Yum! Brands

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A WORLD OF 
OPPORTUNITIES

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.

YUM! BRANDS 2018 ANNUAL REPORT

 
 
 
FINANCIAL HIGHLIGHTS 

(In millions, except for per share amounts)
Year-end 

Company sales 

Franchise and property revenues 

Franchise contributions for advertising and other services 

Total revenues 

Operating Profit 

Net Income 

Reported Diluted Earnings Per Common Share from Continuing Operations 

Special Items Diluted Earnings Per Common Share (a) 

Diluted Earnings Per Common Share from Continuing Operations before Special Items (a) 

Net Cash Provided by Operating Activities from Continuing Operations 

(a) See our 2018 Form 10-K for further discussion of Special Items.

2018

$  2,000

  2,482 

1,206

$  5,688

$  2,296

 $  1,542

$ 

4.69 

1.52

$ 

3.17 

 $  1,176 

 2017 

$  3,572  

2,306  

–  

$  5,878 

$  2,761  

 $  1,340  

$  3.77 

0.81 

 $  2.96 

$  1,030 

% B/(W) change 

 (44)

 8

NM

(3)

(17)

15

24

NM

7

14

investors.yum.com/annualreport

 
Greg Creed,  
Chief Executive Officer 
Yum! Brands Inc.

TRANSFORMATION JOURNEY NEARLY COMPLETE 
AND A WORLD OF 
OPPORTUNITIES FOR YUM!

Dear Fellow Stakeholders:
2018 was another year of celebrating and achieving milestones. 

Our diverse portfolio of iconic brands generated over $49 billion in 
system sales and ended the year with over 48,000 global restaurants. 
Combined across our brands and led by over 2,000 world-class 
franchisees, we opened a record of eight gross new restaurants per 
day. Additionally, we made significant progress on our transformation 
commitments, having achieved our goal of becoming at least 98 percent 
franchised. Focus on our growth drivers, increased collaboration and a 
new mindset are clearly fueling improved results. 

Our four growth drivers are the foundation on which our sustainable, 
long-term results are being built. These growth capabilities, outlined 
below, are the key drivers of same-store sales and net-new unit growth 
and serve as our guiding principles in all business decisions.

1.  Distinctive, Relevant & Easy Brands. We will innovate and elevate 

iconic restaurant brands people trust and champion.

2.  Unmatched Franchise Operating Capability. We will recruit and 
equip the best restaurant operators in the world to deliver great 
customer experiences using our 3C approach. This includes partners 
who are Committed to providing consistently bold value and brand 
strategy. These partners are also Capable to deliver a great customer 
experience and operational standards. And finally, our partners have 
Capital — both to grow new units and modernize existing assets.

3.  Bold Restaurant Development. We will drive market and franchise unit 

expansion with strong economics and attractive returns.

4.  Unrivaled Culture & Talent. We will leverage culture and people 
capability to fuel brand performance and franchisee success.

I firmly believe our culture is a competitive advantage for Yum!. With 
culture as the driving force behind our results, I’m pleased to share the 
following highlights from 2018:

 n Worldwide system sales growth of 5 percent, led by 6 percent 
growth at KFC, 6 percent at Taco Bell and 1 percent at Pizza Hut

 n Same-store sales growth of 2 percent, led by 4 percent growth at 
Taco Bell and followed by 2 percent at KFC with Pizza Hut even for 
the year

 n Net-new unit growth of 7 percent, including 3,021 gross unit 

openings, which is 389 more openings than in 2017, and the addition 
of 1,282 Telepizza units

 n Ended the year with over 48,000 global restaurants in approximately 

270 brand-country combinations 

 n Achieved our goal of becoming at least 98 percent franchised, with 

856 company units by the end of 2018

 n Core operating profit growth flat and in line with expectations

 n Returned $2.4 billion of capital to shareholders through share repurchases and 

dividends

Our iconic brands continue to focus on our four key growth drivers, which are the 
catalysts behind our successful results.

KFC is “Finger Lickin’ Good.” KFC continued to bolster its “Always Original” brand 
positioning and beloved core menu items with innovative new products such as the 
Dunked Burger and Chicken & Waffles. KFC remains dedicated to making the brand 
R.E.D., relevant, easy and distinctive, by investing in innovation, technology and 
enhanced asset formats. 

Pizza Hut celebrated its 60th birthday in 2018 by reaching a milestone of over 18,000 
restaurants worldwide, all while continuing its commitment to ensuring every customer 
has a Hot, Fast and Reliable experience around the globe. In the U.S., Pizza Hut became 
the official sponsor of the NFL and kicked off the $5 Lineup with intense focus on value. 
Internationally, the brand continued to lay the foundation for an off-premise centric 
business with the Telepizza alliance paving the way. 

Taco Bell is truly a “Category of One” for everyone. 2018 was the brand’s seventh 
consecutive year of positive same-store sales growth, a testament to the strength of 
the leadership team and the partnership with franchisees. In addition to a relentless 
commitment to value and innovation for which Taco Bell is known, I am particularly 
excited that in 2019, Taco Bell delivery will be available in over 4,000 restaurants across 
the U.S. through our strategic partnership with Grubhub. 

Overall, 2018 showcased the benefits of the Yum! system. We leveraged our scale and 
expanded our capabilities to improve unit level economics. First, we entered into the U.S. 
strategic partnership with Grubhub to provide a world-class delivery experience to both 
our customers and franchisees. Second, we closed on a strategic growth alliance with 
Telepizza. This landmark deal places Pizza Hut in the no.1 category position across Latin 
America and Iberia in terms of unit count and provides a pipeline for future accelerated 
growth. Third, we acquired QuikOrder, our third-party online ordering service provider 
for Pizza Hut in the U.S. Running our own e-commerce platform will enable us to more 
quickly provide breakthrough products and convenient services to our customers that 
will allow for better franchise economics over the long term. 

In 2018, we also sharpened our Global Citizenship & Sustainability Strategy and 
launched our first investor-grade sustainability report called our Recipe for Good. This 
work unites our system and keeps our employees, franchisees and suppliers focused on 
socially and environmentally responsible growth. 

In closing, I am very proud of what we have been able to accomplish in just two short 
years since we announced the transformation of Yum!. We made significant progress on 
all our 2016 transformation goals, including completing our refranchising program. We 
closed creative and transformative deals to drive profitable system sales growth for our 
franchisees for years to come. We achieved healthy same-store and system sales growth 
with improvement throughout the year. Heading into 2019, our commitment to being 
more focused, more franchised and more efficient continues to strengthen our enviable 
business model. We are confident Yum! is well positioned to leverage our massive scale 
and expand our capabilities in order to improve franchise unit economics and accelerate 
growth.

Greg Creed, CEO

YUM! Brands, Inc.

1441 Gardiner Lane

Louisville, Kentucky 40213

April 5, 2019

Dear Fellow Shareholders:

On behalf of your Board of Directors, we are pleased to invite you to attend the 2019 Annual Meeting of
Shareholders of YUM! Brands, Inc. The Annual Meeting will be held Thursday, May 16, 2019, 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 prior to the meeting are contained on the notice or proxy card.

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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 18, 2019 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.

Sincerely,

Greg Creed
Chief Executive Officer

Important Notice Regarding the Availability of Proxy Materials for the Shareholders Meeting to Be Held on May 16, 2019—
this notice and the proxy statement are available at www.investors.yum.com/governance-documents. The Annual Report
on Form 10-K is available at www.investors.yum.com/annual-reports.

YUM! Brands, Inc.
1441 Gardiner Lane
Louisville, Kentucky 40213
Notice of Annual Meeting
of Shareholders

Thursday, May 16, 2019 9:00 a.m.
Yum! Conference Center, 1900 Colonel Sanders Lane, Louisville, Kentucky 40213

ITEMS OF BUSINESS:

(1)

(2)

To elect eleven (11) directors to serve until the 2020 Annual Meeting of Shareholders and until their
respective successors are duly elected and qualified.
To ratify the selection of KPMG LLP as our independent auditors for the fiscal year ending December 31,
2019.
To consider and hold an advisory vote on executive compensation.

(3)
(4)-(6) To consider and vote on three (3) shareholder proposals, if properly presented at the meeting.
(7)

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 18, 2019.

ANNUAL REPORT:

A copy of our 2018 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.investors.yum.com/annual-reports.

DATE OF MAILING:

This Notice, the proxy statement and the form of proxy are first being mailed to shareholders on or about April 5,
2019.

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By Order of the Board of Directors

Scott A. Catlett
General Counsel and Corporate 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 April 5, 2019, 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

1

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6

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Director Biographies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Director Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

MATTERS REQUIRING SHAREHOLDER ACTION

26

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ITEM 1 Election of Directors (Item 1 on the Proxy Card)
ITEM 2 Ratification of Independent Auditors (Item 2 on the Proxy Card) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ITEM 3 Advisory Vote on Executive Compensation (Item 3 on the Proxy Card)
. . . . . . . . . . . . . . . . . . . . . . . . . 28
ITEM 4 Shareholder Proposal Regarding the Issuance of a Report on Renewable Energy (Item 4 on the Proxy

Card)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

ITEM 5 Shareholder Proposal Regarding Issuance of Annual Reports on Efforts to Reduce Deforestation

(Item 5 on the Proxy Card)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

ITEM 6 Shareholder Proposal Regarding the Issuance of a Report on Sustainable Packaging (Item 6 on the

Proxy Card) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

STOCK OWNERSHIP INFORMATION

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

EXECUTIVE COMPENSATION

37

39

39

Compensation Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Summary Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
All Other Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Grants of Plan-Based Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Outstanding Equity Awards at Year-End . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Option Exercises and Stock Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Pension Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Nonqualified Deferred Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Potential Payments Upon Termination or Change in Control
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
CEO Pay Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73

EQUITY COMPENSATION PLAN INFORMATION

AUDIT COMMITTEE REPORT

ADDITIONAL INFORMATION

APPENDIX A: Reconciliation of Adjusted Operating Profit Growth

75

77

80

A-1

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

PROXY STATEMENT

For Annual Meeting of Shareholders To Be Held On

May 16, 2019

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 Time), on Thursday, May 16, 2019, in the Yum! Conference Center at
1900 Colonel Sanders Lane in 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.

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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.

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 April 5,
2019, 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.

YUM! BRANDS, INC. - 2019 Proxy Statement 1

QUESTIONS AND ANSWERS ABOUT THE MEETING AND VOTING

Who may attend the Annual Meeting?

The Annual Meeting is open to all shareholders of record as of close of business on March 18, 2019, 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 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

May shareholders ask questions?

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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
large bags,
briefcases and packages will not be allowed in the
meeting room.

similar devices,

and other

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 18, 2019.
Each share of YUM common stock is entitled to one vote. As of March 18, 2019, YUM had 305.9 million shares of
common stock outstanding.

What am I voting on?

You will be voting on the following six (6)
business at the Annual Meeting:

(cid:129) The election of eleven (11) directors to serve until the
next Annual Meeting of Shareholders and until their
respective successors are duly elected and qualified;

(cid:129) The ratification of the selection of KPMG LLP as our
the fiscal year ending

independent auditors for
December 31, 2019;

2 YUM! BRANDS, INC. - 2019 Proxy Statement

items of

(cid:129) An advisory vote on executive compensation; and

(cid:129) Three (3) shareholder proposals.

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

QUESTIONS AND ANSWERS ABOUT THE MEETING AND VOTING

How does the Board of Directors recommend that I vote?

Our Board of Directors recommends that you vote
your shares:

(cid:129) FOR the proposal regarding an advisory vote on

executive compensation; and

(cid:129) FOR each of

the nominees named in this proxy

(cid:129) AGAINST each of

the three (3)

shareholder

statement for election to the Board;

proposals.

(cid:129) FOR the ratification of the selection of KPMG LLP as

our independent auditors;

How do I vote before the Annual Meeting?

