

The 1997 Plan provides for the issuance of up to
90,000,000 shares of stock. Effective January 1, 2002, only
restricted shares could be issued under this plan. This plan
is utilized with respect to payouts on shares from our

deferral plans and was originally approved by PepsiCo, Inc.
as the sole shareholder of the Company in 1997, prior to the
spin-off of the Company from PepsiCo, Inc. on October 6,
1997.

What are the key features of the SharePower Plan?

The SharePower Plan provides for the issuance of up to
28,000,000 shares of stock. The SharePower Plan allows
us to award non-qualified stock options, SARs, restricted
stock and restricted stock units. Employees, other than
executive officers, are eligible to receive awards under the
SharePower Plan. The SharePower Plan is administered by

the Committee. The exercise price of a stock option or SAR
grant under the SharePower Plan may not be less than the
closing price of our stock on the date of the grant and no
option or SAR may have a term of more than ten years. The
the
options
SharePower Plan generally vest over a one to four year

that are currently outstanding under

2015 Proxy Statement

YUM! BRANDS, INC.

EQUITY COMPENSATION PLAN INFORMATION

period beginning on the date of grant. The SharePower Plan
was originally approved by PepsiCo, Inc. as the sole

shareholder of the Company in 1997, prior to the spin-off of
the Company from PepsiCo, Inc. on October 6, 1997.

What are the key features of the RGM Plan?

The RGM Plan provides for the issuance of up to
30,000,000 shares of common stock at a price equal to or
greater than the closing price of our stock on the date of
grant. The RGM Plan allows us to award non-qualified stock
options, SARs, restricted stock and RSUs. Employees,
other than executive officers, are eligible to receive awards
under the RGM Plan. The purpose of the RGM Plan is (i) to
give
the
opportunity to become owners of stock, (ii) to align the
interests of RGMs with those of YUM’s other shareholders,
(iii) to emphasize that the RGM is YUM’s #1 leader, and
(iv) to reward the performance of RGMs. In addition, the

restaurant general managers

(‘‘RGMs’’)

Plan provides incentives to Area Coaches, Franchise
Business Leaders and other supervisory field operation
positions that support RGMs and have profit and loss
responsibilities within a defined region or area. While all
non-executive officer employees are eligible to receive
awards under the RGM plan, all awards granted have been
to RGMs or their direct supervisors in the field. Grants to
RGMs generally have four year vesting and expire after ten
years. The RGM Plan is administered by the Committee,
and the Committee has delegated its responsibilities to the
Chief People Officer of the Company. The Board of
Directors approved the RGM Plan on January 20, 1998.

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YUM! BRANDS, INC.

2015 Proxy Statement

AUDIT COMMITTEE REPORT

Who serves on the Audit Committee of the Board of Directors?

The members of
the Audit Committee are Mirian
Graddick-Weir, Bonnie G. Hill, Jonathan S. Linen, Elane B.
Stock and Thomas C. Nelson, Chair.

Committee, is qualified as an audit committee financial
expert within the meaning of SEC regulations. The Board
has also determined that Mr. Nelson has accounting and
related financial management expertise within the meaning
of the listing standards of the NYSE and that each member
is financially literate within the meaning of the NYSE listing
standards.

What document governs the activities of the Audit Committee?

The Audit Committee operates under a written charter
adopted by the Board of Directors. The Committee’s
responsibilities are set forth in this charter, which was
amended and restated effective November 22, 2013. The
charter is reviewed by management at least annually, and

any recommended changes are presented to the Audit
Committee for review and approval. The charter is available
on our Web site at www.yum.com/investors/governance/
charters.asp.

What are the responsibilities of the Audit Committee?

the

requirements,

The Audit Committee assists the Board in fulfilling its
responsibilities for general oversight of the integrity of the
Company’s financial statements, the adequacy of the
Company’s system of internal controls and procedures and
disclosure controls and procedures, the Company’s risk
management, the Company’s compliance with legal and
independent auditors’
regulatory
qualifications and independence and the performance of
the Company’s internal audit function and independent
auditors. The Committee has sole authority over the
selection of the Company’s independent auditors and
manages the Company’s relationship with its independent
auditors (who report directly to the Committee). The
Committee has
to obtain advice and
assistance from outside legal, accounting or other advisors
as the Committee deems necessary to carry out its duties
and receive appropriate funding, as determined by the
Committee, from the Company for such advice and
assistance.

the authority

The Committee met 9 times during 2014. The Committee
schedules its meetings with a view to ensuring that it
devotes appropriate attention to all of its tasks. The
Committee’s meetings generally include private sessions
with the Company’s independent auditors and with the
Company’s internal auditors, in each case without the
presence of the Company’s management, as well as
executive sessions consisting of only Committee members.
In addition to the scheduled meetings, senior management
confers with the Committee or its Chair from time to time, as
senior management deems advisable or appropriate, in

connection with issues or concerns that arise throughout the
year.

for

financial

financial reporting, and

independent auditors are responsible

Management is responsible for the Company’s financial
reporting process, including its system of internal control
over
the preparation of
consolidated financial statements in accordance with
accounting principles generally accepted in the U.S. The
Company’s
for
auditing those financial statements in accordance with
professional standards and expressing an opinion as to
their material conformity with U.S. generally accepted
accounting principles and for auditing the effectiveness of
the Company’s internal control over financial reporting. The
Committee’s responsibility is to monitor and review the
Company’s
reporting process and discuss
management’s report on the Company’s internal control
over financial reporting. It is not the Committee’s duty or
responsibility to conduct audits or accounting reviews or
procedures. The Committee has
relied, without
independent verification, on management’s representations
that the financial statements have been prepared with
integrity and objectivity and in conformity with accounting
principles generally accepted in the U.S. and that the
Company’s internal control over financial reporting is
relied, without
effective. The Committee has also
independent verification, on the opinion of the independent
auditors included in their report regarding the Company’s
financial statements and effectiveness of internal control
over financial reporting.

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2015 Proxy Statement

YUM! BRANDS, INC.

AUDIT COMMITTEE REPORT

What matters have members of the Audit Committee discussed with management and the
independent auditors?

As part of its oversight of the Company’s financial
statements, the Committee reviews and discusses with both
management and the Company’s independent auditors all
annual and quarterly financial statements prior to their
issuance. During 2014, management advised
the
Committee that each set of financial statements reviewed
in accordance with accounting
had been prepared
principles generally accepted in the U.S., and reviewed
significant accounting and disclosure issues with the
Committee. These reviews included discussions with the
independent auditors of matters required to be discussed
pursuant to Public Company Accounting Oversight Board
(‘‘PCAOB’’) Auditing Standard No. 16 (Communication with
Audit Committees), including the quality (not merely the
acceptability) of the Company’s accounting principles, the
reasonableness of significant judgments, the clarity of
disclosures in the financial statements and disclosures
related to critical accounting practices. The Committee has
also discussed with KPMG LLP matters relating to its
independence, including a review of audit and non-audit
fees and the written disclosures and letter received from
KPMG LLP required by applicable requirements of the

PCAOB regarding KPMG LLP’s communications with the
Committee concerning independence. The Committee also
considered whether non-audit services provided by the
independent auditors are compatible with the independent
auditors’ independence. The Committee also received
regular updates, and written summaries as required by the
PCAOB rules (for tax and other services), on the amount of
fees and scope of audit, audit-related, tax and other
services provided.

In addition, the Committee reviewed key initiatives and
programs aimed at strengthening the effectiveness of the
Company’s internal and disclosure control structure. As part
of this process, the Committee continued to monitor the
scope and adequacy of the Company’s internal auditing
program, reviewing staffing levels and steps taken to
internal
implement
procedures and controls. The Committee also reviews and
discusses legal and compliance matters with management,
and, as necessary or advisable,
the Company’s
independent auditors.

recommended

improvements

Has the Audit Committee made a recommendation regarding the audited financial statements for
fiscal 2014?

15MAR201511093851

Based on the Committee’s discussions with management
and the independent auditors and the Committee’s review
of the representations of management and the report of the
independent auditors to the Board of Directors, and subject
role and
to
limitations on
the Audit
responsibilities referred

the Committee’s
in
to above and

the

Committee Charter, the Committee recommended to the
Board of Directors that it include the audited consolidated
financial statements in the Company’s Annual Report on
Form 10-K for the fiscal year ended December 27, 2014 for
filing with the SEC.

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Who prepared this report?

This report has been furnished by the members of the Audit Committee:

Thomas C. Nelson, Chairperson
Mirian M. Graddick-Weir
Elane B. Stock

Bonnie G. Hill
Jonathan S. Linen

YUM! BRANDS, INC.

2015 Proxy Statement

ADDITIONAL INFORMATION

Who pays the expenses incurred in connection with the solicitation of proxies?

Expenses in connection with the solicitation of proxies will
be paid by us. Proxies are being solicited principally by mail,
by telephone and through the Internet. In addition, our
directors, officers and regular employees, without additional

compensation, may solicit proxies personally, by e-mail,
telephone, fax or special letter. We will reimburse brokerage
firms and others for their expenses in forwarding proxy
materials to the beneficial owners of our shares.

How may I elect to receive shareholder materials electronically and discontinue my receipt of paper
copies?

YUM shareholders with shares registered directly in their
name who received shareholder materials in the mail may
elect to receive future annual reports and proxy statements
from us and to vote their shares through the Internet instead
of receiving copies through the mail. We are offering this
service to provide shareholders with added convenience, to
reduce our environmental impact and to reduce Annual
Report printing and mailing costs.

To take advantage of this option, shareholders must
subscribe to one of the various commercial services that
offer access to the Internet. Costs normally associated with
electronic access, such as usage and telephone charges,
will be borne by the shareholder.

To elect this option, go to www.amstock.com, click on
Shareholder Account Access, log in and locate the option to

receive Company mailing via e-mail. Shareholders who
elect this option will be notified by mail how to access the
proxy materials and how to vote their shares on the Internet
or by phone.

receive

If you consent
future proxy materials
electronically, your consent will remain in effect unless it is
withdrawn by writing our Transfer Agent, American Stock
Transfer and Trust Company, LLC, 59 Maiden Lane, New
York, NY 10038 or by logging onto our Transfer Agent’s
website at www.amstock.com and following the applicable
instructions. Also, while this consent is in effect, if you
decide you would like to receive a hard copy of the proxy
materials, you may call, write or e-mail American Stock
Transfer and Trust Company, LLC.

I share an address with another shareholder and we received only one paper copy of the proxy
materials. How may I obtain an additional copy of the proxy materials?

The Company has adopted a procedure called
‘‘householding’’ which has been approved by the SEC. The
Company and some brokers household proxy materials,
delivering a single Notice and, if applicable, this proxy
statement and Annual Report, to multiple shareholders
sharing an address unless contrary instructions have been
received from the affected shareholders or they participate
in electronic delivery of proxy materials. Shareholders who
participate in householding will continue to access and
receive separate proxy cards. This process will help reduce
our printing and postage fees, as well as save natural

resources. If at any time you no longer wish to participate in
householding and would prefer to receive a separate proxy
statement, or if you are receiving multiple copies of the
proxy statement and wish to receive only one, please notify
your broker if your shares are held in a brokerage account or
us if you hold registered shares. You can notify us by
sending a written request to YUM! Brands, Inc., Investor
Relations, 1441 Gardiner Lane, Louisville, KY 40213 or by
calling Investor Relations at 1 (888) 298-6986 or by sending
an e-mail to yum.investor@yum.com.

May I propose actions for consideration at next year’s Annual Meeting of Shareholders or nominate
individuals to serve as directors?

Under the rules of the SEC, if a shareholder wants us to
include a proposal in our proxy statement and proxy card for
presentation at our 2016 Annual Meeting of Shareholders,
the proposal must be received by us at our principal
executive offices at YUM! Brands, Inc., 1441 Gardiner Lane,
Louisville, Kentucky 40213 by November 21, 2015. The

proposal should be sent to the attention of the Corporate
Secretary.

Under our bylaws, certain procedures are provided that a
shareholder must follow to nominate persons for election as
directors or to introduce an item of business at an Annual
Meeting of Shareholders that is not included in our proxy

2015 Proxy Statement

YUM! BRANDS, INC.

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ADDITIONAL INFORMATION

statement. These procedures provide that nominations for
director nominees and/or an item of business to be
introduced at an Annual Meeting of Shareholders must be
submitted in writing to our Corporate Secretary at our
principal executive offices and you must include information
set forth in our bylaws. We must receive the notice of your
intention to introduce a nomination or to propose an item of
business at our 2016 Annual Meeting no later than the date
specified in our bylaws. If the 2016 Annual Meeting is not
held within 30 days before or after the anniversary of the
date of this year’s Annual Meeting, then the nomination or
item of business must be received by the tenth day following
the earlier of the date of mailing of the notice of the meeting
or the public disclosure of the date of the meeting. Our
Annual Meeting of Shareholders is generally held on the
third Thursday of May. Assuming that our 2016 Annual
Meeting is held on schedule, we must receive notice of your
intention to introduce a nomination or other item of business
at that meeting by February 1, 2016.

The Board is not aware of any matters that are expected to
come before the 2015 Annual Meeting other than those
referred to in this proxy statement. If any other matter
should come before the Annual Meeting, the individuals
named on the form of proxy intend to vote the proxies in
accordance with their best judgment.

The chairman of the Annual Meeting may refuse to allow the
transaction of any business, or to acknowledge the
nomination of any person, not made in compliance with the
foregoing procedures.

Bylaw Provisions. You may contact YUM’s Corporate
Secretary at the address mentioned above for a copy of the
relevant bylaw provisions regarding the requirements for
making shareholder proposals and nominating director
candidates.

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YUM! BRANDS, INC.

2015 Proxy Statement

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(cid:2) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the fiscal year ended December 27, 2014
OR
(cid:6) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition

period from

Commission file number 1-13163

20AUG201022520755
YUM! BRANDS, INC.

(Exact name of registrant as specified in its charter)

North Carolina
(State or other jurisdiction of incorporation or organization)
1441 Gardiner Lane, Louisville, Kentucky
(Address of principal executive offices)

13-3951308
(I.R.S. Employer Identification No.)
40213
(Zip Code)

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

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT
Name of Each Exchange on Which Registered

Title of Each Class

Common Stock, no par value

New York Stock Exchange

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None

YES
(cid:2)

(cid:6)

NO
(cid:6)
(cid:2)

(cid:6)

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Indicate by check mark

•

if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was (cid:2)
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

whether the registrant has submitted electronically and posted on its corporate Website, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such (cid:2)
files).

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

(cid:2)

•

whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions
of ‘‘large accelerated filer’’, ‘‘accelerated filer’’ and ‘‘smaller reporting company’’ in Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer (cid:2)

Smaller reporting company (cid:6)

Non-accelerated filer (cid:6)

Accelerated filer (cid:6)

•

whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

(cid:6)

(cid:2)

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 14, 2014 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 $34,800,000,000. All executive officers and directors of the registrant have been deemed, solely for the purpose of
the foregoing calculation, to be ‘‘affiliates’’ of the registrant. The number of shares outstanding of the registrant’s Common Stock as of
February 10, 2015 was 433,115,252 shares.

DOCUMENTS INCORPORATED BY REFERENCE

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 1, 2015 are incorporated by reference into Part III.

Table of Contents

PART I

ITEM 1
ITEM 1A
ITEM 1B
ITEM 2
ITEM 3
ITEM 4

PART II

Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures

Market for the Registrant’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations

ITEM 5
ITEM 6
ITEM 7
ITEM 7A Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
ITEM 8
Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
ITEM 9
Controls and Procedures
ITEM 9A
ITEM 9B Other Information

PART III

ITEM 10
ITEM 11
ITEM 12
ITEM 13
ITEM 14

PART IV

Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services

ITEM 15

Exhibits and Financial Statement Schedules

2
6
9
10
10
11

12
14
16
35
36
70
70
70

71
71
71
71
71

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Forward-Looking Statements

In this Form 10-K, as well as in other written reports and oral statements that we make from time to time, we present ‘‘forward-looking statements’’
within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. We intend such forward-looking statements to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act
of 1995, and we are including this statement for purposes of complying with those safe harbor provisions.

Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. These statements often include
words such as ‘‘may,’’ ‘‘will,’’ ‘‘estimate,’’ ‘‘intend,’’ ‘‘seek,’’ ‘‘expect,’’ ‘‘project,’’ ‘‘anticipate,’’ ‘‘believe,’’ ‘‘plan’’ or other similar terminology. These
forward-looking statements are based on current expectations and assumptions and upon data available at the time of the statements and are
neither predictions nor guarantees of future events or circumstances. The forward-looking statements are subject to risks and uncertainties, which
may cause actual results to differ materially from those projected. Factors that could cause our actual results to differ materially from our
expectations and 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. You should not place undue reliance on forward-looking statements, which speak only as of the date hereof. In
making these statements, we are not undertaking to address or update any of our forward-looking statements set forth herein in future filings or
communications regarding our business results.

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YUM! BRANDS, INC. - 2014 Form 10-K 1

PART I

ITEM 1

Business

YUM! Brands, Inc. (referred to herein as ‘‘YUM’’, the ‘‘Registrant’’ or
the ‘‘Company’’), was incorporated under the laws of the state of North
Carolina in 1997. The principal executive offices of YUM are located at
1441 Gardiner Lane, Louisville, Kentucky 40213, and the telephone
number at that location is (502) 874-8300. Our website address is
http://yum.com.

and ‘‘our’’ are also used in the Form 10-K to refer to the Company.
Throughout this Form 10-K, the terms ‘‘restaurants,’’ ‘‘stores’’ and
‘‘units’’ are used interchangeably. While YUM! Brands, Inc., referred
to as the Company, does not directly own or operate any restaurants,
throughout this document we may refer to restaurants as being
Company-owned.

YUM, together with its subsidiaries, is referred to in this Form 10-K
annual report (‘‘Form 10-K’’) as the Company. The terms ‘‘we,’’ ‘‘us’’

Financial Information about Operating Segments

As of December 27, 2014, YUM consists of five operating segments:

•

YUM China (‘‘China’’ or ‘‘China Division’’) which includes all
operations in mainland China

YUM India (‘‘India’’ or ‘‘India Division’’) which includes all operations
in India, Bangladesh, Nepal and Sri Lanka

The KFC Division which includes all operations of the KFC concept
outside of China Division and India Division

The Pizza Hut Division which includes all operations of the Pizza Hut
concept outside of China Division and India Division

The Taco Bell Division which includes all operations of the Taco Bell
concept outside of India Division

Prior to 2014, our reporting segments consisted of Yum Restaurants
International (‘‘YRI’’), the United States, China and India. In the first

quarter of 2014 we changed our management reporting structure to
align our global operations outside of China and India by brand. As a
result, our YRI and United States reporting segments were combined,
and we began reporting this information by three new reporting
segments: KFC Division, Pizza Hut Division and Taco Bell Division.
China and India remain separate reporting segments. This new
structure is designed to drive greater global brand focus, enabling us
to more effectively share know-how and accelerate growth. While our
consolidated results have not been impacted, we have restated our
comparable segment information for consistent presentation.

Operating segment information for the years ended December 27,
2014, December 28, 2013 and December 29, 2012 for the Company
is included in Management’s Discussion and Analysis of Financial
Condition and Results of Operations (‘‘MD&A’’) in Part II, Item 7 and in
the related Consolidated Financial Statements in Part II, Item 8.

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Narrative Description of Business

General

YUM has over 41,000 restaurants in more than 125 countries and
territories. Primarily through the three concepts of KFC, Pizza Hut and
Taco Bell (the ‘‘Concepts’’), the Company develops, operates,
franchises and licenses a worldwide system of restaurants which
prepare, package and sell a menu of competitively priced food items.
Units are operated by a Concept or by independent franchisees or
licensees under the terms of franchise or license agreements.
Franchisees can range in size from individuals owning just one
restaurant to large publicly traded companies.

The China Division, based in Shanghai, China, comprises 6,715 units,
primarily Company-owned KFCs and Pizza Huts. In 2014, the China
Division recorded revenues of approximately $6.9 billion and
Operating Profit of $713 million. On February 1, 2012, we acquired a

controlling interest in Little Sheep Group Limited (‘‘Little Sheep’’), a
casual dining concept headquartered in Inner Mongolia, China. See
Note 4 for details. The Company also owns non-controlling interests in
Chinese entities who operate in a manner similar to franchisees and a
meat processing entity that supplies lamb to the Little Sheep
business. The KFC Division comprises 14,197 units, operating in 115
countries outside China and India and recorded revenues of
approximately $3.2 billion and Operating Profit of $708 million in 2014.
The Pizza Hut Division has 13,602 units, operating in 87 countries
outside China and India and recorded revenues of approximately
$1.1 billion and Operating Profit of $295 million in 2014. The Taco Bell
Division comprises 6,199 units, operating in 20 countries outside of
India, and recorded revenues of approximately $1.9 billion and
Operating Profit of $480 million in 2014. The India Division, based in
Delhi, India comprises 833 units. In 2014, India recorded revenues of
$141 million and an Operating Loss of $9 million.

2 YUM! BRANDS, INC. - 2014 Form 10-K

Restaurant Concepts

Most restaurants in each Concept offer consumers the ability to dine
in and/or carry out food. In addition, Taco Bell and KFC offer a
drive-thru option in many stores. Pizza Hut offers a drive-thru option
on a much more limited basis. Pizza Hut and KFC, on a more limited
basis primarily in China, offer delivery service.

Each Concept has proprietary menu items and emphasizes the
preparation of food with high quality ingredients, as well as unique
recipes and special seasonings
tasty,
convenient and attractive food at competitive prices.

to provide appealing,

The franchise programs of the Company are designed to promote
consistency and quality, and the Company is selective in granting
franchises. Under standard franchise agreements, franchisees supply
capital – initially by paying a franchise fee to YUM, by purchasing or
leasing the land, building, equipment, signs, seating, inventories and
supplies and, over the longer term, by reinvesting in the business.
Franchisees contribute to the Company’s revenues on an ongoing
basis through the payment of royalties based on a percentage of
sales.

The Company believes that it is important to maintain strong and open
relationships with its 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
including products, equipment,
operational
improvements and standards and management
techniques.

the business,

Following is a brief description of each Concept:

KFC

•

KFC was founded in Corbin, Kentucky by Colonel Harland D.
Sanders, an early developer of the quick service food business and
a pioneer of the restaurant franchise concept. The Colonel perfected
his secret blend of 11 herbs and spices for Kentucky Fried Chicken
in 1939 and signed up his first franchisee in 1952.

KFC operates in 120 countries and territories throughout the world.
As of year end 2014, KFC had 4,828 units in China, 395 units in India
and 14,197 units within the KFC Division. 77 percent of the China
units, 51 percent of the India units and 9 percent of the units outside
China and India are Company-owned.

KFC restaurants across the world offer fried and non-fried chicken
products such as sandwiches, chicken strips, chicken-on-the-bone
and other chicken products marketed under a variety of names. KFC
restaurants also offer a variety of entrees and side items suited to
local preferences and tastes. Restaurant decor throughout the world
is characterized by the image of the Colonel.

Pizza Hut

•

The first Pizza Hut restaurant was opened in 1958 in Wichita,
Kansas, and within a year, the first franchise unit was opened.
Today, Pizza Hut is the largest restaurant chain in the world
specializing in the sale of ready-to-eat pizza products.

Pizza Hut operates in 92 countries and territories throughout the
world. As of year end 2014, Pizza Hut had 1,572 units in China, 431
units in India and 13,602 units within the Pizza Hut Division. Nearly
100 percent of the China units, none of the India units and 6 percent
of the units outside China and India are Company-owned.

•

Pizza Hut operates in the delivery, carryout and casual dining
segments around the world. Outside of the U.S., Pizza Hut often

PART I
ITEM 1 Business

uses unique branding to differentiate these segments. Additionally,
a growing percentage of Pizza Hut’s customer orders are being
generated digitally.

•

Pizza Hut features a variety of pizzas which are marketed under
varying names. Each of these pizzas is offered with a variety of
different toppings suited to local preferences and tastes. Many Pizza
Huts also offer pasta and chicken wings, including nearly 5,700
stores offering wings under the brand WingStreet, primarily in the
U.S. Outside the U.S., Pizza Hut casual dining restaurants offer a
variety of core menu products other than pizza, which are typically
suited to local preferences and tastes. Pizza Hut units feature a
distinctive red roof logo on their signage.

Taco Bell

•

The first Taco Bell restaurant was opened in 1962 by Glen Bell in
Downey, California, and in 1964, the first Taco Bell franchise was
sold.

Taco Bell operates in 21 countries and territories throughout the
world. As of year end 2014, there were 6,199 Taco Bell units within
the Taco Bell Division, primarily in the U.S., and 7 units in India.
15 percent of the units within the Taco Bell Division and 100 percent
of the India units are Company-owned.

Taco Bell specializes in Mexican-style food products, including
various types of tacos, burritos, quesadillas, salads, nachos and
other related items. In 2014, Taco Bell rolled out breakfast items in
its U.S. stores. Taco Bell units feature a distinctive bell logo on their
signage.

Restaurant Operations

Through its Concepts, YUM develops, operates, franchises and
licenses a worldwide system of both traditional and non-traditional
Quick Service Restaurants (‘‘QSR’’). Traditional units feature dine-in,
carryout and, in some instances, drive-thru or delivery services.
Non-traditional units, which are typically licensed outlets, include
express units and kiosks which have a more limited menu, usually
generate lower sales volumes and operate in non-traditional locations
like malls, airports, gasoline service stations, train stations, subways,
convenience stores, stadiums, amusement parks and colleges, where
a full-scale traditional outlet would not be practical or efficient.

Restaurant management structure varies by Concept and unit size.
Generally, each Concept-owned restaurant is led by a restaurant
general manager (‘‘RGM’’), together with one or more assistant
managers, depending on the operating complexity and sales volume
of the restaurant. Most of the employees work on a part-time basis.
Each Concept issues detailed manuals, which may then be
customized to meet local regulations and customs. These manuals
set forth standards and requirements for all aspects of restaurant
operations, including food safety and quality, food handling and
product preparation procedures, equipment maintenance, facility
standards and accounting control procedures. The restaurant
management teams are responsible for the day-to-day operation of
each unit and for ensuring compliance with operating standards.
CHAMPS – which stands for Cleanliness, Hospitality, Accuracy,
Maintenance, Product Quality and Speed of Service – is our
proprietary systemwide program
training, measuring and
rewarding employee performance against key customer measures.
CHAMPS is intended to align the operating processes of our entire
system around one core set of standards. RGMs’ efforts, including
CHAMPS performance measures, are monitored by Area Coaches.
Area Coaches typically work with approximately six to twelve
restaurants. Various senior operators visit restaurants from time to

for

YUM! BRANDS, INC. - 2014 Form 10-K 3

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time to promote adherence to system standards and mentor
restaurant team members.

Supply and Distribution

The use of these marks by franchisees and licensees has been
authorized in our franchise and license agreements. Under current
law and with proper use, the Company’s rights in its marks can
generally last indefinitely. The Company also has certain patents on
restaurant equipment which, while valuable, are not material to its
business.

The Company’s Concepts, including Concept units operated by its
franchisees, are substantial purchasers of a number of food and paper
products, equipment and other restaurant supplies. The principal Working Capital
items purchased include chicken, cheese, beef and pork products,
paper and packaging materials. The Company has not experienced
any significant continuous shortages of supplies, and alternative
sources for most of these products are generally available. Prices paid
for these supplies fluctuate. 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 practically.

Seasonal Operations

Information about the Company’s working capital is included in MD&A
in Part II, Item 7 and the Consolidated Statements of Cash Flows in
Part II, Item 8.

China Division.
In China, we partner with approximately 600
independent suppliers, mostly China-based, providing a wide range of
products. The Company, along with multiple independently owned
and operated distributors, utilizes approximately 20 logistic centers to
distribute restaurant products to our Company and franchise stores.
We also own a seasoning facility and a non-controlling interest in a
meat processing facility in Inner Mongolia, both of which supply
products to our Little Sheep business, as well as third-party
customers.

Other Divisions.
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’’), which is responsible for purchasing certain
restaurant products and equipment. The core mission of RSCS is to
provide the lowest possible sustainable store-delivered prices for
restaurant products and equipment. This arrangement combines the
purchasing power of the Company-owned and franchisee restaurants
which the Company believes leverages the system’s scale to drive
cost savings and effectiveness in the purchasing function. The
Company also believes that RSCS fosters closer alignment of
interests and a stronger relationship with its franchisee community.

Most food products, paper and packaging supplies, and equipment
used in restaurant operations are distributed to individual restaurant
units by third-party distribution companies. In the U.S., McLane
Company, Inc. (‘‘McLane’’) is the exclusive distributor for the majority
of items used in Company-owned restaurants and for a substantial
number of franchisee and licensee stores. The Company entered into
an agreement with McLane effective January 1, 2011 relating to
distribution to Company-owned restaurants. This agreement extends
through December 31, 2016 and generally restricts Company-owned
restaurants from using alternative distributors for most products.

Outside the U.S., we and our franchisees use decentralized sourcing
and distribution systems involving many different global, regional and
local suppliers and distributors. We have approximately 3,000
suppliers, including U.S.-based suppliers that export to many
countries.

Trademarks and Patents

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The Company does not consider its operations to be seasonal to any
material degree.

Competition

The retail food industry, in which our Concepts compete, is made up of
supermarkets, supercenters, warehouse stores, convenience stores,
coffee shops, snack bars, delicatessens and restaurants (including
the QSR segment), and is intensely competitive with respect to food
quality, price, service, convenience, location and concept. The
industry is often affected by changes in consumer tastes; national,
regional or
fluctuations;
local economic conditions; currency
demographic trends; traffic patterns; the type, number and location of
competing food retailers and products; and disposable purchasing
power. Each of the Concepts competes with international, national
and regional restaurant chains as well as locally-owned restaurants,
not only for customers, but also for management and hourly
personnel, suitable real estate sites and qualified franchisees. Given
the various types and vast number of competitors, our Concepts do
not constitute a significant portion of the retail food industry in terms of
number of system units or system sales, either on a worldwide or
individual country basis.

Research and Development (‘‘R&D’’)

The Company operates R&D facilities in Shanghai, China (China
Division); Plano, Texas (KFC and Pizza Hut Divisions); Irvine,
California (Taco Bell Division); Louisville, Kentucky (KFC U.S.) and
several other locations outside the U.S. The Company expensed
$30 million, $31 million and $30 million in 2014, 2013 and 2012,
respectively, for R&D activities. From time to time, independent
suppliers also conduct research and development activities for the
benefit of the YUM system.

Environmental Matters

The Company is not aware of any federal, state or local environmental
laws or regulations that will materially affect its earnings or competitive
position, or result in material capital expenditures. However, the
Company cannot predict the effect on its operations of possible future
environmental legislation or regulations. During 2014, there were no
material capital expenditures for environmental control facilities and
no such material expenditures are anticipated.

The Company and its Concepts own numerous registered trademarks
and service marks. The Company believes that many of these marks,
including its Kentucky Fried Chicken(cid:2), KFC(cid:2), Pizza Hut(cid:2) and Taco
Bell(cid:2) marks, have significant value and are materially important to its
business. The Company’s policy is to pursue registration of its Government Regulation
important marks whenever feasible and to oppose vigorously any
infringement of its marks.

U.S. Operations. The Company and its U.S. operations are subject
to various federal, state and local laws affecting its business, including
laws and regulations concerning information security, labor, health,

4 YUM! BRANDS, INC. - 2014 Form 10-K

PART I
ITEM 1 Business

sanitation and safety. Each of the Concepts’ restaurants in the U.S.
must comply with licensing and regulation by a number of
governmental authorities, which include health, sanitation, safety, fire
and zoning agencies in the state and/or municipality in which the
restaurant is located. In addition, each Concept must comply with
various state and federal laws that regulate the franchisor/franchisee
relationship. To date, the Company has not been materially adversely
affected by such licensing and regulation or by any difficulty, delay or
failure to obtain required licenses or approvals.

International, China and
India Operations. The Company’s
restaurants outside the U.S. are subject to national and local laws and
regulations which are similar to those affecting U.S. restaurants. The
restaurants outside the U.S. are also subject to tariffs and regulations
on imported commodities and equipment and laws regulating foreign
investment, as well as anti-bribery and corruption laws.

See Item 1A ‘‘Risk Factors’’ for a discussion of risks relating to federal,
state, local and international regulation of our business.

Employees

As of year end 2014, the Company and its Concepts employed
approximately 537,000 persons, approximately 87 percent of whom
were part-time. 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. Some employees are subject to labor council relationships that
vary due to the diverse cultures in which the Company operates. The
Company and its Concepts consider their employee relations to be
good.

Financial Information about Geographic Areas

Financial information about our significant geographic areas is incorporated herein by reference from the related Consolidated Financial
Statements in Part II, Item 8.

Available Information

The Company makes available through the Investor Relations section
of its internet website at http://yum.com its annual report on
Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K and amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as
reasonably practicable after electronically filing such material with the
Securities and Exchange Commission (‘‘SEC’’) at http://www.sec.gov.
These reports may also be obtained by visiting the SEC’s Public
Reference Room at 100 F Street, NE, Washington, DC 20549 or by
calling the SEC at 1 (800) SEC-0330.

Our Corporate Governance Principles and our Code of Conduct are
also located within the Investor Relations section of the Company’s
website. The reference to the Company’s website address does not
constitute incorporation by reference of the information contained on
the website and should not be considered part of this document.
These documents, as well as our SEC filings, are available in print free
of charge to any shareholder who requests a copy from our Investor
Relations Department.

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YUM! BRANDS, INC. - 2014 Form 10-K 5

PART I

ITEM 1A

Risk Factors

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

Food safety and food-borne illness
concerns may have an adverse effect on
our business.

Food-borne illnesses, such as E. coli, hepatitis A, trichinosis or
salmonella, and food safety issues, such as food tampering,
contamination or adulteration, have occurred in the past and could
occur in the future. Any report or publicity linking us or one of our
Concept restaurants, including restaurants operated by our Concepts’
franchisees, to instances of food-borne illness or food safety issues
could adversely affect our Concepts’ brands and reputations as well
as our revenues and profits and possibly lead to litigation. If a
customer of our Concepts becomes ill from food-borne illnesses or as
a result of food safety issues, restaurants in our system may be
temporarily closed, which would decrease our revenues. In addition,
instances or allegations of food-borne illness or food safety issues,
restaurants of
real or perceived,
competitors, suppliers or distributors (regardless of whether we use or
have used those suppliers or distributors), or otherwise involving the
types of food served at our restaurants, could result in negative
publicity that could adversely affect our sales. The occurrence of
food-borne illnesses or food safety issues could also adversely affect
the price and availability of affected ingredients, which could result in
disruptions in our supply chain and/or lower margins for us and our
Concepts’ franchisees.

involving our

restaurants,

Our significant China operations subject
us to risks that could negatively affect
our business.

A significant and growing portion of our restaurants are located, and
our revenues and profits originate, in China. As a consequence, our
financial results are increasingly dependent on our results in China,
and our business is increasingly exposed to risks there. These risks
include changes
in economic conditions (including consumer
spending, unemployment levels and wage and commodity inflation),
consumer preferences, taxation (including income and non-income
based tax rates and laws) and the regulatory environment, as well as
increased media scrutiny of our business and industry and increased
competition. In addition, our results of operations in China and the
value of our Chinese assets are affected by fluctuations in currency
exchange rates, which may adversely affect reported earnings. There
can be no assurance as to the future effect of any such changes on
our results of operations, financial condition or cash flows.

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In addition, any significant or prolonged deterioration in U.S.-China
relations could adversely affect our China business. Certain risks and
uncertainties of doing business in China are solely within the control of
the Chinese government, and Chinese law regulates the scope of our
foreign investments and business conducted within China. There are
also uncertainties regarding the interpretation and application of laws
and regulations and the enforceability of intellectual property and
contract rights in China. If we were unable to enforce our intellectual

6 YUM! BRANDS, INC. - 2014 Form 10-K

property or contract rights in China, our business would be adversely
impacted.

Health concerns arising from outbreaks
of viruses or other diseases may have an
adverse effect on our business.

Outbreaks of avian flu occur from time to time around the world,
including in China where a significant portion of our profits and
revenues originate. It is possible that outbreaks in China and
elsewhere could reach pandemic levels. Public concern over avian flu
generally may cause fear about the consumption of chicken, eggs and
other products derived from poultry, which could cause customers to
consume less poultry and related products. This would likely result in
lower revenues and profits. Avian flu outbreaks could also adversely
affect the price and availability of poultry, which could negatively
impact our profit margins and revenues. Widespread outbreaks could
also affect our ability to attract and retain employees.

Furthermore, other viruses such as H1N1 or ‘‘swine flu’’ may be
transmitted through human contact, and the risk of contracting viruses
could cause employees or guests to avoid gathering in public places,
which could adversely affect restaurant guest traffic or the ability to
adequately staff restaurants. We could also be adversely affected if
jurisdictions in which we have restaurants impose mandatory
closures, seek voluntary closures or impose restrictions on operations
of restaurants. Even if such measures are not implemented and a
virus or other disease does not spread significantly, the perceived risk
of infection or health risk may affect our business.

Our foreign operations subject us to
risks that could negatively affect our
business.

A significant portion of our Concepts’ restaurants are operated in
countries and territories outside of the U.S., and we intend to continue
expansion of our international operations. As a result, our business is
increasingly exposed to risks inherent in foreign operations. These
risks, which can vary substantially by country, include political
instability, corruption, social and ethnic unrest, changes in economic
conditions (including consumer spending, unemployment levels and
wage and commodity inflation), the regulatory environment, income
and non-income based tax rates and laws and consumer preferences
as well as changes in the laws and policies that govern foreign
investment in countries where our restaurants are operated.

In addition, our results of operations and the value of our foreign
assets are affected by fluctuations in currency exchange rates, which
may adversely affect reported earnings. More specifically, an increase
in the value of the U.S. Dollar relative to other currencies, such as the
Australian Dollar, the British Pound, the Canadian Dollar and the
Euro, as well as currencies in certain emerging markets, such as the
Russian Ruble, could have an adverse effect on our reported
earnings. There can be no assurance as to the future effect of any
such changes on our results of operations, financial condition or cash
flows.

Failure to protect the integrity and
security of personal information of our
customers and employees could result in
substantial costs, expose us to litigation
and damage our reputation.

We receive and maintain certain personal financial and other
information about our customers and employees. The use of this
information is regulated by evolving and increasingly demanding laws,
as well as by certain third-party contracts. If our security and
information systems are compromised as a result of data corruption or
loss, cyber-attack or a network security incident or our employees,
franchisees or vendors fail to comply with these laws and regulations
and this information is obtained by unauthorized persons or used
inappropriately, it could result in liabilities and penalties and could
damage our reputation, cause us to incur substantial costs and result
in a loss of customer confidence, which could adversely affect our
restaurant operations and results of operations and financial
condition. Additionally, we could be subject to litigation and
government enforcement actions as a result of any such failure.

Shortages or interruptions in the
availability and delivery of food and other
supplies may increase costs or reduce
revenues.

The products sold by our Concepts and their franchisees are sourced
from a wide variety of domestic and international suppliers. We are
also dependent upon third parties to make frequent deliveries of food
products and supplies that meet our specifications at competitive
prices. Shortages or interruptions in the supply of food items and other
supplies to our restaurants could adversely affect the availability,
quality and cost of items we buy and the operations of our restaurants.
Such shortages or disruptions could be caused by inclement weather,
natural disasters such as floods, drought and hurricanes, increased
demand, problems in production or distribution, the inability of our
vendors to obtain credit, political instability in the countries in which
foreign suppliers and distributors are located, the financial instability of
suppliers and distributors, suppliers’ or distributors’ failure to meet our
standards, product quality issues, inflation, other factors relating to the
suppliers and distributors and the countries in which they are located,
food safety warnings or advisories or the prospect of such
pronouncements or other conditions beyond our control. 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 principal 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
distributor is engaged, and any disruption could have an adverse
effect on our business.

We may not attain our target
development goals, and aggressive
development could cannibalize existing
sales.

Our growth strategy depends in large part on our ability to increase our
net restaurant count in markets outside the U.S., especially China and
other emerging markets. The successful development of new units will
depend in large part on our ability and the ability of our Concepts’

PART I
ITEM 1A Risk Factors

franchisees to open new restaurants and to operate these restaurants
on a profitable basis. We cannot guarantee that we, or our Concepts’
franchisees, will be able to achieve our expansion goals or that new
restaurants will be operated profitably. Further, there is no assurance
that any new restaurant will produce operating results similar to those
of our existing restaurants. Other risks which could impact our ability
to increase our net restaurant count include prevailing economic
conditions and our, or our Concepts’ franchisees’, ability to obtain
suitable restaurant locations, negotiate acceptable lease or purchase
terms for the locations, obtain required permits and approvals in a
timely manner, hire and
train qualified personnel and meet
construction schedules.

Expansion into target markets could also be affected by our Concepts’
franchisees’ ability to obtain financing to construct and open new
restaurants. If it becomes more difficult or more expensive for our
Concepts’ franchisees to obtain financing to develop new restaurants,
the expected growth of our system could slow and our future revenues
and operating cash flows could be adversely impacted.

In addition, the new restaurants could impact the sales of our existing
restaurants nearby. There can be no assurance
that sales
cannibalization will not occur or become more significant in the future
as we increase our presence in existing markets.

Changes in commodity and other
operating costs could adversely affect
our results of operations.

Any increase in certain commodity prices, such as food, supply and
energy costs, could adversely affect our operating results. Because
our Concepts and their franchisees provide competitively priced food,
our ability to pass along commodity price increases to our customers
is limited. Significant increases in gasoline prices could also result in a
decrease of customer traffic at our restaurants or the imposition of fuel
surcharges by our distributors, each of which could adversely affect
our profit margins. Our operating expenses also include employee
wages and benefits and
insurance costs (including workers’
compensation, general liability, property and health) which may
increase over time. Any such increase could adversely affect our profit
margins.

Our operating results are closely tied to
the success of our Concepts’
franchisees.

A significant portion of our restaurants are operated by franchisees
from whom we derive a significant portion of our revenues in the form
of royalty payments. As a result, the success of our business depends
in part upon the operational and financial success of our Concepts’
franchisees. We have limited control over how our Concepts’
franchisees’ businesses are run, and the inability of our Concepts’
franchisees to operate successfully could adversely affect our
operating results through decreased royalty payments.

If franchisees incur too much debt or if economic or sales trends
deteriorate such that they are unable to operate profitably or repay
existing debt, it could result in financial distress, including insolvency
or bankruptcy. If a significant franchisee or a significant number of our
Concepts’ franchisees become financially distressed, our operating
results could be impacted through reduced or delayed royalty
payments or increased rent obligations for leased properties on which
we are contingently liable.

YUM! BRANDS, INC. - 2014 Form 10-K 7

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PART I
ITEM 1A Risk Factors

Our success depends substantially on
the value and perception of our brands.

Our success depends in large part upon our ability to maintain and
enhance the value of our brands and our customers’ connection to our
brands. Brand value is based in part on consumer perceptions on a
variety of subjective qualities. Business incidents, whether isolated or
recurring and whether originating from us, our franchisees or
suppliers, can significantly reduce brand value and consumer trust,
particularly if the incidents receive considerable publicity or result in
litigation. For example, our brands could be damaged by claims or
perceptions about the quality or safety of our products or the quality of
our suppliers, regardless of whether such claims or perceptions are
true. Any such incident could cause a decline in consumer confidence
in, or the perception of, our Concepts and/or our products and
decrease the value of our brands as well as consumer demand for our
products, which would likely result in lower revenues and profits.

Our inability or failure to recognize,
respond to and effectively manage the
accelerated impact of social media could
materially adversely impact our business.

There has been a marked increase in the use of social media
platforms, including weblogs (blogs), social media websites, and other
forms of Internet-based communications which allow individuals
access to a broad audience of consumers and other interested
persons. Many social media platforms immediately publish the
content their subscribers and participants post, often without filters or
checks on accuracy of the content posted. Information posted on such
platforms at any time may be adverse to our interests and/or may be
inaccurate. The dissemination of information online could harm our
business, prospects, financial condition, and results of operations,
regardless of the information’s accuracy. The harm may be immediate
without affording us an opportunity for redress or correction.

Other risks associated with the use of social media include improper
disclosure of proprietary information, negative comments about our
Concepts, exposure of personally identifiable information, fraud and
out-of-date information. The inappropriate use of social media by our
customers or employees could increase our costs, lead to litigation or
result in negative publicity that could damage our reputation.

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We could be party to litigation that could
adversely affect us by increasing our
expenses or subjecting us to significant
monetary damages and other remedies.

litigation (see

From time to time we are involved in a number of legal proceedings,
which include consumer, employment, tort, patent, securities,
derivative and other
the discussion of Legal
Proceedings in Note 18 to the consolidated financial statements
included in Item 8 of this Report). We are currently a defendant in
cases containing class action allegations in which the plaintiffs have
brought claims under federal and state wage and hour, disability and
other laws. We are also currently a defendant in securities and
derivative lawsuits alleging inadequate disclosures in violation of
federal securities laws. Plaintiffs in these types of lawsuits often seek
recovery of very large or indeterminate amounts, and the magnitude
of the potential loss relating to such lawsuits may not be accurately
estimated. Regardless of whether any claims against us are valid, or
whether we are ultimately held liable, such litigation may be expensive
to defend and may divert resources away from our operations and

8 YUM! BRANDS, INC. - 2014 Form 10-K

negatively impact reported earnings. With respect to insured claims, a
judgment for monetary damages in excess of any insurance coverage
could adversely affect our financial condition or results of operations.
Any adverse publicity resulting from these allegations may also
adversely affect our reputation, which in turn could adversely affect
our results.

In addition, the restaurant industry has been subject to claims that
relate to the nutritional content of food products, as well as claims that
the menus and practices of restaurant chains have led to the obesity
of some customers. We may also be subject to this type of claim in the
future and, even if we are not, publicity about these matters
(particularly directed at the quick service and fast-casual segments of
the industry) may harm our reputation and adversely affect our results.

Changes in, or noncompliance with,
governmental regulations may adversely
affect our business operations, growth
prospects or financial condition.

Our Concepts and their franchisees are subject to numerous laws and
regulations around the world. These laws change regularly and are
increasingly complex. For example, we are subject to:

•

The Americans with Disabilities Act in the U.S. and similar state laws
that give civil rights protections to individuals with disabilities in the
context of employment, public accommodations and other areas.

The U.S. Fair Labor Standards Act, which governs matters such as
minimum wages, overtime and other working conditions, as well as
family leave mandates and a variety of similar state laws that govern
these and other employment law matters.

Anti-bribery and corruption laws and regulations, such as the
Foreign Corrupt Practices Act, the UK Bribery Act and similar laws,
which are the subject of increasing scrutiny and enforcement around
the world.

Laws and regulations in government-mandated health care benefits
such as the Patient Protection and Affordable Care Act.

Laws relating to state and local licensing.

Laws and regulations relating to health, sanitation, food, workplace
safety, child labor, including laws prohibiting the use of certain
‘‘hazardous equipment’’ by employees younger than the age of
18 years of age, and fire safety and prevention.

Laws and regulations relating to union organizing rights and
activities.

Laws relating to information security, privacy, cashless payments
and consumer credit, protection and fraud.

Environmental regulations.

Federal and state immigration laws and regulations in the U.S.

Compliance with new or existing laws and regulations could impact
our operations. The compliance costs associated with these laws and
regulations could be substantial. Any failure or alleged failure to
comply with these laws or regulations could adversely affect our
reputation, international expansion efforts, growth prospects and
financial condition or result in, among other things, litigation,
revocation of required licenses, governmental investigations or
proceedings, administrative enforcement actions, fines and civil and
criminal liability. Publicity relating to any such noncompliance could
also harm our reputation and adversely affect our revenues.

PART I
ITEM 1A Risk Factors

Tax matters, including changes in tax
rates, disagreements with taxing
authorities and imposition of new taxes
could impact our results of operations
and financial condition.

A significant percentage of our profit is earned outside the U.S. and
taxed at lower rates than the U.S. statutory rates. Historically, the cash
we generate outside the U.S. has principally been used to fund our
international development. However, if the cash generated by our
U.S. business is not sufficient to meet our need for cash in the U.S.,
we may need to repatriate a greater portion of our international
earnings to the U.S. in the future. We are required to record U.S.
income tax expense in our financial statements at the point in time
when our management determines
funds are not
permanently invested outside the U.S. This could cause our
worldwide effective tax rate to increase materially.

that such

We are subject to income taxes as well as non-income based taxes,
such as payroll, sales, use, value-added, net worth, property,
withholding and franchise taxes in both the U.S. and various foreign
jurisdictions. We are also subject to regular reviews, examinations
and audits by the Internal Revenue Service and other taxing
authorities with respect to such income and non-income based taxes
inside and outside of the U.S. These reviews could include challenges
of our methodologies for transfer pricing. If the IRS or another taxing
authority disagrees with our tax positions, we could face additional tax
liability, including interest and penalties. Payment of such additional
amounts upon final settlement or adjudication of any disputes could
have a material impact on our results of operations and financial
position.

In addition, we are directly and indirectly affected by new tax
legislation and regulation and the interpretation of tax laws and
regulations worldwide. Changes in such legislation, regulation or
interpretation could increase our taxes and have an adverse effect on

our operating results and financial condition. This includes potential
changes in tax laws or the interpretation of tax laws arising out of the
Base Erosion Profit Shifting project initiated by the Organization for
Economic Co-operation and Development.

Our business may be adversely impacted
by general economic conditions.

Our results of operations are dependent upon discretionary spending
by consumers, which may be affected by general economic conditions
globally or in one or more of the markets we serve. Some of the factors
that impact discretionary consumer spending include unemployment,
disposable income and consumer confidence. These and other
macroeconomic factors could have an adverse effect on our sales,
profitability or development plans, which could harm our financial
condition and operating results.

The retail food industry in which we
operate is highly competitive.

The retail food industry in which we operate is highly competitive with
respect to price and quality of food products, new product
development, advertising levels and promotional initiatives, customer
service, reputation, restaurant location, and attractiveness and
maintenance of properties. If consumer or dietary preferences
change, or our restaurants are unable to compete successfully with
other retail food outlets in new and existing markets, our business
could be adversely affected. We also face growing competition as a
result of convergence in grocery, deli and restaurant services,
including the offering by the grocery industry of convenient meals,
including pizzas and entrees with side dishes. In addition, in the retail
food industry, labor is a primary operating cost component.
Competition for qualified employees could also require us to pay
higher wages to attract a sufficient number of employees, which could
adversely impact our profit margins.

ITEM 1B

Unresolved Staff Comments

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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 2014 fiscal year and that remain unresolved.

13MAR201516053226

YUM! BRANDS, INC. - 2014 Form 10-K 9

PART I

ITEM 2

Properties

As of year end 2014, the Company’s Concepts owned approximately
900 units and leased land, building or both for approximately 7,775
units worldwide. These units are further detailed as follows:

•

The China Division leased land, building or both in approximately
5,425 units.

The KFC Division owned approximately 250 units and leased land,
building or both in approximately 1,075 units.

The Pizza Hut Division owned approximately 75 units and leased
land, building or both in approximately 725 units.

The Taco Bell Division owned approximately 550 units and leased
land, building or both in approximately 375 units.

The India Division leased land, building or both in approximately 200
units.

Company-owned restaurants in China are generally leased for initial
terms of 10 to 15 years and generally do not have renewal options.
Historically, the Company has either been able to renew its China
Division leases or enter into competitive leases at replacement sites
without a significant impact on our operations, cash flows or capital
resources. Company-owned restaurants in the U.S. with leases are

generally leased for initial terms of 15 or 20 years and generally have
renewal options; however, Pizza Hut delivery/carryout units in the
U.S. generally are leased for significantly shorter initial terms with
shorter renewal options. Company-owned restaurants outside of
China and the U.S. with leases have initial lease terms and renewal
options that vary by country. The Company currently has land,
buildings or both in approximately 875 units, not included in the
property counts above, that it leases or subleases to franchisees,
principally in the U.S., U.K., China and Mexico.

The China Division leases their corporate headquarters and research
facilities in Shanghai, China. The KFC Division and Pizza Hut Division
corporate headquarters and a KFC and Pizza Hut research facility in
Plano, Texas are owned by Pizza Hut. Taco Bell leases its corporate
headquarters and research facility in Irvine, California. The YUM
corporate headquarters and a KFC research facility in Louisville,
Kentucky are owned by the Company. Additional information about
the Company’s properties is included in the Consolidated Financial
Statements in Part II, Item 8.

The Company believes that its properties are generally in good
operating condition and are suitable for the purposes for which they
are being used.

ITEM 3

Legal Proceedings

The Company is subject to various lawsuits covering a variety of
allegations. The Company believes that the ultimate liability, if any, in
excess of amounts already provided for these matters in the
Consolidated Financial Statements, is not likely to have a material
adverse effect on the Company’s annual results of operations,
financial condition or cash flows. Matters faced by the Company
include, but are not limited to, claims from franchisees, suppliers,
employees, customers and others related to operational, contractual
or employment issues as well as claims that the Company has
infringed on third party intellectual property rights. In addition, the

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Company brings claims from time-to-time relating to infringement of,
or challenges to, our intellectual property, including registered marks.
Finally, as a publicly-traded company, disputes arise from time to time
with our shareholders, including allegations that the Company
breached federal securities laws or that officers and/or directors
breached fiduciary duties. Descriptions of current specific claims and
contingencies appear in Note 18, Contingencies, to the Consolidated
Financial Statements included in Part II, Item 8, which Note is
incorporated by reference into this item.

13MAR201517272138

10 YUM! BRANDS, INC. - 2014 Form 10-K

ITEM 4

Mine Safety Disclosures

Not applicable

PART I

Executive Officers of the Registrant

The executive officers of the Company as of February 17, 2015, and
their ages and current positions as of that date are as follows:

David C. Novak, 62, is Executive Chairman of the Board of YUM. He
has served in this position since January 2015. Prior to this position,
he served as Chairman of the Board and Chief Executive Officer of
YUM from January 2001 to December 2014.

Greg Creed, 57, is Chief Executive Officer of YUM. He has served in
this position since January 2015. He served as Chief Executive Officer
of Taco Bell Division from January 2014 to December 2014 and as
to
Chief Executive Officer of Taco Bell U.S.
December 2013. Prior to this position, Mr. Creed served as President
and Chief Concept Officer of Taco Bell U.S., a position he held
beginning in December 2006.

from 2011

Jing-Shyh S. Su, 62, is Vice-Chairman of the Board of YUM and
Chairman and Chief Executive Officer of YUM Restaurants China. He
has served in this position since May 2010. He has served as
Vice-Chairman of the Board of YUM since March 2008, and he served
as President of YUM China from 1997 to May 2010.

Jonathan D. Blum, 56, is Senior Vice President, Chief Public Affairs
Officer and Global Nutrition Officer of YUM. He has served as Senior
Vice President and Chief Public Affairs Officer since July 1997. In
March of 2012, his title and job responsibilities were expanded to
include Global Nutrition Officer.

Anne P. Byerlein, 56, is Chief People Officer of YUM. She has served
in this position since December 2002.

Christian L. Campbell, 64, is Senior Vice President, General
Counsel, Secretary and Chief Franchise Policy Officer of YUM. He
has served as Senior Vice President, General Counsel and Secretary
since September 1997 and Chief Franchise Policy Officer since
January 2003.

Roger Eaton, 54, is President of KFC Division and Chief Operations
Officer of YUM. He has served as President of KFC Division since
January 2014 and as Chief Operations Officer of YUM since
November 2011. Prior to these positions, Mr. Eaton served as Chief
Executive Officer of KFC U.S. and YUM Operational Excellence
Officer from February 2011 to November 2011. He was President and
Chief Concept Officer of KFC U.S. from June 2008 to February 2011.

David Gibbs, 51, is Chief Executive Officer of Pizza Hut Division. He
has served in this position since January 2015. From January 2014 to

December 2014, Mr. Gibbs served as President of Pizza Hut U.S.
Prior to this position, Mr. Gibbs served as President and Chief
Financial Officer of Yum! Restaurants International, Inc. (‘‘YRI’’) from
May 2012 through December 2013. Mr. Gibbs served as Chief
Financial Officer of YRI from January 2011 to April 2012. He was Chief
Financial Officer of Pizza Hut U.S. from September 2005 to
December 2010.

Patrick Grismer, 53, is Chief Financial Officer of YUM. He has served
in this position since May 2012. Prior to this position, Mr. Grismer
served as Chief Planning and Control Officer of YUM, a position he
held beginning January 2011. Mr. Grismer served as Chief Financial
Officer of YRI from June 2008 to January 2011.

Brian Niccol, 40, is Chief Executive Officer of Taco Bell Division, a
position he has held since January 2015. From January 2014 to
December 2014, Mr. Niccol served as President of Taco Bell Division.
From May 2013 to December 2013 Mr. Niccol served as President of
Taco Bell U.S. Mr. Niccol served as Chief Marketing and Innovation
Officer of Taco Bell U.S. from October 2011 to April 2013. Prior to this
position, he served as General Manager of Pizza Hut U.S. from
February 2011 to September 2011. From September 2007 to
January 2011 he was Chief Marketing Officer of Pizza Hut U.S.

Muktesh Pant, 60, is Chief Executive Officer of KFC Division. He has
served in this position since January 2014. Prior to this position he
served as Chief Executive Officer of YRI from December 2011 to
December 2013. Mr. Pant served as President of YRI from May 2010
to December 2011 and as President of Global Brand Building for YUM
from February 2009 to December 2011. He served as Chief Marketing
Officer of YRI from July 2005 to May 2010.

David E. Russell, 45, is Vice President, Finance and Corporate
Controller of YUM. He has served
this position since
December 2012. He has been Vice President and Corporate
Controller since February 2011. Effective December 2012, his duties
and title were expanded to include Vice President, Finance. From
November 2010 to February 2011, Mr. Russell served as Vice
to
President, Controller-Designate. From
November 2010, he served as Vice President and Assistant
Controller.

January

2008

Executive officers are elected by and serve at the discretion of the
Board of Directors.

YUM! BRANDS, INC. - 2014 Form 10-K 11

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PART II

ITEM 5

Market for the Registrant’s Common
Stock, Related Stockholder Matters
and Issuer Purchases of Equity
Securities

The Company’s Common Stock trades under the symbol YUM and is listed on the New York Stock Exchange (‘‘NYSE’’). The following sets forth
the high and low NYSE composite closing sale prices by quarter for the Company’s Common Stock and dividends per common share.

Quarter

First
Second
Third
Fourth

Quarter

First
Second
Third
Fourth

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2014

2013

High

77.40
79.99
83.29
78.36

High

70.20
73.52
74.82
78.30

Low

66.16
73.20
69.40
67.23

Low

62.08
64.15
68.10
65.17

Dividends
Declared

$ 0.37
0.37
—
0.82

Dividends
Declared

0.335
0.335
—
0.74

13MAR201517272138

In 2014, the Company declared two cash dividends of $0.37 per share and two cash dividends of $0.41 per share of Common Stock, one of which
had a distribution date of February 6, 2015. In 2013, the Company declared two cash dividends of $0.335 per share and two cash dividends of
$0.37 per share of Common Stock, one of which had a distribution date of February 7, 2014. The Company targets an annual dividend payout ratio
of 40% to 45% of net income.

As of February 10, 2015, there were 58,368 registered holders of record of the Company’s Common Stock.

12 YUM! BRANDS, INC. - 2014 Form 10-K

PART II
ITEM 5 Market for the Registrant’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities

Issuer Purchases of Equity Securities

The following table provides information as of December 27, 2014 with respect to shares of Common Stock repurchased by the Company during
the quarter then ended:

Fiscal Periods

Period 10
9/7/14 - 10/4/14
Period 11
10/5/14 - 11/1/14
Period 12
11/2/14 - 11/29/14
Period 13
11/30/14 - 12/27/14

Total

Total number
of shares

purchased Average price
(thousands) paid per share

Total number of shares purchased as Approximate dollar value of shares
that may yet be purchased under
the plans or programs (millions)

part of publicly announced plans or
programs (thousands)

—

1,836

871

1,689

4,396

—

68.53

73.73

71.02

70.52

—

1,836

871

1,689

4,396

443

317

1,253

1,133

On November 22, 2013, our Board of Directors authorized share
repurchases through May 2015 of up to $750 million (excluding
applicable transaction fees) of our outstanding Common Stock. On
November 20, 2014, our Board of Directors authorized additional

share repurchases through May 2016 of up to $1 billion (excluding
applicable transaction fees) of our outstanding Common Stock. As of
December 27, 2014, we have remaining capacity to repurchase up to
$1.1 billion of Common Stock under these authorizations.

Stock Performance Graph

This graph compares the cumulative total return of our Common Stock to the cumulative total return of the S&P 500 Stock Index and the S&P 500
Consumer Discretionary Sector, a peer group that includes YUM, for the period from December 24, 2009 to December 26, 2014, the last trading
day of our 2014 fiscal year. The graph assumes that the value of the investment in our Common Stock and each index was $100 at December 24,
2009 and that all dividends were reinvested.

300.00

250.00

200.00

150.00

100.00

50.00

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2009

YUM!

2010

2011

2012

2013

2014

S&P 500

S&P Consumer Discretionary

20FEB201502140986

YUM!
S&P 500
S&P Consumer Discretionary

12/24/2009

12/23/2010

12/30/2011

12/28/2012

12/27/2013

12/26/2014

$ 100
$ 100
$ 100

$ 143
$ 114
$ 127

$ 174
$ 116
$ 134

$ 194
$ 133
$ 163

$ 226
$ 178
$ 235

$ 228
$ 206
$ 260

YUM! BRANDS, INC. - 2014 Form 10-K 13

PART II

ITEM 6

Selected Financial Data

YUM! Brands, Inc. and Subsidiaries

(in millions, except per share and unit amounts)

2014

2013

2012

2011(h)

2010

Fiscal Year

Income Statement Data
Revenues

Company sales
Franchise and license fees and income

Total

Closures and impairment income (expenses)(a)
Refranchising gain (loss)(b)

Operating Profit(c)
Interest expense, net(c)

Income before income taxes

Net Income – including noncontrolling interest
Net Income – YUM! Brands, Inc.
Basic earnings per common share
Diluted earnings per common share
Diluted earnings per common share before Special Items(c)

Cash Flow Data
Provided by operating activities
Capital spending, excluding acquisitions and investments
Proceeds from refranchising of restaurants
Repurchase shares of Common Stock
Dividends paid on Common Stock

Balance Sheet Data
Total assets
Long-term debt
Total debt
Other Data
Number of stores at year end

Company
Unconsolidated Affiliates
Franchisees & licensees

System

China system sales growth(d)

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Reported
Local currency(e)

KFC Division system sales growth(d)(f)

Reported
Local currency(e)

Pizza Hut Division system sales growth(d)(f)

Reported
Local currency(e)

Taco Bell Division system sales growth(d)(f)

Reported
Local currency(e)

India system sales growth(d)(g)

Reported
Local currency(e)

Shares outstanding at year end
Cash dividends declared per Common Share

Market price per share at year end

$ 11,324
1,955

$ 11,184
1,900

$ 11,833
1,800

$ 10,893
1,733

9,783
1,560

13,279

13,084

13,633

12,626

11,343

(535)
33

(331)
100

(37)
78

(135)
(72)

(47)
(63)

1,557
130

1,427

1,021
1,051
2.37
2.32
3.09

2,049
1,033
114
820
669

8,345
3,077
3,344

1,798
247

1,551

1,064
1,091
2.41
2.36
2.97

2,139
1,049
260
770
615

8,695
2,918
2,989

2,294
149

2,145

1,608
1,597
3.46
3.38
3.25

2,294
1,099
364
965
544

9,013
2,932
2,942

1,815
156

1,659

1,335
1,319
2.81
2.74
2.87

2,170
940
246
752
481

8,834
2,997
3,317

1,769
175

1,594

1,178
1,158
2.44
2.38
2.53

1,968
796
265
371
412

8,316
2,915
3,588

8,664
757
32,125

41,546

8,097
716
31,420

40,233

7,544
660
30,733

38,937

7,403
587
29,056

37,046

7,238
525
29,998

37,761

1%
1%

2%
6%

—%
1%

4%
4%

(1)%
3%

434
1.56

73.14

(1)%
(4)%

23%
20%

—%
3%

—%
1%

4%
4%

11%
20%

2%
6%

2%
5%

7%
9%

13%
29%

35%
29%

9%
4%

5%
2%

1%
(1)%

36%
35%

18%
17%

N/A
N/A

43%
36%

443
1.41

73.87

451
1.24

64.72

460
1.07

59.01

469
0.92

49.66

(a) Closures and impairment income (expense) includes $463 million and $295 million of Little Sheep impairment losses in 2014 and 2013 respectively, (See Note 4).
Additionally, 2011 included $80 million of net losses related to the divestitures of the Long John Silver’s and A&W All American Food Restaurants brands.

14 YUM! BRANDS, INC. - 2014 Form 10-K

PART II
ITEM 6 Selected Financial Data

(b) See Note 4 for discussion of Refranchising gain (loss) for fiscal years 2014, 2013 and 2012. Fiscal year 2011 included a charge of $76 million as a result of our
decision to refranchise or close all of our remaining Company-owned Pizza Hut UK dine-in restaurants. Fiscal year 2010 included a $52 million loss on the
refranchising of our Mexico equity market.

(c) In addition to the results provided in accordance with U.S. Generally Accepted Accounting Principles (‘‘GAAP’’) throughout this document, the Company has

provided non-GAAP measurements which present operating results on a basis before Special Items.

The Company uses earnings before Special Items as a key performance measure of results of operations for the purpose of evaluating performance internally
and Special Items are not included in any of our segment results. This non-GAAP measurement is not intended to replace the presentation of our financial results
in accordance with GAAP. Rather, the Company believes that the presentation of earnings before Special Items provides additional information to investors to
facilitate the comparison of past and present results, excluding items that the Company does not believe are indicative of our ongoing operations due to their size
and/or nature.

2014, 2013 and 2012 Special Items are described in further detail within our Management’s Discussion and Analysis of Financial Condition and Results of
Operations. Special Items in 2011 negatively impacted Operating Profit by $187 million, primarily due to $86 million in losses and other costs relating to the Long
John Silvers and A&W All American Food divestitures and $76 million in losses as a result of our decision to refranchise or close all of our remaining Company-
owned Pizza Hut UK dine-in restaurants. Special Items in 2010 negatively impacted Operating Profit by $77 million, primarily due to $59 million in refranchising
losses for equity markets outside the U.S. and U.S. refranchising net losses of $18 million. Special items above resulted in cumulative net tax benefits of
$123 million and $7 million in 2011 and 2010, respectively.

(d) System sales growth includes the results of all restaurants regardless of ownership, including company-owned, franchise, unconsolidated affiliate and license
restaurants that operate our Concepts, except for non-company-owned restaurants for which we do not receive a sales-based royalty. Sales of franchise,
unconsolidated affiliate and license restaurants typically generate ongoing franchise and license fees for the Company (typically at a rate of 4% to 6% of sales).
Franchise, unconsolidated affiliate and license restaurant sales are not included in Company sales on the Consolidated Statements of Income; however, the
franchise and license fees are included in the Company’s revenues. We believe system sales growth is useful to investors as a significant indicator of the overall
strength of our business as it incorporates all of our revenue drivers, Company and franchise same-store sales as well as net unit growth.

(e) Local currency represents the percentage change excluding the impact of foreign currency translation. These amounts are derived by translating current year
results at prior year average exchange rates. We believe the elimination of the foreign currency translation impact provides better year-to-year comparability
without the distortion of foreign currency fluctuations.

(f)

In the first quarter of 2014, we changed our management reporting structure to align our global operations outside of China and India. We have restated our
comparable segment information back to 2010. Since 2009 was not restated, system sales growth in 2010 is not readily available.

(g) Effective the beginning of 2014, results from our 28 Mauritius stores are included in KFC and Pizza Hut Divisions as applicable. While there was no impact to our

consolidated results, this change negatively impacted India’s 2014 reported and local currency system sales growth by 10% and 11%, respectively.

(h) Fiscal years 2014, 2013, 2012 and 2010 include 52 weeks and fiscal year 2011 includes 53 weeks. Our fiscal calendar results in a 53rd week every five or six
years. This impacts all of our U.S. businesses and certain of our international businesses that report on a period, as opposed to a monthly, basis within our global
brand divisions. Our China and India Divisions report on a monthly basis and thus did not have a 53rd week in 2011.

The estimated impacts of the 53rd week on Company sales, Franchise and license fees and income and Operating Profit in 2011 were increases of $72 million,
$19 million and $25 million, respectively. The $25 million Operating Profit benefit was offset throughout 2011 by investments, including franchise development
incentives, as well as higher-than-normal spending, such as restaurant closures within our global brand divisions.

The selected financial data should be read in conjunction with the Consolidated Financial Statements.

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YUM! BRANDS, INC. - 2014 Form 10-K 15

PART II

ITEM 7 Management’s Discussion and

Analysis of Financial Condition and
Results of Operations

Introduction and Overview

The following Management’s Discussion and Analysis (‘‘MD&A’’),
should be read in conjunction with the Consolidated Financial
Statements (‘‘Financial Statements’’) and the Forward-Looking
Statements and the Risk Factors set forth in Item 1A.

YUM! Brands, Inc. (‘‘YUM’’ or the ‘‘Company’’) operates, franchises or
licenses a worldwide system of over 41,000 restaurants in more than
125 countries and territories operating primarily under the KFC, Pizza
Hut or Taco Bell (collectively the ‘‘Concepts’’) brands. These three
Concepts are the global leaders in the chicken, pizza and Mexican-
style food categories, respectively. Of the over 41,000 restaurants,
21% are operated by the Company and 79% are operated by
franchisees, licensees or unconsolidated affiliates.

The Company is focused on the following key growth strategies:

•

Building Powerful Brands Through Superior Marketing,
Breakthrough Innovation and Compelling Value with a Foundation
Built on Winning Food and World Class Operations

Driving Aggressive Unit Expansion Everywhere, Especially in
Emerging Markets, and Building Leading Brands in Every Significant
Category in China and India

Creating Industry Leading Returns Through Franchising and
Disciplined Use of Capital, Maximizing Long-term Shareholder
Value

As of December 27, 2014, YUM consists of five operating segments:

•

YUM China (‘‘China’’ or ‘‘China Division’’) which includes all
operations in mainland China

YUM India (‘‘India’’ or ‘‘India Division’’) which includes all operations
in India, Bangladesh, Nepal and Sri Lanka

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•

The KFC Division which includes all operations of the KFC concept
outside of China Division and India Division

•

The Pizza Hut Division which includes all operations of the Pizza Hut
concept outside of China Division and India Division

The Taco Bell Division which includes all operations of the Taco Bell
concept outside of India Division

Prior to 2014, our reporting segments consisted of Yum Restaurants
International (‘‘YRI’’), the United States, China and India. In the first
quarter of 2014 we changed our management reporting structure to
align our global operations outside of China and India by brand. As a
result, our YRI and United States reporting segments were combined,
and we began reporting this information by three new reporting
segments: KFC Division, Pizza Hut Division and Taco Bell Division.
China and India remain separate reporting segments. This new
structure is designed to drive greater global brand focus, enabling us
to more effectively share know-how and accelerate growth. While our

16 YUM! BRANDS, INC. - 2014 Form 10-K

consolidated results have not been impacted, we have restated our
comparable segment information for consistent presentation.

Our ongoing earnings growth model targets a 10% earnings per share
(‘‘EPS’’) growth rate, which is based on our ongoing Operating Profit
growth targets of 15% in China, 10% for our KFC Division, 8% for our
Pizza Hut Division and 6% for our Taco Bell Division. While we believe
India is a significant long-term growth driver, our ongoing earnings
growth model currently assumes no impact from India growth. See the
Division discussions within the Results of Operations of this MD&A for
further details of our Divisional growth models.

2015 EPS, prior to Special Items, is expected to grow at least 10%,
consistent with our ongoing targeted growth rate. This includes an
expected negative impact of approximately $75 million from foreign
currency translation.

We intend for this MD&A to provide the reader with information that
will assist in understanding our results of operations, including
performance metrics
the
Company’s performance. Throughout this MD&A, we commonly
discuss the following performance metrics:

that management uses

to assess

•

The Company provides certain percentage changes excluding the
impact of foreign currency translation (‘‘FX’’ or ‘‘Forex’’). These
amounts are derived by translating current year results at prior year
average exchange rates. We believe the elimination of the foreign
currency
impact provides better year-to-year
comparability without the distortion of foreign currency fluctuations.

translation

System sales growth includes the results of all restaurants
regardless of ownership, including company-owned, franchise,
unconsolidated affiliate and license restaurants that operate our
Concepts, except for non-company-owned restaurants for which we
do not receive a sales-based royalty. Sales of
franchise,
unconsolidated affiliate and license restaurants typically generate
ongoing franchise and license fees for the Company (typically at a
rate of 4% to 6% of sales). Franchise, unconsolidated affiliate and
license restaurant sales are not included in Company sales on the
Consolidated Statements of Income; however, the franchise and
license fees are included in the Company’s revenues. We believe
system sales growth is useful to investors as a significant indicator of
the overall strength of our business as it incorporates all of our
revenue drivers, Company and franchise same-store sales as well
as net unit growth.