There are three ways to vote before the meeting:

(cid:129) By Internet — If you have Internet access, we
encourage you to vote on www.proxyvote.com by
following instructions on the Notice or proxy card;

(cid:129) 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

(cid:129) 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 and
dividend reinvestment plan (Computer Share CIP), as a
registered shareholder, you will
receive all proxy
materials and may vote your shares according to the
procedures outlined herein.

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 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.,

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 through a broker or
nominee 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.

Eastern Daylight Saving Time, on May 15, 2019.
Proxies submitted by mail must be received prior to the
401(k) Plan
meeting. Directions
participants must be received by 12:00 p.m., Eastern
Daylight Saving Time, on May 14, 2019.

submitted

by

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 notice carefully. A number of
brokerage firms and banks participate in a program
provided through Broadridge Financial Solutions, Inc.
(“Broadridge”) 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
submitted
through the Internet or by telephone through the
Broadridge program must be received by 11:59 p.m.,
Eastern Daylight Saving Time, on May 15, 2019.

(www.proxyvote.com).

Votes

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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.

YUM! BRANDS, INC. - 2019 Proxy Statement 3

QUESTIONS AND ANSWERS ABOUT THE MEETING AND VOTING

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:

(cid:129) Giving written notice to the Corporate Secretary of

the Company prior to the Annual Meeting; or

(cid:129) Signing another proxy card with a later date and

returning it to us prior to the Annual Meeting;

(cid:129) Voting again by telephone or through the Internet
prior to 11:59 p.m., Eastern Daylight Saving Time, on
May 15, 2019;

(cid:129) 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.

Who will count the votes?

Representatives of Computershare, Inc. 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?

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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:

(cid:129) FOR the election of the eleven (11) nominees for

director named in this proxy statement (Item 1);

(cid:129) FOR the ratification of the selection of KPMG LLP as
our independent auditors for the fiscal year 2019
(Item 2);

(cid:129) FOR the proposal regarding an advisory vote on

executive compensation (Item 3); and

(cid:129) AGAINST each Shareholder Proposal (Items 4-6).

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

It means that you have multiple accounts with brokers
these
and/or our transfer agent. Please vote all of
shares. We recommend that you contact your broker
to consolidate as many
and/or our

transfer agent

accounts as possible under
the same name and
address. Our transfer agent is Computershare, Inc.,
which may be reached at 1 (888) 439-4986 and
internationally at 1 (781) 575-2879.

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
fiscal year 2019 is
considered a routine matter for which brokerage firms

independent auditors for

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.”

4 YUM! BRANDS, INC. - 2019 Proxy Statement

QUESTIONS AND ANSWERS ABOUT THE MEETING AND VOTING

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 18, 2019, 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
set out
at
in
www.investors.yum.com and at page 19 under
“What other significant Board practices does the
Company have? — Majority Voting Policy.”

Corporate Governance

are
Principles

voting policy

our

How many votes are needed to approve the other proposals?

In order to be approved, 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”,
“ABSTAIN.”
Abstentions will be counted as shares present and
entitled to vote at the Annual Meeting. Accordingly,

“AGAINST” or

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.

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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?

The Company knows of no other matters to be submitted to the shareholders at the Annual Meeting, other than the
proposals referred to in this Proxy Statement. If any other matters properly come before the shareholders at the
Annual Meeting, it is the intention of the persons named on the proxy to vote the shares represented thereby on
such matters in accordance with their best judgment.

YUM! BRANDS, INC. - 2019 Proxy Statement 5

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 “Governance Principles”), the Company’s Articles of
Incorporation and Bylaws, 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”.

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6 YUM! BRANDS, INC. - 2019 Proxy Statement

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 11 directors whose terms expire at this Annual Meeting. Our directors
are elected annually. The average director tenure is 5.5 years, with our longest- and shortest-tenured directors
having served for 13 years (Mr. Nelson) and for 1 year and 4 months, respectively (Ms. Domier).

As discussed in more detail later in this section, the Board has determined that 10 of the 11 individuals standing for
election are independent under the rules of the New York Stock Exchange (“NYSE”).

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How often did the Board meet in fiscal 2018?

The Board of Directors met 5 times during fiscal 2018. Each of the directors who served in 2018 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 persons then serving as
directors attended the 2018 Annual Meeting.

How does the Board select nominees for the Board?

The Nominating and Governance Committee considers
candidates for Board membership suggested by 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 Governance 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

YUM! BRANDS, INC. - 2019 Proxy Statement 7

transformation strategy we developed our “Recipe for
Growth,” which focuses on four growth drivers
intended to accelerate same-store sales growth and
net-new restaurant development at KFC, Pizza Hut and
Taco Bell around the world. The Company remains
focused on building the world’s most loved, trusted
and fastest growing restaurant brands by:

(cid:129) Building Distinctive, Relevant and Easy Brands, by
increasing investment
insights, core
product innovation, digital excellence and initiatives
that strengthen the quality, convenience and appeal
of the customer experience;

in consumer

(cid:129) Developing

Franchise

Unmatched

Operating
Capability, strengthening how we equip and recruit
the best
restaurant operators to deliver great
customer experiences, and build and protect our
brands;

(cid:129) Driving Bold Restaurant Development

through
partnerships with growth-minded franchisees who
can expand and penetrate markets with modern
restaurants, strong economics and value; and

(cid:129) Growing Unrivaled Culture and Talent to strengthen
the customer experience and franchise success with
best-in-class people capability and culture.

We look for director candidates that have the skills and
experience necessary to help us achieve success with
respect to the four growth drivers and the Company’s
implementation of its “Recipe for Growth.” As a result,
the skills that our directors possess are thoroughly
they align with the
considered to ensure that
Company’s goals.

GOVERNANCE OF THE COMPANY

the

person’s

judgment,

and are selected based upon contributions they can
make to the Board and management. The committee’s
assessment of a proposed candidate will
include a
experience,
review of
independence, 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
including the current
composition of the Board, the balance of management
the need for Audit
and independent directors,
Committee expertise and the evaluations of other
prospective nominees, if any.

it deems appropriate,

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In connection with this evaluation, it is expected that
each committee member will interview the prospective
nominee before the prospective nominee is presented
to the full Board 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.

In 2017 we implemented several initiatives to transform
the Company, centering on a new multi-year strategy
to accelerate growth, reduce volatility and increase
capital returns to shareholders. In connection with this

8 YUM! BRANDS, INC. - 2019 Proxy Statement

The following table describes key characteristics of the Company’s “Recipe for Growth” and indicates how the skills
our Board collectively possesses positively impacts the growth drivers:

GOVERNANCE OF THE COMPANY

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 in 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. In
addition to the information provided in the director biographies, our director nominees’ qualifications, experiences and
skills are summarized in the following matrix. This matrix is intended to provide a summary of our directors’ qualifications
and should not be considered to be a complete list of each nominee’s strengths and contributions to the Board.

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For a shareholder to submit a candidate for consideration by the Nominating and Governance Committee,
a shareholder must notify YUM’s Corporate Secretary, YUM! Brands,
Inc., 1441 Gardiner Lane, Louisville,
Kentucky 40213. The recommendation must contain the information described on page 81.

YUM! BRANDS, INC. - 2019 Proxy Statement 9

GOVERNANCE OF THE COMPANY

Director Biographies

Paget L. Alves served as Chief Sales Officer of Sprint Corporation, a wireless and wireline
communications services provider, from January 2012 to September 2013 after serving as President
of that company’s Business Markets Group beginning in 2009. Mr. Alves currently serves on the
boards of directors of
International Game Technology PLC, Synchrony Financial, and Ariel
Investments LLC.

SPECIFIC QUALIFICATIONS, EXPERIENCE, SKILLS AND EXPERTISE:

finance, brand
Mr. Alves brings to the Board significant corporate leadership, global business,
large
management, and technology experience, drawing from his various executive roles at
including his service as the Chief Sales Officer of a large wireless and wireline
companies,
communications company. Mr. Alves also provides the Board with the benefits of his significant
experience in public company directorship and committee membership.

(cid:129) Independent of Company

Paget L. Alves

Age 64

Director since 2016

Former Chief Sales
Officer, Sprint
Corporation

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Michael J. Cavanagh

Age 53

Director since 2012

Senior Executive
Vice President and
Chief Financial
Officer, Comcast
Corporation

Michael J. Cavanagh is Senior Executive Vice President and Chief Financial Officer of Comcast
Corporation, a global media and technology company. He has held this position since July 2015.
From July 2014 to May 2015 he served as Co-President and Co-Chief Operating Officer for The
Carlyle Group, a global
investment firm, and he was 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:

As Senior Executive Vice President and Chief Financial Officer of a global media and technology
company, Mr. Cavanagh brings significant experience to our Board in the areas of corporate
leadership, global business, operations and technology. In addition, Mr. Cavanagh provides the
Board with the benefits of his significant experience and expertise in finance, having served as Chief
Operating Officer of a global
investment firm and as Chief Financial Officer of a global media and
technology company.

(cid:129) Independent of Company

10 YUM! BRANDS, INC. - 2019 Proxy Statement

GOVERNANCE OF THE COMPANY

Christopher M. Connor served as Chairman and Chief Executive Officer of The Sherwin-Williams
Company, a global manufacturer of paint, architectural coatings, industrial finishes and associated
supplies, until 2016. Mr. Connor held a number of executive positions at Sherwin-Williams beginning
in 1983. He served as Chief Executive Officer from 1999 to 2015 and Chairman from 2000 to 2016.
He currently serves on the boards of Eaton Corporation plc and International Paper Company.

SPECIFIC QUALIFICATIONS, EXPERIENCE, SKILLS AND EXPERTISE:

Through Mr. Connor’s public company board experience with domestic and international businesses,
and his having served as the Chairman and Chief Executive Officer of a Fortune 500 company, he
brings to the Board extensive experience in important areas including corporate leadership, global
business, operations,
talent development, marketing and brand management, and talent
development. Mr. Connor also brings with him significant experience in public company board
committee membership.

(cid:129) Independent of Company

Christopher M. Connor

Age 63

Director since 2017

Former
Chairman and
Chief Executive
Officer,
Sherwin-Williams
Company

Brian C. Cornell joined the Yum! Brands Board in 2015 and has served as Non-Executive Chairman
since November 2018. Mr. Cornell is Chairman and Chief Executive Officer of Target Corporation, a
general merchandise retailer. He has held this position since August 2014. Mr. Cornell served as the
Chief Executive Officer of PepsiCo Americas Foods, a division of PepsiCo, Inc. from March 2012 to
July 2014. From April 2009 to January 2012, Mr. Cornell served as the Chief Executive Officer and
President of Sam’s Club, a division of Wal-Mart Stores, Inc. and as an Executive Vice President of
Wal-Mart Stores, Inc. He has been a Director of Target Corporation since 2014. He has previously
served as a Director of Home Depot, OfficeMax, Polaris Industries Inc., Centerplate, Inc. and Kirin-
Tropicana, Inc.

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Brian C. Cornell

Age 60

Director since 2015

Chairman and Chief
Executive Officer,
Target Corporation

SPECIFIC QUALIFICATIONS, EXPERIENCE, SKILLS AND EXPERTISE:

Through Mr. Cornell’s service as Chairman and Chief Executive Officer of a large publicly traded
merchandise retailer and his public company board experience with U.S. and international retailers,
he brings extensive knowledge in important areas to our Board, including corporate leadership, global
business experience, operations expertise,
talent development and marketing and brand
management experience. Mr. Cornell also provides our Board with expertise in strategic planning.

(cid:129) Independent of Company

YUM! BRANDS, INC. - 2019 Proxy Statement 11

GOVERNANCE OF THE COMPANY

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 Whirlpool Corporation since 2017 and previously served as a
director of International Games Technology from 2010 until 2015.

Greg Creed

Age 61

Director since 2014

Chief Executive
Officer, YUM

SPECIFIC QUALIFICATIONS, EXPERIENCE, SKILLS AND EXPERTISE:

Mr. Creed has served as the Company’s Chief Executive Officer since 2015 and he brings significant
corporate leadership, global business, talent development, industry and operations and marketing
and brand management experience to our Board, from his time in that role, and from his prior years
of experience in various other roles within the Company, including as Chief Executive Officer of Taco
Bell. Mr. Creed also brings with him significant experience in public company directorship and
committee membership.

Tanya L. Domier is Chief Executive Officer of Advantage Solutions, Inc., a North American provider of
outsourced sales, marketing and business solutions, and has served in that role since January 2013.
Prior to serving as Advantage Solutions’ CEO, Ms. Domier served as its president and chief operating
officer from 2010 to 2013. Ms. Domier joined Advantage Solutions in 1990 from the J.M. Smucker
Company and has held a number of executive level roles in sales, marketing and promotions.
Ms. Domier has served as a director of Advantage Solutions since 2006 and currently also serves as
a director of Nordstrom, Inc.

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SPECIFIC QUALIFICATIONS, EXPERIENCE, SKILLS AND EXPERTISE:

Ms. Domier brings to the Board extensive experience in marketing and in developing digital
technology solutions, having served as Chief Executive Officer of a major provider of sales, marketing
and business solutions. In addition, Ms. Domier also provides the Board with expertise in the areas of
corporate leadership, global business and finance from her career as an executive and from her
significant experience in public company directorship and committee membership.

(cid:129) Independent of Company

Age 53

Director since 2018

Chief Executive
Officer, Advantage
Solutions, Inc.

12 YUM! BRANDS, INC. - 2019 Proxy Statement

GOVERNANCE OF THE COMPANY

Mirian M. Graddick-Weir retired as Executive Vice President of Human Resources for Merck & Co.,
Inc., a pharmaceutical company, in November, 2018. She had held that 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 of AT&T Corp. from 2001
to 2006. Ms. Graddick-Weir served as a director of Harleysville Group Inc. from 2000 until 2012.

SPECIFIC QUALIFICATIONS, EXPERIENCE, SKILLS AND EXPERTISE:

Through Ms. Graddick-Weir’s public company board experience and her senior leadership experience
as the Executive Vice President of Human Resources for a major pharmaceutical company, she is
able to provide our Board extensive knowledge in the areas of talent development and corporate
leadership. In addition, Ms. Graddick-Weir also brings expertise in corporate operations to the Board
and provides the Board with expertise in public company board committee membership.

(cid:129) Independent of Company

Thomas C. Nelson is President and Chief Executive Officer of National Gypsum Company, a building
products manufacturer, He has held this position 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. 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 Atrium Health and was a director of Belk, Inc. from 2003 to 2015. Since January 2015,
Mr. Nelson has served as a director for the Federal Reserve Bank of Richmond.

SPECIFIC QUALIFICATIONS, EXPERIENCE, SKILLS AND EXPERTISE:

Through Mr. Nelson’s public company board experience and his service as Chief Executive Officer of
a major building products manufacturer, Mr. Nelson brings significant corporate leadership,
operations and finance experience to our Board. In addition, Mr. Nelson also provides the Board with
the benefits of his experience in government, having served as Assistant to the Secretary of the
United States Defense Department and as a White House Fellow. Mr. Nelson also brings with him
significant experience in public company board committee membership.

(cid:129) Independent of Company

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Mirian M. Graddick-Weir
Age 64

Director since 2012

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

Thomas C. Nelson

Age 56

Director since 2006

Chairman, Chief
Executive Officer
and President,
National Gypsum
Company

YUM! BRANDS, INC. - 2019 Proxy Statement 13

GOVERNANCE OF THE COMPANY

P. Justin Skala is Executive Vice President, Chief Growth & Strategy Officer of the Colgate-Palmolive
Company, a consumer products company. He has held this position since July 2018. From 2016 until
2018 he served as Chief Operating Officer, North America, Europe, Africa/Eurasia and Global
Sustainability for Colgate-Palmolive Company. From 2013 to 2016 he was President of Colgate-North
America and Global Sustainability for Colgate-Palmolive Company. From 2010 to 2013 he was the
President of Colgate - Latin America. From 2007 to 2010, he was president of Colgate - Asia.

SPECIFIC QUALIFICATIONS, EXPERIENCE, SKILLS AND EXPERTISE:

Through Mr. Skala’s executive leadership at one of the world’s most renowned consumer products
companies, including service in the roles of Chief Operating Officer and as a division President, he is
able to bring considerable experience to our Board in the areas of corporate leadership, global
business and finance. Mr. Skala also provides our Board with expertise in the areas of operations,
brand management and talent development.

(cid:129) Independent of Company

Elane B. Stock served as Group President of Kimberly-Clark International, a division of Kimberly-Clark
Corporation, a global consumer products company, from 2014 to 2016. From 2012 to 2014 she was
the Group President for Kimberly-Clark Professional. Prior to this role, Ms. Stock was the Chief
Strategy Officer of Kimberly-Clark Corporation. Earlier in her career, Ms. Stock was a partner at
McKinsey & Company in the U.S. and Ireland, where she was the Managing Director. Ms. Stock
currently serves on the Board of Equifax Inc. and Reckitt Benckiser.

SPECIFIC QUALIFICATIONS, EXPERIENCE, SKILLS AND EXPERTISE:

Ms. Stock brings significant corporate leadership, global business, operations and finance experience
to our Board, having served in numerous corporate leadership positions, including as group President
of a large consumer products company. In addition, Ms. Stock provides the Board with her expertise
in strategy, marketing and brand management and her significant experience in public company
directorship and committee membership.

(cid:129) Independent of Company

P. Justin Skala

Age 59

Director since 2016

Executive Vice
President, Chief
Growth & Strategy
Officer for
Colgate – Palmolive
Company

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Elane B. Stock

Age 54

Director since 2014

Former
Group President,
Kimberly-Clark
International

14 YUM! BRANDS, INC. - 2019 Proxy Statement

GOVERNANCE OF THE COMPANY

Robert D. Walter joined the Yum! Brands Board in 2006 and served as Non-Executive Chairman from
May 2016 to November 2018. Mr. 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 served as a director of American Express
Company and Nordstrom, Inc., both until May 2018.

Robert D. Walter

Age 73

Director since 2008

Founder and
Retired Chairman/
CEO, Cardinal
Health, Inc.

SPECIFIC QUALIFICATIONS, EXPERIENCE, SKILLS AND EXPERTISE:

Through Mr. Walter’s public company board experience and his prior service as Chief Executive
Officer of a global healthcare and service provider business, he is able to provide our Board with
significant experience in the areas of corporate leadership, finance and operations. In addition,
Mr. Walter brings to our board significant experience in public company board committee
membership.

(cid:129) Independent of Company

If elected, we expect that all of the aforementioned nominees will serve as directors and hold office until the 2020
Annual Meeting of Shareholders and until their respective successors have been elected and qualified.

Director Compensation

How are directors compensated?

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

receive an additional $25,000, $20,000 and $15,000
annual stock retainer, respectively. These committee
chairperson retainers were paid in February of 2018.

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Non-Employee Directors Annual Compensation. The
annual compensation for each non-employee Director
is summarized in the table below. For 2018, each
non-employee Director received an annual stock grant
retainer with a fair market value of $240,000. 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. Directors may also defer payment of their
retainers
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

pursuant

to

In recognition of

their added duties,

Chairman of the Board and Committee Chairperson
Retainers.
the
Chairman of the Board (Mr. Walter in 2018) receives an
additional $150,000 stock retainer annually and the
Chairs of the Audit Committee (Mr. Nelson in 2018),
Management Planning and Development Committee
in 2018) and the Nominating and
(Mr. Cornell
in 2018) each
Governance Committee (Mr. Walter

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.

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 members of YUM’s Global Leadership
the YUM! Brands
this program,
Team. Under
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
the Foundation may match director
discretion,
contributions exceeding $10,000.

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

YUM! BRANDS, INC. - 2019 Proxy Statement 15

GOVERNANCE OF THE COMPANY

the Company
In setting director compensation,
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 reviews each element of
director compensation at least every two years.

In November 2018,
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 54. Data for
this review was prepared for the Committee by its
independent
consultant, Meridian Compensation
Partners LLC. This data revealed that the Company’s

the Audit Committee,

director compensation was approximately $20,000
below the 50th percentile measured against
this
benchmark, that the retainer paid to our Non-Executive
Chairman is below market and that the retainers paid
to the Chairpersons of
the
Management Planning and Development Committee,
and the Nominating and Governance Committee were
consistent with market practice. Based on this data,
the Committee recommended a $20,000 increase to
the annual amount paid to the Directors, raising their
retainer
to $260,000 annually. The Non-Executive
Chairman’s retainer was also increased by $20,000 to
$170,000 annually. The retainers paid to committee
chairpersons were not increased.

Name
(a)

Alves, Paget

Cavanagh, Michael

Connor, Christopher

Cornell, Brian

Domier, Tanya

Graddick-Weir, Mirian

Nelson, Thomas

Skala, Justin

Stock, Elane

Walter, Robert

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Fees Earned or
Paid in Cash
($)
(b)

—

—

—

—

—

—

—

—

—

—

Stock
Awards
($)(1)
(c)

240,000

240,000

240,000

260,000

205,000

240,000

265,000

240,000

240,000

405,000

Option/SAR
Awards
($)(2)
(d)

All Other
Compensation
($)
(e)

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

Total
($)
(f)

240,000

240,000

240,000

260,000

205,000

240,000

265,000

240,000

240,000

405,000

(1) Amounts in column (c) represent the grant date fair value for annual stock retainer awards, Committee Chairperson retainer
awards and Non-Executive Chairman awards granted to directors in 2018. Retainer awards are pro-rated for partial years of
service.

(2) At December 31, 2018,

the aggregate number of stock appreciation rights (“SARs”) awards outstanding for each

non-employee director was:

Name

Alves, Paget

Cavanagh, Michael

Connor, Christopher

Cornell, Brian

Domier, Tanya

Graddick-Weir, Mirian

Nelson, Thomas

Skala, Justin

Stock, Elane

Walter, Robert

16 YUM! BRANDS, INC. - 2019 Proxy Statement

SARs

—

18,531

—

6,491

—

22,752

38,208

4,646

10,003

38,208

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

GOVERNANCE OF THE COMPANY

and

the Company.

they are in the best

Under the Company’s policies and procedures for the
review of related person transactions the Nominating
and Governance Committee reviews related 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
interest and
related person had or will have a material
that exceed $100,000 are subject to the Nominating
and Governance committee’s review. Any member of
the Nominating and Governance Committee who is a
to a transaction under
related person with respect
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 immediate family members. Immediate

siblings,

stepchildren,

family members are spouses, parents, stepparents,
children,
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
related person transaction policies and procedures
provide that certain transactions are deemed to be
pre-approved, even though they exceed $100,000.
Pre-approved transactions include employment of
executive
and
director
transactions with other companies if
the aggregate
amount of the transaction does not exceed the greater
that other company’s total
of $1 million or 2% of
revenues and the related person is not an executive
officer of that other company.

compensation,

officers,

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Does the Company require stock ownership by directors?

The Board believes that
the number of shares of
the Company’s common stock owned by each
non-management director
is a personal decision;
however, the Board strongly supports the position that
non-management directors should own a meaningful
number of shares in the Company and expects that
each non-management director will (i) own Company
common shares with a value of at least five times the

annual Board retainer;
(ii) accumulate those shares
during the first five years of the director’s service on the
Board; and (iii) hold these shares at least until the
director departs the Board. Each director may sell
enough shares to pay taxes in connection with the
receipt of
the exercise of stock
appreciation rights and the ownership guideline will be
adjusted to reflect the sale to pay taxes.

retainer or

their

How much YUM stock do the directors own?

Stock ownership information for each director is shown in the table on page 38.

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

The Committee has adopted formal stock ownership
guidelines that set minimum expectations for executive
and senior management ownership. These guidelines
are discussed on page 55.

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.

YUM! BRANDS, INC. - 2019 Proxy Statement 17

GOVERNANCE OF THE COMPANY

How Can Shareholders Nominate for the Board?