•

Same-store sales growth is the estimated percentage change in
sales of all restaurants that have been open and in the YUM system
one year or more. The impact of same-store sales growth on both
our Company-owned store results and Franchise and license fees
and income is described elsewhere in this MD&A.

PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations

•

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

•

In addition to the results provided in accordance with U.S. Generally
Accepted Accounting Principles (‘‘GAAP’’) throughout this MD&A,
the Company provides non-GAAP measurements which present
operating results on a basis before items that we have deemed
Special. The Company uses earnings before Special Items as a key

Results of Operations

Summary

All comparisons within this summary are versus the same period a
year ago and exclude the impact of Special Items. All system sales
growth and Operating Profit comparisons exclude the impact of
foreign currency.

2014 diluted EPS increased by 4% to $3.09 per share as our China
Division, which is our largest profit contributor, had its sales and profits
significantly impacted by adverse publicity in July surrounding
improper food handling practices by a former supplier.

Specifically, on July 20, 2014, an undercover report was televised in
China depicting improper food handling practices by supplier
Shanghai Husi, a division of OSI, which is a large, global supplier to
many in the restaurant industry. This triggered extensive news
coverage in China that shook consumer confidence and impacted
brand usage. Subsequently, the Shanghai FDA (SFDA) launched an
investigation into this matter, alleging illegal activity by OSI. Upon
learning of these events we terminated our relationship with OSI
globally with minimal disruption to our menu offerings in China. Even
though OSI was a minor supplier, sales at KFC and Pizza Hut were
disproportionately impacted given our category-leading positions.
Since July 21st, China Division has experienced a significant, negative
impact to sales and profits at both KFC and Pizza Hut.

Prior to that incident, YUM experienced a strong first half of the year
with China Division Operating Profit increasing 113% and EPS
increasing 27% through the first two quarters of 2014. At that point the
Company believed it was well on its way to recovering from a 9% EPS
decline in 2013, which was driven by declines in KFC China sales and

performance measure of results of operations for the purpose of
evaluating performance internally and Special Items are not
included
in any of our segment results. This non-GAAP
measurement is not intended to replace the presentation of our
financial results in accordance with GAAP. Rather, the Company
believes that the presentation of earnings before Special Items
provides additional
the
comparison of past and present operations, excluding those items
that the Company does not believe are indicative of our ongoing
operations due to their size and/or nature.

information

investors

facilitate

All Note references herein refer to the Notes to the Financial
Statements. Tabular amounts are displayed in millions of U.S. dollars
except per share and unit count amounts, or as otherwise specifically
identified. Percentages may not recompute due to rounding.

profits due to intense media surrounding an investigation by the SFDA
into our poultry supply management that began in December 2012,
coupled with additional intense media in April 2013 surrounding Avian
Flu in China.

As a result of two supplier incidents impacting KFC China sales in a
relatively short period of time, the recovery at KFC China has been
slower than expected with same-store sales declining 18% in the
fourth quarter of 2014. Our Pizza Hut business in China, which was
only impacted by the 2014 supplier incident, is recovering more
quickly. China Division same-store sales and Operating Profit
declined 5% and 8%, respectively, for the full year 2014.

Also during 2014:

•

KFC Division system sales and Operating Profit increased by 6%
and 13%, respectively. Same store sales grew 3% and the Division
opened 666 new international units.

Pizza Hut Division grew system sales by 1% and Operating Profit
declined 13%. Same-store sales declined 1% and the Division
opened 465 new international units.

Taco Bell Division system sales and Operating Profit increased by
4% and 5%, respectively. Same-store sales increased 3% and the
Division opened 236 new units.

Foreign currency translation negatively impacted Operating Profit by
$27 million.

Our effective tax rate decreased from 28.0% in 2013 to 25.5% in
2014.

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YUM! BRANDS, INC. - 2014 Form 10-K 17

PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations

Worldwide

The Consolidated Results of Operations for the years to date ended December 27, 2014, December 28, 2013 and December 29, 2012 are
presented below:

2014

$ 11,324
1,955

Amount

2013

$ 11,184
1,900

% B/(W)

2012

2014

2013

$ 11,833
1,800

1
3

(5)
6

(4)

$ 13,279

$ 13,084

$ 13,633

1,642

14.5%

1,557

130
406

1,021
(30)

1,051

2.32

3.09

28.5%

25.5%

1,683

15.0%

1,798

247
487

1,064
(27)

1,091

2.36

2.97

31.4%

28.0%

1,981

(2)

(15)

16.7%

(0.5) ppts. (1.7) ppts.

(13)

47
17

(4)
(12)

(4)

(2)

(22)

(66)
9

(34)
NM

(32)

(30)

(9)

2,294

149
537

1,608
11

1,597

3.38

3.25

25.0%

25.8%

2014

2013

2%
3%

1%
2%

% Increase
(Decrease)

2012

2014

2013

30,733
7,544
660

38,937

2
7
6

2
7
8

2014

32,125
8,664
757

41,546

2013

31,420
8,097
716

40,233

Company sales
Franchise and license fees and income

Total revenues

Restaurant profit

Restaurant Margin %

Operating Profit

Interest expense, net
Income tax provision

Net Income – including noncontrolling interests
Net Income (loss) – noncontrolling interests

Net Income – YUM! Brands, Inc.

Diluted EPS(a)

Diluted EPS before Special Items(a)

Reported Effective tax rate

Effective tax rate before Special Items

(a) See Note 3 for the number of shares used in these calculations.

System Sales Growth, reported
System Sales Growth, excluding FX

Unit Count

Franchise & License
Company-owned
Unconsolidated Affiliates

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18 YUM! BRANDS, INC. - 2014 Form 10-K

PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations

Special Items

Special Items, along with the reconciliation to the most comparable GAAP financial measure, are presented below.

Detail of Special Items

Little Sheep impairment (See Note 4)
Gain upon acquisition of Little Sheep (See Note 4)
U.S. Refranchising gain (loss) (See Note 17)
Pension settlement charges (See Note 4)
Losses associated with the refranchising of the Pizza Hut UK dine-in business (See Note 4)
Other Special Items Income (Expense)(a)

Special Items Income (Expense) – Operating Profit
Losses related to the extinguishment of debt – Interest Expense, net (See Note 4)

Special Items Income (Expense) before income taxes
Tax Benefit (Expense) on Special Items(b)

Special Items Income (Expense), net of tax – including noncontrolling interests
Special Items Income (Expense), net of tax – noncontrolling interests

Year

2014

2013

2012

(463)
—
6
—
—
10

(447)
—

(447)
72

(375)
26

(295)
—
91
(10)
(1)
(7)

(222)
(118)

(340)
41

(299)
19

—
74
122
(84)
(70)
16

58
—

58
1

59
—

Special Items Income (Expense), net of tax – YUM! Brands, Inc.

(349)

(280)

Average diluted shares outstanding

Special Items diluted EPS

Reconciliation of Operating Profit Before Special Items to Reported Operating Profit
Operating Profit before Special Items
Special Items Income (Expense) – Operating Profit

Reported Operating Profit

Reconciliation of EPS Before Special Items to Reported EPS
Diluted EPS before Special Items
Special Items EPS

Reported EPS

453

461

473

(0.77)

(0.61)

0.13

2,004
(447)

1,557

3.09
(0.77)

2.32

2,020
(222)

1,798

2.97
(0.61)

2.36

2,236
58

2,294

3.25
0.13

3.38

Reconciliation of Effective Tax Rate Before Special Items to Reported Effective Tax Rate
Effective Tax Rate before Special Items
Impact on Tax Rate as a result of Special Items(b)

Reported Effective Tax Rate

25.5%
3.0%

28.5%

28.0%
3.4%

31.4%

25.8%
(0.8)%

25.0%

(a) Other Special Items Income (Expense) in 2014 primarily includes gains of $7 million from real estate sales related to our previously refranchised Mexico business.
In connection with the refranchising of stores in the U.S., we have taken several measures to transform our U.S. business, including G&A productivity initiatives
and realignment of resources (primarily severance and early retirement costs). Other Special Items Income (Expense) in 2013 primarily includes charges relating
to these U.S. G&A productivity initiatives and realignment of resources of $5 million as well as $2 million of costs recorded in G&A that were part of the $120 million
charge related to the extinguishment of debt. Other Special Items Income (Expense) in 2012 primarily includes the depreciation reduction from the Pizza Hut UK
and KFC U.S. restaurants impaired upon our decision or offer to refranchise that remained Company stores for some or all of the period presented of $13 million
and $3 million, respectively, gains from real estate sales related to our previously refranchised Mexico business of $3 million and charges relating to U.S. G&A
productivity initiatives and realignment of resources of $5 million.

(b) The tax benefit (expense) was determined based upon the impact of the nature, as well as the jurisdiction of the respective individual components within Special

Items.

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YUM! BRANDS, INC. - 2014 Form 10-K 19

PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations

China Division

The China Division has 6,715 units, predominately KFC and Pizza Hut Casual Dining restaurants which are the leading quick service and casual
dining restaurant brands, respectively, in mainland China. Given our strong competitive position, a growing economy and a population of
approximately 1.4 billion in mainland China, the Company is focused on rapidly adding KFC and Pizza Hut Casual Dining restaurants and
accelerating the development of Pizza Hut Home Service (home delivery). Our ongoing earnings growth model in China includes low double-digit
percentage unit growth, mid-single digit same-store sales growth and moderate margin improvement, which we expect to drive annual Operating
Profit growth of 15%.

See the Results of Operations Summary above for discussion of items impacting China’s 2014 performance.

2014

2013

2012

Reported

Ex FX

Reported

Ex FX

% B/(W)

2014

% B/(W)

2013

Company sales
Franchise and license fees and

6,821

6,800

6,797

income

Total revenues

Restaurant profit
Restaurant margin %

G&A expenses
Operating Profit

113

6,934

1,009

14.8%

391
713

$
$

105

6,905

1,050

15.4%

357
777

$
$

System Sales Growth, reported
System Sales Growth, excluding FX
Same-Store Sales Growth (Decline)%

—

(4)

101

6,898

1,233

—

(3)

(15)
(2.7) ppts.

(17)
(2.7) ppts.

18.1%

(0.6) ppts.

334
1,015

(9)
(8)

(7)
(23)

(5)
(26)

2014

2013

1%
1%
(5)%

(1)%
(4)%
(13)%

% Increase
(Decrease)

2014

2013

8
6
8

11
8
(3)

2014

5,417
757
541

6,715

2013

5,026
716
501

6,243

2012

4,547
660
519

5,726

2013

New Builds

Closures

Refranchised

Acquired

2014

5,026
716
501

6,243

664
56
17

737

(195)
(14)
(56)

(265)

(79)
(1)
80

—

1
—
(1)

5,417
757
541

— 6,715

2012

New Builds

Closures

Refranchised

Acquired

2013

4,547
660
519

5,726

664
66
10

740

(158)
(10)
(55)

(223)

(28)
—
28

—

1
—
(1)

5,026
716
501

— 6,243

Unit Count

Company-owned
Unconsolidated Affiliates
Franchise & License

K
-
0
1
m
r
o
F

Company-owned
Unconsolidated Affiliates
Franchise & License

Total
13MAR201517272138

Company-owned
Unconsolidated Affiliates
Franchise & License

Total

20 YUM! BRANDS, INC. - 2014 Form 10-K

PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations

Company Sales and Restaurant Profit

The changes in Company sales and Restaurant profit were as follows:

Income / (Expense)

Company sales
Cost of sales
Cost of labor
Occupancy and other

Restaurant profit

Income / (Expense)

Company sales
Cost of sales
Cost of labor
Occupancy and other

Restaurant profit

2014 vs. 2013

Store
Portfolio
Actions

Other

358
(104)
(75)
(124)

$ (322)
151
26
52

$ (15)
4
2
6

2014

6,821
(2,207)
(1,407)
(2,198)

2013

6,800
(2,258)
(1,360)
(2,132)

1,050

(93)

(3)

1,009

15.4%

14.8%

2013 vs. 2012

Store
Portfolio
Actions

Other

611
(190)
(129)
(211)

$ (785)
303
62
127

$ 177
(59)
(34)
(55)

2013

6,800
(2,258)
(1,360)
(2,132)

2012

6,797
(2,312)
(1,259)
(1,993)

1,233

$ (293)

1,050

18.1%

15.4%

In 2014, the increase in Company sales and Restaurant profit associated with store portfolio actions was driven by net new unit growth. Significant
other factors impacting Company sales and/or Restaurant profit were wage rate inflation of 9% and same-store sales declines of 5% which led to
inefficiencies in Cost of sales, partially offset by labor efficiencies and lower advertising expense. See the Summary at the beginning of this
section for discussion of China sales.

In 2013, the increase in Company sales and Restaurant profit associated with store portfolio actions was driven by net new unit growth and the
2012 acquisition of Little Sheep. Significant other factors impacting Company sales and/or Restaurant profit were Company same-store sales
declines of 12% and the impact of wage rate inflation of 7%, partially offset by restaurant operating efficiencies. See the Summary at the beginning
of this section for discussion of China sales.

Franchise and License Fees and Income

In 2014, the increase in Franchise and license fees and income, excluding the impact of foreign currency translation, was driven by the impact of
refranchising, partially offset by franchise same-store sales declines.

In 2013, the increase in Franchise and license fees and income, excluding the impact of foreign currency translation, was driven by refranchising
and franchise net new unit development, partially offset by franchise same-store sales declines.

G&A Expenses

In 2014, the increase in G&A expenses, excluding the impact of foreign currency translation, was driven by compensation costs due to higher
headcount and wage inflation.

In 2013, the increase in G&A expenses, excluding the impact of foreign currency translation, was driven by increased compensation costs due to
higher headcount and wage inflation and additional G&A as a result of consolidating Little Sheep beginning in the second quarter of 2012, partially
offset by lower incentive compensation costs.

Operating Profit

In 2014, the decrease in Operating Profit, excluding the impact of foreign currency translation, was driven by same-store sales declines, higher
restaurant operating costs and higher G&A expenses, partially offset by net new unit growth and increased Other income due to an insurance
recovery related to the 2012 poultry supply incident. See the Summary at the beginning of this section for discussion of China sales.

In 2013, the decrease in Operating Profit, excluding the impact of foreign currency translation, was driven by same-store sales declines at KFC,
partially offset by the impact of net new unit growth and restaurant operating efficiencies. See the Summary at the beginning of this section for
discussion of China sales.

F
o
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1
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-
K

13MAR201516053226

YUM! BRANDS, INC. - 2014 Form 10-K 21

PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations

KFC Division

The KFC Division has 14,197 units, approximately 70% of which are located outside the U.S. The KFC Division has experienced significant unit
growth in emerging markets, which comprised approximately 40% of both the Division’s units and profits, respectively, as of the end of 2014.
Additionally, 91% of the KFC Division units were operated by franchisees and licensees as of the end of 2014. Our ongoing earnings growth
model for the KFC Division includes low-single-digit percentage net unit and same store sales growth. This combined with restaurant margin
improvement and leverage of our G&A structure is expected to drive annual Operating Profit growth of 10%.

Company sales
Franchise and license fees and

income

Total revenues

Restaurant profit
Restaurant margin %

G&A expenses
Operating Profit

System Sales Growth, reported
System Sales Growth, excluding FX
Same-Store Sales Growth %

Unit Count

Franchise & License
Company-owned

Total

K
-
0
1
m
r
o
F

Franchise & License
Company-owned

13MAR201517272138
Total

% B/(W)

2014

% B/(W)

2013

2014

2013

2012

Reported

Ex FX

Reported

Ex FX

2,320

2,192

2,212

873

3,193

308
13.3%

383
708

$
$

844

3,036

277
12.6%

391
649

$
$

802

3,014

298
13.5%

400
626

$
$

12
0.7 ppts.

14
0.7 ppts.

2
9

—
13

(1)

(7)

(5)

(0.9) ppts.

2
4

1
7

2014

2013

2%
6%
3%

—%
3%
1%

% Increase
(Decrease)

2014

12,874
1,323

14,197

2013

12,647
1,257

13,904

2012

2014

2013

12,446
1,166

13,612

2
5

2
8

2013

New Builds

Closures

Refranchised

Acquired Other

2014

12,647
1,257

13,904

553
123

676

(356)
(22)

(378)

39
(39)

—

(4)
4

—

(5)
—

(5)

12,874
1,323

14,197

2012

New Builds

Closures

Refranchised

Acquired Other

2013

12,446
1,166

13,612

558
101

659

(353)
(23)

(376)

58
(58)

—

(71)
71

—

9
—

12,647
1,257

13,904

Company Sales and Restaurant Profit

The changes in Company sales and Restaurant profit were as follows:

Income / (Expense)

Company sales
Cost of sales
Cost of labor
Occupancy and other

Restaurant profit

22 YUM! BRANDS, INC. - 2014 Form 10-K

2014 vs. 2013

Store
Portfolio
Actions

Other

$ 110
(43)
(25)
(38)

79
(26)
(16)
(3)

$ (61)
26
10
18

2014

2,320
(809)
(552)
(651)

2013

2,192
(766)
(521)
(628)

277

(7)

308

12.6%

13.3%

PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations

Income / (Expense)

Company sales
Cost of sales
Cost of labor
Occupancy and other

Restaurant profit

2013 vs. 2012

Store
Portfolio
Actions

Other

$ (19)
—
14
(9)

35
(15)
(1)
(21)

$ (36)
15
7
9

2013

2,192
(766)
(521)
(628)

2012

2,212
(766)
(541)
(607)

298

$ (14)

(2)

(5)

277

13.5%

12.6%

In 2014, the increase in Company sales associated with store portfolio actions was driven by international net new unit growth and the impact of
the acquisition of restaurants in Turkey from an existing franchisee in April 2013, partially offset by refranchising. Significant other factors
impacting Company sales and/or Restaurant profit were Company same-store sales growth of 4%, which was partially offset by higher restaurant
operating costs in international markets.

In 2013, the decrease in Company sales and Restaurant Profit associated with store portfolio actions was driven by refranchising in the U.S.,
partially offset by international net new unit growth and the impact of the acquisition of restaurants in Turkey from an existing franchisee in
April 2013. Significant other factors impacting Company sales and/or Restaurant profit were higher restaurant operating costs in international
markets and higher commodity costs, which was offset by Company same-store sales growth of 2%.

Franchise and License Fees and Income

In 2014, the increase in Franchise and license fees and income, excluding the impact of foreign currency translation, was driven by international
growth in net new units and same-store sales growth.

In 2013, the increase in Franchise and license fees and income, excluding the impact of foreign currency translation, was driven by international
growth in net new units and same-store sales growth as well as U.S. refranchising initiatives.

G&A Expenses

In 2014, G&A expenses, excluding the impact of foreign currency translation, were even with prior year as the impact of higher headcount in
strategic international markets, higher incentive compensation costs and the impact of the acquisition of restaurants in Turkey from an existing
franchisee in April 2013 was offset by lower pension costs in 2014 including the favorable resolution of a pension issue in the UK.

In 2013, the decrease in G&A expenses, excluding the impact of foreign currency translation, was driven by lower incentive compensation costs,
lapping higher U.S. litigation costs, and our U.S. refranchising initiatives, partially offset by higher headcount in international strategic growth
markets.

Operating Profit

In 2014, the increase in Operating Profit, excluding the impact of foreign currency translation, was driven by growth in same-store sales and net
new units, partially offset by higher restaurant operating costs in international markets.

F
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K

In 2013, the increase in Operating Profit, excluding the impact of foreign currency translation, was driven by growth in same-store sales and net
new units, partially offset by higher restaurant operating costs in international markets.

13MAR201516053226

Pizza Hut Division

The Pizza Hut Division has 13,602 units, approximately 60% of which are located in the U.S. The Pizza Hut Division operates as one brand that
uses multiple distribution channels including delivery, dine-in and express (e.g. airports). Emerging markets comprised approximately 20% of
both units and profits for the Division as of the end of 2014. Additionally, 94% of the Pizza Hut Division units were operated by franchisees and
licensees as of the end of 2014. Our ongoing earnings growth model for the Pizza Hut Division includes 3 - 4 percentage points of net unit growth
and low-single-digit same-store sales growth. This combined with restaurant margin improvement and leverage of our G&A structure is expected
to drive annual Operating Profit growth of 8%.

YUM! BRANDS, INC. - 2014 Form 10-K 23

PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations

Company sales
Franchise and license fees and

income

Total revenues

Restaurant profit
Restaurant margin %

G&A expenses
Operating Profit

System Sales Growth, reported
System Sales Growth, excluding FX
Same-Store Sales Growth (Decline)%

Unit Count

Franchise & License
Company-owned

Total

Franchise & License
Company-owned

Total

% B/(W)

2014

% B/(W)

2013

2014

2013

2012

Reported

Ex FX

Reported

Ex FX

$
$

607

609

993

541

1,148

50
8.2%

246
295

$
$

538

1,147

71
11.7%

224
339

$
$

517

1,510

110
11.2%

258
320

—

(1)

(39)

(24)

(39)

(24)

(30)
(3.5) ppts.

(32)
(3.7) ppts.

(36)
0.5 ppts.

(36)
0.4 ppts.

(10)
(13)

(11)
(13)

13
6

13
7

2014

2013

—%
1%
(1)%

% Increase
(Decrease)

2014

12,814
788

13,602

2013

12,601
732

13,333

2012

2014

2013

12,393
667

13,060

2
8

2
10

2013

New Builds

Closures

Refranchised

Acquired Other

2014

12,601
732

13,333

586
91

677

(359)
(48)

(407)

6
(6)

—

(19)
19

—

(1)
—

(1)

12,814
788

13,602

2012

New Builds

Closures

Refranchised

Acquired Other

2013

12,393
667

13,060

612
80

692

(363)
(53)

(416)

22
(22)

—

(60)
60

—

(3)
—

(3)

12,601
732

13,333

K
-
0
1
m
r
o
F

Company Sales and Restaurant Profit

The changes in Company sales and Restaurant profit were as follows:

13MAR201517272138

Income / (Expense)

Company sales
Cost of sales
Cost of labor
Occupancy and other

Restaurant profit

2014 vs. 2013

Store
Portfolio
Actions

21
(7)
(9)
(8)

2013

609
(173)
(183)
(182)

Other

$ (24)
—
4
—

(3)

$ (20)

11.7%

1
—
—
1

2014

607
(180)
(188)
(189)

8.2%

24 YUM! BRANDS, INC. - 2014 Form 10-K

PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations

Income / (Expense)

Company sales
Cost of sales
Cost of labor
Occupancy and other

Restaurant profit

2013 vs. 2012

Store
Portfolio
Actions

$ (381)
88
119
145

2012

993
(259)
(305)
(319)

Other

2013

(6)
(1)
4
(8)

3
(1)
(1)
—

609
(173)
(183)
(182)

110

(29)

$ (11)

11.2%

11.7%

In 2014, the increase in Company sales associated with store portfolio actions was driven by the impact of net new unit growth, the acquisition of
restaurants in the U.S. and the acquisition of restaurants in Turkey from an existing franchisee in April 2013, partially offset by refranchising.
Significant other factors impacting Company sales and/or Restaurant profit were company same-store sales declines of 4%, commodity inflation,
primarily in the U.S., and higher self-insurance costs.

In 2013, the decrease in Company sales and Restaurant profit associated with store portfolio actions was driven by the refranchising of our
remaining Company-owned Pizza Hut dine-in restaurants in the UK in the fourth quarter of 2012, partially offset by the acquisition of restaurants in
Turkey from an existing franchisee in April 2013 and net new unit growth. Significant other factors impacting Company sales and/or Restaurant
profit were higher restaurant operating costs, including commodity inflation primarily in the U.S., and company same-store sales declines of 1%.

Franchise and License Fees and Income

In 2014, the increase in Franchise and license fees and income, excluding the impact of foreign currency translation, was driven by net new unit
growth, partially offset by same-store sales declines.

In 2013, the increase in Franchise and license fees and income, excluding the impact of foreign currency translation, was driven by the
refranchising of our remaining Company-owned Pizza Hut dine-in restaurants in the UK in the fourth quarter of 2012 and net new unit growth.

G&A Expenses

In 2014, the increase in G&A expenses, excluding the impact of foreign currency translation, was driven by strategic investments in international
G&A, higher litigation costs and lapping a pension curtailment gain in the first quarter of 2013 related to one of our UK pension plans, partially
offset by lower pension costs in the U.S.

In 2013, the decrease in G&A expenses, excluding the impact of foreign currency translation, was driven by the refranchising of our remaining
Company-owned Pizza Hut dine-in restaurants in the UK in the fourth quarter of 2012, lower incentive compensation costs and a pension
curtailment gain in the first quarter of 2013 related to one of our UK pension plans, partially offset by strategic investments in international G&A.

Operating Profit

In 2014, the decrease in Operating Profit, excluding the impact of foreign currency translation, was driven by higher G&A, same-store sales
declines and higher restaurant operating costs, partially offset by net new unit growth.

In 2013, the increase in Operating Profit, excluding the impact of foreign currency translation, was driven by refranchising our remaining company-
owned Pizza Hut dine-in restaurants in the UK in the fourth quarter of 2012, including lapping restaurant impairment charges, net new unit growth
and lower G&A, partially offset by higher franchise and license expenses, the acquisition of restaurants in Turkey from an existing franchisee in
April 2013 and higher restaurant operating costs.

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13MAR201516053226

Taco Bell Division

The Taco Bell Division has 6,199 units, the vast majority of which are in the U.S. The Company owns 16% of the Taco Bell units in the U.S., where
the brand has historically achieved high restaurant margins and returns. Our ongoing earnings growth model includes 100 - 200 net new units per
year and low single-digit same-store sales growth. This combined with restaurant margin improvement and leverage of our G&A structure is
expected to drive annual Operating Profit growth of 6%.

YUM! BRANDS, INC. - 2014 Form 10-K 25

(16)

(11)

(16)

(11)

(10)
1.3 ppts.

7
5

2014

2013

4%
4%
3%

% Increase
(Decrease)

2014

2013

2
4

5
(15)

PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations

2014

2013

2012

Reported

Ex FX

Reported

Ex FX

% B/(W)

2014

% B/(W)

2013

Company sales
Franchise and license fees and

income

Total revenues

Restaurant profit
Restaurant margin %

G&A expenses
Operating Profit

1,452

1,474

1,747

411

1,863

274
18.9%

185
480

$
$

395

1,869

287
19.5%

206
456

$
$

362

2,109

319
18.2%

223
435

$
$

(2)

—

(5)

(2)

—

(5)

(0.6) ppts.

10
5

System Sales Growth, reported
System Sales Growth, excluding FX
Same-Store Sales Growth %

Unit Count

Franchise & License
Company-owned

Total

Franchise & License
Company-owned

Total

2014

5,273
926

6,199

2013

5,157
891

6,048

2012

4,933
1,044

5,977

2013

New Builds

Closures

Refranchised

Acquired Other

2014

5,157
891

6,048

209
27

236

(90)
(1)

(91)

3
(3)

—

(12)
12

—

6
—

5,273
926

6,199

2012

New Builds

Closures

Refranchised

Acquired Other

2013

4,933
1,044

5,977

152
27

179

(98)
(2)

(100)

178
(178)

—

—
—

—

(8)
—

(8)

5,157
891

6,048

K
-
0
1
m
r
o
F

Company Sales and Restaurant Profit

The changes in Company sales and Restaurant profit were as follows:

13MAR201517272138

Income / (Expense)

Company sales
Cost of sales
Cost of labor
Occupancy and other

Restaurant profit

2014 vs. 2013

Store
Portfolio
Actions

Other

(47)
14
14
12

25
(21)
(9)
(1)

$ — $
—
—
—

2014

1,452
(431)
(414)
(333)

2013

1,474
(424)
(419)
(344)

287

(7)

(6)

$ — $

274

19.5%

18.9%

26 YUM! BRANDS, INC. - 2014 Form 10-K

PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations

Income / (Expense)

Company sales
Cost of sales
Cost of labor
Occupancy and other

Restaurant profit

2013 vs. 2012

2012

1,747
(502)
(504)
(422)

Store
Portfolio
Actions

$ (283)
83
88
78

Other

10
(5)
(3)
—

$ — $
—
—
—

2013

1,474
(424)
(419)
(344)

319

(34)

$ — $

287

18.2%

19.5%

In 2014, the decrease in Company sales and Restaurant profit associated with store portfolio actions was driven by refranchising, partially offset
by net new unit growth. Significant other factors impacting Company sales and/or Restaurant profit were commodity inflation and higher food and
labor costs due to the launch of breakfast in the U.S., partially offset by company same-store sales growth of 2%.

In 2013, the decrease in Company sales and Restaurant profit associated with store portfolio actions was driven by refranchising, partially offset
by net new unit growth. Significant other factors impacting Company sales and/or Restaurant profit were the favorable impact of pricing, partially
offset by transaction declines, promotional activities and commodity inflation. 2013 company same-store sales were even.

Franchise and License Fees and Income

In 2014, the increase in Franchise and license fees and income was driven by same-store sales growth, refranchising and net new unit growth,
partially offset by franchise incentives provided in the first quarter of 2014 related to the launch of breakfast in the U.S.

In 2013, the increase in Franchise and license fees and income was driven by refranchising and same-store sales growth.

G&A Expenses

In 2014, the decrease in G&A expenses was driven by lower pension costs and lower incentive compensation costs.

In 2013 the decrease in G&A expenses was driven by lower incentive compensation costs, lapping higher litigation costs recorded in 2012 and
refranchising.

Operating Profit

In 2014, the increase in Operating Profit was driven by same-store sales growth, lower G&A and net new unit growth, partially offset by higher
restaurant operating costs.

In 2013, the increase in Operating Profit was driven by same-store sales growth, lower G&A and net new unit growth, partially offset by
refranchising.

India Division

The India Division has 833 units, predominately KFC and Pizza Hut restaurants. While we believe India is a significant long-term growth driver, our
ongoing earnings model currently assumes no impact from India growth.

F
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Total revenues(a)
Operating Profit (loss)

System Sales Growth, reported(a)(b)
System Sales Growth, excluding FX(a)(b)
Same-Store Sales Growth (Decline)%(b)

% B/(W)

2014

% B/(W)

2013

13MAR201516053226

2014

2013

2012

Reported

Ex FX

Reported

Ex FX

$ 141
(9)
$

$ 127
(15)
$

$ 102
(1)
$

11
39

16
35

24
NM

36
NM

2014

2013

(1)%
3%
(5)%

11%
20%
—%

YUM! BRANDS, INC. - 2014 Form 10-K 27

PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations

Unit Count

Franchise & License
Company-owned

Total

Franchise & License
Company-owned

Total

% Increase
(Decrease)

2014

2013

2012

2014

2013

623
210

833

514
191

705

442
120

562

21
10

16
59

2013

New Builds

Closures

Refranchised

Acquired

2014

514
191

705

110
46

156

(21)
(7)

(28)

20
(20)

—

—
—

—

623
210

833

2012

New Builds

Closures

Refranchised

Acquired

2013

442
120

562

89
68

157

(11)
(3)

(14)

—
—

—

(6)
6

—

514
191

705

(a) Effective the beginning of 2014, results from our 28 Mauritius stores are included in KFC and Pizza Hut Divisions as applicable. Prior year units have been
adjusted for comparability while division System Sales Growth, Total Revenues and Operating Profit (loss) have not been restated due to the immaterial dollar
impact of this change. While there was no impact to our consolidated results, this change negatively impacted India’s 2014 System Sales Growth, reported and
excluding FX, by 10% and 11%, respectively. This change negatively impacted India’s 2014 Total revenues by 2% and Operating Profit (loss) by $1 million.

(b) At the beginning of fiscal 2013, we eliminated the period lag that was previously used to facilitate the reporting of our India Division’s results. Accordingly, the India
Division’s 2013 results include the months of January through December 2013. Due to the immateriality of the India Division’s results we did not restate the prior
year’s operating results for the elimination of this period lag. Therefore, the 2012 results continue to include the months of December 2011 through November
2012. Additionally, the table above compares these months. If we had compared like months in 2013 to 2012, India Division system sales, excluding the impact of
foreign currency translation, would have been 2% higher and same-store sales would have been 1% lower versus what is shown above, respectively, for the year
ended December 28, 2013.

Corporate & Unallocated

Income / (Expense)

Corporate G&A
Unallocated closures and impairments
Unallocated Refranchising gain (loss)
Other unallocated
Interest expense, net
Income tax provision
Effective tax rate

Corporate G&A

K
-
0
1
m
r
o
F

% B/(W)

2014

2013

2012

2014

2013

(189)
(463)
33
(22)
(130)
(406)
28.5%

$
$

(207)
(295)
100
(6)
(247)
(487)
31.4%

(271)
—
78
92
(149)
(537)
25.0%

9
(57)
(67)
(78)
47
17
2.9 ppts.

24
NM
29
NM
(66)
9

(6.4) ppts.

13MAR201517272138

In 2014, the decrease in Corporate G&A was driven by lower pension costs, including lapping higher pension settlement charges, partially offset
by higher legal and professional fees.

In 2013, the decrease in Corporate G&A was driven by lower pension costs, including lapping higher pension settlement charges, and lower
incentive compensation costs, partially offset by higher legal and professional fees.

Unallocated Closures and Impairments

In 2014 and 2013, Unallocated closures and impairments represent Little Sheep impairment charges. See Note 4.

Unallocated Refranchising Gain (Loss)

Unallocated Refranchising gain (loss) in 2014, 2013 and 2012 is discussed in Note 4.

Other Unallocated

In 2014, Other unallocated includes higher foreign exchange losses.

In 2012, Other unallocated includes a non-cash gain of $74 million related to our acquisition of Little Sheep in 2012.

28 YUM! BRANDS, INC. - 2014 Form 10-K

PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations

Interest Expense, Net

The decrease in interest expense, net for 2014 was driven by lapping $118 million of premiums paid and other costs related to the extinguishment
of debt in 2013. The increase in 2013 versus 2012 due to this extinguishment was partially offset by lower average borrowings outstanding and
lower interest rates versus 2012. See Note 4.

Income Tax Provision

In 2014, 2013 and 2012, the reported effective income tax rates were 28.5%, 31.4% and 25.0%, respectively. See Note 16 for further discussion of
our income tax provision.

Consolidated Cash Flows

Net cash provided by operating activities was $2,049 million in
2014 versus $2,139 million in 2013. The decrease was primarily
driven by higher income taxes paid.

In 2013, net cash provided by operating activities was $2,139 million
compared to $2,294 million in 2012. The decrease was primarily due
to lower Operating Profit before Special Items and higher income
taxes paid, partially offset by approximately $100 million in lower
pension contributions.

Net cash used in investing activities was $936 million in 2014
compared to $886 million in 2013. The increase was primarily driven
by lower refranchising proceeds, partially offset by lapping the
acquisition of restaurants in Turkey from an existing franchisee in April
2013.

Consolidated Financial Condition

In 2013, net cash used in investing activities was $886 million
compared to $1,005 million in 2012. The decrease was primarily
driven by lapping the acquisition of Little Sheep and release of related
restricted cash. See Note 4.

Net cash used in financing activities was $1,114 million in 2014
compared to $1,451 million in 2013. The decrease was primarily
driven by higher borrowings on our revolving credit facility.

In 2013, net cash used in financing activities was $1,451 million
compared to $1,716 million in 2012. The decrease was primarily
driven by lower net debt payments and lower share repurchases in
2013, partially offset by higher dividends paid on common stock and
lower tax benefits from share-based compensation.

The change in our Goodwill and Intangible assets, net is primarily the
result of the impairment of Little Sheep’s goodwill and trademark. See
Note 4.

Long-term debt is also impacted by outstanding borrowings of
$416 million under our revolving credit facility as of December 27,
2014. See Note 10.

The changes in our Short-term borrowings and Long-term debt are
primarily due to the classification of $250 million in Senior Unsecured
Notes as short-term due to their September 2015 maturity date.

The decrease in Accumulated other comprehensive income (loss) is
primarily the result of currency translation adjustment losses and net
actuarial losses in our U.S. pension plans. See Note 15.

Liquidity and Capital Resources

franchise operations which require a

Operating in the QSR industry allows us to generate substantial cash
flows from the operations of our company-owned stores and from our
extensive
limited YUM
investment. Net cash provided by operating activities has exceeded
$1 billion in each of the last thirteen fiscal years, including over
$2 billion in each fiscal year since 2011. We expect these levels of net
cash provided by operating activities to continue in the foreseeable
future. However, unforeseen downturns in our business could
adversely impact our cash flows from operations from the levels
historically realized.

In the event our cash flows from operating activities are negatively
impacted by business downturns, we believe we have the ability to
temporarily reduce our discretionary spending without significant
impact to our long-term business prospects. Our discretionary
spending includes capital spending for new restaurants, acquisitions
of restaurants from franchisees, repurchases of shares of our
Common Stock and dividends paid to our shareholders.

We generate a significant amount of cash from operating activities
outside the U.S. that we have used historically to fund our
international development. To the extent we have needed to repatriate
international cash to fund our U.S. discretionary cash spending,
including share repurchases, dividends and debt repayments, we

have historically been able to do so in a tax-efficient manner. If we
experience an unforeseen decrease in our cash flows from our U.S.
businesses or are unable to refinance future U.S. debt maturities we
may be required to repatriate future international earnings at tax rates
higher than we have historically experienced.

We currently have investment-grade ratings from Standard & Poor’s
Rating Services (BBB) and Moody’s Investors Service (Baa3). While
we do not anticipate a downgrade in our credit rating, a downgrade
would increase the Company’s current borrowing costs and could
impact the Company’s ability to access the credit markets cost
effectively if necessary. Based on the amount and composition of our
debt at December 27, 2014, our interest expense would not materially
increase on a full-year basis should we receive a one-level downgrade
in our ratings.

Discretionary Spending

During 2014, we invested $1,033 million in capital spending, including
$525 million in China, $273 million in KFC, $62 million in Pizza Hut,
$143 million in Taco Bell and $21 million in India. For 2015, we
estimate capital spending will be approximately $1.1 billion.

YUM! BRANDS, INC. - 2014 Form 10-K 29

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PART II
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During the year ended December 27, 2014 we repurchased shares for
$820 million. On November 22, 2013, our Board of Directors
authorized share repurchases through May 2015 of up to $750 million
(excluding applicable transaction fees) of our outstanding Common
Stock. On November 20, 2014, our Board of Directors authorized
additional share repurchases through May 31, 2016 of up to $1 billion
(excluding applicable transaction fees) of our outstanding Common
Stock. At December 27, 2014, we had remaining capacity to
repurchase up to $1.1 billion of outstanding Common Stock (excluding
applicable transaction fees) under these authorizations. Shares are
repurchased opportunistically as part of our regular capital structure
decisions.

During the year ended December 27, 2014, we paid cash dividends of
$669 million. Additionally, on November 20, 2014 our Board of
Directors approved cash dividends of $0.41 per share of Common
Stock that were distributed on February 6, 2015 to shareholders of
record at the close of business on January 16, 2015. The Company
targets an ongoing annual dividend payout ratio of 40% to 45% of net
income.

Borrowing Capacity

Our primary bank credit agreement comprises a $1.3 billion
syndicated senior unsecured revolving credit facility (the ‘‘Credit
Facility’’) which matures in March 2017 and includes 24 participating
banks with commitments ranging from $23 million to $115 million. We
believe the syndication reduces our dependency on any one bank.

Under the terms of the Credit Facility, we may borrow up to the
maximum borrowing limit, less outstanding letters of credit or banker’s
acceptances, where applicable. At December 27, 2014, our unused
Credit Facility totaled $824 million net of outstanding letters of credit of
$60 million and outstanding borrowings of $416 million. The interest

rate for borrowings under the Credit Facility ranges from 1.0% to
1.75% over the ‘‘London Interbank Offered Rate’’ (‘‘LIBOR’’). The
exact spread over LIBOR under the Credit Facility depends upon our
performance against specified financial criteria. Interest on any
outstanding borrowings under the Credit Facility is payable at least
quarterly.

The Credit Facility is unconditionally guaranteed by our principal
domestic subsidiaries and contains financial covenants relating to
maintenance of leverage and fixed-charge coverage ratios and also
contains affirmative and negative covenants including, among other
things, limitations on certain additional indebtedness and liens, and
certain other transactions specified in the agreement. Given the
Company’s strong balance sheet and cash flows we were able to
comply with all debt covenant requirements at December 27, 2014
with a considerable amount of cushion. Additionally, the Credit Facility
contains cross-default provisions whereby our failure to make any
payment on our indebtedness in a principal amount in excess of
$125 million, or the acceleration of the maturity of any such
indebtedness, will constitute a default under such agreement.

The majority of our remaining long-term debt primarily comprises
Senior Unsecured Notes with varying maturity dates from 2015
through 2043 and stated interest rates ranging from 3.75% to 6.88%.
The notes represent senior, unsecured obligations and rank equally in
right of payment with all of our existing and future unsecured
unsubordinated indebtedness. Amounts outstanding under Senior
Unsecured Notes were $2.8 billion at December 27, 2014. Our Senior
Unsecured Notes provide that the acceleration of the maturity of any
of our indebtedness in a principal amount in excess of $50 million will
constitute a default under the Senior Unsecured Notes unless such
indebtedness is discharged, or the acceleration of the maturity of that
indebtedness is annulled, within 30 days after notice.

Contractual Obligations

Our significant contractual obligations and payments as of December 27, 2014 included:

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Long-term debt obligations(a)
Capital leases(b)
Operating leases(b)
Purchase obligations(c)
Benefit plans(d)

Total

Less than 1 Year

1-3 Years

3-5 Years

4,561
282
5,479
781
179

395
20
709
587
38

953
41
1,270
103
38

754
40
1,056
69
34

More than 5
Years

2,459
181
2,444
22
69

Total contractual obligations

$ 11,282

1,749

2,405

1,953

5,175

(a) Debt amounts include principal maturities and expected interest payments on a nominal basis. Debt amounts exclude a fair value adjustment of $7 million related

to interest rate swaps that hedge the fair value of a portion of our debt. See Note 10.

(b) These obligations, which are shown on a nominal basis, relate primarily to approximately 7,775 company-owned restaurants. See Note 11.

(c) Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding on us and that specify all significant terms,
including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. We have
excluded agreements that are cancelable without penalty. Purchase obligations relate primarily to supply agreements, marketing, information technology,
purchases of property, plant and equipment (‘‘PP&E’’) as well as consulting, maintenance and other agreements.

(d) Includes actuarially determined timing of payments from our most significant unfunded pension plan as well as scheduled payments from our deferred
compensation plan. This table excludes $129 million of future benefit payments for deferred compensation and other unfunded benefit plans to be paid upon
separation of employee’s service or retirement from the company, as we cannot reasonably estimate the dates of these future cash payments.

We sponsor noncontributory defined benefit pension plans covering
certain salaried and hourly employees, the most significant of which
are in the U.S. and UK. The most significant of the U.S. plans, the
YUM Retirement Plan (the ‘‘Plan’’), is funded while benefits from our
other significant U.S. plan are paid by the Company as incurred (see
footnote (d) above). Our funding policy for the Plan is to contribute
annually amounts that will at least equal the minimum amounts

required to comply with the Pension Protection Act of 2006. However,
additional voluntary contributions are made from time to time to
improve the Plan’s funded status. At December 27, 2014 the Plan was
in a net underfunded position of $191 million. The UK pension plans
were in a net overfunded position of $57 million at our 2014
measurement date.

30 YUM! BRANDS, INC. - 2014 Form 10-K

PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations

Subsequent to December 27, 2014, we contributed $75 million to the
Plan. We do not anticipate making any additional significant
contributions to the Plan in 2015. Investment performance and
corporate bond rates have a significant effect on our net funding
position as they drive our asset balances and discount rate
assumptions. Future changes in investment performance and
corporate bond rates could impact our funded status and the timing
and amounts of required contributions in 2015 and beyond.

Our post-retirement plan in the U.S. is not required to be funded in
advance, but is pay as you go. We made post-retirement benefit
payments of $6 million in 2014 and no future funding amounts are
included in the contractual obligations table. See Note 13.

We have excluded from the contractual obligations table payments we
may make for exposures for which we are self-insured, including
workers’ compensation, employment practices liability, general

Off-Balance Sheet Arrangements

liability, automobile liability, product liability and property losses
(collectively ‘‘property and casualty losses’’) and employee healthcare
and long-term disability claims. The majority of our recorded liability
for self-insured property and casualty
losses and employee
healthcare and long-term disability claims represents estimated
reserves for incurred claims that have yet to be filed or settled.

included

the contractual obligations

We have not
table
approximately $25 million of long-term liabilities for unrecognized tax
benefits relating to various tax positions we have taken. These
liabilities may increase or decrease over time as a result of tax
examinations, and given the status of the examinations, we cannot
reliably estimate the period of any cash settlement with the respective
taxing authorities. These
that are
temporary in nature and for which we anticipate that over time there
will be no net cash outflow.

liabilities exclude amounts

See the Franchise Loan Pool and Equipment Guarantees and Unconsolidated Affiliates Guarantees sections of Note 18 for discussion of our
off-balance sheet arrangements.

New Accounting Pronouncements Not Yet Adopted

In April 2014, the Financial Accounting Standards Board (‘‘FASB’’)
issued ASU No. 2014-08, Presentation of Financial Statements (Topic
205) and Property, Plant, and Equipment (Topic 360): Reporting
Discontinued Operations and Disclosures of Disposals of
Components of an Entity (ASU 2014-08), which limits dispositions that
qualify for discontinued operations presentation to those that
represent strategic shifts that have or will have a major effect on an
entity’s operations and financial results. Strategic shifts could include
a disposal of a major geographical area, a major line of business, a
major equity method investment or other major parts of the business.
ASU 2014-08 is effective prospectively for the Company in our first
quarter of fiscal 2015. We do not believe the adoption of this standard
will have a significant impact on our consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from
Contracts with Customers (Topic 606) (ASU 2014-09), to provide
principles within a single framework for revenue recognition of
transactions involving contracts with customers across all industries.
ASU 2014-09 is effective for the Company in our first quarter of fiscal
2017 with no early adoption permitted. The standard allows for either
a full retrospective or modified retrospective transition method. The
Standard will not impact our recognition of revenue from company-
owned restaurants or our recognition of continuing fees from
franchisees or licensees, which are based on a percentage of
franchise and license sales. We are continuing to evaluate the impact
the adoption of this standard will have on the recognition of other less
significant revenue transactions such as initial fees from franchisees
and refranchising of company-owned restaurants.

Critical Accounting Policies and Estimates

Our reported results are impacted by the application of certain
accounting policies that require us to make subjective or complex
judgments. These judgments involve estimations of the effect of
matters that are inherently uncertain and may significantly impact our
quarterly or annual results of operations or financial condition.
Changes in the estimates and judgments could significantly affect our
results of operations, financial condition and cash flows in future
years. A description of what we consider to be our most significant
critical accounting policies follows.

Impairment or Disposal of Long-Lived
Assets

We review long-lived assets of restaurants (primarily PP&E and
allocated intangible assets subject to amortization) semi-annually for
impairment, or whenever events or changes in circumstances indicate
that the carrying amount of a restaurant may not be recoverable. We
evaluate recoverability based on
forecasted
undiscounted cash flows, which incorporate our best estimate of sales
growth and margin improvement based upon our plans for the unit and

the restaurant’s

actual results at comparable restaurants. For restaurant assets that
are deemed to not be recoverable, we write down the impaired
restaurant to its estimated fair value. Key assumptions in the
determination of fair value are the future after-tax cash flows of the
restaurant, which are reduced by future royalties a franchisee would
pay, and a discount rate. The after-tax cash flows incorporate
reasonable sales growth and margin improvement assumptions that
would be used by a franchisee in the determination of a purchase
price for the restaurant. Estimates of future cash flows are highly
subjective judgments and can be significantly impacted by changes in
the business or economic conditions.

We perform an impairment evaluation at a restaurant group level if it is
more likely than not that we will refranchise restaurants as a group.
Expected net sales proceeds are generally based on actual bids from
the buyer, if available, or anticipated bids given the discounted
projected after-tax cash flows for the group of restaurants. Historically,
these anticipated bids have been reasonably accurate estimations of
the proceeds ultimately received. The after-tax cash flows used in
determining the anticipated bids incorporate reasonable assumptions
we believe a franchisee would make such as sales growth and margin

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improvement as well as expectations as to the useful lives of the
restaurant assets. These after-tax cash flows also include a deduction
for the anticipated, future royalties we would receive under a franchise
agreement with
into
simultaneously with the refranchising transaction.

terms substantially at market entered

The discount rate used in the fair value calculations is our estimate of
the required rate of return that a franchisee would expect to receive
when purchasing a similar restaurant or groups of restaurants and the
related long-lived assets. The discount rate incorporates rates of
returns for historical refranchising market transactions and is
commensurate with the risks and uncertainty inherent in the
forecasted cash flows.

We evaluate indefinite-lived intangible assets for impairment on an
annual basis or more often if an event occurs or circumstances
change that indicates impairment might exist. We perform our annual
test for impairment of our indefinite-lived intangible assets at the
beginning of our fourth quarter. Fair value is an estimate of the price a
willing buyer would pay for the intangible asset and is generally
estimated by discounting the expected future after-tax cash flows
associated with the intangible asset.

Our most significant indefinite-lived intangible asset is our Little Sheep
trademark with a book value of $60 million at December 27, 2014. We
recorded impairment charges in 2014 of $284 million to write the
trademark down to its estimated fair value. See the Little Sheep
Acquisition and Subsequent Impairment section of Note 4 for details.
No additional
impairment was
recorded in 2014.

intangible asset

indefinite-lived

The fair value estimate of the Little Sheep trademark was based on
the estimated price a willing buyer would pay for the asset and was
determined using a relief from royalty valuation approach that
included future estimated sales as a significant input. The fair value
incorporated a discount rate of 13% as our estimate of the required
rate of return that a third-party buyer would expect to receive when
purchasing the Little Sheep trademark.

Little Sheep sales volumes and profit levels were significantly below
forecasted amounts in 2014. As this continued a trend of under
performance for the business, a significant number of Company-
operated restaurants were closed or refranchised during 2014 with
future plans calling for further focus on franchise-ownership for the
Concept. As such, the inputs used in determining the fair value for the
Little Sheep trademark reflect a reduction in Company ownership to a
level of 50 restaurants (from 92 restaurants at December 27, 2014).
Given so few Company-operated restaurants, the primary drivers of
fair value in 2014 include franchise revenue growth and revenues
from a wholly-owned business that sells seasoning to retail
customers. Franchise revenue growth reflects annual same-store
sales growth of 4% and approximately 35 new franchise units per
year, partially offset by the impact of approximately 25 franchise
closures per year. The seasoning business is forecasted to generate
sales growth rates consistent with historical results.

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Impairment of Goodwill

We evaluate goodwill for impairment on an annual basis as of the
beginning of our fourth quarter or more often if an event occurs or
circumstances change that indicates impairment might exist. Goodwill
is evaluated for impairment by determining whether the fair value of
our reporting units exceed their carrying values. Our reporting units
are our business units (which are aligned based on geography) in our
KFC, Pizza Hut and Taco Bell Divisions and individual brands in our
China and India Divisions. Fair value is the price a willing buyer would
pay for the reporting unit, and is generally estimated using discounted

32 YUM! BRANDS, INC. - 2014 Form 10-K

expected future after-tax cash flows from Company-owned restaurant
operations and franchise royalties.

Future cash flow estimates and the discount rate are the key
assumptions when estimating the fair value of a reporting unit. Future
cash flows are based on growth expectations relative to recent
historical performance and incorporate sales growth and margin
improvement assumptions that we believe a third-party buyer would
assume when determining a purchase price for the reporting unit. The
sales growth and margin improvement assumptions that factor into
the discounted cash flows are highly correlated as cash flow growth
can be achieved through various interrelated strategies such as
product pricing and restaurant productivity initiatives. The discount
rate is our estimate of the required rate of return that a third-party
buyer would expect to receive when purchasing a business from us
that constitutes a reporting unit. We believe the discount rate is
commensurate with the risks and uncertainty inherent in the
forecasted cash flows.

Other than the Little Sheep reporting unit discussed below, the fair
values of our other reporting units were substantially in excess of their
respective carrying values as of the 2014 goodwill testing date.

As a result of our annual impairment testing we completely impaired
what was our most significant goodwill balance of $160 million related
to our Little Sheep reporting unit in 2014. See the Little Sheep
Acquisition and Subsequent Impairment section of Note 4 for details.
The fair value of the Little Sheep reporting unit was based on the
estimated price a willing buyer would pay, and was determined using
an income approach with future cash flow estimates generated by the
business as a significant input. Future cash flow estimates are
primarily impacted by new unit development, sales growth and
ownership strategy. This fair value incorporated a discount rate of
13% as our estimate of the required rate of return that a third-party
buyer would expect to receive when purchasing the Little Sheep
reporting unit.

Little Sheep sales volumes and profit levels were significantly below
forecasted amounts in 2014. As this continued a trend of under
performance for the business, a significant number of Company-
operated restaurants were closed or refranchised during 2014 with
future plans calling for further focus on franchise-ownership for the
Concept. As such, the inputs used in determining the fair value for the
Little Sheep reporting unit reflect a reduction in Company ownership
to a level of 50 restaurants (from 92 restaurants at December 27,
2014). Given so few Company-operated restaurants, the primary
drivers of fair value in 2014 include franchise revenue growth and
cash flows associated with a wholly-owned business that sells
seasoning to retail customers. Franchise revenue growth reflects
annual same-store sales growth of 4% and approximately 35 new
franchise units per year, partially offset by the impact of approximately
25 franchise closures per year. The seasoning business is forecasted
to generate sales growth rates and margins consistent with historical
results.

When we refranchise restaurants, we include goodwill in the carrying
amount of the restaurants disposed of based on the relative fair values
of the portion of the reporting unit disposed of in the refranchising
versus the portion of the reporting unit that will be retained. The fair
value of the portion of the reporting unit disposed of in a refranchising
is determined by reference to the discounted value of the future cash
flows expected to be generated by the restaurant and retained by the
franchisee, which include a deduction for the anticipated, future
royalties the franchisee will pay us associated with the franchise
agreement entered
the refranchising
transaction. Appropriate adjustments are made to the fair value
determinations if such franchise agreement is determined to not be at
prevailing market rates. When determining whether such franchise

into simultaneously with

PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations

agreement is at prevailing market rates our primary consideration is
consistency with the terms of our current franchise agreements both
within the country that the restaurants are being refranchised in and
around the world. The Company believes consistency in royalty rates
as a percentage of sales is appropriate as the Company and
franchisee share in the impact of near-term fluctuations in sales
results with the acknowledgment that over the long-term the royalty
rate represents an appropriate rate for both parties.

The discounted value of the future cash flows expected to be
generated by the restaurant and retained by the franchisee is reduced
by future royalties the franchisee will pay the Company. The Company
thus considers the fair value of future royalties to be received under
the franchise agreement as fair value retained in its determination of
the goodwill to be written off when refranchising. Others may consider
the fair value of these future royalties as fair value disposed of and
thus would conclude that a larger percentage of a reporting unit’s fair
value is disposed of in a refranchising transaction.

During 2014, the Company’s most significant refranchising activity
was within our China operating segment, where 79 restaurants were
refranchised (representing approximately 2% of beginning-of-year
company units) and less than $1 million in goodwill was written off
(representing approximately 1% of beginning-of-year goodwill).

See Note 2 for a further discussion of our policies regarding goodwill.

Self-Insured Property and Casualty
Losses

We record our best estimate of the remaining cost to settle incurred
self-insured workers’ compensation, employment practices liability,
general liability, automobile liability, product liability and property
losses (collectively ‘‘property and casualty losses’’). The estimate is
based on the results of an independent actuarial study and considers
historical claim frequency and severity as well as changes in factors
such as our business environment, benefit levels, medical costs and
the regulatory environment that could impact overall self-insurance
costs. Additionally, our reserve includes a risk margin to cover
unforeseen events that may occur over the several years required to
settle claims, increasing our confidence level that the recorded
reserve is adequate.

See Note 18 for a further discussion of our insurance programs.

Pension Plans

Certain of our employees are covered under defined benefit pension
plans. Our two most significant plans are in the U.S. and combined
had a projected benefit obligation (‘‘PBO’’) of $1,301 million and a fair
value of plan assets of $991 million at December 27, 2014.

The PBO reflects the actuarial present value of all benefits earned to
date by employees and incorporates assumptions as to future
compensation levels. Due to the relatively long time frame over which
benefits earned to date are expected to be paid, our PBOs are highly
sensitive to changes in discount rates. For our U.S. plans, we
measured our PBOs using a discount rate of 4.30% at December 27,
2014. This discount rate was determined with the assistance of our
independent actuary. The primary basis for our discount rate
determination is a model that consists of a hypothetical portfolio of ten
or more corporate debt instruments rated Aa or higher by Moody’s or
S&P with cash flows that mirror our expected benefit payment cash
flows under the plans. We exclude from the model those corporate
debt instruments flagged by Moody’s or S&P for a potential
downgrade (if the potential downgrade would result in a rating below
Aa by both Moody’s and S&P) and bonds with yields that were two

standard deviations or more above the mean. In considering possible
bond portfolios, the model allows the bond cash flows for a particular
year to exceed the expected benefit payment cash flows for that year.
Such excesses are assumed to be reinvested at appropriate one-year
forward rates and used to meet the benefit payment cash flows in a
future year. The weighted-average yield of this hypothetical portfolio
was used to arrive at an appropriate discount rate. We also ensure
that changes in the discount rate as compared to the prior year are
consistent with the overall change in prevailing market rates and make
adjustments as necessary. A 50 basis-point increase in this discount
rate would have decreased these U.S. plans’ PBOs by approximately
$100 million at our measurement date. Conversely, a 50 basis-point
decrease in this discount rate would have increased our U.S. plans’
PBOs by approximately $110 million at our measurement date.

The pension expense we will record in 2015 is also impacted by the
discount rate, as well as the long-term rates of return on plan assets
and mortality assumptions we selected at our measurement date. We
expect pension expense for our U.S. plans to increase approximately
$25 million in 2015. The increase is primarily driven by an increase in
amortization of net loss due to higher net unrecognized losses in
Accumulated other comprehensive income. Higher net unrecognized
losses in Accumulated other comprehensive income are primarily a
result of a lower discount rate at our 2014 measurement date. A 50
basis-point change
in our discount rate assumption at our
measurement date would impact our 2015 U.S. pension expense by
approximately $13 million.

Our estimated long-term rate of return on U.S. plan assets is based
upon the weighted-average of historical returns for each asset
category. Our expected long-term rate of return on U.S. plan assets,
for purposes of determining 2015 pension expense, at December 27,
2014 was 6.75%. We believe this rate is appropriate given the
composition of our plan assets and historical market returns thereon.
A 100 basis point change in our expected long-term rate of return on
plan assets assumption would impact our 2015 U.S. pension expense
by approximately $9 million. Additionally, every 100 basis point
variation in actual return on plan assets versus our expected return of
6.75% will impact our unrecognized pre-tax actuarial net loss by
approximately $9 million.

Assumptions as to mortality of the participants in our U.S. defined
benefit pension plans are key estimates in measuring the expected
payments which participants may receive over their lifetimes and
therefore the amount of expense we will recognize. In determining the
most appropriate mortality assumptions for our U.S. defined benefit
pension plans at December 27, 2014, we considered the updated
mortality tables recently issued by the Society of Actuaries, coupled
with other mortality information available from the Social Security
Administration and our consulting actuaries to develop updated
mortality assumptions for our participant populations. The use of
these updated mortality assumptions increased the benefit obligation
for these U.S. defined benefit pension plans by approximately
$46 million at December 27, 2014.

A decrease in discount rates has largely contributed to an
unrecognized pre-tax actuarial net loss of $314 million included in
Accumulated other comprehensive income (loss) for these U.S. plans
at December 27, 2014. We will recognize approximately $45 million of
such loss in net periodic benefit cost in 2015 versus $17 million
recognized in 2014. See Note 13.

Income Taxes

At December 27, 2014, we had valuation allowances of approximately
$230 million to reduce our $1.2 billion of deferred tax assets to
amounts that are more likely than not to be realized. The net deferred

YUM! BRANDS, INC. - 2014 Form 10-K 33

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PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations

is then measured at the largest amount of benefit that is greater than
fifty percent likely of being realized upon settlement. At December 27,
2014 we had $115 million of unrecognized tax benefits, $17 million of
which, if recognized, would impact the effective tax rate. We evaluate
unrecognized tax benefits, including interest thereon, on a quarterly
basis to ensure that they have been appropriately adjusted for events,
including audit settlements, which may impact our ultimate payment
for such exposures.

the

tax basis,

Additionally, we have not provided deferred tax for investments in
foreign subsidiaries where the carrying values for financial reporting
exceed
totaling approximately $2.0 billion at
December 27, 2014, as we believe the excess is essentially
permanently invested. If our intentions regarding the duration of these
investments change, deferred tax may need to be provided on this
excess that could materially impact the provision for income taxes.

See Note 16 for a further discussion of our income taxes.

tax assets primarily relate to temporary differences in profitable U.S.
federal, state and foreign jurisdictions, net operating losses in certain
foreign jurisdictions, the majority of which do not expire, and U.S.
foreign tax credit carryovers that expire 10 years from inception and
for which we anticipate having foreign earnings to utilize. In evaluating
our ability to recover our deferred tax assets, we consider future
taxable income in the various jurisdictions as well as carryforward
periods and restrictions on usage. The estimation of future taxable
income in these jurisdictions and our resulting ability to utilize deferred
tax assets can significantly change based on future events, including
our determinations as to feasibility of certain tax planning strategies.
Thus, recorded valuation allowances may be subject to material future
changes.

As a matter of course, we are regularly audited by federal, state and
foreign tax authorities. We recognize the benefit of positions taken or
expected to be taken in our tax returns in our Income Tax Provision
when it is more likely than not that the position would be sustained
upon examination by these tax authorities. A recognized tax position

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34 YUM! BRANDS, INC. - 2014 Form 10-K

PART II

ITEM 7A

Quantitative and Qualitative
Disclosures About Market Risk

The Company is exposed to financial market risks associated with interest rates, foreign currency exchange rates and commodity prices. In the
normal course of business and in accordance with our policies, we manage these risks through a variety of strategies, which may include the use
of financial and commodity derivative instruments to hedge our underlying exposures. Our policies prohibit the use of derivative instruments for
trading purposes, and we have processes in place to monitor and control their use.

Interest Rate Risk

We have a market risk exposure to changes in interest rates,
principally in the U.S. We have attempted to minimize this risk and
lower our overall borrowing costs on a portion of our debt through the
utilization of derivative financial instruments, primarily interest rate
swaps. These swaps were entered into with financial institutions and
have reset dates and critical terms that match those of the underlying
debt. Accordingly, any change in fair value associated with interest
rate swaps is offset by the opposite impact on the related debt.

At December 27, 2014 and December 28, 2013 a hypothetical 100
basis-point increase in short-term interest rates would result, over the
following twelve-month period, in a reduction of approximately
$5 million and $3 million, respectively, in income before income taxes.

The estimated reductions are based upon the current level of variable
rate debt and assume no changes in the volume or composition of that
debt and include no impact from interest income related to cash and
cash equivalents. In addition, the fair value of our derivative financial
instruments at December 27, 2014 and December 28, 2013 would
decrease approximately $4 million and $7 million, respectively, as a
result of the same hypothetical 100 basis-point increase and the fair
value of our Senior Unsecured Notes at December 27, 2014 and
December 28, 2013 would decrease approximately $182 million and
$185 million, respectively. Fair value was determined based on the
present value of expected future cash flows considering the risks
involved and using discount rates appropriate for the duration.

Foreign Currency Exchange Rate Risk

Changes in foreign currency exchange rates impact the translation of
our reported foreign currency denominated earnings, cash flows and
net investments in foreign operations and the fair value of our foreign
currency denominated financial instruments. Historically, we have
chosen not to hedge foreign currency risks related to our foreign
currency denominated earnings and cash flows through the use of
financial instruments. We attempt to minimize the exposure related to
our net investments in foreign operations by financing those
investments with local currency denominated debt when practical. In
addition, we attempt to minimize the exposure related to foreign
currency denominated financial instruments by purchasing goods and
services from third parties in local currencies when practical.
Consequently, foreign currency denominated financial instruments
consist primarily of
intercompany short-term receivables and
payables. At times, we utilize forward contracts to reduce our
exposure related to these intercompany short-term receivables and

Commodity Price Risk

payables. The notional amount and maturity dates of these contracts
match those of the underlying receivables or payables such that our
foreign currency exchange risk related to these instruments is
minimized.

The Company’s foreign currency net asset exposure (defined as
foreign currency assets less foreign currency liabilities) totaled
approximately $4.4 billion as of December 27, 2014. Operating in
international markets exposes the Company to movements in foreign
currency exchange rates. The Company’s primary exposures result
from our operations in Asia-Pacific, Europe and the Americas. For the
fiscal year ended December 27, 2014 Operating Profit would have
decreased approximately $150 million if all foreign currencies had
uniformly weakened 10% relative to the U.S. dollar. This estimated
reduction assumes no changes in sales volumes or local currency
sales or input prices.

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We are subject to volatility in food costs as a result of market risk
associated with commodity prices. Our ability to recover increased
costs through higher pricing is, at times, limited by the competitive

environment in which we operate. We manage our exposure to this
risk primarily through pricing agreements with our vendors.

YUM! BRANDS, INC. - 2014 Form 10-K 35

PART II

ITEM 8

Financial Statements
and Supplementary Data

Index to Financial Information

Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Income for the fiscal years ended December 27, 2014, December 28, 2013 and December 29,

2012

Consolidated Statements of Comprehensive Income for the fiscal years ended December 27, 2014, December 28, 2013

and December 29, 2012

Consolidated Statements of Cash Flows for the fiscal years ended December 27, 2014, December 28, 2013 and

December 29, 2012

Consolidated Balance Sheets as of December 27, 2014 and December 28, 2013
Consolidated Statements of Shareholders’ Equity for the fiscal years ended December 27, 2014, December 28, 2013 and

December 29, 2012

Notes to Consolidated Financial Statements

Financial Statement Schedules

Page
Reference

40
41

42
43

No schedules are required because either the required information is not present or not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the above-listed financial statements or notes thereto.

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36 YUM! BRANDS, INC. - 2014 Form 10-K

PART II
ITEM 8 Financial Statements and Supplementary Data

Report of Independent Registered Public
Accounting Firm

The Board of Directors and Shareholders

YUM! Brands, Inc.

We have audited the accompanying consolidated balance sheets of
YUM! Brands, Inc. and Subsidiaries (YUM) as of December 27, 2014
and December 28, 2013, and the related consolidated statements of
income, comprehensive income, shareholders’ equity, and cash flows
for each of the fiscal years in the three-year period ended
December 27, 2014. We also have audited YUM’s internal control
over financial reporting as of December 27, 2014, based on criteria
established in Internal Control – Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway
these
Commission. YUM’s management
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
the accompanying Item 9A, ‘‘Management’s Report on Internal
Control over Financial Reporting.’’ Our responsibility is to express an
opinion on these consolidated financial statements and an opinion on
YUM’s internal control over financial reporting based on our audits.

responsible

for

We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free
of material misstatement and whether effective internal control over
financial reporting was maintained in all material respects. Our audits
of the consolidated financial statements included examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. Our audit of internal control
over financial reporting included obtaining an understanding of
internal control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk.
Our audits also included performing such other procedures as we
considered necessary in the circumstances. We believe that our
audits provide a reasonable basis for our opinions.

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

Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or
procedures may deteriorate.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of YUM as
of December 27, 2014 and December 28, 2013, and the results of its
operations and its cash flows for each of the fiscal years in the
three-year period ended December 27, 2014, in conformity with U.S.
generally accepted accounting principles. Also in our opinion, YUM
maintained, in all material respects, effective internal control over
financial reporting as of December 27, 2014, based on criteria
established in Internal Control – Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.

/s/ KPMG LLP
Louisville, Kentucky
February 17, 2015

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YUM! BRANDS, INC. - 2014 Form 10-K 37

PART II
ITEM 8 Financial Statements and Supplementary Data

Consolidated Statements of Income

YUM! BRANDS, Inc. AND SUBSIDIARIES

FISCAL YEARS ENDED DECEMBER 27, 2014, DECEMBER 28, 2013 AND DECEMBER 29, 2012

(in millions, except per share data)

Revenues
Company sales
Franchise and license fees and income

Total revenues

Costs and Expenses, Net
Company restaurants
Food and paper
Payroll and employee benefits
Occupancy and other operating expenses

Company restaurant expenses
General and administrative expenses
Franchise and license expenses
Closures and impairment (income) expenses
Refranchising (gain) loss
Other (income) expense

Total costs and expenses, net

Operating Profit
Interest expense, net

Income Before Income Taxes
Income tax provision

Net Income – including noncontrolling interests
Net Income (loss) – noncontrolling interests

Net Income – YUM! Brands, Inc.

Basic Earnings Per Common Share

Diluted Earnings Per Common Share

Dividends Declared Per Common Share

See accompanying Notes to Consolidated Financial Statements.

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2014

2013

2012

$ 11,324
1,955

$ 11,184
1,900

$ 11,833
1,800

13,279

13,084

13,633

3,678
2,579
3,425

9,682
1,419
160
535
(33)
(41)

3,669
2,499
3,333

9,501
1,412
158
331
(100)
(16)

3,874
2,620
3,358

9,852
1,510
133
37
(78)
(115)

11,722

11,286

11,339

1,557
130

1,427
406

1,021
(30)

1,051

2.37

2.32

1.56

1,798
247

1,551
487

1,064
(27)

1,091

2.41

2.36

1.41

2,294
149

2,145
537

1,608
11

1,597

3.46

3.38

1.24

38 YUM! BRANDS, INC. - 2014 Form 10-K

PART II
ITEM 8 Financial Statements and Supplementary Data

Consolidated Statements of Comprehensive
Income

YUM! BRANDS, INC. AND SUBSIDIARIES

FISCAL YEARS ENDED DECEMBER 27, 2014, DECEMBER 28, 2013 AND DECEMBER 29, 2012

(in millions)

Net income – including noncontrolling interests
Other comprehensive income (loss), net of tax:

Translation adjustments and gains (losses) from intra-entity transactions of a long-term

investment nature
Adjustments and gains (losses) arising during the year
Reclassifications of adjustments and (gains) losses into Net Income

Tax (expense) benefit

Changes in pension and post-retirement benefits

Unrealized gains (losses) arising during the year
Reclassification of (gains) losses into Net Income

Tax (expense) benefit

Changes in derivative instruments

Unrealized gains (losses) arising during the year
Reclassification of (gains) losses into Net Income

Tax (expense) benefit

Other comprehensive income (loss), net of tax

Comprehensive Income – including noncontrolling interests
Comprehensive Income (loss) – noncontrolling interests

Comprehensive Income – Yum! Brands, Inc.

See accompanying Notes to Consolidated Financial Statements.

2014

2013

2012

1,021

1,064

1,608

(149)
2

(147)
4

(143)

(209)
27

(182)
69

(113)

23
(23)

—
—

—
(256)

765
(32)

10
—

10
(2)

221
83

304
(115)

189

6
(2)

4
(1)

3
200

1,264
(23)

27
3

30
(3)

(19)
156

137
(48)

(6)
6

—
—

—
116

1,724
12

797

1,287

1,712

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YUM! BRANDS, INC. - 2014 Form 10-K 39

PART II
ITEM 8 Financial Statements and Supplementary Data

Consolidated Statements of Cash Flows

YUM! BRANDS, INC. AND SUBSIDIARIES

FISCAL YEARS ENDED DECEMBER 27, 2014, DECEMBER 28, 2013 AND DECEMBER 29, 2012

(in millions)

2014

2013

2012

Cash Flows – Operating Activities
Net Income – including noncontrolling interests
Depreciation and amortization
Closures and impairment (income) expenses
Refranchising (gain) loss
Losses and other costs related to the extinguishment of debt
Gain upon acquisition of Little Sheep
Deferred income taxes
Equity income from investments in unconsolidated affiliates
Distributions of income received from unconsolidated affiliates
Excess tax benefit from share-based compensation
Share-based compensation expense
Changes in accounts and notes receivable
Changes in inventories
Changes in prepaid expenses and other current assets
Changes in accounts payable and other current liabilities
Changes in income taxes payable
Other, net

Net Cash Provided by Operating Activities

Cash Flows – Investing Activities
Capital spending
Proceeds from refranchising of restaurants
Acquisitions
Changes in restricted cash
Other, net

Net Cash Used in Investing Activities

Cash Flows – Financing Activities
Proceeds from long-term debt
Repayments of long-term debt
Revolving credit facilities, three months or less, net
Short-term borrowings, by original maturity
More than three months – proceeds
More than three months – payments
Three months or less, net

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Repurchase shares of Common Stock
Excess tax benefit from share-based compensation
Employee stock option proceeds
Dividends paid on Common Stock
Other, net

Net Cash Used in Financing Activities

Effect of Exchange Rates on Cash and Cash Equivalents

Net Increase (Decrease) in Cash and Cash Equivalents

Cash and Cash equivalents – Beginning of Year

Cash and Cash Equivalents – End of Year

See accompanying Notes to Consolidated Financial Statements.