Director nominations for inclusion in YUM’s proxy
materials (Proxy Access). Our bylaws permit a
shareholder, or group of up to 20 shareholders, owning
continuously for at least three years shares of YUM
stock representing an aggregate of at least 3% of our
outstanding shares, to nominate and include in YUM’s
proxy materials director nominees constituting up to
20% of YUM’s Board, provided that the shareholder(s)
and nominee(s) satisfy the requirements in YUM’s
bylaws. Notice of proxy access director nominees for
the 2020 Annual Meeting of Shareholders must be
received by us no earlier than November 7, 2019, and
no later than December 7, 2019.

of

Shareholders.

Director nominations to be brought before the 2020
Director
Annual Meeting
nominations that a shareholder intends to present at
the 2020 Annual Meeting of Shareholders, other than
through the proxy access procedures described
than
above, must have been received no later
February 16, 2020. These nominations must be
submitted by a shareholder in accordance with the
requirements specified in YUM’s bylaws.

of

Where to send director nominations for the 2020
Shareholders.
Annual Meeting
Director
nominations brought by
shareholders must be
delivered to YUM’s Corporate Secretary by mail at
YUM! Brands,
Inc., 1441 Gardiner Lane, Louisville,
Kentucky 40213 and received by YUM’s Corporate
Secretary by the dates set forth above.

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What is the Board’s leadership structure?

On November 16, 2018, Brian C. Cornell assumed the
position of Non-Executive Chairman of the Board. He
was preceded in that position by Robert D. Walter,
who had held that position since May 20, 2016.
the
Applying our Corporate Governance Principles,
Board determined that based on Mr. Cornell’s
independence, it would not appoint a Lead Director
when Mr. Cornell became Non-Executive Chairman.

The Nominating and Governance Committee annually
reviews the Board’s leadership structure and evaluates
the performance and effectiveness of
the Board of
Directors. The Board retains the authority to modify its
leadership structure in order to stay current with our
Company’s circumstances and advance the best
interests of the Company and its shareholders as and
when appropriate. The Board’s annual self-evaluation
includes questions regarding the Board’s opportunities
for open communication and the effectiveness of
executive sessions.

independent Lead Director, when the CEO is serving
as Chairman. During 2018, our CEO did not serve
as Chairman. Our Board believes
that Board
independence and oversight of management are
effectively maintained through a strong independent
Chairman or 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, As Non-Executive
Chairman, Mr. Cornell is responsible for supporting the
CEO on corporate strategy along with leadership
development. Mr. Cornell also works with the CEO in
setting the agenda and schedule for meetings of the
Board, in addition to the duties of the Lead Director
described below.

leading the
As CEO, Mr. Creed is responsible for
Company’s strategies, organization design, people
development and culture, and for providing the
day-to-day leadership over operations.

The Company’s Governance Principles provide that the
Chief Executive Officer (“CEO”) may serve as Chairman
the Board. These Principles also provide for an
of

To ensure effective independent oversight, the Board
has adopted a number of governance practices
discussed below.

18 YUM! BRANDS, INC. - 2019 Proxy Statement

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

GOVERNANCE OF THE COMPANY

(cid:129) Board

The

Charters.

Committee

Audit,
and
Management Planning and Development,
Nominating and Governance Committees of
the
YUM Board of Directors operate pursuant to written
charters. These charters were approved by the
Board of Directors
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.investors.yum.com/committee-composition-
and-charters.

and reflect

(cid:129) Governance Principles. The Board of Directors has
documented its corporate governance guidelines in
Inc. Corporate Governance
the YUM! Brands,
Principles. These guidelines are available on the
Company’s website at www.investors.yum.com/
governance-documents.

(cid:129) 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
misconduct, ethical or accounting concerns, or other
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.investors.yum.com/
code-of-conduct. 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.

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What other significant Board practices does the Company have?

(cid:129) 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
the Lead Director or our
presided over by
Non-Executive Chairman,
applicable. Our
independent directors meet in executive session at
least once per year.

as

(cid:129) Role of Lead Director. Our Governance Principles
require the election, by the independent directors, of
a Lead Director when the CEO is also serving as
Chairman.

The Board currently does not have a Lead Director,
and the duties of the Lead Director are fulfilled by
Mr. Cornell
as Non-Executive Chairman. Since
Mr. Cornell is independent, the Board determined that
it would not appoint a separate Lead Director upon
Mr. Cornell’s appointment as Non-Executive Chairman.

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.
Based upon the recommendation of the Nominating

and Governance Committee,
has
determined that the Lead Director, when appointed, is
responsible for:

the Board

(a) Presiding at all executive sessions of the Board
and any other meeting of the Board at which the
Chairman is not present, and advising the
Chairman and CEO of any decisions reached or
suggestions made at any executive session,

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

(c)

If requested by major shareholders, being available
for consultations and direct communication,

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

independent directors, and

(e) Calling special meetings of

the independent

directors.

(cid:129) 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 are, to the extent practical, distributed to the
directors sufficiently in advance of the meeting to allow
careful review prior to the meeting.

YUM! BRANDS, INC. - 2019 Proxy Statement 19

GOVERNANCE OF THE COMPANY

(cid:129) 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. As a part of
this process, each
Board member completes an individual written
questionnaire and a personal interview, the results of
which are summarized and discussed in an executive
session. In addition, the Audit, Management Planning
and Development and Nominating and Governance
Committees also each conduct similar annual self-
evaluations.

(cid:129) 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.”
further
The Company’s Governance Principles
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
through a process managed by the
Board will,
Nominating
and
and Governance Committee
excluding the nominee in question, accept or reject
the resignation within 90 days after
the Board
receives the resignation.
the Board rejects the
resignation, the reason for the Board’s decision will
be publicly disclosed.

If

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

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(cid:129) 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
the results, plans and
operations of
the business within their areas of
responsibility.

information about

(cid:129) 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
and
candidates.
Development Committee has the sole authority to
retain compensation consultants for advice on
executive compensation matters.

The Management

Planning

What is the Board’s role in risk oversight?

overall

responsibility

for
The Board maintains
overseeing the Company’s risk management, including
succession planning, food safety and cybersecurity. In
furtherance of
the Board has
delegated specific risk-related responsibilities to the
Audit Committee and to the Management Planning and
Development Committee.

responsibility,

its

it

engages

receives functional

in
risk management at

substantive
The Audit Committee
discussions of
regular
its
committee meetings held during the year. At these
meetings,
risk review reports
covering significant areas of risk from senior managers
responsible for
these functional areas, as well as
receiving reports from the General Counsel and the
Vice President,
Internal Audit. Our Vice President,
Internal Audit reports directly to the Chairman of the

20 YUM! BRANDS, INC. - 2019 Proxy Statement

and meets

Audit Committee and our Chief Financial Officer
(“CFO”). The Audit Committee also receives reports at
each meeting regarding legal and regulatory risks from
management
executive
sessions with our independent auditors and our Vice
President,
Internal Audit. 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 separate

addition,

In
and
our Management
Development 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.

Planning

GOVERNANCE OF THE COMPANY

What is the Board’s role in the Company’s global sustainability initiatives?

The Company has an integrated, Board and executive-
level governance structure to oversee its global
sustainability initiatives. Oversight
for environmental,
social and governance issues ultimately resides with
the Board of Directors. The Board receives regular
updates on these matters from management through
the Audit Committee. At the operational level, the Chief

and Public Affairs Officer

is
Communications
reputation of
responsible for overseeing the global
YUM and is responsible for shaping the Citizenship and
Sustainability Strategy, as approved by the Board, with
the Vice President, Government Relations
and
Citizenship & Sustainability.

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

at page 39,

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

performance,

shareholder

In 2018, the Committee examined 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
its
risks facing the Company in the conduct of
business. Based on this review,
the Committee
concluded our compensation policies and practices do
not encourage our employees to take unreasonable or
excessive risks.

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:

(cid:129) Our Compensation system is balanced, rewarding

both short-term and long-term performance

(cid:129) 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

(cid:129) Strong stock ownership guidelines in place for
approximately 190 senior employees are enforced

(cid:129) The annual

incentive and performance share plans
both cap the level of performance over which no
additional rewards are paid, thereby mitigating any
incentive to take unreasonable risk

(cid:129) 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

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(cid:129) Compensation performance measures set for each
Division are transparent and tied to multiple
measurable factors, none of which exceed a 50%
to
are
weighting; measures
shareholders and drivers of returns

apparent

both

(cid:129) The performance which determines

employee
rewards is closely monitored by the Audit Committee
and the full Board

(cid:129) The Company has a recoupment (clawback) policy

How does the Board determine which directors are considered
independent?

The Company’s Governance Principles, adopted by
the Board, require that we meet the listing standards of
the NYSE. The full text of the Governance Principles
the Company’s website
can
(www.investors.yum.com/governance-documents).

found

on

be

Pursuant
the Board
to the Governance Principles,
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 Governance 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.

YUM! BRANDS, INC. - 2019 Proxy Statement 21

GOVERNANCE OF THE COMPANY

this review,

the Board affirmatively
As a result of
determined that all of the directors are independent of
the Company and its management under NYSE rules,
with the exception of Greg Creed, who is not
considered an independent director because of his
employment by the Company.

relationship with the Company,

In determining that the other directors did not have a
the Board
material
determined that Messrs. Alves, Connor, Nelson, Skala,
and Walter and Mmes. Domier, Graddick-Weir and
Stock had no other relationship with the Company
other than their relationship as a director. The Board
did note as discussed in the next two paragraphs that
Comcast Corporation and Target Corporation, which
employ Mr. Cavanagh and Mr. Cornell, respectively,
each have a business relationship with the Company;
however, as noted below, the Board determined that
these relationships were not material to either director,
Comcast Corporation or Target Corporation, and
and
therefore
Mr. Cornell were independent.

that Mr. Cavanagh

determined

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is the Chairman and Chief Executive
Brian C. Cornell
the
Officer of Target Corporation. During 2018,
Company received approximately $10.7 million in
license fees from Target Corporation in the normal
course of business. Divisions of
the Company paid
Target Corporation approximately $2.1 million in rebates

in 2018. Divisions of the Company have also offered
Target approximately $2 million in additional incentives in
2019. The Board determined that these payments did
not create a material relationship between the Company
and Mr. Cornell or the Company and Target Corporation
as the payments represent less than one-tenth of 1% of
Target Corporation’s
the
licensing relationship between the Company and Target
Corporation was initially entered into before Mr. Cornell
joined the Board or became employed by Target
Corporation. The Board determined that this relationship
was not material to Mr. Cornell or Target Corporation.

Furthermore,

revenues.

Michael J. Cavanagh is the Senior Executive Vice
President and Chief Financial Officer of Comcast
Corporation. During 2018, the Company, its affiliates
and their
respective franchisees collectively paid
approximately $40 million to affiliates of Comcast for
broadband services. In addition, U.S. brand advertising
cooperatives, to which each of the Company’s brands
franchisees contribute funds to purchase
and their
media
advertising, purchased approximately
$79 million in advertising from affiliates of Comcast.
The Board determined that these payments did not
create a material relationship between the Company
and Mr. Cavanagh or
the Company and Comcast
Corporation as the payments represent less than 1%
of Comcast Corporation’s revenues.

for

How do shareholders communicate with the Board?

and

parties

in
interested
other
Shareholders
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
addressed to individual directors, non-management
members of
that
the Company
process,
and regularly
reviews
such correspondence
forwards to a designated individual member of
the
Nominating and Governance Committee copies of all
forward
such correspondence (although we do not
commercial
correspondence and correspondence
duplicative in nature; however, we will retain duplicate
correspondence and all duplicate correspondence will
be available for directors’ review upon their request)

the Corporate Secretary of
all

the Board. Under

the Board or

22 YUM! BRANDS, INC. - 2019 Proxy Statement

of

any

such

and a summary of all such correspondence. The
designated director of the Nominating and Governance
Committee will
forward correspondence directed to
individual directors as he or she deems appropriate.
Directors may at any time review a log of all
correspondence received by the Company that
is
the Board and request
addressed to members of
correspondence. Written
copies
correspondence
to
internal controls or auditing matters
accounting,
are immediately brought
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
to
Correspondence
Management Planning and Development Committee
matters are referred to the Chair of the Management
Planning and Development Committee.

to the attention of

from shareholders

from shareholders

such matters

(described

relating

relating

to

GOVERNANCE OF THE COMPANY

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
internal accounting controls
respect
or auditing matters, may,
in a confidential or
anonymous manner, communicate that concern to our
General Counsel, Scott A. Catlett.
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.,

to accounting,

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
the
these issues and is authorized to contact
appropriate members of management and/or
the
to all concerns it
Board of Directors with respect
receives. The full text of our Policy on Reporting of
Concerns Regarding Accounting and Other Matters is
available on our website at www.investors.yum.com/
governance-documents.