40 YUM! BRANDS, INC. - 2014 Form 10-K

1,021
739
535
(33)
—
—
(172)
(30)
28
(42)
55
(21)
(22)
(10)
60
(143)
84

2,049

(1,033)
114
(28)
—
11

(936)

—
(66)
416

2
(2)
—
(820)
42
29
(669)
(46)

1,064
721
331
(100)
120
—
(24)
(26)
43
(44)
49
(12)
18
(21)
(102)
14
108

2,139

(1,049)
260
(99)
—
2

(886)

599
(666)
—

56
(56)
—
(770)
44
37
(615)
(80)

1,608
665
37
(78)
—
(74)
28
(47)
41
(98)
50
(18)
9
(14)
9
126
50

2,294

(1,099)
364
(543)
300
(27)

(1,005)

—
(282)
—

—
—
—
(965)
98
62
(544)
(85)

(1,114)

(1,451)

(1,716)

573

578

(5)

(203)

776

573

(422)

1,198

776

Consolidated Balance Sheets

PART II
ITEM 8 Financial Statements and Supplementary Data

YUM! BRANDS, INC. AND SUBSIDIARIES

DECEMBER 27, 2014 AND DECEMBER 28, 2013

(in millions)

ASSETS
Current Assets
Cash and cash equivalents
Accounts and notes receivable, net
Inventories
Prepaid expenses and other current assets
Deferred income taxes
Advertising cooperative assets, restricted

Total Current Assets

Property, plant and equipment, net
Goodwill
Intangible assets, net
Investments in unconsolidated affiliates
Other assets
Deferred income taxes

Total Assets

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable and other current liabilities
Income taxes payable
Short-term borrowings
Advertising cooperative liabilities

Total Current Liabilities

Long-term debt
Other liabilities and deferred credits

Total Liabilities

Redeemable noncontrolling interest

Shareholders’ Equity
Common Stock, no par value, 750 shares authorized; 434 shares and 443 shares issued in 2014 and 2013,
respectively
Retained earnings
Accumulated other comprehensive income (loss)

Total Shareholders’ Equity – YUM! Brands, Inc.

Noncontrolling interests

Total Shareholders’ Equity

2014

2013

578
325
301
254
93
95

1,646
4,498
700
318
52
560
571

573
319
294
286
123
96

1,691
4,459
889
638
53
566
399

8,345

8,695

1,972
77
267
95

2,411
3,077
1,244

6,732

—
1,737
(190)

1,547
57

1,604

1,929
169
71
96

2,265
2,918
1,244

6,427

—
2,102
64

2,166
63

2,229

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Total Liabilities, Redeemable Noncontrolling Interest and Shareholders’ Equity

8,345

8,695

See accompanying Notes to Consolidated Financial Statements.

YUM! BRANDS, INC. - 2014 Form 10-K 41

PART II
ITEM 8 Financial Statements and Supplementary Data

Consolidated Statements of Shareholders’
Equity

YUM! BRANDS, INC. AND SUBSIDIARIES

FISCAL YEARS ENDED DECEMBER 27, 2014, DECEMBER 28, 2013 AND DECEMBER 29, 2012

Yum! Brands, Inc.

Balance at December 29, 2012

451 $

— $ 2,286

$ (132)

(in millions)

Balance at December 31, 2011
Net Income (loss)
Translation adjustments and gains (losses)
from intra-entity transactions of a long-term
investment nature (net of tax impact of
$3 million)
Reclassification of translation adjustments into
income
Pension and post-retirement benefit plans (net
of tax impact of $48 million)

Comprehensive Income (loss)
Noncontrolling Interest – Little Sheep
acquisition
Dividends declared
Repurchase of shares of Common Stock
Employee stock option and SARs exercises
(includes tax impact of $89 million)
Compensation-related events (includes tax
impact of $11 million)

Net Income (loss)
Translation adjustments and gains (losses)
from intra-entity transactions of a long-term
investment nature (net of tax impact of
$2 million)
Pension and post-retirement benefit plans (net
of tax impact of $115 million)
Net unrealized gain on derivative instruments
(net of tax impact of $1 million)

Comprehensive Income (loss)
Dividends declared
Acquisition of Little Sheep store-level
noncontrolling interests
Repurchase of shares of Common Stock
Employee stock option and SARs exercises
(includes tax impact of $42 million)
Compensation-related events (includes tax
impact of $8 million)

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Issued Common
Stock

Shares Amount Earnings

Redeemable
Retained Comprehensive Noncontrolling Shareholders’ Noncontrolling
Interest
Interests

Income (Loss)

Equity

Total

Accumulated
Other

460 $

18 $ 2,052
1,597

$ (247)

93
11

$ 1,916
1,608

$ —

(569)
(794)

(15)

(191)

111

1,091

(635)

189

(11)

(110)

(640)

16
(22)

(5)

(18)

(15)

1,724

16
(591)
(985)

111

—

$ 2,253

1,086

(22)

(20)

189

1,284
(653)

(15)
(750)

(1)

$ 2,229

1,050

(29)

Balance at December 28, 2013

443 $

— $ 2,102

Net Income (loss)
Translation adjustments and gains (losses)
from intra-entity transactions of a long-term
investment nature (net of tax impact of
$4 million)
Reclassification of translation adjustments into
income
Pension and post-retirement benefit plans (net
of tax impact of $69 million)

Comprehensive Income (loss)
Dividends declared
Repurchase of shares of Common Stock
Employee stock option and SARs exercises
(includes tax impact of $37 million)
Compensation-related events (includes tax
impact of $5 million)

(11)

(95)

1,051

(691)
(725)

(143)

(113)

(1)

(4)

(1)

(30)

(144)

(113)

795
(695)
(820)

Balance at December 27, 2014

434 $

— $ 1,737

$ (190)

$ 1,604

See accompanying Notes to Consolidated Financial Statements.

42 YUM! BRANDS, INC. - 2014 Form 10-K

Notes to Consolidated Financial Statements

PART II
ITEM 8 Financial Statements and Supplementary Data

(Tabular amounts in millions, except share data)

NOTE 1

Description of Business

YUM! Brands, Inc. and Subsidiaries (collectively referred to herein as
‘‘YUM’’ or the ‘‘Company’’) comprise primarily the worldwide
operations of KFC, Pizza Hut and Taco Bell (collectively the
‘‘Concepts’’). YUM has over 41,000 units of which 56% are located
outside the U.S. in more than 125 countries and territories. YUM was
created as an independent, publicly-owned company on October 6,
1997 via a tax-free distribution by our former parent, PepsiCo, Inc., of
our Common Stock to its shareholders. References to YUM
throughout these Consolidated Financial Statements are made using
the first person notations of ‘‘we,’’ ‘‘us’’ or ‘‘our.’’

Through our widely-recognized Concepts, we develop, operate,
franchise and license a system of both traditional and non-traditional
quick service restaurants. Each Concept has proprietary menu items
and emphasizes the preparation of food with high quality ingredients
as well as unique recipes and special seasonings to provide
appealing, convenient, tasty and attractive food at competitive prices.
Our traditional restaurants feature dine-in, carryout and, in some
instances, drive-thru or delivery service. Non-traditional units, which
are principally licensed outlets, include express units and kiosks which
have a more limited menu and operate in non-traditional locations like
malls, airports, gasoline service stations, train stations, subways,
convenience stores, stadiums, amusement parks and colleges, where
a full-scale traditional outlet would not be practical or efficient. We also
operate multibrand units, where two or more of our Concepts are
operated in a single unit.

As of December 27, 2014, YUM consisted of five operating segments:

•

YUM China (‘‘China’’ or ‘‘China Division’’) which includes all
operations in mainland China

YUM India (‘‘India’’ or ‘‘India Division’’) which includes all operations
in India, Bangladesh, Nepal and Sri Lanka

The KFC Division which includes all operations of the KFC concept
outside of China Division and India Division

The Pizza Hut Division which includes all operations of the Pizza Hut
concept outside of China Division and India Division

The Taco Bell Division which includes all operations of the Taco Bell
concept outside of India Division

Prior to 2014, our reporting segments consisted of YUM Restaurants
International (‘‘YRI’’), the United States, China and India. In the first
quarter of 2014 we changed our management reporting structure to
align our global operations outside of China and India by brand. As a
result, our YRI and United States reporting segments were combined,
and we began reporting this information by three new reporting
segments: KFC Division, Pizza Hut Division and Taco Bell Division.
China and India remain separate reporting segments. This new
structure is designed to drive greater global brand focus, enabling us
to more effectively share know-how and accelerate growth. While our
consolidated results have not been impacted, we have restated our
comparable segment information for consistent presentation.

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NOTE 2

Summary of Significant Accounting Policies

Our preparation of
the accompanying Consolidated Financial
Statements in conformity with Generally Accepted Accounting
Principles in the United States of America (‘‘GAAP’’) requires us to
make estimates and assumptions that affect reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from these estimates.

Principles of Consolidation and Basis of Preparation.
Intercompany accounts and transactions have been eliminated in
consolidation. We consolidate entities in which we have a controlling
financial interest, the usual condition of which is ownership of a
majority voting interest. We also consider for consolidation an entity,
in which we have certain interests, where the controlling financial
interest may be achieved through arrangements that do not involve
voting interests. Such an entity, known as a variable interest entity
(‘‘VIE’’), is required to be consolidated by its primary beneficiary. The
primary beneficiary is the entity that possesses the power to direct the
activities of the VIE that most significantly impact its economic
performance and has the obligation to absorb losses or the right to
receive benefits from the VIE that are significant to it.

Our most significant variable interests are in entities that operate
restaurants under our Concepts’ franchise and license arrangements.
We do not generally have an equity interest in our franchisee or
licensee businesses with the exception of certain entities in China as
discussed below. Additionally, we do not typically provide significant
financial support such as loans or guarantees to our franchisees and
licensees. However, we do have variable interests in certain
franchisees through real estate lease arrangements with them to
which we are a party. At the end of 2014, YUM has future lease
payments due from franchisees, on a nominal basis, of approximately
$350 million. As our franchise and license arrangements provide our
franchisee and licensee entities the power to direct the activities that
most significantly impact their economic performance, we do not
consider ourselves the primary beneficiary of any such entity that
might otherwise be considered a VIE.

See Note 18 for additional information on an entity that operates a
franchise lending program that is a VIE in which we have a variable
interest but for which we are not the primary beneficiary and thus do
not consolidate.

Certain investments in entities that operate KFCs in China are
accounted for by the equity method. These entities are not VIEs and
our lack of majority voting rights precludes us from controlling these

YUM! BRANDS, INC. - 2014 Form 10-K 43

PART II
ITEM 8 Financial Statements and Supplementary Data

affiliates. Thus, we do not consolidate these affiliates, instead
accounting for them under the equity method. Our share of the net
income or loss of those unconsolidated affiliates is included in Other
(income) expense. On February 1, 2012, we acquired an additional
66% interest in Little Sheep Group Limited (‘‘Little Sheep’’), increasing
our ownership to 93%. As a result, we began consolidating this
business, which was previously accounted for using the equity
method. See Note 4 for a further description of the accounting upon
acquisition of additional interest in Little Sheep. A meat processing
entity affiliated with our Little Sheep business is accounted for by the
equity method.

We report Net income attributable to non-controlling interests, which
includes the minority shareholders of the entities that operate the
KFCs in Beijing and Shanghai, China and the minority shareholders of
Little Sheep, separately on the face of our Consolidated Statements of
Income. The portion of equity not attributable to the Company for KFC
Beijing and KFC Shanghai is reported within equity, separately from
the Company’s equity on the Consolidated Balance Sheets. The
shareholder that owns the remaining 7% ownership interest in Little
Sheep holds an option that, if exercised, requires us to redeem their
non-controlling interest. Redemption may occur any time after the
third anniversary of the acquisition. This Redeemable non-controlling
interest is classified outside permanent equity and recorded in the
Consolidated Balance Sheet as the greater of the initial carrying
amount adjusted for the non-controlling interest’s share of net income
(loss), or its redemption value.

We participate
in various advertising cooperatives with our
franchisees and licensees established to collect and administer funds
contributed for use in advertising and promotional programs designed
to increase sales and enhance the reputation of the Company and its
franchise owners. Contributions to the advertising cooperatives are
required for both Company-owned and franchise restaurants and are
generally based on a percentage of restaurant sales. We maintain
certain variable interests in these cooperatives. As the cooperatives
are required to spend all funds collected on advertising and
promotional programs, total equity at risk is not sufficient to permit the
cooperatives to finance their activities without additional subordinated
financial support. Therefore, these cooperatives are VIEs. As a result
of our voting rights, we consolidate certain of these cooperatives for
which we are the primary beneficiary. Advertising cooperative assets,
consisting primarily of cash received from the Company and
franchisees and accounts receivable from franchisees, can only be
used to settle obligations of the respective cooperative. Advertising
cooperative liabilities represent the corresponding obligation arising
from the receipt of the contributions to purchase advertising and
promotional programs for which creditors do not have recourse to the
general credit of the primary beneficiary. Therefore, we report all
assets and liabilities of these advertising cooperatives that we
consolidate as Advertising cooperative assets, restricted and
Advertising cooperative liabilities in the Consolidated Balance Sheet.
As the contributions to these cooperatives are designated and
segregated for advertising, we act as an agent for the franchisees and
licensees with regard to these contributions. Thus, we do not reflect
franchisee and licensee contributions to these cooperatives in our
Consolidated Statements of Income or Consolidated Statements of
Cash Flows.

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Fiscal Year. Our fiscal year ends on the last Saturday in December
and, as a result, a 53rd week is added every five or six years. The first
three quarters of each fiscal year consist of 12 weeks and the fourth
quarter consists of 16 weeks in fiscal years with 52 weeks and
17 weeks in fiscal years with 53 weeks. Our subsidiaries operate on
similar fiscal calendars except that China, India and certain other
international subsidiaries operate on a monthly calendar, and thus
never have a 53rd week, with two months in the first quarter, three

44 YUM! BRANDS, INC. - 2014 Form 10-K

months in the second and third quarters and four months in the fourth
quarter. International businesses within our KFC, Pizza Hut and Taco
Bell divisions close approximately one month earlier to facilitate
consolidated reporting. Our next fiscal year scheduled to include a
53rd week is 2016.

Foreign Currency. The functional currency of our foreign entities is
the currency of the primary economic environment in which the entity
operates. Functional currency determinations are made based upon a
number of economic factors, including but not limited to cash flows
and financing transactions. The operations, assets and liabilities of
our entities outside the United States are initially measured using the
functional currency of that entity. Income and expense accounts for
our operations of these foreign entities are then translated into U.S.
dollars at the average exchange rates prevailing during the period.
Assets and liabilities of these foreign entities are then translated into
U.S. dollars at exchange rates in effect at the balance sheet date. As
of December 27, 2014, net cumulative translation adjustment gains of
$29 million are recorded in Accumulated other comprehensive income
(loss) in the Consolidated Balance Sheet.

The majority of our foreign currency exposure is in countries where we
have company-owned restaurants. As we manage and share
resources at the individual brand level within a country, cumulative
translation adjustments are recorded and tracked at the foreign-entity
level that represents the operations of our individual brands within that
country. Translation adjustments recorded in Accumulated other
comprehensive income (loss) are subsequently recognized as income
or expense generally only upon sale of the related investment in a
foreign entity, or upon a sale of assets and liabilities within a foreign
entity that represents a complete or substantially complete liquidation
of that entity. For purposes of determining whether a sale or complete
or substantially complete liquidation of an investment in a foreign
entity has occurred, we consider those same foreign entities for which
we record and track cumulative translation adjustments.

Gains and losses arising from the impact of foreign currency
exchange rate fluctuations on transactions in foreign currency are
included in Other (income) expense in our Consolidated Statement of
Income.

Reclassifications. We have reclassified certain items in the
Consolidated Financial Statements for prior periods to be comparable
with the classification for the fiscal year ended December 27, 2014.
These reclassifications had no effect on previously reported Net
Income – YUM! Brands, Inc.

Franchise and License Operations. We execute franchise or
license agreements for each unit operated by third parties which set
out the terms of our arrangement with the franchisee or licensee. Our
franchise and license agreements typically require the franchisee or
licensee to pay an initial, non-refundable fee and continuing fees
based upon a percentage of sales. Subject to our approval and their
payment of a renewal fee, a franchisee may generally renew the
franchise agreement upon its expiration.

The internal costs we incur to provide support services to our
franchisees and licensees are charged to General and Administrative
(‘‘G&A’’) expenses as incurred. Certain direct costs of our franchise
and license operations are charged to franchise and license
expenses. These costs include provisions for estimated uncollectible
fees, rent or depreciation expense associated with restaurants we
lease or sublease to franchisees, franchise and license marketing
funding, amortization expense for franchise-related intangible assets
and certain other direct incremental franchise and license support
costs.

Revenue Recognition. Revenues
from Company-owned
restaurants are recognized when payment is tendered at the time of
sale. The Company presents sales net of sales-related taxes. Income
from our franchisees and licensees includes initial fees, continuing
fees, renewal fees and rental income from restaurants we lease or
sublease to them. We recognize initial fees received from a franchisee
or licensee as revenue when we have performed substantially all
initial services required by the franchise or license agreement, which
is generally upon the opening of a store. We recognize continuing
fees, which are based upon a percentage of franchisee and licensee
sales as those sales occur and rental income is recognized as it is
earned. We recognize renewal fees when a renewal agreement with a
franchisee or licensee becomes effective. We present initial fees
collected upon the sale of a company-owned restaurant to a
franchisee in Refranchising (gain) loss.

While the majority of our franchise agreements are entered into with
terms and conditions consistent with those at a prevailing market rate,
there are instances when we enter into franchise agreements with
terms that are not at market rates (for example, below-market
continuing fees) for a specified period of time. We recognize the
estimated value of terms in franchise agreements entered into
concurrently with a refranchising transaction that are not consistent
with market terms as part of the upfront refranchising gain (loss) and
amortize that amount into Franchise and license fees and income over
the period such terms are in effect. The value of terms that are not
considered to be at market within franchise agreements is estimated
based upon the difference between cash expected to be received
under the franchise agreement and cash that would have been
expected to be received under a franchise agreement with terms
substantially consistent with market.

Direct Marketing Costs. To the extent we participate in advertising
cooperatives, we expense our contributions as incurred which are
based on a percentage of sales. We charge direct marketing costs
incurred outside of a cooperative to expense ratably in relation to
revenues over the year in which incurred and, in the case of
advertising production costs, in the year the advertisement is first
shown. Deferred direct marketing costs, which are classified as
prepaid expenses, consist of media and related advertising
production costs which will generally be used for the first time in the
next fiscal year and have historically not been significant. Our
advertising expenses were $589 million, $607 million and $608 million
in 2014, 2013 and 2012, respectively. We report substantially all of our
direct marketing costs in Occupancy and other operating expenses.

and Development Expenses. Research

and
Research
development expenses, which we expense as incurred, are reported
in G&A expenses. Research and development expenses were
$30 million, $31 million and $30 million in 2014, 2013 and 2012,
respectively.

Share-Based Employee Compensation. We recognize all share-
based payments to employees, including grants of employee stock
options and stock appreciation rights (‘‘SARs’’), in the Consolidated
Financial Statements as compensation cost over the service period
based on their fair value on the date of grant. This compensation cost
is recognized over the service period on a straight-line basis for
awards that actually vest. We present this compensation cost
consistent with the other compensation costs for the employee
recipient in either Payroll and employee benefits or G&A expenses.
See Note 14 for further discussion of our share-based compensation
plans.

Legal Costs. Settlement costs are accrued when they are deemed
probable and reasonably estimable. Anticipated legal fees related to
self-insured workers’ compensation, employment practices liability,

PART II
ITEM 8 Financial Statements and Supplementary Data

general liability, automobile liability, product liability and property
losses (collectively, ‘‘property and casualty losses’’) are accrued when
deemed probable and reasonably estimable. Legal fees not related to
self-insured property and casualty losses are recognized as incurred.
See Note 18 for further discussion of our legal proceedings.

Impairment or Disposal of Property, Plant and Equipment.
Property, plant and equipment (‘‘PP&E’’) is tested for impairment
whenever events or changes in circumstances indicate that the
carrying value of the assets may not be recoverable. The assets are
not recoverable if their carrying value is less than the undiscounted
cash flows we expect to generate from such assets. If the assets are
not deemed to be recoverable, impairment is measured based on the
excess of their carrying value over their fair value.

For purposes of impairment testing for our restaurants, we have
concluded that an individual restaurant is the lowest level of
independent cash flows unless our intent is to refranchise restaurants
as a group. We review our long-lived assets of such individual
restaurants (primarily PP&E and allocated intangible assets subject to
amortization) semi-annually for impairment, or whenever events or
changes in circumstances indicate that the carrying amount of a
restaurant may not be recoverable. We use two consecutive years of
operating losses as our primary indicator of potential impairment for
our semi-annual impairment testing of these restaurant assets. We
evaluate the recoverability of these restaurant assets by comparing
the estimated undiscounted future cash flows, which are based on our
entity-specific assumptions, to the carrying value of such assets. For
restaurant assets that are not deemed to be recoverable, we
write-down an impaired restaurant to its estimated fair value, which
becomes its new cost basis. Fair value is an estimate of the price a
franchisee would pay for the restaurant and its related assets and is
determined by discounting the estimated future after-tax cash flows of
the restaurant, which include a deduction for royalties we would
receive under a franchise agreement with terms substantially at
market. The after-tax cash flows incorporate reasonable assumptions
we believe a franchisee would make such as sales growth and margin
improvement. The discount rate used in the fair value calculation is
our estimate of the required rate of return that a franchisee would
expect to receive when purchasing a similar restaurant and the related
long-lived assets. The discount rate incorporates rates of returns for
historical refranchising market transactions and is commensurate with
the risks and uncertainty inherent in the forecasted cash flows.

In executing our refranchising initiatives, we most often offer groups of
restaurants for sale. When we believe it is more likely than not a
restaurant or groups of restaurants will be refranchised for a price less
than their carrying value, but do not believe the restaurant(s) have met
the criteria to be classified as held for sale, we review the restaurants
for impairment. We evaluate the recoverability of these restaurant
assets by comparing estimated sales proceeds plus holding period
cash flows, if any, to the carrying value of the restaurant or group of
restaurants. For restaurant assets that are not deemed to be
recoverable, we recognize impairment for any excess of carrying
value over the fair value of the restaurants, which is based on the
expected net sales proceeds. To the extent ongoing agreements to be
entered into with the franchisee simultaneous with the refranchising
are expected to contain terms, such as royalty rates, not at prevailing
market rates, we consider the off-market terms in our impairment
evaluation. We recognize any such
in
Refranchising (gain) loss.

impairment charges

Refranchising (gain) loss includes the gains or losses from the sales of
our restaurants to new and existing franchisees, including any
impairment charges discussed above, and the related initial franchise
fees. We recognize gains on restaurant refranchisings when the sale
transaction closes, the franchisee has a minimum amount of the

YUM! BRANDS, INC. - 2014 Form 10-K 45

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purchase price in at-risk equity and we are satisfied that the
franchisee can meet its financial obligations.

all or a portion of an asset will not be realized, we record a valuation
allowance.

When we decide to close a restaurant, it is reviewed for impairment
and depreciable lives are adjusted based on the expected disposal
date. Other costs incurred when closing a restaurant such as costs of
disposing of the assets as well as other facility-related expenses from
previously closed stores are generally expensed as incurred.
Additionally, at the date we cease using a property under an operating
lease, we record a liability for the net present value of any remaining
lease obligations, net of estimated sublease income, if any. Any costs
recorded upon store closure as well as any subsequent adjustments
to liabilities for remaining lease obligations as a result of lease
termination or changes in estimates of sublease income are recorded
in Closures and impairment (income) expenses. To the extent we sell
assets, primarily land, associated with a closed store, any gain or loss
upon that sale is also recorded in Closures and impairment (income)
expenses.

Considerable management judgment is necessary to estimate future
cash flows, including cash flows from continuing use, terminal value,
sublease income and refranchising proceeds. Accordingly, actual
results could vary significantly from our estimates.

to an

investment

impairment charges related

Impairment of Investments in Unconsolidated Affiliates. We
record
in an
unconsolidated affiliate whenever events or circumstances indicate
that a decrease in the fair value of an investment has occurred which
is other than temporary. In addition, we evaluate our investments in
unconsolidated affiliates for impairment when they have experienced
two consecutive years of operating losses. In 2014, we recorded a
$5 million impairment of our investment in a meat processing entity
affiliated with our Little Sheep business. See Note 4 for further
discussion of the impairment charge. No other impairment associated
with our investments in unconsolidated affiliates was recorded during
2014, 2013 or 2012.

Guarantees. We recognize, at inception of a guarantee, a liability
for the fair value of certain obligations undertaken. The majority of our
guarantees are issued as a result of assigning our interest in
obligations under operating leases as a condition to the refranchising
of certain Company restaurants. We recognize a liability for the fair
value of such lease guarantees upon refranchising and upon
subsequent renewals of such leases when we remain contingently
liable. The related expense and any subsequent changes in the
guarantees are included in Refranchising (gain) loss. The related
expense and subsequent changes in the guarantees for other
franchise support guarantees not associated with a refranchising
transaction are included in Franchise and license expense.

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income

the years

Income Taxes. We record deferred tax assets and liabilities for the
future tax consequences attributable to temporary differences
between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases as well as operating loss,
capital loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable
those differences or
carryforwards are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Additionally, in determining the need for recording a valuation
allowance against the carrying amount of deferred tax assets, we
consider the amount of taxable income and periods over which it must
be earned, actual levels of past taxable income and known trends and
events or transactions that are expected to affect future levels of
taxable income. Where we determine that it is more likely than not that

in which

46 YUM! BRANDS, INC. - 2014 Form 10-K

We recognize the benefit of positions taken or expected to be taken in
our tax returns in our Income tax provision when it is more likely than
not (i.e. a likelihood of more than fifty percent) that the position would
be sustained upon examination by tax authorities. A recognized tax
position is then measured at the largest amount of benefit that is
greater than fifty percent likely of being realized upon settlement. We
evaluate these amounts on a quarterly basis to ensure that they have
been appropriately adjusted for audit settlements and other events we
believe may impact the outcome. Changes in judgment that result in
subsequent recognition, derecognition or a change in measurement
of a tax position taken in a prior annual period (including any related
interest and penalties) are recognized as a discrete item in the interim
period in which the change occurs. We recognize accrued interest and
penalties related to unrecognized tax benefits as components of our
Income tax provision.

We do not record a U.S. deferred tax liability for the excess of the book
basis over the tax basis of our investments in foreign subsidiaries to
the extent that the basis difference results from earnings that meet the
indefinite reversal criteria. This criteria is met if the foreign subsidiary
has invested, or will invest, the undistributed earnings indefinitely. The
decision as to the amount of undistributed earnings that we intend to
maintain in non-U.S. subsidiaries considers items including, but not
limited to, forecasts and budgets of financial needs of cash for working
capital, liquidity plans and expected cash requirements in the United
States.

See Note 16 for a further discussion of our income taxes.

Fair Value Measurements. Fair value is the price we would receive
to sell an asset or pay to transfer a liability (exit price) in an orderly
transaction between market participants. For those assets and
liabilities we record or disclose at fair value, we determine fair value
based upon the quoted market price, if available. If a quoted market
price is not available for identical assets, we determine fair value
based upon the quoted market price of similar assets or the present
value of expected future cash flows considering the risks involved,
including counterparty performance risk if appropriate, and using
discount rates appropriate for the duration. The fair values are
assigned a level within the fair value hierarchy, depending on the
source of the inputs into the calculation.

Level 1

Level 2

Level 3

Inputs based upon quoted prices in active
markets for identical assets.
Inputs other than quoted prices included within
Level 1 that are observable for the asset, either
directly or indirectly.
Inputs that are unobservable for the asset.

Cash and Cash Equivalents. Cash equivalents represent funds we
have temporarily invested (with original maturities not exceeding three
months), including short-term, highly liquid debt securities. Cash and
overdraft balances that meet the criteria for right to offset are
presented net on our Consolidated Balance Sheet.

Receivables. The Company’s receivables are primarily generated
from ongoing business relationships with our franchisees and
licensees as a result of franchise, license and lease agreements.
Trade receivables consisting of royalties from franchisees and
licensees are generally due within 30 days of the period in which the
corresponding sales occur and are classified as Accounts and notes
receivable on our Consolidated Balance Sheet. Our provision for
uncollectible franchise and licensee receivable balances is based
upon pre-defined aging criteria or upon the occurrence of other events

that indicate that we may not collect the balance due. Additionally, we
monitor the financial condition of our franchisees and licensees and
record provisions for estimated losses on receivables when we
believe it probable that our franchisees or licensees will be unable to
make their required payments. While we use the best information
available in making our determination, the ultimate recovery of
recorded receivables is also dependent upon future economic events
and other conditions that may be beyond our control. We recorded
$3 million in net provisions, $2 million in net provisions and $1 million
in net recoveries within Franchise and license expenses in 2014, 2013
and 2012, respectively, related to uncollectible franchise and license
trade receivables. Trade receivables that are ultimately deemed to be
uncollectible, and for which collection efforts have been exhausted,
are written off against the allowance for doubtful accounts.

Accounts and notes receivable
Allowance for doubtful accounts

2014

2013

$ 337
(12)

$ 330
(11)

Accounts and notes receivable, net

$ 325

$ 319

Our financing receivables primarily consist of notes receivables and
direct financing leases with franchisees which we enter into from time
to time. As these receivables primarily relate to our ongoing business
agreements with franchisees and licensees, we consider such
receivables to have similar risk characteristics and evaluate them as
one collective portfolio segment and class for determining the
allowance for doubtful accounts. We monitor the financial condition of
our franchisees and licensees and record provisions for estimated
losses on receivables when we believe it is probable that our
franchisees or licensees will be unable to make their required
payments. Balances of notes receivable and direct financing leases
due within one year are included in Accounts and notes receivable
while amounts due beyond one year are included in Other assets.
Amounts included in Other assets totaled $21 million (net of an
allowance of $1 million) and $22 million (net of an allowance of
$1 million) at December 27, 2014 and December 28, 2013,
respectively. Financing receivables that are ultimately deemed to be
uncollectible, and for which collection efforts have been exhausted,
are written off against the allowance for doubtful accounts. Interest
income recorded on financing receivables has traditionally been
insignificant.

Inventories. We value our inventories at the lower of cost
(computed on the first-in, first-out method) or market.

Property, Plant and Equipment. We state PP&E at cost less
accumulated depreciation and amortization. We calculate
depreciation and amortization on a straight-line basis over the
estimated useful lives of the assets as follows: 5 to 25 years for
buildings and improvements, 3 to 20 years for machinery and
equipment and 3 to 7 years for capitalized software costs. We
suspend depreciation and amortization on assets related
to
restaurants that are held for sale.

Leases and Leasehold Improvements. The Company leases
land, buildings or both for certain of its restaurants worldwide. The
length of our lease terms, which vary by country and often include
renewal options, are an
the
important
appropriate accounting for leases including the initial classification of
the lease as capital or operating and the timing of recognition of rent
expense over the duration of the lease. We include renewal option
periods in determining the term of our leases when failure to renew the
lease would impose a penalty on the Company in such an amount that
a renewal appears to be reasonably assured at the inception of the

in determining

factor

PART II
ITEM 8 Financial Statements and Supplementary Data

lease. The primary penalty to which we are subject is the economic
detriment associated with the existence of leasehold improvements
which might be impaired if we choose not to continue the use of the
leased property. Leasehold improvements, which are a component of
buildings and improvements described above, are amortized over the
shorter of their estimated useful lives or the lease term. We generally
do not receive leasehold improvement incentives upon opening a
store that is subject to a lease.

We expense rent associated with leased land or buildings while a
restaurant is being constructed whether rent is paid or we are subject
to a rent holiday. Additionally, certain of the Company’s operating
leases contain predetermined fixed escalations of the minimum rent
during the lease term. For leases with fixed escalating payments
and/or rent holidays, we record rent expense on a straight-line basis
over the lease term, including any option periods considered in the
determination of that lease term. Contingent rentals are generally
based on sales levels in excess of stipulated amounts, and thus are
not considered minimum lease payments and are included in rent
expense when attainment of the contingency is considered probable
(e.g. when Company sales occur).

Internal Development Costs and Abandoned Site Costs. We
capitalize direct costs associated with the site acquisition and
construction of a Company unit on that site, including direct internal
payroll and payroll-related costs. Only those site-specific costs
incurred subsequent to the time that the site acquisition is considered
probable are capitalized. If we subsequently make a determination
that it is probable a site for which internal development costs have
been capitalized will not be acquired or developed, any previously
capitalized internal development costs are expensed and included in
G&A expenses.

Goodwill and Intangible Assets. From time to time, the Company
acquires restaurants from one of our Concept’s franchisees or
acquires another business. Goodwill
these acquisitions
represents the excess of the cost of a business acquired over the net
of the amounts assigned to assets acquired, including identifiable
intangible assets and liabilities assumed. Goodwill is not amortized
and has been assigned to reporting units for purposes of impairment
testing. Our reporting units are business units (which are aligned
based on geography) in our KFC, Pizza Hut and Taco Bell Divisions
and individual brands in our India and China Divisions.

from

We evaluate goodwill for impairment on an annual basis or more often
if an event occurs or circumstances change that indicate impairment
might exist. We have selected the beginning of our fourth quarter as
the date on which to perform our ongoing annual impairment test for
goodwill. We may elect to perform a qualitative assessment for our
reporting units to determine whether it is more likely than not that the
fair value of the reporting unit is greater than its carrying value. If a
qualitative assessment is not performed, or if as a result of a
qualitative assessment it is not more likely than not that the fair value
of a reporting unit exceeds its carrying value, then the reporting unit’s
fair value is compared to its carrying value. Fair value is the price a
willing buyer would pay for a reporting unit, and is generally estimated
using discounted expected future after-tax cash flows from Company-
owned restaurant operations and franchise royalties. The discount
rate is our estimate of the required rate of return that a third-party
buyer would expect to receive when purchasing a business from us
that constitutes a reporting unit. We believe the discount rate is
commensurate with the risks and uncertainty inherent in the
forecasted cash flows. If the carrying value of a reporting unit exceeds
its fair value, goodwill is written down to its implied fair value.

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If we record goodwill upon acquisition of a restaurant(s) from a
franchisee and such restaurant(s) is then sold within two years of
acquisition, the goodwill associated with the acquired restaurant(s) is
written off in its entirety. If the restaurant is refranchised two years or
more subsequent to its acquisition, we include goodwill in the carrying
amount of the restaurants disposed of based on the relative fair values
of the portion of the reporting unit disposed of in the refranchising and
the portion of the reporting unit that will be retained. The fair value of
the portion of the reporting unit disposed of in a refranchising is
determined by reference to the discounted value of the future cash
flows expected to be generated by the restaurant and retained by the
franchisee, which includes a deduction for the anticipated, future
royalties the franchisee will pay us associated with the franchise
agreement entered
the refranchising
transition. The fair value of the reporting unit retained is based on the
price a willing buyer would pay for the reporting unit and includes the
value of franchise agreements. Appropriate adjustments are made if a
franchise agreement includes terms that are determined to not be at
prevailing market rates. As such, the fair value of the reporting unit
retained can include expected cash flows from future royalties from
those restaurants currently being refranchised, future royalties from
existing franchise businesses and company restaurant operations. As
a result, the percentage of a reporting unit’s goodwill that will be
written off in a refranchising transaction will be less than the
percentage of the reporting unit’s Company-owned restaurants that
are refranchised in that transaction and goodwill can be allocated to a
reporting unit with only franchise restaurants.

into simultaneously with

We evaluate the remaining useful life of an intangible asset that is not
being amortized each reporting period to determine whether events
and circumstances continue to support an indefinite useful life. If an
intangible asset that is not being amortized is subsequently
determined to have a finite useful life, we amortize the intangible asset
prospectively over its estimated remaining useful life. Intangible
assets that are deemed to have a definite life are generally amortized
on a straight-line basis to their residual value.

We evaluate our indefinite-lived intangible assets for impairment on
an annual basis or more often if an event occurs or circumstances
change that indicate impairments might exist. We perform our annual
test for impairment of our indefinite-lived intangible assets at the
beginning of our fourth quarter. We may elect to perform a qualitative
assessment to determine whether it is more likely than not that the fair
value of an indefinite-lived intangible asset is greater than its carrying
value. If a qualitative assessment is not performed, or if as a result of a
qualitative assessment it is not more likely than not that the fair value
of an indefinite-lived intangible asset exceeds its carrying value, then
the asset’s fair value is compared to its carrying value. Fair value is an
estimate of the price a willing buyer would pay for the intangible asset
and is generally estimated by discounting the expected future after-tax
cash flows associated with the intangible asset.

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Our definite-lived intangible assets that are not allocated to an
individual restaurant are evaluated for impairment whenever events or
changes in circumstances indicate that the carrying amount of the
intangible asset may not be recoverable. An intangible asset that is
deemed not recoverable on an undiscounted basis is written down to
its estimated fair value, which is our estimate of the price a willing
buyer would pay for the intangible asset based on discounted
expected future after-tax cash flows. For purposes of our impairment
analysis, we update the cash flows that were initially used to value the
definite-lived intangible asset to reflect our current estimates and
assumptions over the asset’s future remaining life.

Derivative Financial Instruments. We use derivative instruments
primarily to hedge interest rate and foreign currency risks. These
derivative contracts are entered into with financial institutions. We do

48 YUM! BRANDS, INC. - 2014 Form 10-K

not use derivative instruments for trading purposes and we have
procedures in place to monitor and control their use.

instrument

We record all derivative instruments on our Consolidated Balance
Sheet at fair value. For derivative instruments that are designated and
qualify as a fair value hedge, the gain or loss on the derivative
instrument as well as the offsetting gain or loss on the hedged item
attributable to the hedged risk are recognized in the results of
operations. For derivative instruments that are designated and qualify
as a cash flow hedge, the effective portion of the gain or loss on the
derivative
is reported as a component of other
comprehensive income (loss) and reclassified into earnings in the
same period or periods during which the hedged transaction affects
earnings. For derivative instruments that are designated and qualify
as a net investment hedge, the effective portion of the gain or loss on
the derivative instrument is reported in the foreign currency translation
component of other comprehensive income (loss). Any ineffective
portion of the gain or loss on the derivative instrument for a cash flow
hedge or net investment hedge is recorded in the results of operations
immediately. For derivative instruments not designated as hedging
instruments, the gain or loss is recognized in the results of operations
immediately.

As a result of the use of derivative instruments, the Company is
exposed to risk that the counterparties will fail to meet their contractual
obligations. To mitigate the counterparty credit risk, we only enter into
contracts with carefully selected major financial institutions based
upon their credit ratings and other factors, and continually assess the
creditworthiness of counterparties. At December 27, 2014 and
December 28, 2013, all of the counterparties to our interest rate
swaps and foreign currency forwards had investment grade ratings
according to the three major ratings agencies. To date, all
counterparties have performed in accordance with their contractual
obligations.

Common Stock Share Repurchases. From time to time, we
repurchase shares of our Common Stock under share repurchase
programs authorized by our Board of Directors. Shares repurchased
constitute authorized, but unissued shares under the North Carolina
laws under which we are incorporated. Additionally, our Common
Stock has no par or stated value. Accordingly, we record the full value
of share repurchases, upon the trade date, against Common Stock on
our Consolidated Balance Sheet except when to do so would result in
a negative balance in such Common Stock account. In such
instances, on a period basis, we record the cost of any further share
repurchases as a reduction in retained earnings. Due to the large
number of share repurchases and the increase in the market value of
our stock over the past several years, our Common Stock balance is
frequently zero at the end of any period. Accordingly, $725 million,
$640 million and $794 million in share repurchases were recorded as
a reduction in Retained Earnings in 2014, 2013 and 2012,
respectively. See Note 15 for additional information on our share
repurchases.

Pension and Post-retirement Medical Benefits. We measure and
recognize the overfunded or underfunded status of our pension and
post-retirement plans as an asset or liability in our Consolidated
Balance Sheet as of our fiscal year end. The funded status represents
the difference between the projected benefit obligations and the fair
value of plan assets, which is calculated on a plan-by-plan basis. The
projected benefit obligation and related funded status are determined
using assumptions as of the end of each year. The projected benefit
obligation is the present value of benefits earned to date by plan
participants, including the effect of future salary increases, as
applicable. The difference between the projected benefit obligations
and the fair value of plan assets that has not previously been

PART II
ITEM 8 Financial Statements and Supplementary Data

recognized in our Consolidated Statement of Income is recorded as a
component of Accumulated other comprehensive income (loss).

The net periodic benefit costs associated with the Company’s defined
benefit pension and post-retirement medical plans are determined
using assumptions regarding the projected benefit obligation and, for
funded plans, the market-related value of plan assets as of the
beginning of each year. We have elected to use a market-related
value of plan assets to calculate the expected return on assets in net
periodic benefit costs. We recognize differences in the fair value
versus the market-related value of plan assets evenly over five years.
For each individual plan we amortize into pension expense the net
amounts in Accumulated other comprehensive income (loss), as
adjusted for the difference between the fair value and market-related
value of plan assets, to the extent that such amounts exceed 10% of

the greater of a plan’s projected benefit obligation or market-related
value of assets, over the remaining service period of active
participants in the plan or, for plans with no active participants, over
the expected average life expectancy of the inactive participants in the
plan. We record a curtailment when an event occurs that significantly
reduces the expected years of future service or eliminates the accrual
of defined benefits for the future services of a significant number of
employees. We record a curtailment gain when the employees who
are entitled to the benefits terminate their employment; we record a
curtailment loss when it becomes probable a loss will occur.

We recognize settlement gains or losses only when we have
determined that the cost of all settlements in a year will exceed the
sum of the service and interest costs within an individual plan.

NOTE 3

Earnings Per Common Share (‘‘EPS’’)

Net Income – YUM! Brands, Inc.

Weighted-average common shares outstanding (for basic calculation)
Effect of dilutive share-based employee compensation

Weighted-average common and dilutive potential common shares outstanding (for diluted

calculation)

Basic EPS

Diluted EPS

Unexercised employee stock options and stock appreciation rights (in millions) excluded from

the diluted EPS computation(a)

2014

2013

2012

1,051

1,091

1,597

444
9

453

2.37

2.32

5.5

452
9

461

2.41

2.36

4.9

461
12

473

3.46

3.38

3.1

(a) These unexercised employee stock options and stock appreciation rights were not included in the computation of diluted EPS because to do so would have been

antidilutive for the periods presented.

NOTE 4

Items Affecting Comparability of Net Income and Cash Flows

Little Sheep Acquisition and Subsequent
Impairment

On February 1, 2012 we acquired an additional 66% interest in Little
Sheep Group Limited (‘‘Little Sheep’’) for $540 million, net of cash
acquired of $44 million, increasing our ownership to 93%. The
acquisition was driven by our strategy to build leading brands across
China in every significant category. Prior to our acquisition of this
additional interest, our 27% interest in Little Sheep was accounted for
under the equity method of accounting. As a result of the acquisition
we obtained voting control of Little Sheep, and thus we began
consolidating Little Sheep upon acquisition. As required by GAAP, we
re-measured our previously held 27% ownership in Little Sheep,
which had a recorded value of $107 million at the date of acquisition,
at fair value based on Little Sheep’s traded share price immediately
prior to our offer to purchase the business and recognized a non-cash
gain of $74 million, with no related tax benefit within Other (income)
expense.

The primary assets recorded as a result of the acquisition were the
Little Sheep trademark and goodwill of approximately $400 million and
$375 million, respectively.

The purchase price paid for the additional 66% interest and the
resulting purchase price allocation in 2012 assumed same-store sales
growth and new unit development for the brand. However, Little
Sheep’s sales were negatively impacted by a longer than expected

purchase approval and ownership transition phase, and our efforts to
regain sales momentum were significantly compromised in May 2013
due to negative publicity regarding quality issues with unrelated hot
pot concepts in China, even though there was not an issue with the
quality of Little Sheep products.

The sustained declines in sales and profits resulted in a determination
that the Little Sheep trademark, goodwill and certain restaurant level
PP&E were impaired during the quarter ended September 7, 2013. As
a result, we recorded impairment charges to the trademark, goodwill
and PP&E of $69 million, $222 million and $4 million, respectively,
during the quarter ended September 7, 2013.

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The inputs used in determining the 2013 fair values of the Little Sheep
trademark and reporting unit assumed that the business would
recover to pre-acquisition average-unit sales volumes and profit levels
over the then next three years, supporting significant future new unit
the Company. Long-term average growth
development by
assumptions subsequent
included
same-store-sales growth of 4% and average annual net unit growth of
approximately 75 units, primarily operated by the Company.

this assumed recovery

The Little Sheep business continued to underperform during 2014
with actual average-unit sales volumes and profit levels significantly
below those assumed in our 2013 estimation of the Little Sheep
trademark and reporting unit fair values. As a result, a significant
restaurants were closed or
number of Company-operated

YUM! BRANDS, INC. - 2014 Form 10-K 49

PART II
ITEM 8 Financial Statements and Supplementary Data

refranchised during 2014 with future plans calling for further focus on
franchise-ownership for the Concept.

We tested the Little Sheep trademark and goodwill for impairment in
the fourth quarter of 2014 pursuant to our accounting policy. The
inputs used in determining the 2014 fair values of the Little Sheep
trademark and reporting unit no longer include a three-year recovery
of sales and profits to pre-acquisition levels and reflect further
reductions in Company ownership to a level of 50 restaurants (from 92
restaurants at December 27, 2014). As a result of comparing the
trademark’s 2014 fair value estimate of $58 million to its carrying value
of $342 million, we recorded a $284 million impairment charge.
Additionally, after determining the 2014 fair value estimate of the Little
Sheep reporting unit was less than its carrying value we wrote off Little
Sheep’s remaining goodwill balance of $160 million. The Company
also evaluated other Little Sheep long-lived assets for impairment and
recorded $14 million of restaurant-level PP&E impairment and a
$5 million impairment of our equity method investment in a meat
processing business that supplies lamb to Little Sheep. The remaining

net assets of the Little Sheep business of approximately $100 million
as of December 27, 2014 include primarily the remaining $58 million
trademark and PP&E of approximately $30 million related to a wholly-
owned business that sells seasoning to retail customers.

The primary drivers of remaining fair value in our Little Sheep
business include franchise revenue growth and cash flows associated
with the aforementioned seasoning business. Franchise revenue
growth reflects annual same-store sales growth of 4% and
approximately 35 new franchise units per year, partially offset by
approximately 25 franchise closures per year. The seasoning
business is forecasted to generate sales growth rates and margins
consistent with historical results.

The losses related to Little Sheep that have occurred concurrent with
our trademark and goodwill impairments in 2014 and 2013 and our
gain on acquisition in 2012, none of which have been allocated to any
segment for performance reporting purposes, are summarized below:

Gain on Acquisition
Impairment of Goodwill
Impairment of Trademark
Impairment of PP&E
Impairment of Investment in Little Sheep Meat
Tax Benefit
Loss Attributable to Non-Controlling Interest

2014

2013

2012

Income Statement Classification

$ —
160
284
14
5
(76)
(26)

$ —
222
69
4
—
(18)
(19)

$ (74)
—
—
—
—
—
—

Other (income) expense
Closures and Impairment (income) expense
Closures and Impairment (income) expense
Closures and Impairment (income) expense
Closures and Impairment (income) expense
Income tax provision
Net Income (loss) noncontrolling interests

Net (gain) loss

$ 361

$ 258

$ (74)

Net Income – YUM! Brands, Inc.

Both the 2014 and 2013 Little Sheep trademark and reporting unit fair values were based on the estimated prices a willing buyer would pay. The
fair values of the trademark were determined using a relief from royalty valuation approach that included future estimated sales as a significant
input. The reporting unit fair values were determined using an income approach with future cash flow estimates generated by the business as a
significant input. All fair values incorporated a discount rate of 13% as our estimate of the required rate of return that a third-party buyer would
expect to receive when purchasing the Little Sheep trademark or reporting unit.

Losses Related to the Extinguishment of
Debt

performance reporting purposes. See Note 13 for further discussion of
our pension plans.

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During the fourth quarter of 2013, we completed a cash tender offer to
repurchase $550 million of our Senior Unsecured Notes due either
March 2018 or November 2037. This transaction resulted in
$120 million of losses as a result of premiums paid and other costs,
$118 million of which was classified as Interest expense, net in our
Consolidated Statement of Income. The repurchase of the Senior
Unsecured Notes was funded primarily by proceeds of $599 million
received from the issuance of new Senior Unsecured Notes.

Refranchising (Gain) Loss

The Refranchising (gain) loss by reportable segment is presented
below. We do not allocate such gains and losses to our segments for
performance reporting purposes.

Refranchising (gain) loss
2013

2014

2012

13MAR201517272138

Pension Settlement Charges

During the fourth quarter of 2012 and continuing through 2013, the
Company allowed certain former employees with deferred vested
balances in our U.S. pension plans an opportunity to voluntarily elect
an early payout of their pension benefits. The majority of these
payouts were funded from existing pension plan assets.

As a result of settlement payments exceeding the sum of service and
interest costs within these U.S. pension plans in 2013 and 2012,
pursuant to our accounting policy we recorded pre-tax settlement
charges of $30 million and $89 million for the years ended
December 28, 2013 and December 29, 2012, respectively, in General
and administrative expenses. These amounts included settlement
charges of $10 million and $84 million in the years ended
December 28, 2013 and December 29, 2012, respectively, related to
for
the programs discussed above

that were not allocated

China
KFC Division
Pizza Hut Division(a)
Taco Bell Division
India

$ (17)
(18)
4
(4)
2

(5)
(8)
(3)
(84)
—

(17)
(3)
53
(111)
—

Worldwide

$ (33)

$ (100)

(78)

(a) During the fourth quarter of 2012, we refranchised our remaining 331
Company-owned Pizza Hut dine-in restaurants in the United Kingdom
(‘‘UK’’). The franchise agreement for these stores allowed the franchisee to
pay continuing franchise fees in the initial years of the agreement at a
reduced rate. We agreed to allow the franchisee to pay these reduced fees
in part as consideration for their assumption of lease liabilities related to
underperforming stores that we anticipated they would close that were part
of the refranchising. We recognize the estimated value of terms in franchise
agreements entered into concurrently with a refranchising transaction that
are not consistent with market terms as part of the upfront refranchising
(gain) loss. Accordingly, upon the closing of this refranchising we
recognized a loss of $53 million representing the estimated value of these
reduced continuing fees. The associated deferred credit is being amortized
into Pizza Hut Division’s Franchise and license fees and income through

50 YUM! BRANDS, INC. - 2014 Form 10-K

PART II
ITEM 8 Financial Statements and Supplementary Data

2016. This upfront loss largely contributed to a $70 million Refranchising
loss we recognized during 2012 as a result of this refranchising. Also
included in that loss was the write-off of $14 million in goodwill allocated to
the Pizza Hut UK reporting unit. The remaining carrying value of goodwill
allocated at that time to our Pizza Hut UK business of $87 million,
immediately subsequent to the aforementioned write-off, was determined

not to be impaired as the fair value of the Pizza Hut UK reporting unit
exceeded its carrying amount. For the year ended December 28, 2013, the
refranchising of the Pizza Hut UK dine-in restaurants decreased Company
sales by 39% and increased Franchise and license fees and income and
Operating Profit by 3% and 6%, respectively, for the Pizza Hut Division
versus 2012.

Store Closure and Impairment Activity

Store closure (income) costs and Store impairment charges by reportable segment are presented below. These tables exclude $463 million and
$295 million of Little Sheep impairment losses in 2014 and 2013, respectively which were not allocated to any segment for performance reporting
purposes.

Store closure (income) costs(a)
Store impairment charges

Closure and impairment (income) expenses

Store closure (income) costs(a)
Store impairment charges

Closure and impairment (income) expenses

Store closure (income) costs(a)
Store impairment charges

Closure and impairment (income) expenses

2014

China

$ —
54

$ 54

KFC

$ 2
7

$ 9

Pizza Hut

Taco Bell

India

Worldwide

$ 1
4

$ 5

$ —
3

$ —
1

3
69

2013

China

KFC

Pizza Hut

Taco Bell

India

Worldwide

(1)
31

$ (1)
4

$ 30

(3)
3

$ —

$ —
1

$ —
2

(5)
41

2012

China

KFC

Pizza Hut

Taco Bell

India

Worldwide

(4)
13

1
11

10
2

$ 1
3

$ 4

$ —
—

$ —

8
29

(a) Store closure (income) costs include the net gain or loss on sales of real estate on which we formerly operated a Company-owned restaurant that was closed,
lease reserves established when we cease using a property under an operating lease and subsequent adjustments to those reserves and other facility-related
expenses from previously closed stores. Remaining lease obligations for closed stores were not material at December 27, 2014 or December 28, 2013.

NOTE 5

Supplemental Cash Flow Data

Cash Paid For:
Interest(a)
Income taxes(b)

Significant Non-Cash Investing and Financing Activities:

Capital lease obligations incurred
Capital lease obligations relieved, primarily through divestitures and refranchisings
Increase in accrued capital expenditures

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2014

2013

2012

$ 149
684

24
1
15

$ 269
489

15
2
N/A

$ 166
417

17
112
35

(a) 2013 includes $109 million of cash premiums and fees paid related to the extinguishment of debt, which is the primary component of the $120 million loss on debt

extinguishment. See Note 4.

(b) 2014 includes $200 million of cash paid related to the resolution of a valuation issue with the Internal Revenue Service related to years 2004-2008. See the

Internal Revenue Service Adjustments section of Note 16.

YUM! BRANDS, INC. - 2014 Form 10-K 51

PART II
ITEM 8 Financial Statements and Supplementary Data

NOTE 6

Franchise and License Fees and Income

Initial fees, including renewal fees
Initial franchise fees included in Refranchising (gain) loss

Continuing fees and rental income

Franchise and license fees and income

NOTE 7

Other (Income) Expense

Equity (income) loss from investments in unconsolidated affiliates
Gain upon acquisition of Little Sheep(a)
China poultry supply insurance recovery(b)
Foreign exchange net (gain) loss and other

Other (income) expense

(a) See Note 4.

(b) Recovery related to lost profits associated with a 2012 poultry supply incident.

2014

83
(5)

78
1,877

2013

90
(13)

77
1,823

2012

92
(24)

68
1,732

1,955

1,900

1,800

2014

$ (30)
—
(25)
14

$ (41)

2013

$ (26)
—
—
10

$ (16)

2012

(47)
(74)
—
6

$ (115)

NOTE 8

Supplemental Balance Sheet Information

Prepaid Expenses and Other Current Assets

Income tax receivable
Assets held for sale(a)
Other prepaid expenses and current assets

Prepaid expenses and other current assets

2014

55
14
185

2013

89
16
181

$ 254

$ 286

(a) Reflects restaurants we have offered for sale to franchisees and excess properties that we do not intend to use for restaurant operations in the future.

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Property, Plant and Equipment

Land
Buildings and improvements
Capital leases, primarily buildings
Machinery and equipment

13MAR201517272138

Property, plant and equipment, gross
Accumulated depreciation and amortization

Property, plant and equipment, net

2014

506
4,549
210
2,817

8,082
(3,584)

2013

508
4,393
199
2,750

7,850
(3,391)

4,498

4,459

Depreciation and amortization expense related to property, plant and equipment was $702 million, $686 million and $629 million in 2014, 2013
and 2012, respectively.

Accounts Payable and Other Current Liabilities

Accounts payable
Accrued capital expenditures
Accrued compensation and benefits
Dividends payable
Accrued taxes, other than income taxes
Other current liabilities

Accounts payable and other current liabilities

52 YUM! BRANDS, INC. - 2014 Form 10-K

2014

2013

694
250
419
178
100
331

692
235
442
164
93
303

1,972

1,929

PART II
ITEM 8 Financial Statements and Supplementary Data

NOTE 9

Goodwill and Intangible Assets

The changes in the carrying amount of goodwill are as follows:

China

KFC

Pizza Hut

Taco Bell

India

Worldwide

$ —
—

Balance as of December 29, 2012

Goodwill, gross
Accumulated impairment losses

Goodwill, net
Acquisitions(a)
Impairment Losses(c)
Disposals and other, net(b)

Balance as of December 28, 2013

Goodwill, gross
Accumulated impairment losses

Goodwill,net
Acquisitions
Impairment Losses(c)
Disposals and other, net(b)

Balance as of December 27, 2014

Goodwill, gross
Accumulated impairment losses

466
—

466
2
(222)
10

478
(222)

256
—
(160)
(7)

471
(382)

$ 281
—

$ 194
(17)

281
75
—
(18)

338
—

338
2
—
(28)

312
—

177
11
—
(1)

204
(17)

187
—
—
(4)

200
(17)

$ 110
—

$ 110
—
—
(4)

106
—

106
8
—
—

114
—

Goodwill, net

$ 312

$ 183

$ 114

—
2
—
—

2
—

2
—
—
—

2
—

1,051
(17)

1,034
90
(222)
(13)

1,128
(239)

889
10
(160)
(39)

1,099
(399)

700

(a) We recorded goodwill of $75 million and $11 million in our KFC and Pizza Hut Divisions, respectively, related to the acquisition of 65 KFC and 41 Pizza Hut

restaurants in Turkey.

(b) Disposals and other, net includes the impact of foreign currency translation on existing balances and goodwill write-offs associated with refranchising.

(c) We recorded impairment charges of $160 million and $222 million in 2014 and 2013, respectively, to write down Little Sheep’s goodwill. See Note 4.

Intangible assets, net for the years ended 2014 and 2013 are as follows:

Definite-lived intangible assets
Reacquired franchise rights
Franchise contract rights
Lease tenancy rights
Favorable operating leases
Other

Indefinite-lived intangible assets

KFC trademark
Little Sheep trademark(a)

2014

2013

Gross Carrying
Amount

Accumulated
Amortization

Gross Carrying
Amount

Accumulated
Amortization

(81)
(92)
(12)
(9)
(25)

$ (219)

$ 186
126
67
15
52

$ 446

31
60

$ 188
130
71
20
52

$ 461

31
348

$ 379

(66)
(90)
(12)
(12)
(22)

$ (202)

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(a) We recorded an impairment charge of $284 million in 2014 to write down the Little Sheep trademark. See Note 4.

Amortization expense for all definite-lived intangible assets was $27 million in 2014 and $28 million in both 2013 and 2012. Amortization expense
for definite-lived intangible assets will approximate $28 million in 2015, $27 million in 2016, $25 million in 2017, $24 million in 2018 and $23 million
in 2019.

YUM! BRANDS, INC. - 2014 Form 10-K 53

PART II
ITEM 8 Financial Statements and Supplementary Data

NOTE 10

Short-term Borrowings and Long-term Debt

Short-term Borrowings
Current maturities of long-term debt
Current portion of fair value hedge accounting adjustment

Long-term Debt
Senior Unsecured Notes
Unsecured Revolving Credit Facility, expires March 2017
Capital lease obligations (See Note 11)

Less current maturities of long-term debt

Long-term debt excluding long-term portion of hedge accounting adjustment
Long-term portion of fair value hedge accounting adjustment

2014

2013

264
3

267

2,746
416
175

3,337
(264)

3,073
4

71
—

2,803
—
172

2,975
(71)

2,904
14

Long-term debt including hedge accounting adjustment

3,077

2,918

Our primary bank credit agreement comprises a $1.3 billion
syndicated senior unsecured revolving credit facility (the ‘‘Credit
Facility’’) which matures in March 2017. The Credit Facility includes
24 participating banks with commitments ranging from $23 million to
$115 million. Under the terms of the Credit Facility, we may borrow up
to the maximum borrowing limit, less outstanding letters of credit or
banker’s acceptances, where applicable. At December 27, 2014, our
unused Credit Facility totaled $824 million net of outstanding letters of
credit of $60 million. There were borrowings of $416 million and
$0 million outstanding under the Credit Facility at December 27, 2014
and December 28, 2013, respectively. The interest rate for most
borrowings under the Credit Facility ranges from 1.00% to 1.75% over
the London Interbank Offered Rate (‘‘LIBOR’’). The exact spread over
LIBOR under the Credit Facility depends upon our performance
against specified financial criteria. Interest on any outstanding
borrowings under the Credit Facility is payable at least quarterly.

The Credit Facility is unconditionally guaranteed by our principal
domestic subsidiaries. This agreement contains financial covenants
relating to maintenance of leverage and fixed charge coverage ratios
and also contains affirmative and negative covenants including,

among other things, limitations on certain additional indebtedness and
liens, and certain other transactions specified in the agreement. Given
the Company’s strong balance sheet and cash flows, we were able to
comply with all debt covenant requirements at December 27, 2014
with a considerable amount of cushion. Additionally, the Credit Facility
contains cross-default provisions whereby our failure to make any
payment on our indebtedness in a principal amount in excess of
$125 million, or the acceleration of the maturity of any such
indebtedness, will constitute a default under such agreement.

The majority of our remaining long-term debt primarily comprises
Senior Unsecured Notes with varying maturity dates from 2015
through 2043 and stated interest rates ranging from 3.75% to 6.88%.
The Senior Unsecured Notes represent senior, unsecured obligations
and rank equally in right of payment with all of our existing and future
unsecured unsubordinated indebtedness. Our Senior Unsecured
Notes provide that the acceleration of the maturity of any of our
indebtedness in a principal amount in excess of $50 million will
constitute a default under the Senior Unsecured Notes unless such
indebtedness is discharged, or the acceleration of the maturity of that
indebtedness is annulled, within 30 days after notice.

The following table summarizes all Senior Unsecured Notes issued that remain outstanding at December 27, 2014:

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Issuance Date(a)

April 2006
October 2007
October 2007
August 2009
August 2009
August 2010
August 2011
October 2013
October 2013

Maturity Date

April 2016
March 2018
November 2037
September 2015
September 2019
November 2020
November 2021
November 2023
November 2043

Principal Amount
(in millions)

Interest Rate

Stated

Effective(b)

$ 300
$ 325
$ 325
$ 250
$ 250
$ 350
$ 350
$ 325
$ 275

6.25%
6.25%
6.88%
4.25%
5.30%
3.88%
3.75%
3.88%
5.35%

6.03%
6.36%
7.45%
4.44%
5.59%
4.01%
3.88%
4.01%
5.42%

(a) Interest payments commenced approximately six months after issuance date and are payable semi-annually thereafter.

(b) Includes the effects of the amortization of any (1) premium or discount; (2) debt issuance costs; and (3) gain or loss upon settlement of related treasury locks and
forward-starting interest rate swaps utilized to hedge the interest rate risk prior to the debt issuance. Excludes the effect of any swaps that remain outstanding.

54 YUM! BRANDS, INC. - 2014 Form 10-K

The annual maturities of short-term borrowings and long-term debt as of December 27, 2014, excluding capital lease obligations of $175 million
and fair value hedge accounting adjustments of $7 million, are as follows:

PART II
ITEM 8 Financial Statements and Supplementary Data

Year ended:

2015
2016
2017
2018
2019
Thereafter

Total

250
300
416
325
250
1,625

3,166

Interest expense on short-term borrowings and long-term debt was $152 million, $270 million and $169 million in 2014, 2013 and 2012,
respectively. 2013 included $118 million in losses recorded in Interest expense, net as a result of premiums paid and other costs related to the
extinguishment of debt. See Losses Related to the Extinguishment of Debt section of Note 4 for further discussion.

NOTE 11

Leases

At December 27, 2014 we operated nearly 8,700 restaurants, leasing
the underlying land and/or building in approximately 7,775 of those
restaurants with the vast majority of our commitments expiring within
20 years from the inception of the lease. In addition, the Company
franchisees,
leases or subleases approximately 875 units
principally in the U.S., UK, China and Mexico.

We also lease office space for headquarters and support functions, as
well as certain office and restaurant equipment. We do not consider
any of these individual leases material to our operations. Most leases
require us to pay related executory costs, which include property
taxes, maintenance and insurance.

Future minimum commitments and amounts to be received as lessor or sublessor under non-cancelable leases are set forth below:

2015
2016
2017
2018
2019
Thereafter

Commitments

Lease Receivables

Capital Operating

Direct Financing Operating

20
21
20
20
20
181

709
661
609
555
501
2,444

2
2
2
2
1
4

56
52
47
44
38
116

$ 282

5,479

$ 353

At December 27, 2014 and December 28, 2013, the present value of minimum payments under capital leases was $175 million and $172 million,
respectively. At December 27, 2014, unearned income associated with direct financing lease receivables was $3 million.

The details of rental expense and income are set forth below:

Rental expense
Minimum
Contingent

Rental income

2014

2013

2012

766
302

1,068

103

759
293

1,052

721
290

1,011

NOTE 12

Fair Value Disclosures

As of December 27, 2014 the carrying values of cash and cash
equivalents, short-term
investments, accounts receivable and
accounts payable approximated their fair values because of the
short-term nature of these instruments. The fair value of notes

receivable net of allowances and lease guarantees less subsequent
amortization approximates their carrying value. The Company’s debt
obligations, excluding capital leases, were estimated to have a fair
value of $3.4 billion (Level 2), compared to their carrying value of

YUM! BRANDS, INC. - 2014 Form 10-K 55

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$3.2 billion. We estimated the fair value of debt using market quotes
and calculations based on market rates.

Recurring Fair Value Measurements

The Company has interest rate swaps accounted for as fair value
hedges, foreign currency forwards accounted for as cash flow hedges
and other investments, all of which are required to be measured at fair
value on a recurring basis. Interest rate swaps are used to reduce our
exposure to interest rate risk and lower interest expense for a portion
of our fixed-rate debt and our interest rate swaps meet the shortcut
method requirements and thus no ineffectiveness has been recorded.
Our foreign currency forwards are used to reduce our exposure to

Foreign Currency Forwards, net
Interest Rate Swaps, net
Other Investments

Total

foreign currency

flow volatility arising

cash
fluctuations
from
associated with certain foreign currency denominated intercompany
short-term receivables and payables. The notional amount, maturity
date and currency of these forwards match those of the underlying
ineffectiveness by
receivables or payables and we measure
comparing the cumulative change in the fair value of the forward
contract with the cumulative change in the fair value of the hedged
item. The following table presents fair values for those assets and
liabilities measured at fair value on a recurring basis and the level
within the fair value hierarchy in which the measurements fall. No
transfers among the levels within the fair value hierarchy occurred
during the years ended December 27, 2014 or December 28, 2013.

Fair Value

Level

2014

2013

2
2
1

24
10
21

1
17
18

The fair value of the Company’s foreign currency forwards and
interest rate swaps were determined based on the present value of
expected future cash flows considering the risks involved, including
nonperformance risk, and using discount rates appropriate for the
duration based upon observable inputs. The other investments
include investments in mutual funds, which are used to offset

fluctuations in deferred compensation liabilities that employees have
chosen to invest in phantom shares of a Stock Index Fund or Bond
Index Fund. The other investments are classified as trading securities
in Other assets in our Consolidated Balance Sheet and their fair value
is determined based on the closing market prices of the respective
mutual funds as of December 27, 2014 and December 28, 2013.

Non-Recurring Fair Value Measurements

The following table presents expense recognized from all non-recurring fair value measurements during the years ended December 27, 2014 and
December 28, 2013. These amounts relate to restaurants or groups of restaurants that were impaired either as a result of our semi-annual
impairment review or when it was more likely than not a restaurant or restaurant group would be refranchised and exclude fair value
measurements made for restaurants that were subsequently closed or refranchised prior to those respective year-end dates.

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Little Sheep impairment (Level 3)(a)
Refranchising related impairment – other (Level 2)(b)
Restaurant-level impairment (Level 3)(c)

Total

2014

2013

$ 463
9
46

$ 295
—
19

$ 518

$ 314

13MAR201517272138

(a) See the Little Sheep Acquisition and Subsequent Impairment section of Note 4 for further discussion.

(b) Refranchising related impairment results from writing down the assets of restaurants or restaurant groups offered for refranchising, including certain instances
where a decision has been made to refranchise restaurants that are deemed to be impaired. The fair value measurements used in our impairment evaluation are
based on either actual bids received from potential buyers (Level 2), or on estimates of the sales prices we anticipated receiving from a buyer for the restaurant or
restaurant groups (Level 3). The remaining net book value of these restaurants at December 27, 2014 is insignificant.

(c) Restaurant-level impairment charges are recorded in Closures and impairment (income) expenses and resulted primarily from our semi-annual impairment
evaluation of long-lived assets of individual restaurants that were being operated at the time of impairment and had not been offered for refranchising. The fair
value measurements used in these impairment evaluations were based on discounted cash flow estimates using unobservable inputs (Level 3). The remaining
net book value of assets measured at fair value during the years ended December 27, 2014 and December 28, 2013 is insignificant.

NOTE 13

Pension, Retiree Medical and Retiree Savings Plans

U.S. Pension Plans

and

sponsor

qualified

supplemental

We
(non-qualified)
noncontributory defined benefit plans covering certain full-time
salaried and hourly U.S. employees. The qualified plan meets the
requirements of certain sections of the Internal Revenue Code and
provides benefits to a broad group of employees with restrictions on
discriminating in favor of highly compensated employees with regard

to coverage, benefits and contributions. The supplemental plans
provide additional benefits to certain employees. We fund our
supplemental plans as benefits are paid.

The most significant of our U.S. plans is the YUM Retirement Plan (the
‘‘Plan’’), which is a qualified plan. Our funding policy with respect to

56 YUM! BRANDS, INC. - 2014 Form 10-K

PART II
ITEM 8 Financial Statements and Supplementary Data

the Plan is to contribute amounts necessary to satisfy minimum
pension funding requirements, including requirements of the Pension
Protection Act of 2006, plus additional amounts from time to time as
are determined to be necessary to improve the Plan’s funded status.
Subsequent to year end we contributed $75 million to the Plan, and do
not expect to make any further significant contributions in 2015. We
currently expect to make $24 million in benefit payments related to our

primary unfunded U.S. non-qualified plan in 2015. Our two significant
U.S. plans were previously amended such that any salaried employee
hired or rehired by YUM after September 30, 2001 is not eligible to
participate in those plans.

We do not anticipate any plan assets being returned to the Company
during 2015 for any U.S. plans.

Obligation and Funded Status at Measurement Date:

The following chart summarizes the balance sheet impact, as well as benefit obligations, assets, and funded status associated with our two
significant U.S. pension plans. The actuarial valuations for all plans reflect measurement dates coinciding with our fiscal year end.

Change in benefit obligation

Benefit obligation at beginning of year

Service cost
Interest cost
Plan amendments
Curtailments
Special termination benefits
Benefits paid
Settlements(a)(b)
Actuarial (gain) loss
Administrative expense

Benefit obligation at end of year

Change in plan assets

Fair value of plan assets at beginning of year

Actual return on plan assets
Employer contributions
Settlement payments(a)
Benefits paid
Administrative expenses

Fair value of plan assets at end of year

Funded status at end of year

(a) For discussion of the settlement payments and settlement losses, see Components of net periodic benefit cost below.

(b) 2013 includes the transfer of certain non-qualified pension benefits into a defined benefit plan not included in the table.

Amounts recognized in the Consolidated Balance Sheet:

Prepaid benefit asset – non-current
Accrued benefit liability – current
Accrued benefit liability – non-current

2014

2013

1,025
17
54
1
(2)
3
(65)
(17)
290
(5)

1,301

933
124
21
(17)
(65)
(5)

991

(310)

1,290
21
54
—
(3)
5
(21)
(151)
(164)
(6)

1,025

945
116
22
(123)
(21)
(6)

933

(92)

2014

2013

— $
(11)
(299)

10
(8)
(94)

$ (310)

$ (92)

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The accumulated benefit obligation was $1,254 million and $983 million at December 27, 2014 and December 28, 2013, respectively.

Information for pension plans with an accumulated benefit obligation in excess of plan assets:

Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets

2014

2013

1,301
1,254
991

$ 102
94
—

YUM! BRANDS, INC. - 2014 Form 10-K 57

PART II
ITEM 8 Financial Statements and Supplementary Data

Information for pension plans with a projected benefit obligation in excess of plan assets:

Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets

Components of net periodic benefit cost:

Net periodic benefit cost

Service cost
Interest cost
Amortization of prior service cost(a)
Expected return on plan assets
Amortization of net loss

Net periodic benefit cost

Additional (gain) loss recognized due to:

Settlements(b)
Special termination benefits

2014

2013

1,301
1,254
991

$ 102
94
—

2014

2013

2012

$
$

17
54
1
(56)
17

6
3

$
$

21
54
2
(59)
48

30
5

$
$

26
66
1
(71)
63

89
3

(a) Prior service costs are amortized on a straight-line basis over the average remaining service period of employees expected to receive benefits.

(b) Settlement losses result when benefit payments exceed the sum of the service cost and interest cost within a plan during the year. During the fourth quarter of
2012 and continuing through 2013, the Company allowed certain former employees with deferred vested balances an opportunity to voluntarily elect an early
payout of their pension benefits. The majority of these payouts were funded from existing pension plan assets. See Note 4.