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YUM! BRANDS, INC. - 2019 Proxy Statement 23

GOVERNANCE OF THE COMPANY

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.

Name of Committee
and Members
Audit:

Thomas C. Nelson, Chair
Paget L. Alves
Tanya L. Domier
P. Justin Skala
Elane B. Stock

Number of Meetings
in Fiscal 2018
8

Functions of the Committee
(cid:129) Possesses sole authority regarding the selection and retention

of independent auditors

(cid:129) Reviews and has oversight over the Company’s internal audit

function

(cid:129) Reviews and approves the cost and scope of audit and
non-audit services provided by the independent auditors
(cid:129) Reviews the independence, qualification and performance of

the independent auditors

(cid:129) Reviews the adequacy of the Company’s internal systems of

accounting and financial control

(cid:129) Reviews the annual audited financial statements and results of

the audit with management and the independent auditors
(cid:129) Reviews the Company’s accounting and financial reporting
principles and practices including any significant changes
(cid:129) 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

(cid:129) 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 20.

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.

Name of Committee
and Members
Management Planning
and Development:

Christopher M. Connor, Chair
Brian C. Cornell
Michael J. Cavanagh
Mirian M. Graddick-Weir
Robert D. Walter

Functions of the Committee
(cid:129) Oversees the Company’s executive compensation plans and
programs and reviews and recommends changes to these
plans and programs

(cid:129) Monitors the performance of the chief executive officer and
other senior executives in light of corporate goals set by the
Committee

(cid:129) Reviews and approves the compensation of the chief executive

officer and other senior executive officers
(cid:129) Reviews management succession planning

Number of Meetings
in Fiscal 2018
4

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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24 YUM! BRANDS, INC. - 2019 Proxy Statement

GOVERNANCE OF THE COMPANY

Name of Committee
and Members
Nominating and
Governance:

Mirian M. Graddick-Weir, Chair
Michael J. Cavanagh
Brian C. Cornell
Thomas C. Nelson
Robert D. Walter

Functions of the Committee
(cid:129) Identifies and proposes to the Board suitable candidates for

Board membership

(cid:129) Advises the Board on matters of corporate governance
(cid:129) Reviews and reassesses from time to time the adequacy of the

Company’s Corporate Governance Principles

(cid:129) Receives comments from all directors and reports annually to

the Board with assessment of the Board’s performance

(cid:129) Prepares and supervises the Board’s annual review of director

independence

Number of Meetings
in Fiscal 2018
4

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:

Brian C. Cornell, Chair
Christopher M. Connor
Greg Creed
Mirian M. Graddick-Weir
Thomas C. Nelson

Functions of the Committee
(cid:129) 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

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YUM! BRANDS, INC. - 2019 Proxy Statement 25

MATTERS REQUIRING SHAREHOLDER ACTION

ITEM 1

Election of Directors (Item 1 on the Proxy
Card)

Who are this year’s nominees?

There are eleven (11) nominees recommended by the Nominating and Governance Committee of the Board of
Directors for election this year to hold office until the 2020 Annual Meeting and until their respective successors are
elected and qualified. Their biographies are provided above at pages 10 to 15. The biographies of each of the
nominees contains information regarding the person’s service as a director, business experience, public-company
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 above 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.

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.

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regarding the

at
Our policy
www.investors.yum.com/governance-documents and at page 19 under “What other significant Board practices
does the Company have? — Majority Voting Policy.”

found in our Governance Principles

election of directors

can be

26 YUM! BRANDS, INC. - 2019 Proxy Statement

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 2019. The
Audit Committee of the Board of Directors has selected KPMG to audit our consolidated financial statements.
During fiscal 2018, 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 2018
and 2017?

The following table presents fees for professional services rendered by KPMG for the audit of the Company’s
annual financial statements for 2018 and 2017, and fees billed for audit-related services, tax services and all other
services rendered by KPMG for 2018 and 2017.

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Audit fees(1)

Audit-related fees(2)

Tax fees(3)

All other fees

TOTAL FEES

2018
5,477,000 $

310,000

563,000

0

2017
6,406,000

326,000

482,000

0

6,350,000 $

7,214,000

(1) 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 including comfort letters and consents.

(2) Audit-related fees include fees associated with audits of financial statements and certain employee benefit plans, agreed

upon procedures and other attestations.

(3) Tax fees consist principally of fees for international tax compliance, tax audit assistance, as well as value added tax and

other tax advisory services.

YUM! BRANDS, INC. - 2019 Proxy Statement 27

MATTERS REQUIRING SHAREHOLDER ACTION

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

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
its
delegate pre-approval
independent members and has currently delegated
pre-approval authority up to certain amounts to its
Chair.

authority

one

to

of

Pre-approvals for services are granted at the January
Audit Committee meeting each year. Any incremental
audit or permitted non-audit services which are
expected to exceed the relevant budgetary guideline
In considering
must subsequently be pre-approved.

reviews

a
the Audit Committee
pre-approvals,
the scope of services falling within
description of
pre-designated
specific
budgetary guidelines. Pre-approvals of designated
services are generally effective for the succeeding 12
months.

imposes

services

and

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
the
promptly
pre-approval policy
the Audit
Committee. The complete policy is available on the
at www.investors.yum.com/
Company’s website
committee-composition-and-charters.

non-compliance with

to the Chair of

report

any

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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.

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

executive

performance-based

Our
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 39,

28 YUM! BRANDS, INC. - 2019 Proxy Statement

which discusses in detail how our compensation
policies and procedures operate and are designed to
how our
meet
Management Planning and Development Committee
makes compensation decisions under our programs.

compensation

goals

and

our

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, the compensation tables
and related materials included in this proxy
statement.

MATTERS REQUIRING SHAREHOLDER ACTION

What vote is required to approve this proposal?

Approval of this proposal requires the affirmative vote
in person or
of a majority of shares present
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

in their

continuing evaluation of

concerns
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 2020 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 the

Issuance of a Report on Renewable Energy
(Item 4 on the Proxy Card)

What am I voting on?

it

intends to present

The Sisters of Charity of the Blessed Virgin Mary, have
the following
advised us that
shareholder proposal at the Annual Meeting. We will
furnish the address and share ownership of
the
proponent upon request. In accordance with federal
securities regulations, we have included the text of the
proposal
as
submitted by the proponent. We are not responsible
for the content of the proposal or any inaccuracies it
may contain.

and supporting statement

exactly

assessing the

Resolved: Shareholders request
that Yum! Brands
senior management, with oversight from the Board of
Directors, issue a report on climate change mitigation
adopting
strategies,
quantitative, company-wide goals for increasing Yum!
Brands’ use of
renewable energy and any other
measures deemed prudent by company management,
to substantially reduce the company’s greenhouse gas
emissions and climate change risks associated with
the use of fossil fuel-based energy.

feasibility of

The report should be issued within one year of this
filing at
and omit proprietary
cost
information.

reasonable

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Supporting Statement:

By assessing goals to increase renewable energy as a
share of
total energy consumed, and other such
measures to reduce greenhouse gas emissions that
the company deems feasible, our company could
prepare to take concrete, practical steps to reduce our
emissions of greenhouse gases (GHGs) that contribute
to climate change.

impacts of climate
to mitigate the worst
In order
the Intergovernmental Panel on Climate
change,
Change
in
estimates
anthropogenic GHG emissions globally is needed (from
2010 levels) by 2030 to stabilize global temperatures
(Global Warming of 1.5 degrees C, IPCC, Oct 2018).

45% reduction

that

a

Assessing the feasibility of goals for renewable energy
procurement and other greenhouse gas reducing
measures could contribute to this end and serve as a
practical step towards aligning our business operations
with global efforts to limit climate change. This could
help insulate our company from regulatory uncertainty
and position Yum! Brands as contributing to climate
solutions and produce reputational benefits.

Fortuitously, many major companies are finding that
greenhouse gas reducing measures such as adopting

YUM! BRANDS, INC. - 2019 Proxy Statement 29

MATTERS REQUIRING SHAREHOLDER ACTION

renewable energy are practical, and often also benefit
their bottom line. Nationally, the US Energy Information
Association reports the average cost of electricity at
$0.1068/kWh for commercial customers in 2017, up
from $0.1043 in 2016. By contrast, according to
Bloomberg New Energy Finance’s 2018 Sustainable
Energy in America Factbook “the most competitive
power purchase agreements (PPAs) came in at just
over $20/MWh for solar [$0.02/kWh], while wind PPAs
...
in 2017
[$0.017/kWh].”

estimated $17/MWh

averaged an

Unfortunately, Yum! Brands website is silent on specific
goals to reduce the company’s greenhouse gas
emissions. As such, Yum! lags behind its peers in in

the restaurant industry including McDonalds, which has
recently adopted an approved Science-Based Target
for GHG emissions reductions across their operations
and supply chain. Many other leading food companies,
including Kellogg, Grupo Bimbo, Mars, Nestle, and
Starbucks are among the 154 RE100 member
companies who have committed to going 100%
renewable.

Accordingly, we urge Yum! Brands to emulate the best
climate risk mitigation practices among its corporate
peers and to study the feasibility of adopting goals for
measures such as renewable energy sourcing, that can
substantially reduce greenhouse gas emissions.

What is the Company’s position regarding this proposal?

Management Statement in Opposition to Shareholder Proposal

to

These

reduce

initiatives

The Company currently has a publicly stated goal to
reduce average restaurant energy and greenhouse gas
emissions by an additional 10 percent by the end of
2025.
energy
our
the Company has
consumption are those that
determined are best targeted to have the most direct
impact. Moreover, the Company currently has in place
involving
procedures designed to mitigate risks
greenhouse gas emissions and climate change, while
ensuring that issues are surfaced and addressed in a
timely manner.

reporting on our
Implementation of a broader
greenhouse gas emissions strategy is not necessary
and would divert time, effort and resources, thereby
limiting our ability to target our efforts on areas that will
impact. For this reason,
provide the most meaningful
and other reasons outlined below, we believe that the
request by the proponent is unnecessary, and has the
potential to divert our resources with no corresponding
benefit
to the Company, our customers, or our
shareholders.

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time and resources that

Our Board of Directors unanimously recommends that
stockholders vote AGAINST this proposal, as it would
divert
the Company has
determined would be better used to support our
strategy to target our sustainability efforts on areas that
impact, without
will provide the most meaningful
providing a significant corresponding benefit
to the
Company.

Climate change mitigation strategies, including our use
of
renewable energy and any other measures to
reduce the Company’s greenhouse gas emissions,
have been a priority for the Company for the last
several years as our sustainability strategy has evolved.
Our approach to sustainability initiatives is guided by
impact: we focus our efforts where we have the ability
to influence meaningful outcomes.

With that principle in mind, our focus has been on
reducing our energy consumption and the associated
greenhouse gas emissions. In 2017 we achieved our
22% reduction target
in energy consumption, as
compared to our 2005 baseline, for company-owned
and reporting franchise groups. The 2017 target
followed up on our successful achievement of our 15%
reduction goal in 2015.

30 YUM! BRANDS, INC. - 2019 Proxy Statement

MATTERS REQUIRING SHAREHOLDER ACTION

Why does the Company oppose the proposal?

to

related

Specifically
and
communication of potential climate change mitigation
strategies and use of renewable energy, the Company
has in place the following:

identification

the

(cid:129) Public

on

statements, policies

and goals on
Greenhouse Gas Emissions/Renewable Energy.
The Company maintains a public website with policy
informed views and
statements representing our
opinions
Our
issues.
industry-related
fundamental, long-term strategy is twofold: First, it is
to design, build and operate restaurants to be
measurably more sustainable using green building
standards to drive reductions in energy, GHG
emissions, waste and water use and to report
progress annually through CDP disclosures. Second,
it is to work to elevate the supply chain to reduce
deforestation though objectives including sourcing
100% of palm oil used for cooking and paper-based
packaging from responsible and sustainable sources.
Notably, we have a track record of setting and
achieving goals for reducing our restaurant energy
use and greenhouse gas emissions. The Company
currently has a publicly stated goal
to reduce
average restaurant energy use and greenhouse gas
emissions by an additional 10 percent by the end of
2025. This follows on our achievement in 2017 of our
in energy consumption, as
22% reduction target
compared to our 2005 baseline, for company-owned
and reporting
the
Company has conducted testing of onsite renewable
energy applications, as well as Renewable Energy
Credits. We continue to evaluate the feasibility of
adoption of renewable energy measures.

franchise

Further,

groups.

(cid:129) Comprehensive

disclosure

the Report

on
voluntary
environmental sustainability issues. On a biennial
basis, with updates during intervening years,
the
Company publishes
its Global Citizenship &
Sustainability Report at http://citizenship.yum.com/.
Included in
the Company’s
commitments in the material sustainability areas of
food, planet and people. Progress updates for these
commitments,
including goals related to energy
consumption and greenhouse gas, are included in
the Report. In addition, the Company discloses its
climate, water and forests practices through CDP on
an annual basis.

are

(cid:129) Collaboration with

groups.

industry

The
Company’s approach to GHG reduction through
energy conservation has been informed by the
Unites States Green Building Council’s (USGBC)
LEED rating system. We have learned from having
designed and built over 30 LEED certified buildings
across the globe. We have been members of the
USGBC since 2008. The Company’s palm oil and
fiber policies
and goals were developed in
partnership with the World Wildlife Fund (WWF).

(cid:129) Integrated, executive-level governance structure
to oversee the Company’s global sustainability
initiatives. Oversight for environmental, social and
governance (ESG) issues ultimately resides with the
Yum! Brands Board of Directors, briefed through its
Audit Committee on a regular basis. At
the
operational
the Chief Communications and
Public Affairs Officer oversees the global reputation
of Yum! and is
shaping the
Citizenship and Sustainability Strategy with the Vice
President, Government Relations and Citizenship &
Sustainability.

responsible for

level,

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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.

YUM! BRANDS, INC. - 2019 Proxy Statement 31

MATTERS REQUIRING SHAREHOLDER ACTION

ITEM 5 Shareholder Proposal Regarding Issuance of
Annual Reports on Efforts to Reduce
Deforestation (Item 5 on the Proxy Card)

What am I voting on?

SumOfUs on behalf of Mr. Keith Schnip, has advised
us that it intends to present the following shareholder
furnish the
proposal at the Annual Meeting. We will
address and share ownership of the proponent upon
request.
securities
regulations, we have included the text of the proposal
and supporting statement exactly as submitted by the
proponent. We are not responsible for the content of
the proposal or any inaccuracies it may contain.

accordance with

federal

In

Inc.

(YUM)

request
issue annual

that Yum’
Resolved: Shareholders
Brands.
reports to
investors, at reasonable expense and excluding
proprietary information, on how the company is
curtailing the impact on the Earth’s climate caused
by deforestation in YUM’s supply chain. The
reports should include quantitative metrics on
supply chain impacts on deforestation and
progress on goals for reducing such impacts.

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Supporting Statement:

YUM utilizes beef, soy, palm oil, and pulp/paper in its
business. These commodities are the leading drivers of
deforestation globally. YUM’s
limited action on
deforestation sets the company behind its peers and
exposes the company to significant business and
market risks that deforestation may pose, given the link
between deforestation and climate change, including
supply chain unreliability, damage to the company’s
brand value, and failure to meet shifting consumer and
market expectations. The SCRIPT Soft Commodity
Risk Platform scored YUM at 26 out of 100 due to lack
of
risk awareness, board oversight, overarching
policies addressing deforestation risk, traceability, and
timebound targets.

Deforestation has attracted significant attention from
civil society, business and governments. It accounts for
over 10% of global greenhouse gas emissions and
contributes to climate change, biodiversity loss, soil

32 YUM! BRANDS, INC. - 2019 Proxy Statement

erosion, disrupted rainfall patterns, community land
conflicts and forced labor. Commercial agriculture
accounted for over 70% of tropical deforestation, 49%
of which was illegal, between 2000 and 2012.
(https://www.theguardian.com/global-development/
2014/sep/11/tropical-forests-illegally-destroyed-
commercial-agriculture)

According to the 2018 report of the Intergovernmental
Panel on Climate Change (IPCC), restoring landscapes
and forests is one of
the best, most cost-effective
options available to combat impacts of climate change.
(http://www.ipcc.ch/report/sr15/) Value chains that are
illegally engaged in deforestation are vulnerable to
interruption with new regulations and enforcement, to
which companies must adapt.

Companies that have failed to mitigate the impacts of
their supply chain may face reputational damage. In
recent years, major media outlets have reported on
specific companies’
failure to adequately implement
policies that address deforestation. This publicity, along
with increased consumer awareness and concern
about deforestation and climate change, poses a
significant reputational risk.

Proponents believe meaningful
like the one we request could include:

indicators in a report

(cid:129) For key commodities that YUM sources such as
palm oil, soy, beef, and pulp/paper, the proportion
that can be traced back to its source and the
proportion verified as not contributing to physical
expansion into peatlands or forests, and including
the supply chain across all geographies; and

(cid:129) Tracking these figures against an anticipated
for
timeframe (as established by management)
meeting its sourcing goals for each commodity
consistent with
including
processes for verification, supplier non-compliance
protocols, and grievance processes.

above,

criteria

the

We urge shareholders to support this proposal.

MATTERS REQUIRING SHAREHOLDER ACTION

What is the Company’s position regarding this proposal?

Management Statement in Opposition to Shareholder Proposal

time and resources that

Our Board of Directors unanimously recommends that
stockholders vote AGAINST this proposal, as it would
divert
the Company has
determined would be better used to support our
strategy to target our sustainability efforts on areas that
impact, without
will provide the most meaningful
providing a significant corresponding benefit
to the
Company.

Sustainable sourcing, including minimizing deforestation
risk, has been a priority for the Company for the last
several years as our sustainability strategy has evolved.
Our approach to sustainability initiatives is guided by
impact: we focus our efforts where we have the ability to
influence meaningful outcomes. With that principle in
mind, we have established and disclosed policies and

time-bound, measurable goals for sourcing sustainable
for paper packaging, where our
palm oil and fiber
impact.
sourcing decisions have the most direct
Moreover,
in place
procedures designed to mitigate deforestation risk and
ensure that issues are surfaced and addressed in a timely
manner.

the Company

currently has

Additional reporting on our deforestation policy is not
feasible and would divert time, effort and resources to
commodities (e.g., soy) where Yum can have a less
direct or meaningful impact. For this reason, and other
reasons outlined below, we believe that the request by
the proponent is unnecessary, and has the potential to
divert resources with no corresponding benefit to the
Company, our customers, or our shareholders.

Why does the Company oppose the proposal?

related

Specifically
and
communication of potential climate impact caused by
deforestation, the Company has in place the following:

identification

the

to

(cid:129) Public

and

goals

polices

statements,

on
deforestation issues. The Company maintains a public
website with policy statements representing our informed
views and opinions on industry-related issues. Notably,
we have implemented policies and set goals for sourcing
sustainable palm oil and fiber for paper packaging that
seek to mitigate the impact of deforestation. Frying oil
and packaging represent a significant procurement
expenditure for the primary forest-related commodities,
and thus they represent areas where our sourcing
decisions may have material impact.

(cid:129) Regarding

for

the

fiber

Company

packaging,

sustainable

has
for
implemented a policy and associated goal
sourcing
paper-based
packaging. Policy details can be reviewed at
http://citizenship.yum.com/pdf/Paper-based-
Packaging-Sourcing-Policy.pdf. As part of
the
policy, we give preference to suppliers that provide
paper packaging certified by third parties such as
the Forest Stewardship Council
(FSC). The
is to purchase 100% of paper-
Company’s goal
based packaging with
sourced from
responsibly managed forests and recycled sources
by the end of 2020.

fiber

(cid:129) Regarding frying oil, the Company has implemented a
policy and associated goal for sourcing sustainable
palm oil for cooking. Policy details can be reviewed at

http://citizenship.yum.com/pdf/Palm-Oil-Policy.pdf. As
part of that policy, we give preference to suppliers that
are certified by the Roundtable on Sustainable Palm
Oil (“RSPO”). The company’s goal is to source 100%
of our palm oil used for cooking from responsible and
sustainable sources. In 2017, approximately 80% of
our cooking palm oil was derived from sustainable
palm. We will be reporting on our 2018 progress
toward that goal later this year.

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(cid:129) Comprehensive

disclosure

the Report

on
voluntary
environmental sustainability issues. On a biennial
basis, with updates during intervening years,
the
Company publishes
its Global Citizenship &
Sustainability Report at http://citizenship.yum.com/.
the Company’s
Included in
commitments in the material sustainability areas of
food, planet and people. Progress updates for these
commitments,
related to the
risks, are included in the
minimization of
Report.
the Company discloses its
climate, water and forests practices through CDP on
an annual basis.

including goals
forest

In addition,

are

(cid:129) Collaboration with

groups.

industry

The
Company’s palm oil and fiber policies and goals
were developed in partnership with the World Wildlife
Fund (WWF), which provides companies with
practical counsel around sustainable food sourcing.
In the area of sustainable palm oil sourcing
specifically, the Company is a member of RSPO and
in 2019 will be reporting its progress through that
organization for the first time.

YUM! BRANDS, INC. - 2019 Proxy Statement 33

MATTERS REQUIRING SHAREHOLDER ACTION

(cid:129) Integrated, executive-level governance structure
to oversee the Company’s global sustainability
initiatives. Oversight for environmental, social and
governance (ESG) issues ultimately resides with the
Yum! Brands Board of Directors, briefed through its
the
Audit Committee on a regular basis. At

level,

the Chief Communications and
operational
Public Affairs Officer oversees the global reputation
of Yum! and is
shaping the
Citizenship and Sustainability Strategy with the Vice
President, Government Relations and Citizenship &
Sustainability.

responsible for

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.

ITEM 6 Shareholder Proposal Regarding the
Issuance of a Report on Sustainable
Packaging (Item 6 on the Proxy Card)

What am I voting on?

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As You Sow, on behalf of the Wynnette M. LaBrosse
Trust, 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. In accordance with federal
securities regulations, we have included the text of the
proposal
as
submitted by the proponent. We are not responsible
for the content of the proposal or any inaccuracies it
may contain.

and supporting statement

exactly

WHEREAS waste and recycling issues were ranked
among the 10 most important issues to stakeholders in
a Yum Brands 2017 materiality assessment, yet the
company lags competitors by lacking a commitment to
phase out plastic straws, uses harmful polystyrene
foam beverage cups in some markets, and lacks a
commitment
to front of house on-site container
recycling.