Pension (gains) losses in Accumulated other comprehensive income (loss):

Beginning of year
Net actuarial (gain) loss
Curtailments
Amortization of net loss
Amortization of prior service cost
Prior service cost
Settlement charges

End of year

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Actuarial net loss
Prior service cost

13MAR201517272138

2014

2013

$ 124
220
(2)
(17)
(1)
1
(6)

428
(221)
(3)
(48)
(2)
—
(30)

$ 319

124

2014

2013

$ 314
5

$ 119
5

$ 319

$ 124

The estimated net loss that will be amortized from Accumulated other comprehensive income (loss) into net periodic pension cost in 2015 is
$45 million. The estimated prior service cost that will be amortized from Accumulated other comprehensive income (loss) into net periodic pension
cost in 2015 is $1 million.

Weighted-average assumptions used to determine benefit obligations at the measurement dates:

Discount rate
Rate of compensation increase

Weighted-average assumptions used to determine the net periodic benefit cost for fiscal years:

Discount rate
Long-term rate of return on plan assets
Rate of compensation increase

2014

2013

4.30%
3.75%

5.40%
3.75%

2014

2013

2012

5.40%
6.90%
3.75%

4.40%
7.25%
3.75%

4.90%
7.25%
3.75%

Our estimated long-term rate of return on plan assets represents the weighted-average of expected future returns on the asset categories
included in our target investment allocation based primarily on the historical returns for each asset category.

58 YUM! BRANDS, INC. - 2014 Form 10-K

PART II
ITEM 8 Financial Statements and Supplementary Data

Plan Assets

The fair values of our pension plan assets at December 27, 2014 and
December 28, 2013 by asset category and level within the fair value
hierarchy are as follows:

Level 2:

Cash Equivalents(a)
Equity Securities – U.S. Large cap(b)
Equity Securities – U.S. Mid cap(b)
Equity Securities – U.S. Small cap(b)
Equity Securities – Non-U.S.(b)
Fixed Income Securities – U.S.

Corporate(b)

Fixed Income Securities – U.S.
Government and Government
Agencies(c)

Fixed Income Securities – Other(d)

2014

2013

5
298
50
50
91

305

178
11

5
329
55
53
110

234

129
15

Total fair value of plan assets(e)

$ 988

$ 930

(a) Short-term investments in money market funds

(b) Securities held in common trusts

Expected benefits are estimated based on the same assumptions
used to measure our benefit obligation on the measurement date and
include benefits attributable to estimated future employee service.

International Pension Plans

We also sponsor various defined benefit plans covering certain of our
non-U.S. employees, the most significant of which are in the UK.
During 2013, one of our UK plans was frozen such that existing
participants can no longer earn future service credits. Our other UK
plan was previously frozen to future service credits in 2011.

At the end of 2014 and 2013, the projected benefit obligations of these
U.K. plans totaled $231 million and $226 million, respectively and plan
assets totaled $288 million and $259 million, respectively. These
plans were both in a net overfunded position at the end of 2014 and
2013 and related expense amounts recorded in each of 2014, 2013
and 2012 were not significant.

The funding rules for our pension plans outside of the U.S. vary from
country to country and depend on many factors including discount
rates, performance of plan assets, local laws and regulations. We do
not plan to make significant contributions to either of our UK plans in
2015.

(d) Includes securities held in common trusts and investments held directly by

the Plan

Retiree Medical Benefits

(e) 2014 and 2013 both exclude net unsettled trades receivable of $3 million

Our primary objectives regarding the investment strategy for the
Plan’s assets are to reduce interest rate and market risk and to
provide adequate liquidity to meet immediate and future payment
requirements. To achieve
these objectives, we are using a
combination of active and passive investment strategies. Our equity
securities, currently targeted to be 50% of our investment mix, consist
primarily of low-cost index funds focused on achieving long-term
capital appreciation. We diversify our equity risk by investing in
several different U.S. and foreign market index funds. Investing in
these index funds provides us with the adequate liquidity required to
fund benefit payments and plan expenses. The fixed income asset
allocation, currently targeted to be 50% of our mix, is actively
managed and consists of long-duration fixed income securities that
help to reduce exposure to interest rate variation and to better
correlate asset maturities with obligations. The fair values of all
pension plan assets are determined based on closing market prices or
net asset values.

A mutual fund held as an investment by the Plan includes shares of
YUM common stock valued at $0.5 million at December 27, 2014 and
$0.2 million at December 28, 2013 (less than 1% of total plan assets in
each instance).

Benefit Payments

The benefits expected to be paid in each of the next five years and in
the aggregate for the five years thereafter are set forth below:

Year ended:

2015
2016
2017
2018
2019
2020 – 2024

72
53
51
55
57
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Our post-retirement plan provides health care benefits, principally to
U.S. salaried retirees and their dependents, and includes retiree
cost-sharing provisions. This plan was previously amended such that
any salaried employee hired or rehired by YUM after September 30,
2001 is not eligible to participate in this plan. Employees hired prior to
September 30, 2001 are eligible for benefits if they meet age and
service requirements and qualify for retirement benefits. We fund our
post-retirement plan as benefits are paid.

recognized

At the end of 2014 and 2013, the accumulated post-retirement benefit
obligation was $69 million and $70 million, respectively. An actuarial
gain of $2 million was
in Accumulated other
comprehensive (income) loss at the end of both 2014 and 2013. The
net periodic benefit cost recorded was $5 million in both 2014 and
2013 and $6 million in 2012, the majority of which is interest cost on
the accumulated post-retirement benefit obligation. The weighted-
average assumptions used to determine benefit obligations and net
periodic benefit cost for the post-retirement medical plan are identical
to those as shown for the U.S. pension plans. Our assumed heath
care cost trend rates for the following year as of 2014 and 2013 are
7.1% and 7.2%, respectively, with expected ultimate trend rates of
4.5% reached in 2028.

There is a cap on our medical liability for certain retirees. The cap for
Medicare-eligible retirees was reached in 2000 and the cap for
non-Medicare eligible retirees was reached in 2014; with the cap, our
annual cost per retiree will not increase. A one-percentage-point
increase or decrease in assumed health care cost trend rates would
have less than a $1 million impact on total service and interest cost
and on the post-retirement benefit obligation. The benefits expected to
be paid in each of the next five years are approximately $6 million and
in aggregate for the five years thereafter are $24 million.

Retiree Savings Plan

We sponsor a contributory plan to provide retirement benefits under
the provisions of Section 401(k) of the Internal Revenue Code (the
‘‘401(k) Plan’’) for eligible U.S. salaried and hourly employees.
Participants are able to elect to contribute up to 75% of eligible

YUM! BRANDS, INC. - 2014 Form 10-K 59

PART II
ITEM 8 Financial Statements and Supplementary Data

compensation on a pre-tax basis. Participants may allocate their
contributions to one or any combination of multiple investment options
or a self-managed account within the 401(k) Plan. We match 100% of
the participant’s contribution to the 401(k) Plan up to 6% of eligible

compensation. We recognized as compensation expense our total
matching contribution of $12 million in both 2014 and 2013 and
$13 million in 2012.

NOTE 14

Share-based and Deferred Compensation Plans

Overview

At year end 2014, we had four stock award plans in effect: the YUM!
Brands, Inc. Long-Term Incentive Plan and the 1997 Long-Term
Incentive Plan (collectively the ‘‘LTIPs’’), the YUM! Brands, Inc.
Restaurant General Manager Stock Option Plan (‘‘RGM Plan’’) and
the YUM! Brands, Inc. SharePower Plan (‘‘SharePower’’). Under all
our plans, the exercise price of stock options and SARs granted must
be equal to or greater than the average market price or the ending
market price of the Company’s stock on the date of grant.

Potential awards to employees and non-employee directors under the
LTIPs include stock options, incentive stock options, SARs, restricted
stock, stock units, restricted stock units (‘‘RSUs’’), performance
restricted stock units, performance share units (‘‘PSUs’’) and
performance units. We have issued only stock options, SARs, RSUs
and PSUs under the LTIPs. While awards under the LTIPs can have
varying vesting provisions and exercise periods, outstanding awards
under the LTIPs vest in periods ranging from immediate to five years.
Stock options and SARs expire ten years after grant.

Potential awards to employees under the RGM Plan include stock
options, SARs, restricted stock and RSUs. We have issued only stock
options and SARs under this plan. RGM Plan awards granted have a
four-year cliff vesting period and expire ten years after grant. Certain
RGM Plan awards are granted upon attainment of performance
conditions in the previous year. Expense for such awards is
recognized over a period that includes the performance condition
period.

Potential awards to employees under SharePower include stock
options, SARs, restricted stock and RSUs. We have issued only stock
options and SARs under this plan. These awards generally vest over a
period of four years and expire ten years after grant.

At year end 2014, approximately 14 million shares were available for
future share-based compensation grants under the above plans.

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Award Valuation

Our Executive Income Deferral (‘‘EID’’) Plan allows participants to
defer receipt of a portion of their annual salary and all or a portion of
their incentive compensation. As defined by the EID Plan, we credit
the amounts deferred with earnings based on the investment options
selected by the participants. These investment options are limited to
cash, phantom shares of our Common Stock, phantom shares of a
Stock Index Fund and phantom shares of a Bond Index Fund.
Investments in cash and phantom shares of both index funds will be
distributed in cash at a date as elected by the employee and therefore
are classified as a liability on our Consolidated Balance Sheets. We
recognize compensation expense for the appreciation or the
depreciation, if any, of investments in cash and both of the index
funds. Deferrals into the phantom shares of our Common Stock will be
distributed in shares of our Common Stock, under the LTIPs, at a date
as elected by the employee and therefore are classified in Common
Stock on our Consolidated Balance Sheets. We do not recognize
compensation expense for the appreciation or the depreciation, if any,
of investments in phantom shares of our Common Stock. Our EID plan
also allows participants to defer incentive compensation to purchase
phantom shares of our Common Stock and receive a 33% Company
match on the amount deferred. Deferrals receiving a match are similar
to a RSU award in that participants will generally forfeit both the match
and incentive compensation amounts deferred if they voluntarily
separate from employment during a vesting period that is two years
from the date of deferral. We expense the intrinsic value of the match
and the incentive compensation over the requisite service period
which includes the vesting period.

Historically, the Company has repurchased shares on the open
market in excess of the amount necessary to satisfy award exercises
and expects to continue to do so in 2015.

We estimated the fair value of each stock option and SAR award as of the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions:

Risk-free interest rate
Expected term (years)
Expected volatility
Expected dividend yield

2014

2013

2012

1.6%
6.2
29.7%
2.1%

0.8%
6.2
29.9%
2.1%

0.8%
6.0
29.0%
1.8%

We believe it is appropriate to group our stock option and SAR awards
into two homogeneous groups when estimating expected term. These
groups consist of grants made primarily to restaurant-level employees
under the RGM Plan, which cliff-vest after four years and expire ten
years after grant, and grants made to executives under our other stock
award plans, which typically have a graded vesting schedule of 25%
per year over four years and expire ten years after grant. We use a
single weighted-average term for our awards that have a graded
vesting schedule. Based on analysis of our historical exercise and

post-vesting termination behavior, we have determined that our
restaurant-level employees and our executives exercised the awards
on average after 4.75 years and 6.25 years, respectively.

When determining expected volatility, we consider both historical
volatility of our stock as well as implied volatility associated with our
publicly traded options. The expected dividend yield is based on the
annual dividend yield at the time of grant.

60 YUM! BRANDS, INC. - 2014 Form 10-K

PART II
ITEM 8 Financial Statements and Supplementary Data

The fair values of RSU awards are based on the closing price of our
stock on the date of grant. The fair values of PSU awards granted prior
to 2013 are based on the closing price of our stock on the date of

grant. Beginning in 2013, the Company grants PSU awards with
market-based conditions which we value using a Monte Carlo
simulation.

Award Activity

Stock Options and SARs

(in thousands)

Shares Weighted-Average
Exercise Price

Weighted-
Average
Remaining
Contractual Term

Aggregate
Intrinsic Value
(in millions)

Outstanding at the beginning of the year
Granted
Exercised
Forfeited or expired

Outstanding at the end of the year

Exercisable at the end of the year

27,713
3,619
(3,549)
(611)

27,172(a)

17,671

41.77
70.85
30.35
61.48

46.68

37.62

5.54

4.25

$ 703

$ 628

(a) Outstanding awards include 1,968 options and 25,204 SARs with weighted average exercise prices of $43.71 and $46.91, respectively.

The weighted-average grant-date fair value of stock options and
SARs granted during 2014, 2013 and 2012 was $17.28, $14.67 and
$15.00, respectively. The total intrinsic value of stock options and
SARs exercised during the years ended December 27, 2014,
December 28, 2013 and December 29, 2012, was $157 million,
$176 million and $319 million, respectively.

As of December 27, 2014, there was $91 million of unrecognized
compensation cost related to stock options and SARs, which will be
reduced by any forfeitures that occur, related to unvested awards that

is expected to be recognized over a remaining weighted-average
period of approximately 1.9 years. The total fair value at grant date of
awards that vested during 2014, 2013 and 2012 was $41 million,
$51 million and $48 million, respectively.

RSUs and PSUs

As of December 27, 2014, there was $6 million of unrecognized
compensation cost related to 0.8 million unvested RSUs and PSUs.

Impact on Net Income

The components of share-based compensation expense and the related income tax benefits are shown in the following table:

Options and SARs
Restricted Stock Units
Performance Share Units

Total Share-based Compensation Expense

Deferred Tax Benefit recognized

EID compensation expense not share-based

2014

2013

2012

48
6
1

44
6
(1)

42
5
3

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Cash received from stock option exercises for 2014, 2013 and 2012, was $29 million, $37 million and $62 million, respectively. Tax benefits
realized on our tax returns from tax deductions associated with share-based compensation for 2014, 2013 and 2012 totaled $61 million,
$65 million and $120 million, respectively.

YUM! BRANDS, INC. - 2014 Form 10-K 61

PART II
ITEM 8 Financial Statements and Supplementary Data

NOTE 15

Shareholders’ Equity

Under the authority of our Board of Directors, we repurchased shares of our Common Stock during 2014, 2013 and 2012. All amounts exclude
applicable transaction fees.

Authorization Date

November 2014
November 2013
November 2012
November 2011
January 2011

Total

Shares Repurchased
(thousands)

Dollar Value of Shares
Repurchased

2014

—
8,488
2,737
—
—

2013

—
—
10,922
—
—

2012

—
—
1,069
11,035
2,787

11,225

10,922(a)

14,891(a)

2014

$ —
617
203
—
—

$ 820

2013

$ —
—
750
—
—

2012

$ —
—
47
750
188

$ 750(a)

$ 985(a)

(a) 2013 amount excludes and 2012 amount includes the effect of $20 million in share repurchases (0.3 million shares) with trade dates prior to the 2012 fiscal year

end but with settlement dates subsequent to the 2012 fiscal year end.

share repurchases through May 2016 of up to $1 billion (excluding
applicable transaction fees) of our outstanding Common Stock. As of
December 27, 2014, we have $1.1 billion available for future
repurchases under these authorizations.

Changes in accumulated other comprehensive income (loss) (‘‘OCI’’) are presented below.

Balance at December 29, 2012, net of tax

Gains (losses) arising during the year classified

into accumulated OCI, net of tax

(Gains) losses reclassified from accumulated OCI,

net of tax

OCI, net of tax

Balance at December 28, 2013, net of tax

Gains (losses) arising during the year classified

into accumulated OCI, net of tax

(Gains) losses reclassified from accumulated OCI,

net of tax

OCI, net of tax

Translation Adjustments
and Gains (Losses) From
Intra-Entity Transactions
of a Long-Term Nature

Pension and Post-
Retirement Benefits(a)

Derivative
Instruments

Total

166

$ (286)

$ (12)

$ (132)

—

170

(143)

(141)

136

189

(97)

(131)

(113)

(1)

(9)

144

196

(259)

(15)

—

(254)

Balance at December 27, 2014, net of tax

$ (210)

(9)

$ (190)

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(a) Amounts reclassified from accumulated OCI for pension and post-retirement benefit plan losses during 2014 include amortization of net losses of $20 million,
settlement charges of $6 million, amortization of prior service cost of $1 million and related income tax benefit of $9 million. Amounts reclassified from
accumulated OCI for pension and post-retirement benefit plan losses during 2013 include amortization of net losses of $51 million, settlement charges of
$30 million, amortization of prior service cost of $2 million and the related income tax benefit of $30 million. See Note 13.

62 YUM! BRANDS, INC. - 2014 Form 10-K

NOTE 16
U.S. and foreign income before taxes are set forth below:

Income Taxes

U.S.
Foreign

The details of our income tax provision (benefit) are set forth below:

Current:

Deferred:

Federal
Foreign
State

PART II
ITEM 8 Financial Statements and Supplementary Data

2014

506
921

1,427

2014

255
321
2

578

(67)
(106)
1

(172)

2013

464
1,087

1,551

2013

159
330
22

511

42
(53)
(13)

(24)

406

487

2012

504
1,641

2,145

2012

160
314
35

509

91
(57)
(6)

537

The reconciliation of income taxes calculated at the U.S. federal statutory rate to our effective tax rate is set forth below:

U.S. federal statutory rate
State income tax, net of federal tax benefit
Statutory rate differential attributable to foreign operations
Adjustments to reserves and prior years
Change in valuation allowances
Other, net

Effective income tax rate

Statutory rate differential attributable to foreign operations. This item
includes local taxes, withholding taxes, and shareholder-level taxes,
net of foreign tax credits. The favorable impact is primarily attributable
to a majority of our income being earned outside of the U.S. where tax
rates are generally lower than the U.S. rate.

In 2012, this benefit was negatively impacted by the repatriation of
current year foreign earnings to the U.S. as we recognized additional
tax expense, resulting from the related effective tax rate being lower
than the U.S. federal statutory rate.

Adjustments to reserves and prior years. This item includes:
(1) changes in tax reserves, including interest thereon, established for
potential exposure we may incur if a taxing authority takes a position
on a matter contrary to our position; and (2) the effects of reconciling
income tax amounts recorded in our Consolidated Statements of
Income to amounts reflected on our tax returns, including any
adjustments to the Consolidated Balance Sheets. The impact of
certain effects or changes may offset items reflected in the ‘Statutory
rate differential attributable to foreign operations’ line.

In 2014, this item was favorably impacted by the resolution of
uncertain tax positions in certain foreign jurisdictions.

In 2013, this item was negatively impacted by the provision recorded
related to the dispute with the IRS regarding the valuation of rights to
intangibles transferred to certain foreign subsidiaries. See discussion
below in the Internal Revenue Service Adjustments for details.

In 2012, this item was favorably impacted by the resolution of
uncertain tax positions in certain foreign jurisdictions.

Change in valuation allowances. This item relates to changes for
deferred tax assets generated or utilized during the current year and
changes in our judgment regarding the likelihood of using deferred tax

2014

2013

2012

500
8
(168)
(5)
35
36

35.0%
0.6
(11.7)
(0.3)
2.4
2.5

$ 543
3
(177)
49
23
46

35.0%
0.2
(11.4)
3.1
1.5
3.0

$ 751
4
(165)
(47)
14
(20)

406

28.5%

$ 487

31.4%

$ 537

35.0%
0.2
(7.7)
(2.2)
0.6
(0.9)

25.0%

assets that existed at the beginning of the year. The impact of certain
changes may offset items reflected in the ‘Statutory rate differential
attributable to foreign operations’ line.

In 2014, $35 million of net tax expense was driven by $41 million for
vauation allowances recorded against deferred tax assets generated
during the current year, partially offset by $6 million in net tax benefit
resulting from a change in judgment regarding the future use of certain
deferred tax assets that existed at the beginning of the year.

In 2013, $23 million of net tax expense was driven by $32 million for
valuation allowances recorded against deferred tax assets generated
during the current year, partially offset by a $9 million net tax benefit
resulting from a change in judgment regarding the future use of certain
deferred tax assets that existed at the beginning of the year.

In 2012, $14 million of net tax expense was driven by $16 million for
valuation allowances recorded against deferred tax assets generated
during the current year, partially offset by a $2 million net tax benefit
resulting from a change in judgment regarding the future use of certain
deferred tax assets that existed at the beginning of the year.

Other. This item primarily includes the impact of permanent
differences related to current year earnings as well as U.S. tax credits
and deductions.

In years 2014 and 2013, this item was negatively impacted by the
$160 million and $222 million, respectively, of non-cash impairments of
Little Sheep goodwill, which resulted in no related tax benefit. See Note 4.

In 2012, this item was positively impacted by a one-time pre-tax gain
of $74 million, with no related income tax expense, recognized on our
acquisition of additional interest in, and consolidation of Little Sheep.
See Note 4.

YUM! BRANDS, INC. - 2014 Form 10-K 63

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PART II
ITEM 8 Financial Statements and Supplementary Data

The details of 2014 and 2013 deferred tax assets (liabilities) are set forth below:

Operating losses and tax credit carryforwards
Employee benefits
Share-based compensation
Self-insured casualty claims
Lease-related liabilities
Various liabilities
Property, plant and equipment
Deferred income and other

Gross deferred tax assets

Deferred tax asset valuation allowances

Net deferred tax assets

Intangible assets, including goodwill
Property, plant and equipment
Other

Gross deferred tax liabilities

Net deferred tax assets (liabilities)

Reported in Consolidated Balance Sheets as:

Deferred income taxes – current
Deferred income taxes – long-term
Accounts payable and other current liabilities
Other liabilities and deferred credits

2014

2013

433
238
119
42
119
73
39
102

1,165
(228)

937

(148)
(63)
(104)

(315)

622

93
571
(2)
(40)

622

310
182
118
48
120
88
42
58

966
(203)

763

$ (233)
(93)
(55)

$ (381)

382

123
399
(2)
(138)

382

We have investments in foreign subsidiaries where the carrying
values for financial reporting exceed the tax basis. We have not
provided deferred tax on the portion of the excess that we believe is
essentially permanent in duration. This amount may become taxable
upon an actual or deemed repatriation of assets from the subsidiaries
or a sale or liquidation of the subsidiaries. We estimate that our total
temporary difference upon which we have not provided deferred tax is
approximately $2.0 billion at December 27, 2014. A determination of
the deferred tax liability on this amount is not practicable.

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Foreign
U.S. state
U.S. federal

13MAR201517272138

We recognize the benefit of positions taken or expected to be taken in
tax returns in the financial statements when it is more likely than not
that the position would be sustained upon examination by tax
authorities. A recognized tax position is measured at the largest
amount of benefit that is greater than fifty percent likely of being
realized upon settlement.

Beginning of Year

Additions on tax positions – current year
Additions for tax positions – prior years
Reductions for tax positions – prior years
Reductions for settlements
Reductions due to statute expiration
Foreign currency translation adjustment

End of Year

At December 27, 2014, the Company has foreign operating and
capital loss carryforwards of $0.7 billion and U.S. state operating loss,
capital loss and tax credit carryforwards of $1.0 billion and U.S. federal
capital loss and tax credit carryforwards of $0.2 billion. These losses
are being carried forward in jurisdictions where we are permitted to
use tax losses from prior periods to reduce future taxable income and
will expire as follows:

Year of Expiration

2015

2016 – 2019

2020 – 2034

Indefinitely

Total

62
18
—

$ 192
90
89

$ 371

96
888
157

$ 324
—
—

674
996
246

1,141

$ 324

1,916

The Company had $115 million and $243 million of unrecognized tax
benefits at December 27, 2014 and December 28, 2013, respectively,
$17 million and $170 million of which, if recognized, would impact the
effective income tax rate. A reconciliation of the beginning and ending
amount of unrecognized tax benefits follows:

2014

243
19
31
(20)
(144)
(13)
(1)

2013

309
19
55
(102)
(23)
(16)
1

115

243

In 2014, the reduction in unrecognized tax benefits is primarily
attributable to the resolution of the dispute with the IRS regarding the
valuation of rights to intangibles transferred to certain foreign

subsidiaries. See discussion below in the Internal Revenue Service
Adjustments for details.

64 YUM! BRANDS, INC. - 2014 Form 10-K

PART II
ITEM 8 Financial Statements and Supplementary Data

The Company believes it is reasonably possible its unrecognized tax
benefits may decrease by approximately $5 million in the next
12 months, including approximately $3 million which, if recognized
upon audit settlement or statute expiration, would affect the 2015
effective tax rate. Each of these positions is individually insignificant.

The Company’s income tax returns are subject to examination in the
U.S. federal jurisdiction and numerous foreign jurisdictions.

The Company has settled audits with the IRS through fiscal year
2008. Our operations in certain foreign jurisdictions remain subject to
examination for tax years as far back as 2004, some of which years
are currently under audit by local tax authorities. In addition, the
Company is subject to various U.S. state income tax examinations, for
which, in the aggregate, we had significant unrecognized tax benefits
at December 27, 2014, each of which is individually insignificant.

The accrued interest and penalties related to income taxes at December 27, 2014 and December 28, 2013 are set forth below:

Accrued interest and penalties

During 2014, 2013 and 2012, a net expense of $11 million, net
expense of $18 million and net benefit of $3 million, respectively, for
interest and penalties was recognized in our Consolidated Statements
of Income as components of its income tax provision.

Internal Revenue Service Adjustments

On June 23, 2010, the Company received a Revenue Agent Report
(‘‘RAR’’) from the Internal Revenue Service (the ‘‘IRS’’) relating to its
examination of our U.S. federal income tax returns for fiscal years
2004 through 2006. The IRS proposed an adjustment to increase the
taxable value of rights to intangibles used outside the U.S. that YUM
transferred to certain of its foreign subsidiaries. On January 9, 2013,

2014

2013

the Company received a RAR from the IRS for fiscal years 2007 and
2008 proposing a similar adjustment. The valuation issue impacted
tax returns for fiscal years 2004 through 2013.

On July 31, 2014, the Company reached a final agreement with the
IRS Appeals Division regarding the valuation issue. As a result of this
agreement, we closed out our 2004 - 2006 and 2007 - 2008 audit
cycles and made cash payments to the IRS of $200 million, which
were effectively fully reserved, to settle all issues for these audit
cycles. The agreement also resolves the valuation issue for all later,
impacted years. While additional cash payments related to the
valuation issue will be required upon the closure of the examinations
of fiscal years 2009 - 2013, the amounts will not be significant.

NOTE 17

Reportable Operating Segments

See Note 1 for a description of our operating segments.

China
KFC Division(a)
Pizza Hut Division(a)
Taco Bell Division(a)
India

China(b)
KFC Division
Pizza Hut Division
Taco Bell Division
India
Unallocated restaurant costs(c)(d)
Unallocated and corporate expenses(c)(e)
Unallocated Closures and impairment expense(c)(f)
Unallocated Other income (expense)(c)(g)
Unallocated Refranchising gain (loss)(c)(m)

Operating Profit
Interest expense, net(c)(h)

Income Before Income Taxes

2014

6,934
3,193
1,148
1,863
141

Revenues

2013

6,905
3,036
1,147
1,869
127

2012

6,898
3,014
1,510
2,109
102

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$ 13,279

$ 13,084

$ 13,633

13MAR201516053226

Operating Profit; Interest Expense, Net;
and Income Before Income Taxes

2014

713
708
295
480
(9)
(1)
(189)
(463)
(10)
33

1,557
(130)

2013

777
649
339
456
(15)
—
(207)
(295)
(6)
100

1,798
(247)

2012

1,015
626
320
435
(1)
16
(271)
—
76
78

2,294
(149)

1,427

1,551

2,145

YUM! BRANDS, INC. - 2014 Form 10-K 65

PART II
ITEM 8 Financial Statements and Supplementary Data

China
KFC Division
Pizza Hut Division
Taco Bell Division
India
Corporate

China(i)
KFC Division(l)
Pizza Hut Division(l)
Taco Bell Division(l)
India
Corporate(j)(l)

China
KFC Division
Pizza Hut Division
Taco Bell Division
India
Corporate

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Depreciation and Amortization

2014

2013

2012

411
187
39
83
10
9

739

394
190
36
84
9
8

721

Capital Spending

2014

2013

525
273
62
143
21
9

568
294
52
100
31
4

337
161
55
98
6
8

665

2012

655
259
52
113
18
2

1,033

1,049

1,099

Identifiable Assets

2014

3,208
2,331
711
1,084
118
893

2013

3,720
2,452
703
1,017
99
704

8,345

8,695

Long-Lived Assets(k)

2014

2,217
1,823
433
920
72
51

2013

2,667
1,930
424
847
66
52

5,516

5,986

13MAR201517272138

respectively.

(a) U.S. revenues included in the combined KFC, Pizza Hut and Taco Bell Divisions totaled $2,959 million, $2,953 million and $3,352 million in 2014, 2013 and 2012,

(b) Includes equity income from investments in unconsolidated affiliates of $30 million, $26 million and $47 million in 2014, 2013 and 2012, respectively.

(d) 2012 includes depreciation reductions arising from the impairments of Pizza Hut UK restaurants we later sold in 2012 of $13 million. See Note 4.

(e) 2013 and 2012 include pension settlement charges of $22 million and $87 million, respectively.

(f) Represents 2014 and 2013 impairment losses related to Little Sheep. See Note 4.

(g) 2012 includes gain upon acquisition of Little Sheep of $74 million. See Note 4.

(h) 2013 includes $118 million of premiums and other costs related to the extinguishment of debt. See Note 4.

(i) China includes investments in 4 unconsolidated affiliates totaling $52 million, $53 million and $72 million for 2014, 2013 and 2012, respectively.

(j) Primarily includes cash, deferred tax assets and property, plant and equipment, net, related to our office facilities.

(k) Includes property, plant and equipment, net, goodwill, and intangible assets, net.

(l) U.S. identifiable assets included in the combined Corporate and KFC, Pizza Hut and Taco Bell Divisions totaled $1,952 million and $2,061 million in 2014 and

2013, respectively.

(m) In 2014, 2013 and 2012, we recorded pre-tax refranchising gains of $6 million, $91 million and $122 million, respectively, in the U.S. The gains in 2013 and 2012

were primarily due to gains on sales of Taco Bell restaurants.

66 YUM! BRANDS, INC. - 2014 Form 10-K

NOTE 18

Contingencies

Lease Guarantees

restaurants

(b) contributed certain Company

As a result of having (a) assigned our interest in obligations under real
estate leases as a condition to the refranchising of certain Company
restaurants;
to
unconsolidated affiliates; and (c) guaranteed certain other leases, we
are frequently contingently liable on lease agreements. These leases
have varying terms, the latest of which expires in 2065. As of
December 27, 2014, the potential amount of undiscounted payments
we could be required to make in the event of non-payment by the
primary lessee was approximately $650 million. The present value of
these potential payments discounted at our pre-tax cost of debt at
December 27, 2014 was approximately $575 million. Our franchisees
are the primary lessees under the vast majority of these leases. We
generally have cross-default provisions with these franchisees that
would put them in default of their franchise agreement in the event of
non-payment under the lease. We believe these cross-default
provisions significantly reduce the risk that we will be required to make
payments under these leases. Accordingly, the liability recorded for
our probable exposure under such leases at December 27, 2014 and
December 28, 2013 was not material.

Franchise Loan Pool and Equipment
Guarantees

We have agreed to provide financial support, if required, to a variable
interest entity that operates a franchisee lending program used
primarily to assist franchisees in the development of new restaurants
or the upgrade of existing restaurants and, to a lesser extent, in
connection with the Company’s refranchising programs in the U.S. We
have determined that we are not required to consolidate this entity as
we share the power to direct this entity’s lending activity with other
parties. We have provided guarantees of 20% of the outstanding
loans of the franchisee loan program. As such, at December 27, 2014

PART II
ITEM 8 Financial Statements and Supplementary Data

our guarantee exposure under this program is approximately
$6 million based on total loans outstanding of $29 million.

In addition to the guarantees described above, YUM has agreed to
provide guarantees of up to approximately $100 million on behalf of
franchisees for several financing programs related to specific
initiatives. At December 27, 2014 our guarantee exposure under
these financing programs is approximately $25 million based on total
loans outstanding of $42 million.

Unconsolidated Affiliates Guarantees

From time to time we have guaranteed certain lines of credit and loans
of unconsolidated affiliates. At December 27, 2014 there are no
for unconsolidated affiliates. Our
guarantees outstanding
unconsolidated affiliates had
total revenues of approximately
$1.1 billion for the year ended December 27, 2014 and assets and
debt of approximately $344 million and $82 million, respectively, at
December 27, 2014.

Insurance Programs

We are self-insured for a substantial portion of our current and prior
years’ coverage including property and casualty losses. To mitigate
the cost of our exposures for certain property and casualty losses, we
self-insure the risks of loss up to defined maximum per occurrence
retentions on a line-by-line basis. The Company then purchases
insurance coverage, up to a certain limit, for losses that exceed the
self-insurance per occurrence retention. The insurers’ maximum
aggregate
limits are significantly above our actuarially
determined probable losses; therefore, we believe the likelihood of
losses exceeding the insurers’ maximum aggregate loss limits is
remote.

loss

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The following table summarizes the 2014 and 2013 activity related to our net self-insured property and casualty reserves as of December 27,
2014.

2014 Activity
2013 Activity

In the U.S. and in certain other countries, we are also self-insured for
healthcare claims and long-term disability for eligible participating
employees subject to certain deductibles and limitations. We have
accounted for our retained liabilities for property and casualty losses,
healthcare and long-term disability claims, including reported and
incurred but not reported claims, based on information provided by
independent actuaries.

Due to the inherent volatility of actuarially determined property and
casualty loss estimates, it is reasonably possible that we could
experience changes in estimated losses which could be material to
our growth in quarterly and annual Net income. We believe that we
have recorded reserves for property and casualty losses at a level
which has substantially mitigated the potential negative impact of
adverse developments and/or volatility.

Beginning Balance

Expense

Payments

Ending Balance

$ 128
$ 142

42
47

(54)
(61)

$ 116
$ 128

Legal Proceedings

We are subject to various claims and contingencies related to
lawsuits, real estate, environmental and other matters arising in the
normal course of business. An accrual is recorded with respect to
claims or contingencies for which a loss is determined to be probable
and reasonably estimable.

In early 2013, four putative class action complaints were filed in the
U.S. District Court for the Central District of California against the
Company and certain executive officers alleging claims under
sections 10(b) and 20(a) of the Securities Exchange Act of 1934.
Plaintiffs alleged that defendants made false and misleading
statements concerning the Company’s current and future business
and financial condition. The four complaints were subsequently
consolidated and transferred to the U.S. District Court for the Western
District of Kentucky. On August 5, 2013, lead plaintiff, Frankfurt Trust
Investment GmbH, filed a Consolidated Class Action Complaint
(‘‘Amended Complaint’’) on behalf of a putative class of all persons

YUM! BRANDS, INC. - 2014 Form 10-K 67

PART II
ITEM 8 Financial Statements and Supplementary Data

who purchased the Company’s stock between February 6, 2012 and
February 4, 2013 (the ‘‘Class Period’’). The Amended Complaint no
longer includes allegations relating to misstatements regarding the
Company’s business or financial condition and instead alleges that,
during the Class Period, defendants purportedly omitted information
about the Company’s supply chain in China, thereby inflating the
prices at which the Company’s securities traded. On October 4, 2013,
the Company and individual defendants filed a motion to dismiss the
Amended Complaint. On December 24, 2014, the District Court
granted that motion to dismiss in its entirety and dismissed the
Amended Complaint with prejudice. On January 16, 2015, lead
plaintiff filed a notice of appeal to the United States Court of Appeal for
the Sixth Circuit. The Company denies liability and intends to
vigorously defend against all claims in the Amended Complaint. A
reasonable estimate of the amount of any possible loss or range of
loss cannot be made at this time.

On January 24, 2013, Bert Bauman, a purported shareholder of the
Company, submitted a letter demanding that the Board of Directors
initiate an investigation of alleged breaches of fiduciary duties by
directors, officers and employees of the Company. The breaches of
fiduciary duties are alleged to have arisen primarily as a result of the
failure to implement proper controls in connection with the Company’s
purchases of poultry from suppliers to the Company’s China
operations. Subsequently, similar demand letters by other purported
shareholders were submitted. Those letters were referred to a special
committee of the Board of Directors (the ‘‘Special Committee’’) for
consideration. The Special Committee, upon conclusion of an
independent
letters,
unanimously determined that it is not in the best interests of the
Company to pursue the claims described in the letters and,
accordingly, rejected each shareholder’s demand.

the matters described

inquiry of

the

On May 9, 2013, Mr. Bauman filed a putative derivative action in
Jefferson Circuit Court, Commonwealth of Kentucky against certain
current and former officers and directors of the Company asserting
breach of fiduciary duty, waste of corporate assets and unjust
enrichment in connection with an alleged failure to implement proper
controls in the Company’s purchases of poultry from suppliers to the
Company’s China operations and with an alleged scheme to mislead
investors about the Company’s growth prospects in China. By
agreement of the parties, the matter is temporarily stayed pending the
appeal of the dismissal of the securities class action. A reasonable
estimate of the amount of any possible loss or range of loss cannot be
made at this time.