The ocean contains an estimated 150 million tons of
plastic, with about 8 million tons added annually,
equivalent
to a garbage truck load every minute.
Experts predict there will be more plastic than fish by
weight in oceans by 2050. Company straws, cups, and

34 YUM! BRANDS, INC. - 2019 Proxy Statement

is

rarely

lids are found in street and marine litter. 500 million
plastic straws are used by Americans daily, which are
recycled. Polystyrene foam used for beverage
not
recycled. Non-recyclable plastic
cups,
packaging is more likely to be littered and carried into
waterways. In the marine environment, plastic straws,
cups, and cup lids break down into small
indigestible
particles that birds and marine animals mistake for
food,
resulting in entanglement, suffocation, and
drowning. More than 250 species have been impacted.
Plastic does $13 billion in damage to marine
ecosystems annually.

Company packaging that degrades in waterways can
also transfer hazardous chemicals to animals and
potentially to humans. Plastics absorb toxics like
PCBs, pesticides, and metals from water, transferring
them to the marine food web and potentially to human
diets, increasing risk of adverse effects to wildlife and
humans. Polystyrene foam may pose a higher risk to
marine animals than other plastics due to its hazardous
constituent chemicals and research showing it can
accumulate high concentrations of water borne toxins
time frame. Polystyrene has caused
in a short

decreased reproduction in laboratory populations of
oysters and fish.

Antigua and Barbuda, Bangladesh, Barbados, France,
Guyana, Haiti, Rwanda, Taiwan and states in India and
Malaysia have enacted bans on foam packaging. More
than 100 U.S. cities or counties have banned or
restricted foam packaging. The problem can be
less
exacerbated in developing
sophisticated solid waste management
systems.
Recent scientific research estimates that one half of
ocean plastic deposition comes from several rapidly
developing Asian countries where our company does
substantial business.

countries with

Competitor McDonald’s announced that
it would
phase out use of polystyrene foam packaging globally
at the end of 2018. Competitor Starbucks has agreed
to phase out plastic straws by 2020. The company

MATTERS REQUIRING SHAREHOLDER ACTION

also lacks a commitment to recycle front of house
on-site post-consumer packaging. McDonald’s has
committed to recycle post-consumer packaging in all
restaurants globally by 2025.

to shareholders,

BE IT RESOLVED Shareholders request that YUM
Brands issue a report
to be
prepared at
and omitting
proprietary information, detailing efforts to achieve
environmental
a
leadership
comprehensive policy on sustainable packaging.

reasonable

through

cost

Supporting statement:

Proponent believes that a comprehensive policy on
for example, address
sustainable packaging should,
plastic
and food
containers, and policies for front of house recycling.
We urge shareholders to support this proposal.

straws, polystyrene beverage

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What is the Company’s position regarding this proposal?

Management Statement in Opposition to Shareholder Proposal

time and resources that

Our Board of Directors unanimously recommends that
stockholders vote AGAINST this proposal, as it would
divert
the Company has
determined would be better used to support our
strategy to target our sustainability efforts on areas that
impact, without
will provide the most meaningful
providing a significant corresponding benefit
to the
Company.

Sustainable packaging has been a priority for
the
Company for the last several years as our sustainability
strategy has evolved. Our approach to sustainability
initiatives is guided by impact: we focus our efforts
where we have the ability to influence meaningful
outcomes. With that principle in mind, our focus has
been on our existing goal of diverting 50 percent of
back-of-house
from landfills,
operational waste
measured by weight, generated in our U.S. restaurants
by the end of 2020. In addition, we have focused on
our goal of purchasing 100 percent of our paper-based
packaging from responsibly managed forests and

that

commitment

recycled sources by the end of 2020. In January 2019,
our KFC Division announced a significant new global
sustainability
all plastic-based,
consumer-facing packaging will be recoverable or
reusable by 2025. These initiatives are those that the
Company has determined are best targeted to have
the most direct
the Company
currently has in place procedures designed to mitigate
packaging risks and ensure that issues are surfaced
and addressed in a timely manner.

impact. Moreover,

implementation of broader
As the above highlights,
reporting on our sustainable packaging policy, as
requested by the proposal, is not necessary and would
divert time, effort and resources, thereby limiting our
ability to target our efforts on areas that will provide the
most meaningful
impact. For this reason, and other
reasons outlined below, we believe that the request by
the proponent is unnecessary, and has the potential to
divert resources with no corresponding benefit to the
Company, our customers, or our shareholders.

YUM! BRANDS, INC. - 2019 Proxy Statement 35

MATTERS REQUIRING SHAREHOLDER ACTION

Why does the Company oppose the proposal?

to

related

identification

and
Specifically
the
report on efforts to
communication of a potential
achieve
a
comprehensive policy on sustainable packaging, the
Company has in place the following:

environmental

leadership

through

(cid:129) Public

statements, policies

and goals on
sustainable packaging issues. The Company
maintains a public website with policy statements
representing our informed views and opinions on
have
industry-related
implemented policies for more sustainable packaging
and waste handling. Given that packaging is an
important part of our waste equation, we have done
the following:

Notably,

issues.

we

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(cid:129) We are actively pursuing our goal of purchasing
100 percent of our paper-based packaging with
from responsibly managed forests and
fiber
recycled sources by the end of 2020;

(cid:129) We have focused on our goal of diverting
50 percent of back-of-house operational waste
from landfills, measured by weight, generated in
our U.S. restaurants by the end of 2020;

(cid:129) KFC has made a global sustainability commitment
that all plastic-based, consumer-facing packaging
will be recoverable or reusable by 2025; and

(cid:129) Taco Bell has replaced its cold drink cups with
fully recyclable cold cups across 7,000 of its US
its
restaurants, representing more than 95% of
drinks sold.

These policies and goals reflect our long-term intention
to develop and implement more sustainable packaging
and waste handling in our restaurants – by building on
progress already made and industry innovations and
infrastructure developments.

(cid:129) Comprehensive

disclosure

the Report

on
voluntary
environmental sustainability issues. On a biennial
basis, with updates during intervening years,
the
Company publishes
its Global Citizenship &
Sustainability Report at http://citizenship.yum.com/.
the Company’s
Included in
commitments in the material sustainability areas of
food, planet and people, which includes sustainable
these
packaging.
commitments,
are
In addition, the Company
included in the Report.
discloses its climate, water and forests practices
through CDP on an annual basis.

including packaging

for
goals,

Progress

updates

are

(cid:129) Collaboration with

industry

groups. We
understand that
the journey to more sustainable
packaging includes innovation. The Company has
joined the NextGen Cup Challenge, an initiative by
the NextGen Consortium, a multi-year partnership of
food-service industry leaders, to address single-use
food packaging waste globally. In its initial phase, the
project hopes to advance recoverable solutions for a
fiber, hot and cold, to-go cup system. The Company
believes that this initiative can be an important step
toward
in
overcoming the global
infrastructure challenges of
single-use packaging.

unlocking wider

innovations

and

(cid:129) Integrated, executive-level governance structure
to oversee the Company’s global sustainability
initiatives. Oversight for environmental, social and
governance (ESG) issues ultimately resides with the
Yum! Brands Board of Directors, briefed through its
Audit Committee on a regular basis. At
the
operational
the Chief Communications and
Public Affairs Officer oversees the global reputation
shaping the
of Yum! and is
Citizenship and Sustainability Strategy with the Vice
President, Government Relations and Citizenship &
Sustainability.

responsible for

level,

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.

36 YUM! BRANDS, INC. - 2019 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, 2018, 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

The Vanguard Group

100 Vanguard Blvd.
Malvern, PA 19355

Blackrock Inc.

55 East 52nd Street
New York, NY 10055

Number of Shares
Beneficially Owned

Percent
of Class

23,089,447(1)

7.39%

21,595,217(2)

6.90%

(1) The filing indicates sole voting power for 372,013 shares, shared voting power for 102,844 shares, sole dispositive power for

22,620,360 shares and shared dispositive power for 469,087 shares.

(2) The filing indicates sole voting power for 18,948,347 shares, shared voting power for 0 shares, sole dispositive power of

21,595,217 shares and shared dispositive power for 0 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, 2018 by

and executive officers as a group, beneficially own
approximately 0.67%.

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(cid:129) each of our directors,

(cid:129) each of the executive officers named in the Summary

Compensation Table on page 59, and

(cid:129) 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 (nor the Directors and
executive officers as a group) holds in excess of one
percent of
the outstanding YUM common stock.
Please see table above setting forth information
concerning beneficial ownership by holders of
five
percent or more of YUM’s common stock. Directors

from

stock

appreciation
the

The table shows the number of shares of common
stock and common stock equivalents beneficially
owned as of December 31, 2018. Included are shares
that could have been acquired within 60 days of
December 31, 2018 through the exercise of stock
or
options,
deferred
distributions
compensation
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.

rights
Company’s
together with

(“SARs”)

plans,

YUM! BRANDS, INC. - 2019 Proxy Statement 37

STOCK OWNERSHIP INFORMATION

Number
of Shares
Beneficially
Owned(1)
163,283
3,235
10,000
—
452
—
—
10,506
2,150
4,019
112,284
39,266
6,459
40,162
11,794
—

Beneficial Ownership
Options/
SARs
Exercisable
within
60 Days(2)
582,546
—
4,167
—
1,474
—
5,216
10,531
1,064
2,205
10,531
223,900
58,521
167,075
62,455
15,360

Deferral
Plans Stock
Units(3)
97,270
—
—
—
—
—
—
—
—
—
—
16,439
9,487
15,878
324
17,739

Total
Beneficial
Ownership
843,099
3,235
14,167
—
1,926
—
5,216
21,037
3,214
6,224
122,815
279,605
74,467
223,115
74,573
33,099

Additional
Underlying
Stock
Units(4)
45,590
3,485
20,938
4,857
11,297
2,611
24,158
62,142
7,104
10,575
50,438
21,589
1,147
62,910
14,029
4,953

Total
888,689
6,720
35,105
4,857
13,223
2,611
29,374
83,179
10,318
16,799
173,253
301,194
75,614
286,025
88,602
38,052

406,593

1,154,910

157,137

1,718,640

347,823 2,066,463

Name
Greg Creed(5)
Paget Alves
Michael J. Cavanagh
Christopher Connor
Brian C. Cornell
Tanya Domier
Mirian M. Graddick-Weir
Thomas C. Nelson
Justin Skala
Elane B. Stock
Robert D Walter(5)
David Gibbs
Tracy Skeans
Roger Eaton
David Russell
Marc Kesselman
All Directors and Executive
Officers as a Group (17

persons)

(1) 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:
(cid:129) Ms. Skeans, 4,927
(cid:129) Mr. Russell, 1,017
(cid:129) all executive officers as a group, 5,944 shares

(2) The amounts shown include beneficial ownership of shares that may be acquired within 60 days pursuant to SARs awarded
under our employee or director incentive compensation plans. 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).

(3) 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 and
include full value awards. 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.

(4) 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.

(5) For Mr. Creed, these shares are held by a family LLC of which Mr. Creed is the manager. For Mr. Walter, these shares are

held in a trust.

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38 YUM! BRANDS, INC. - 2019 Proxy Statement

SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE

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 2018, except that Ms. Skeans had one late Form 4 report that
reported 3 late transactions (the exercise of a SAR and two sales transactions) due to the broker’s failure to notify
the executive officer or Company of the transactions.

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

This Compensation Discussion and Analysis (“CD&A”) describes our executive compensation philosophy and
program,
the Management Planning and Development Committee (the
“Committee”) for our named executive officers (“NEOs”) and factors considered in making those decisions.

the compensation decisions of

Table of Contents

I. Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40

A. YUM 2018 Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
B. Named Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
C. Compensation Philosophy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
D. Compensation Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
E. Relationship between Company Pay and Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

II. Elements of Executive Compensation Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44

A. Base Salary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
B. Annual Performance-Based Cash Bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
C. Long-Term Equity Performance-Based Incentives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

III. 2018 Named Executive Officer Total Direct Compensation and Performance

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47

IV. Retirement and Other Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51

V. How Compensation Decisions Are Made . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52

VI. Compensation Policies and Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55

YUM! BRANDS, INC. - 2019 Proxy Statement 39

EXECUTIVE COMPENSATION

I.