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On February 14, 2013, Jennifer Zona, another purported shareholder
of the Company, submitted a demand letter similar to the demand
letters described above. On May 21, 2013, Ms. Zona filed a putative
derivative action in the U.S. District Court for the Western District of
Kentucky against certain officers and directors of the Company
asserting claims similar to those asserted by Mr. Bauman. The case
was subsequently reassigned to the same judge that the securities
class action is before. On October 14, 2013, the Company filed a
motion to dismiss on the basis of the Special Committee’s findings. By
agreement of the parties, the matter is temporarily stayed pending the
appeal of the dismissal of the securities class action. A reasonable
estimate of the amount of any possible loss or range of loss cannot be
made at this time.

On May 17, 2013, Sandra Wollman, another purported shareholder of
the Company, submitted a demand letter similar to the demand letters
described above. On December 9, 2013, Ms. Wollman filed a putative
derivative action in the U.S. District Court for the Western District of
Kentucky against certain current and former officers and directors of
the Company asserting claims similar
those asserted by
Mr. Bauman and Ms. Zona. By agreement of the parties, the matter
was consolidated with the Zona action and is temporarily stayed

68 YUM! BRANDS, INC. - 2014 Form 10-K

pending the appeal of the dismissal of the securities class action. A
reasonable estimate of the amount of any possible loss or range of
loss cannot be made at this time.

Taco Bell was named as a defendant in a number of putative class
action suits filed in 2007, 2008, 2009 and 2010 alleging violations of
California labor laws including unpaid overtime, failure to timely pay
wages on termination, failure to pay accrued vacation wages, failure
to pay minimum wage, denial of meal and rest breaks, improper wage
termination,
statements, unpaid business expenses, wrongful
discrimination, conversion and unfair or unlawful business practices in
violation of California Business & Professions Code §17200. Some
plaintiffs also seek penalties for alleged violations of California’s Labor
Code under California’s Private Attorneys General Act as well as
statutory ‘‘waiting time’’ penalties and allege violations of California’s
Unfair Business Practices Act. Plaintiffs seek to represent a California
state-wide class of hourly employees.

These matters were consolidated, and the consolidated case is styled
In Re Taco Bell Wage and Hour Actions. The In Re Taco Bell Wage
and Hour Actions plaintiffs filed a consolidated complaint in June
2009, and in March 2010 the court approved the parties’ stipulation to
dismiss the Company from the action. Plaintiffs filed their motion for
class certification on the vacation and final pay claims in December
2010, and on September 26, 2011 the court issued its order denying
the certification of the vacation and final pay claims. Plaintiffs then
sought to certify four separate meal and rest break classes. On
January 2, 2013, the court rejected three of the proposed classes but
granted certification with respect to the late meal break class. The
parties thereafter agreed on a list of putative class members, and the
class notice and opportunity to opt out of the litigation were mailed on
January 21, 2014.

Per order of the court, plaintiffs filed a second amended complaint to
clarify the class claims. Plaintiffs also filed a motion for partial
summary judgment. Taco Bell filed motions to strike and to dismiss, as
well as a motion to alter or amend the second amended complaint. On
August 29, 2014, the court denied plaintiffs’ motion for partial
summary judgment. On that same date, the court granted Taco Bell’s
motion to dismiss all but one of the California Private Attorney General
Act claims. On October 29, 2014, plaintiffs filed a motion to amend the
operative complaint and a motion to amend the class certification
order. On December 16, 2014, the court partially granted both
motions, rejecting plaintiffs’ proposed on-duty meal period class but
certifying a limited rest break class and certifying an underpaid meal
premium class, and allowing the plaintiffs to amend the complaint to
reflect those certifications. On December 30, 2014, plaintiffs filed the
third amended complaint. On January 12, 2015, Taco Bell filed a
motion to dismiss or strike the underpaid meal premium class. That
motion is set for hearing on February 25, 2015.

Taco Bell denies liability and intends to vigorously defend against all
claims in this lawsuit. We have provided for a reasonable estimate of
the possible loss relating to this lawsuit. However, in view of the
inherent uncertainties of litigation, there can be no assurance that this
lawsuit will not result in losses in excess of those currently provided for
in our Consolidated Financial Statements. A reasonable estimate of
the amount of any possible loss or range of loss in excess of that
currently provided for in our Consolidated Financial Statements
cannot be made at this time.

On May 16, 2013, a putative class action styled Bernardina Rodriguez
v. Taco Bell Corp. was filed in California Superior Court. The plaintiff
seeks to represent a class of current and former California hourly
restaurant employees alleging various violations of California labor
laws including failure to provide meal and rest periods, failure to pay
hourly wages, failure to provide accurate written wage statements,
failure to timely pay all final wages, and unfair or unlawful business

PART II
ITEM 8 Financial Statements and Supplementary Data

practices in violation of California Business & Professions Code
§17200. This case appears to be duplicative of the In Re Taco Bell
Wage and Hour Actions case described above. Taco Bell removed the
case to federal court and, on June 25, 2013, plaintiff filed a first
amended complaint to include a claim seeking penalties for alleged
violations of California’s Labor Code under California’s Private
Attorneys General Act. Taco Bell’s motion to dismiss or stay the action
in light of the In Re Taco Bell Wage and Hour Actions case was denied
on October 30, 2013. In April 2014 the parties stipulated to address
the sufficiency of plaintiff’s legal theory as to her discount meal break
claim before conducting full discovery. A hearing on the parties’ cross-
summary judgment motions was held on October 22, 2014, and on
October 23, 2014, the court granted Taco Bell’s motion for summary
judgment on the discount meal break claim and denied plaintiff’s
motion. Discovery will continue as to plaintiff’s remaining claims.

Taco Bell denies liability and intends to vigorously defend against all
claims in this lawsuit. A reasonable estimate of the amount of any
possible loss or range of loss cannot be made at this time.

In July 2009, a putative class action styled Mark Smith v. Pizza
Hut, Inc. was filed in the U.S. District Court for the District of Colorado.
The complaint alleged that Pizza Hut did not properly reimburse its
delivery drivers for various automobile costs, uniforms costs, and
other job-related expenses and seeks to represent a class of delivery
drivers nationwide under the Fair Labor Standards Act (FLSA) and
Colorado state law. In January 2010, plaintiffs filed a motion for
conditional certification of a nationwide class of current and former
Pizza Hut, Inc. delivery drivers. However, in March 2010, the court
granted Pizza Hut’s pending motion to dismiss for failure to state a
claim, with leave to amend. Plaintiffs subsequently filed an amended
complaint, which dropped the uniform claims but, in addition to the

federal FLSA claims, asserted state-law class action claims under the
laws of sixteen different states. Pizza Hut filed a motion to dismiss the
amended complaint, and plaintiffs sought leave to amend their
complaint a second time. In August 2010, the court granted plaintiffs’
motion to amend. Pizza Hut filed another motion to dismiss the
Second Amended Complaint. In July 2011, the court granted Pizza
Hut’s motion with respect to plaintiffs’ state law claims but allowed the
FLSA claims to go forward. Plaintiffs filed their Motion for Conditional
Certification in August 2011, and the court granted plaintiffs’ motion in
April 2012. The opt-in period closed on August 23, 2012, and 6,049
individuals opted in. On February 28, 2014, Pizza Hut filed a motion to
decertify the collective action, along with a motion for partial summary
judgment seeking an order from the court that the FLSA does not
require Pizza Hut to reimburse certain fixed costs that delivery drivers
would have incurred regardless of their employment with Pizza Hut.

On September 24, 2014, the parties entered into a Term Sheet setting
forth the terms upon which the parties had agreed to settle this matter.
Pursuant to the parties’ original agreement, one issue, the mileage of
an average round trip, remained outstanding and was to be submitted
for arbitration. The parties have instead negotiated a final settlement,
inclusive of that issue and without any contingencies. The proposed
settlement amount has been accrued in our Consolidated Financial
Statements, and the associated cash payments will not be material.

We are engaged in various other legal proceedings and have certain
unresolved claims pending, the ultimate liability for which, if any,
cannot be determined at this time. However, based upon consultation
with legal counsel, we are of the opinion that such proceedings and
claims are not expected to have a material adverse effect, individually
or in the aggregate, on our Consolidated Financial Statements.

NOTE 19

Selected Quarterly Financial Data (Unaudited)

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Total

2014

Revenues:

Company sales
Franchise and license fees and income

Total revenues
Restaurant profit
Operating Profit(a)
Net Income – YUM! Brands, Inc.
Basic earnings per common share
Diluted earnings per common share
Dividends declared per common share

2,292
432

2,724
441
571
399
0.89
0.87
0.37

2,758
446

3,204
428
479
334
0.75
0.73
0.37

2,891
463

3,354
429
550
404
0.91
0.89
—

2013

3,383
614

3,997
344
(43)
(86)
(0.20)
(0.20)
0.82

$ 11,324
1,955

13,279
1,642
1,557
1,051
2.37
2.32
1.56

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First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Total

Revenues:

Company sales
Franchise and license fees and income

Total revenues
Restaurant profit
Operating Profit(b)
Net Income – YUM! Brands, Inc.(c)
Basic earnings per common share
Diluted earnings per common share
Dividends declared per common share

2,099
436

2,535
333
487
337
0.74
0.72
0.335

2,474
430

2,904
310
390
281
0.62
0.61
0.335

3,021
445

3,466
531
350
152
0.34
0.33
—

3,590
589

4,179
509
571
321
0.72
0.70
0.74

$ 11,184
1,900

13,084
1,683
1,798
1,091
2.41
2.36
1.41

(a) Includes a non-cash charge of $463 million in the fourth quarter related primarily to the impairment of Little Sheep intangible assets. See Note 4.

(b) Includes a non-cash charge of $295 million in the third quarter related primarily to the impairment of Little Sheep intangible assets and net U.S. refranchising gains

of $17 million, $28 million, $37 million and $9 million in the first, second, third and fourth quarters, respectively. See Note 4.

(c) Includes an after-tax charge of $75 million in the fourth quarter related to the repurchase of Senior Unsecured Notes. See Note 4.

YUM! BRANDS, INC. - 2014 Form 10-K 69

PART II

ITEM 9

None.

Changes In and Disagreements with
Accountants on Accounting and
Financial Disclosure

ITEM 9A

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company has evaluated the effectiveness of the design and
operation of its disclosure controls and procedures pursuant to
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934 as of the end of the period covered by this report. Based on the
evaluation, performed under the supervision and with the participation

of the Company’s management, including the Chief Executive Officer
(the ‘‘CEO’’) and the Chief Financial Officer (the ‘‘CFO’’), the
Company’s management, including the CEO and CFO, concluded
that the Company’s disclosure controls and procedures were effective
as of the end of the period covered by this report.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term is
defined in Rules 13a-15(f) under the Securities Exchange Act of 1934.
Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer,
we conducted an evaluation of the effectiveness of our internal control
over financial reporting based on the framework in Internal Control –
Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on our evaluation

under the framework in Internal Control – Integrated Framework
(2013), our management concluded that our internal control over
financial reporting was effective as of December 27, 2014.

KPMG LLP, an independent registered public accounting firm, has
audited the Consolidated Financial Statements included in this Annual
Report on Form 10-K and the effectiveness of our internal control over
financial reporting and has issued their report, included herein.

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Changes in Internal Control

There were no changes with respect to the Company’s internal control over financial reporting or in other factors that materially affected, or are
reasonably likely to materially affect, internal control over financial reporting during the quarter ended December 27, 2014.

ITEM 9B

Other Information

None.

70 YUM! BRANDS, INC. - 2014 Form 10-K

PART III

ITEM 10

Directors, Executive Officers and Corporate Governance

Information regarding Section 16(a) compliance, the Audit Committee and the Audit Committee financial expert, the Company’s code of ethics
and background of the directors appearing under the captions ‘‘Stock Ownership Information,’’ ‘‘Governance of the Company,’’ ‘‘Executive
Compensation’’ and ‘‘Item 1: Election of Directors and Director biographies’’ is incorporated by reference from the Company’s definitive proxy
statement which will be filed with the Securities and Exchange Commission no later than 120 days after December 27, 2014.

Information regarding executive officers of the Company is included in Part I.

ITEM 11

Executive Compensation

Information regarding executive and director compensation and the Compensation Committee appearing under the captions ‘‘Governance of the
Company’’ and ‘‘Executive Compensation’’ is incorporated by reference from the Company’s definitive proxy statement which will be filed with the
Securities and Exchange Commission no later than 120 days after December 27, 2014.

ITEM 12

Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters

Information regarding equity compensation plans and security ownership of certain beneficial owners and management appearing under the
captions ‘‘Executive Compensation’’ and ‘‘Stock Ownership Information’’ is incorporated by reference from the Company’s definitive proxy
statement which will be filed with the Securities and Exchange Commission no later than 120 days after December 27, 2014.

ITEM 13

Certain Relationships and Related Transactions, and Director
Independence

Information regarding certain relationships and related transactions and information regarding director independence appearing under the
caption ‘‘Governance of the Company’’ is incorporated by reference from the Company’s definitive proxy statement which will be filed with the
Securities and Exchange Commission no later than 120 days after December 27, 2014.

ITEM 14

Principal Accountant Fees and Services

Information regarding principal accountant fees and services and audit committee pre-approval policies and procedures appearing under the
caption ‘‘Item 2: Ratification of Independent Auditors’’ is incorporated by reference from the Company’s definitive proxy statement which will be
filed with the Securities and Exchange Commission no later than 120 days after December 27, 2014.

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PART IV

ITEM 15

Exhibits and Financial Statement Schedules

(a)

(1) Financial Statements: Consolidated Financial Statements filed as part of this report are listed under Part II, Item 8 of this

Form 10-K.

(2) Financial Statement Schedules: No schedules are required because either the required information is not present or not

present in amounts sufficient to require submission of the schedule, or because the information required is included in the
Consolidated Financial Statements thereto filed as a part of this Form 10-K.

(3) Exhibits: The exhibits listed in the accompanying Exhibit Index are filed as part of this Form 10-K. The Index to Exhibits

specifically identifies each management contract or compensatory plan required to be filed as an exhibit to this Form 10-K.

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PART IV
ITEM 15 Exhibits and Financial Statement Schedules

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Form 10-K annual
report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date:

February 17, 2015

YUM! BRANDS, INC.
By:

/s/GREG CREED

Pursuant to the requirements of the Securities Exchange Act of 1934, this annual report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.

Signature

Title

Executive Chairman

Date

February 17, 2015

Chief Executive Officer (principal executive officer)

February 17, 2015

Chief Financial Officer (principal financial officer)

February 17, 2015

Vice President, Finance and Corporate Controller (principal accounting officer)

February 17, 2015

/s/DAVID C. NOVAK
David C. Novak

/s/GREG CREED
Greg Creed

/s/PATRICK J. GRISMER
Patrick J. Grismer

/s/DAVID E. RUSSELL
David E. Russell

/s/MICHAEL J. CAVANAGH
Michael J. Cavanagh

/s/DAVID W. DORMAN
David W. Dorman

/s/MASSIMO FERRAGAMO
Massimo Ferragamo

/s/MIRIAN GRADDICK-WEIR
Mirian Graddick-Weir

/s/BONNIE G. HILL
Bonnie G. Hill

/s/JONATHAN S. LINEN
Jonathan S. Linen

/s/THOMAS C. NELSON
Thomas C. Nelson

/s/THOMAS M. RYAN
Thomas M. Ryan

/s/ELANE STOCK
Elane Stock

/s/JING-SHYH S. SU
Jing-Shyh S. Su

/s/ROBERT D. WALTER
Robert D. Walter

Director

Vice-Chairman of the Board

February 17, 2015

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YUM! BRANDS, INC. - 2014 Form 10-K 73

PART IV
ITEM 15 Exhibits and Financial Statement Schedules

YUM! Brands, Inc.
Exhibit Index (Item 15)

Exhibit
Number

Description of Exhibits

3.1

3.2

4.1

10.1 +

10.2

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10.3†

10.3.1†

10.4†

10.5†

10.6†

10.6.1†

10.7†

Restated Articles of Incorporation of YUM, effective May 26, 2011, which is incorporated herein by reference from
Exhibit 3.1 to YUM’s Report on Form 8-K filed on May 31, 2011.
Amended and restated Bylaws of YUM, effective May 1, 2014, which are incorporated herein by reference from Exhibit 3.1
to YUM’s Report on Form 8-K filed on May 6, 2014.
Indenture, dated as of May 1, 1998, between YUM and The Bank of New York Mellon Trust Company, N.A., successor in
interest to The First National Bank of Chicago, which is incorporated herein by reference from Exhibit 4.1 to YUM’s Report
on Form 8-K filed on May 13, 1998.
(i)

6.25% Senior Notes due April 15, 2016 issued under the foregoing May 1, 1998 indenture, which notes are incorporated by
reference from Exhibit 4.2 to YUM’s Report on Form 8-K filed on April 17, 2006.

(ii) 6.25% Senior Notes due March 15, 2018 issued under the foregoing May 1, 1998 indenture, which notes are incorporated by

reference from Exhibit 4.2 to YUM’s Report on Form 8-K filed on October 22, 2007.

(iii) 6.875% Senior Notes due November 15, 2037 issued under the foregoing May 1, 1998 indenture, which notes are

incorporated by reference from Exhibit 4.3 to YUM’s Report on Form 8-K filed on October 22, 2007.

(iv) 4.25% Senior Notes due September 15, 2015 issued under the foregoing May 1, 1998 indenture, which notes are

incorporated by reference from Exhibit 4.1 to YUM’s Report on Form 8-K filed on August 25, 2009.

(v) 5.30% Senior Notes due September 15, 2019 issued under the foregoing May 1, 1998 indenture, which notes are

incorporated by reference from Exhibit 4.1 to YUM’s Report on Form 8-K filed on August 25, 2009.

(vi) 3.875% Senior Notes due November 1, 2020 issued under the foregoing May 1, 1998 indenture, which notes are

incorporated by reference from Exhibit 4.2 to YUM’s Report on Form 8-K filed on August 31, 2010.

(vii) 3.750% Senior Notes due November 1, 2021 issued under the foregoing May 1, 1998 indenture, which notes are

incorporated by reference from Exhibit 4.2 to YUM’s Report on Form 8-K filed August 29, 2011.

(viii) 3.875% Senior Notes due November 1, 2023 issued under the foregoing May 1, 1998 indenture, which notes are

incorporated by reference from Exhibit 4.2 to YUM’s Report on Form 8-K filed October 31, 2013.

(ix) 5.350% Senior Notes due November 1, 2043 issued under the foregoing May 1, 1998 indenture, which notes are

incorporated by reference from Exhibit 4.3 to YUM’s Report on Form 8-K filed October 31, 2013.

Master Distribution Agreement between Unified Foodservice Purchasing Co-op, LLC, for and on behalf of itself as well as
the Participants, as defined therein (including certain subsidiaries of Yum! Brands, Inc.) and McLane Foodservice, Inc.,
effective as of January 1, 2011 and Participant Distribution Joinder Agreement between Unified Foodservice Purchasing
Co-op, LLC, McLane Foodservice, Inc., and certain subsidiaries of Yum! Brands, Inc., which are incorporated herein by
reference from Exhibit 10.1 to YUM’s Quarterly Report on Form 10-Q for the quarter ended September 4, 2010.
Credit Agreement, dated March 22, 2012 among YUM, the lenders party thereto, JPMorgan Chase Bank, N.A., as
Administrative Agent, Citibank, N.A. and Wells Fargo Bank, National Association, as Syndication Agents, J.P. Morgan
Securities LLC, Citigroup Global Markets Inc. and Wells Fargo Securities, LLC, as Lead Arrangers and Bookrunners and
HSBC Bank USA, National Association, US Bank, National Association and Fifth Third Bank, as Documentation Agents,
which is incorporated herein by reference from Exhibit 10.26 to YUM’s Quarterly Report on Form 10-Q for quarter ended
March 24, 2012.
YUM Director Deferred Compensation Plan, as effective October 7, 1997, which is incorporated herein by reference from
Exhibit 10.7 to YUM’s Annual Report on Form 10-K for the fiscal year ended December 27, 1997.
YUM Director Deferred Compensation Plan, Plan Document for the 409A Program, as effective January 1, 2005, and as
Amended through November 14, 2008, which is incorporated by reference from Exhibit 10.7.1 to YUM’s Quarterly Report on
Form 10-Q for the quarter ended June 13, 2009.
YUM 1997 Long Term Incentive Plan, as effective October 7, 1997, which is incorporated herein by reference from
Exhibit 10.8 to YUM’s Annual Report on Form 10-K for the fiscal year ended December 27, 1997.
YUM Executive Incentive Compensation Plan, as effective May 20, 2004, and as Amended through the Second
Amendment, as effective May 21, 2009, which is incorporated herein by reference from Exhibit A of YUM’s Definitive Proxy
Statement on Form DEF 14A for the Annual Meeting of Shareholders held on May 21, 2009.
YUM Executive Income Deferral Program, as effective October 7, 1997, and as amended through May 16, 2002, which is
incorporated herein by reference from Exhibit 10.10 to YUM’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2005.
YUM! Brands Executive Income Deferral Program, Plan Document for the 409A Program, as effective January 1, 2005, and
as Amended through June 30, 2009, which is incorporated by reference from Exhibit 10.10.1 to YUM’s Quarterly Report on
Form 10-Q for the quarter ended June 13, 2009.
YUM! Brands Pension Equalization Plan, Plan Document for the Pre-409A Program, as effective January 1, 2005, and as
Amended through December 31, 2010, which is incorporated by reference from Exhibit 10.7 to Yum’s Quarterly Report on
Form 10-Q for the quarter ended March 19, 2011.

74 YUM! BRANDS, INC. - 2014 Form 10-K

PART IV
ITEM 15 Exhibits and Financial Statement Schedules

Exhibit
Number
10.7.1†

10.7.2†

10.7.3†

10.8†

10.9†

10.10†

10.11

10.12†

10.13†

10.14†

10.15†

10.15.1†

10.15.2†
10.16†

10.17†

10.18†

10.18.1†

10.18.2†
10.20†

10.20.1†

10.21†

10.22†

10.23†

10.24†

10.25†

10.27†

10.28†
12.1
21.1
23.1
31.1

Description of Exhibits
YUM! Brands, Inc. Pension Equalization Plan, Plan Document for the 409A Program, as effective January 1, 2005, and as
Amended through December 30, 2008, which is incorporated by reference from Exhibit 10.13.1 to YUM’s Quarterly Report
on Form 10-Q for the quarter ended June 13, 2009.
YUM! Brands Pension Equalization Plan Amendment, as effective January 1, 2012, which is incorporated by reference from
Exhibit 10.7.2 to Yum’s Quarterly Report on Form 10-Q for the quarter ended March 23, 2013.
YUM! Brands Pension Equalization Plan Amendment, as effective January 1, 2013, which is incorporated by reference from
Exhibit 10.7.3 to Yum’s Quarterly Report on Form 10-Q for the quarter ended March 23, 2013.
Form of Directors’ Indemnification Agreement, which is incorporated herein by reference from Exhibit 10.17 to YUM’s
Annual Report on Form 10-K for the fiscal year ended December 27, 1997.
Form of YUM! Brands, Inc. Change in Control Severance Agreement, which is incorporated herein by reference from
Exhibit 10.1 to Yum’s Report on Form 8-K filed on March 21, 2013.
YUM Long Term Incentive Plan, as Amended through the Fourth Amendment, as effective November 21, 2008, which is
incorporated by reference from Exhibit 10.18 to YUM’s Quarterly Report on Form 10-Q for the quarter ended June 13, 2009.
Second Amended and Restated YUM Purchasing Co-op Agreement, dated as of January 1, 2012, between YUM and the
Unified Foodservice Purchasing Co-op, LLC, which is incorporated herein by reference from Exhibit 10.11 to YUM’s Annual
Report on Form 10-K for the fiscal year ended December 31, 2011.
YUM Restaurant General Manager Stock Option Plan, as effective April 1, 1999, and as amended through June 23, 2003,
which is incorporated herein by reference from Exhibit 10.22 to YUM’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2005.
YUM SharePower Plan, as effective October 7, 1997, and as amended through June 23, 2003, which is incorporated herein
by reference from Exhibit 10.23 to YUM’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005.
Form of YUM Director Stock Option Award Agreement, which is incorporated herein by reference from Exhibit 10.25 to
YUM’s Quarterly Report on Form 10-Q for the quarter ended September 4, 2004.
Form of YUM 1999 Long Term Incentive Plan Award Agreement, which is incorporated herein by reference from
Exhibit 10.26 to YUM’s Quarterly Report on Form 10-Q for the quarter ended September 4, 2004.
Form of YUM 1999 Long Term Incentive Plan Award Agreement (2013) (Stock Options), as incorporated by reference from
Exhibit 10.15.1 to YUM’s Quarterly Report on Form 10-Q for the quarter ended March 23, 2013.
Form of YUM 1999 Long Term Incentive Plan Award Agreement (2015) (Stock Options), as filed herewith.
YUM! Brands, Inc. International Retirement Plan, as in effect January 1, 2005, which is incorporated herein by reference
from Exhibit 10.27 to YUM’s Annual Report on Form 10-K for the fiscal year ended December 25, 2004.
Letter of Understanding, dated July 13, 2004, and as amended on May 18, 2011, by and between the Company and
Samuel Su, which is incorporated herein by reference from Exhibit 10.28 to YUM’s Annual Report on Form 10-K for the
fiscal year ended December 25, 2004, and from Item 5.02 of Form 8-K on May 24, 2011.
Form of 1999 Long Term Incentive Plan Award Agreement (Stock Appreciation Rights) which is incorporated by reference
from Exhibit 99.1 to YUM’s Report on Form 8-K as filed on January 30, 2006.
Form of YUM 1999 Long Term Incentive Plan Award Agreement (2013) (Stock Appreciation Rights), which is incorporated
by reference from Exhibit 10.18.1 to YUM’s Quarterly Report on Form 10-Q for the quarter ended March 23, 2013.
Form of YUM 1999 Long Term Incentive Plan Award Agreement (2015) (Stock Appreciation Rights), as filed herewith.
YUM! Brands Leadership Retirement Plan, as in effect January 1, 2005, which is incorporated herein by reference from
Exhibit 10.32 to YUM’s Quarterly Report on Form 10-Q for the quarter ended March 24, 2007.
YUM! Brands Leadership Retirement Plan, Plan Document for the 409A Program, as effective January 1, 2005, and as
Amended through December, 2009, which is incorporated by reference from Exhibit 10.21.1 to YUM’s Annual Report on
Form 10-K for the fiscal year ended December 26, 2009.
1999 Long Term Incentive Plan Award (Restricted Stock Unit Agreement) by and between the Company and David C.
Novak, dated as of January 24, 2008, which is incorporated herein by reference from Exhibit 10.33 to YUM’s Annual Report
on Form 10-K for the fiscal year ended December 29, 2007.
YUM! Performance Share Plan, as effective January 1, 2009, which is incorporated by reference from Exhibit 10.24 to
YUM’s Annual Report on Form 10-K for the fiscal year ended December 26, 2009.
YUM! Brands Third Country National Retirement Plan, as effective January 1, 2009, which is incorporated by reference from
Exhibit 10.25 to YUM’s Annual Report on Form 10-K for the fiscal year ended December 26, 2009.
2010 YUM! Brands Supplemental Long Term Disability Coverage Summary, as effective January 1, 2010, which is
incorporated by reference from Exhibit 10.26 to YUM’s Annual Report on Form 10-K for the fiscal year ended December 26,
2009.
1999 Long Term Incentive Plan Award (Restricted Stock Unit Agreement) by and between the Company and Jing-Shyh S.
Su, dated as of May 20, 2010, which is incorporated by reference from Exhibit 10.27 to YUM’s Annual Report on Form 10-K
for the fiscal year ended December 25, 2010.
1999 Long Term Incentive Plan Award (Stock Appreciation Rights) by and between the Company and David C. Novak,
dated as of February 6, 2015, as filed herewith.
YUM! Brands, Inc. Compensation Recovery Policy, Amended and Restated January 1, 2015, as filed herewith.
Computation of ratio of earnings to fixed charges.
Active Subsidiaries of YUM.
Consent of KPMG LLP.
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

YUM! BRANDS, INC. - 2014 Form 10-K 75

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PART IV
ITEM 15 Exhibits and Financial Statement Schedules

Exhibit
Number

31.2

32.1

32.2

101.INS
101.SCH
101.CAL
101.LAB
101.PRE
101.DEF

Description of Exhibits

Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document

+ Confidential treatment has been granted for certain portions which are omitted in the copy of the exhibit electronically filed with the SEC. The omitted information

has been filed separately with the SEC pursuant to our application for confidential treatment.

†

Indicates a management contract or compensatory plan.

K
-
0
1
m
r
o
F

13MAR201517272138

76 YUM! BRANDS, INC. - 2014 Form 10-K

Shareholder Information

Inquiries Regarding Your YUM Holdings

REGISTERED SHAREHOLDERS (those who hold YUM
shares in their own names) should address communications
concerning statements, address changes, lost certificates and
other administrative matters to:

BENEFICIAL SHAREHOLDERS (those who hold YUM shares
in the name of a bank or broker) should direct communications
about all administrative matters related to their accounts to their
stockbroker.

(employees with

LONG TERM INCENTIVE PLAN (LTIP) AND YUMBUCKS
PARTICIPANTS
to LTIP and
YUMBUCKS stock options and stock appreciation rights)
should address all questions regarding
their accounts,
outstanding stock options/stock appreciation rights or shares
right
received
exercises to:

through stock option/stock appreciation

rights

Merrill Lynch
Equity Award Services
1400 Merrill Lynch Drive
Mail Stop # NJ2-140-03-40
Pennington, NJ 08534
Phone: (888) 986-4321 (U.S., Puerto Rico and Canada)
(609) 818-8156 (all other locations)

In all correspondence, please provide the last 4 digits of your
account number, your address, your telephone number and
indicate that your inquiry relates to YUM holdings. For
telephone inquiries, please have a copy of your most recent
statement available.

EMPLOYEE BENEFIT PLAN PARTICIPANTS
Capital Stock Purchase Program (888) 439-4986

YUM Savings Center (888) 875-4015
YUM Savings Center (904) 791-2005 (outside U.S.)

P.O. Box 5166
Boston, MA 02206-5166

Please have a copy of your most recent statement available
when calling. Press 0#0# for a customer service representative
and give the representative the name of the plan.

American Stock Transfer & Trust Company, LLC
6201 15th Avenue
Brooklyn, NY 11219
Phone: (888) 439-4986
International: (718) 921-8124
www.amstock.com
or
Shareholder Coordinator
Yum! Brands, Inc.
1441 Gardiner Lane
Louisville, KY 40213
Phone: (888) 298-6986
E-mail: yum.investor@yum.com

In all correspondence or phone inquiries, please provide your
name and your YUM account number if you know it.

REGISTERED SHAREHOLDERS can access their accounts
and complete the following functions online at the website of
American Stock Transfer & Trust Company, LLC (‘‘AST’’):
www.amstock.com.

• Access account balance and other general account

information

• Change an account’s mailing address
• View a detailed list of holdings represented by certificates

and the identifying certificate numbers

• Request a certificate for shares held at AST
• Replace a lost or stolen certificate
• Retrieve a duplicate Form 1099-B
• Purchase shares of YUM through the Company’s Direct

Stock Purchase Plan
• Sell shares held at AST

Access accounts online at the following URL:

https://secure.amstock.com/Shareholder/sh_login.asp. Your
account number and social security number are required. If you
do not know your account number, please call AST at
(888) 439-4986 or YUM Shareholder Coordinator at
(888) 298-6986.

INDEPENDENT AUDITORS

KPMG LLP
400 West Market Street, Suite 2600
Louisville, KY 40202
Phone: (502) 587-0535

STOCK TRADING SYMBOL-YUM

The New York Stock Exchange is the principal market for
YUM Common Stock, which trades under the symbol YUM.

19MAR201018500758

Shareholder Services

DIRECT STOCK PURCHASE PLAN A prospectus and a
brochure explaining this convenient plan are available from our
transfer agent:

American Stock Transfer & Trust Company, LLC
P.O. Box 922
Wall Street Station
New York, NY 10269-0560
Attn: Plan Administration Dept.
Phone: (888) 439-4986

FINANCIAL AND OTHER INFORMATION
Securities analysts, portfolio managers, representatives of
financial institutions and other individuals with questions
regarding YUM’s performance are invited to contact:

Steve Schmitt
Vice President, Investor Relations &
Corporate Strategy
Yum! Brands, Inc.
1441 Gardiner Lane
Louisville, KY 40213
Phone: (888) 298-6986

Franchise Inquiries

ONLINE FRANCHISE INFORMATION
Information about potential franchise opportunities is available
at www.yumfranchises.com

YUM’s Annual Report contains many of
the valuable
trademarks owned and used by YUM and its subsidiaries and
affiliates in the United States and worldwide.

BOARD OF DIRECTORS

David C. Novak 62
Executive Chairman,
Yum! Brands, Inc.

Greg Creed 57
Chief Executive Officer,
Yum! Brands, Inc.

SENIOR OFFICERS

David C. Novak 62
Executive Chairman,
Yum! Brands, Inc.

Greg Creed 57
Chief Executive Officer,
Yum! Brands, Inc.

Jing-Shyh S. (‘‘Sam’’) Su 62
Vice Chairman, Yum! Brands, Inc.
Chairman and Chief Executive Officer,
Yum! Restaurants China

Michael J. Cavanagh 49
Co-President and Co-Chief Operating Officer,
The Carlyle Group

Jonathan D. Blum 56
Senior Vice President, Chief Public Affairs and
Global Nutrition Officer, Yum! Brands, Inc.

David W. Dorman 61
Non-Executive Chairman,
CVS Health Corporation

Massimo Ferragamo 57
Chairman, Ferragamo USA, Inc.,
a subsidiary of Salvatore Ferragamo Italia

Mirian M. Graddick-Weir 60
Executive Vice President Human Resources,
Merck & Co., Inc.

Bonnie G. Hill 73
President, B. Hill Enterprises LLC

Anne P. Byerlein 56
Chief People Officer, Yum! Brands, Inc.

Christian L. Campbell 64
Senior Vice President, General Counsel,
Secretary and Chief Franchise Policy Officer,
Yum! Brands, Inc.

Niren Chaudhary 52
President, Yum! Restaurants India

Roger Eaton 54
President, KFC and Chief Operations Officer,
Yum! Brands, Inc.

Jonathan S. Linen 71
Advisor to Chairman, American Express Company

Larry Gathof 53
Vice President and Treasurer, Yum! Brands, Inc.

Thomas C. Nelson 52
Chairman, Chief Executive Officer and President,
National Gypsum Company

Thomas M. Ryan 62
Former Chairman and CEO,
CVS Health Corporation

Elane B. Stock 50
Group President,
Kimberly-Clark International

Robert D. Walter 69
Founder and Retired Chairman/CEO,
Cardinal Health, Inc.

David Gibbs 51
Chief Executive Officer, Pizza Hut

Patrick Grismer 53
Chief Financial Officer,
Yum! Brands, Inc.

Brian Niccol 40
Chief Executive Officer, Taco Bell

Muktesh (‘‘Micky’’) Pant 60
Chief Executive Officer, KFC

David E. Russell 45
Vice President, Finance and Corporate Controller,
Yum! Brands, Inc.

FINANCIAL HIGHLIGHTS

(In millions, except for per share amounts)
Year-end

Company sales

Franchise and license fees and income

Total revenues

Operating Profit

Net Income – Yum! Brands, Inc.

2014

$ 11,324

1,955

$ 13,279

$ 1,557

1,051

Diluted Earnings Per Common Share before Special Items (a) $ 3.09

Special Items Earnings Per Common Share (a)

Reported Diluted Earnings Per Common Share

Cash Flows Provided by Operating Activities

(0.77)

$ 2.32

$ 2,049

(a) See our 2014 Form 10-K for further discussion of Special Items.

2013

% B/(W) change

$ 11,184

1,900

$ 13,084

1,798

1,091

$ 2.97

(0.61)

$ 2.36

$ 2,139

(13)

(4)

(2)

(4)

ABOUT THE PAPER USED FOR THIS REPORT

The inks used in the printing of this report contain an average of 25% - 35% vegetable oils from plant
derivatives, a renewable resource. They replace petroleum based inks as an effort to also reduce
volatile organic compounds (VOCs).

The cover and first 16 pages of this report were printed using FSC-certified paper made with 50%
recycled content including 24% post-consumer waste.

www.yum.com/annualreport

ALONE WE’RE DELICIOUS.
TOGETHER WE’RE YUM!

Yum! Brands, Inc., trades under the symbol YUM and is proud to meet the

listing requirements of the NYSE, the world’s leading equities market.