Executive Summary

A. YUM 2018 Performance

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net

run

rate

capital

expenditures

In 2016 we launched a series of initiatives to transform
the Company, centering on a new multi-year strategy
to accelerate growth, reduce volatility and increase
capital returns to shareholders. By the end of 2018, we
intended to own less than 1,000 restaurants (at least
98% franchised) and, in 2019, intend to have reduced
annual
to
approximately $100 million and to have improved our
efficiency by lowering general and administrative
expenses as a percentage of system sales to 1.7%.
The transformation strategy builds upon the principle
that a more focused, more franchised and more
efficient company will accelerate growth and create
significant long-term value for all of our stakeholders.
Our four key growth drivers, discussed below, are the
principal drivers of the Company’s strategic plans to
accelerate same-store sales and net-new unit growth
and serve as our guiding principles for strengthening
and growing our KFC, Pizza Hut and Taco Bell brands
around the world. In 2018, we achieved our goal of
becoming at least 98% franchised and continued to
make significant progress towards our 2019 goals.

Our successes in 2018 were possible because of our
focus on four growth drivers, each a part of our “Recipe
for Growth”, which form the basis of the Company’s
strategic plans to accelerate same-store sales growth
and net-new restaurant development at KFC, Pizza Hut
and Taco Bell around the world. The Company remains
focused on building the world’s most loved, trusted and
fastest growing restaurant brands by:
(i) building
Distinctive, Relevant and Easy Brands, by increasing
investment in consumer insights, core product innovation,
digital excellence and initiatives that strengthen the
the customer
quality, convenience and appeal of

40 YUM! BRANDS, INC. - 2019 Proxy Statement

(ii)

developing Unmatched

experience;
Franchise
Operating Capability, strengthening how we equip and
recruit
the best restaurant operators to deliver great
customer experiences, and build and protect our brands;
(iii) driving Bold Restaurant Development
through
partnerships with growth-minded franchisees who can
expand and penetrate markets with modern restaurants,
strong economics and value; and (iv) growing Unrivaled
Culture and Talent to strengthen the customer experience
and franchise success with best-in-class people capability
and culture.

level

economics,

Strong brands are critical
to our ability to deliver
sustained growth and to create long-term shareholder
value. As a part of strategic efforts to improve franchise
an
unit
investment in Grubhub Inc., partnered with Telepizza
Inc. during 2018. These
and acquired QuikOrder,
actions
expand our delivery
footprint and scale and
capabilities,
enhance our technology capabilities going forward.

are designed to
increase our

the Company made

adjusted

operating

2018 was a successful year for the Company and its
progress towards the transformation initiative. System
sales grew 5%, with same store sales growth of 2%.
We achieved net unit growth of 7%, as a result of an
increase in our system restaurant count by 3,039 units.
increased
Our
approximately 11% during 2018 (see Appendix A:
Reconciliation of Adjusted Operating Profit Growth to
GAAP Operating Profit Growth). These results provide
us with confidence that we are making meaningful
progress
and
strengthening our global KFC, Pizza Hut and Taco Bell
brands. The following performance highlights illustrate
the Company’s success in 2018

towards

building

profit

goal

also

our

of

EXECUTIVE COMPENSATION

(1) Note: All comparisons are versus the same period a year ago. System sales figures in this section exclude the impact of
foreign currency translation. See the Non-GAAP Items section in Item 7 of YUM’s Form 10-K for the fiscal year ended on
December 31, 2018 for a reconciliation of GAAP Company sales to System sales.

(2) Total shareholder return is calculated as the growth in YUM share price from the beginning of 2018 until the year-end, and

includes assumed reinvestment of dividends.

B. Named Executive Officers

The Company’s NEOs for 2018 are as follows:

Name

Greg Creed

David W. Gibbs(1)

Roger G. Eaton(2)

Tracy L. Skeans

David E. Russell

Title

Chief Executive Officer

President, Chief Operating Officer and Chief Financial Officer

Retired Chief Executive Officer of KFC Division

Chief Transformation and People Officer

Senior Vice President, Finance and Corporate Controller

Marc. L. Kesselman(3)

Former General Counsel, Corporate Secretary and Chief Government Affairs Officer

(1) Effective January 25, 2019, Mr. Gibbs was appointed as the Chief Operating Officer of the Company, in addition to his roles

as President and Chief Financial Officer.

(2) Mr. Eaton retired as Chief Executive Officer of KFC Division, effective January 1, 2019.
(3) Mr. Kesselman ceased to be the Company’s General Counsel, Corporate Secretary and Chief Government Affairs Officer,

effective June 30, 2018.

C. Compensation Philosophy

The business performance of the Company is of the
importance in how our executives are
utmost
compensated. Our compensation program is designed
to both support our long-term growth model and hold

our executives accountable to achieve key annual
compensation
results
philosophy for the NEOs is reviewed annually by the
Committee and has the following objectives:

YUM’s

year.

after

year

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Base Salary

✓

Objective

Attract and retain 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.

Reward performance—The majority of NEO pay is
performance based and therefore at risk. We design pay
programs that incorporate team and individual performance
goals that lead to 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.

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

Pay Element
Annual
Performance-Based
Cash Bonuses

Long-Term Equity
Performance-
Based Incentives

✓

✓

✓

✓

✓

✓

YUM! BRANDS, INC. - 2019 Proxy Statement 41

EXECUTIVE COMPENSATION

D. Compensation Overview

2018 Compensation Highlights

(cid:129) In January of 2018,

the Committee made the

following decisions and took the following actions:

(cid:129) The Committee set our CEO target compensation
levels at the median of our Executive Peer Group
(defined at page 54) for the CEO role;

(cid:129) The Committee set the equity mix for our Global
Leadership Team’s long-term incentive awards at
50% stock appreciation rights (“SARs”) and 50%
performance share units (“PSUs”); and

(cid:129) The Committee certified that our 2015 PSU awards
under our Performance Share Plan paid out at
172% of target in 2018 based on the Company’s
Total Shareholder Return (“TSR”) at
the 79
percentile, compared to the S&P 500, for the 2015-
2017 performance cycle (see discussion of PSUs at
page 46).

(cid:129) At our May 2018 Annual Meeting of Shareholders,
shareholders approved our “Say on Pay” proposal in
support of our executive compensation program,
with 95% of votes cast in favor of the proposal.

and management

(cid:129) We continued our shareholder outreach program to
investors’ opinions on our
better understand our
compensation practices and respond to their
questions. Committee
team
members from compensation, investor relations and
legal continued to be directly involved in engagement
efforts during 2018 that served to reinforce our open
door policy. The efforts included contacting our
largest 35 shareholders, representing ownership of
approximately 50% of our shares (discussed further
on page 52).

E. Relationship between Company Pay and Performance

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To focus on both the short-term and long-term
success of the Company, approximately 90% of our
CEO’s target compensation is “at-risk” pay, with the
compensation paid based on Company results.
If
short-term and long-term financial and operational
then performance-
target goals are not achieved,
related compensation will decrease. If target goals are
exceeded, then performance-related compensation will
increase. As demonstrated below, our target pay mix

for our CEO emphasizes our commitment to “at-risk”
pay in order to tie pay to performance. For purposes of
this section, our discussion is limited to our CEO,
Mr. Creed. Our other NEOs’ target compensation is
subject to a substantially similar set of considerations,
which are discussed in Section III, 2018 Named
Executive Officer Total Direct Compensation and
Performance Summary, found at pages 47 to 51 of this
CD&A.

42 YUM! BRANDS, INC. - 2019 Proxy Statement

CEO Total Direct Compensation

The Committee sets the CEO’s target for total direct
compensation (base salary, annual cash bonus and
long-term incentive award value at grant date)
annual
every year to align appropriately with market data for
our Executive Peer Group,
the
CEO’s performance, time in role and other job-related
factors. For 2016 and 2017, the Committee set the
CEO’s total compensation below the 50th percentile
and for 2018, at the 50th percentile. The progression in

taking into account

EXECUTIVE COMPENSATION

target total compensation reflects the CEO’s growth in
role and ongoing continued strong performance.

As demonstrated below, the CEO’s actual total direct
three
compensation was above target
years,
target
performance. For 2018, 67% of our CEO’s pay was in
the form of long-term equity incentive compensation.

for
the Company’s

the last
above

reflecting

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(1) The Company uses Adjusted Operating Profit Growth as a key performance measure of results of operations for the purpose
of evaluating performance against targets set under our YUM Leaders’ Bonus Program. Refer to Appendix A: Reconciliation
of Adjusted Operating Profit Growth, as shown above, to GAAP Operating Profit Growth.

(2) System sales growth excludes the impact of foreign currency translation and, for 2017 and 2016, the impact of a 53rd week

in 2016.

(3) Total shareholder return is calculated as the growth in YUM share price from the beginning of the respective year until the

year-end, and includes assumed reinvestment of dividends.

YUM! BRANDS, INC. - 2019 Proxy Statement 43

EXECUTIVE COMPENSATION

II. 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
Long-Term Equity Performance-Based
Incentives
Retirement and Additional Benefits

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.
Align the interests of executives with shareholders and
emphasize long-term results.
Provide for long-term retirement income and basic health and
welfare coverage.

Form
Cash

Cash

SARs & PSUs

Various

A. 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 salary
responsibility,
varies based on the role,

level of

experience,
individual performance, potential and
market value. Specific salary increases take into
account these factors. The Committee reviews each
NEO’s salary and performance annually.

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B. Annual Performance-Based Cash Bonuses

Our performance-based annual bonus program, the
YUM Leaders’ Bonus Program, is a cash-based plan.
the YUM Leaders’ Bonus
The principal purpose of

Program is to motivate and reward short-term team
and individual performance that drives shareholder
value.

The formula for calculating the performance-based annual bonus under the YUM Leaders’ Bonus Program is the
product of the following:

Base Salary

X

Target Bonus
Percentage

X

Team Performance
(0 – 200%)

X

Individual Performance
(0 – 150%)

=

Bonus Payout
(0 – 300%)

Team Performance

In light of the Company’s transformation, which began
in 2016 and continued throughout 2017 and 2018, the
Committee carefully considered our strategic direction
to become a pure-play franchisor and established
team performance measures, targets and weights in
and
January
2018
recommendations
team
performance targets were also reviewed by the Board
to ensure that the goals support the Company’s overall
strategic objectives.

after
input
receiving
from management. The

The performance targets were developed through the
financial planning process, which
Company’s annual
takes into account KFC, Pizza Hut and Taco Bell
(each,
“Division”) growth strategies, historical
performance, and the expected future operating
environment for each Division.

a

44 YUM! BRANDS, INC. - 2019 Proxy Statement

takes

specific

each
for
the Company

team
targets
setting
When
performance measure,
into
account overall business goals and structures the
target to motivate achievement of desired performance
to
consistent with
shareholders. 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.

commitment

growth

our

the

potential

A leverage formula for each team performance
measure magnifies
that
performance above or below the performance target
will have on the calculation of the 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

impact

EXECUTIVE COMPENSATION

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 Committee may approve adjustments to Division
targets or may exclude certain pre-established items
from the financial results used to determine the annual
bonus when doing so is consistent with the objectives
and intent at the time the targets were originally set in
order to focus executives on the fundamentals of the
Company’s underlying business performance.

As part of
the 2018 target-setting process the
Committee decided that KFC and/or YUM Operating
incentive
Profit growth performance for 2018 annual

purposes should be measured adjusting for certain
factors
that were not considered indicative of
underlying business performance for the year. These
factors included amounts associated with Special
Items (as defined in our Form 10K), the impacts of
foreign currency translation, the profit dilution resulting
from the refranchising of company-owned stores,
incremental
general and administrative reductions,
Pizza Hut US system advertising expense we agreed
to as part of the Pizza Hut Transformation Agreement
and the impact of a 2018 required change in the
revenue recognition. For
accounting standards for
further details, refer to Appendix A: Reconciliation of
Adjusted Operating Profit Growth.

Detailed Breakdown of 2018 Team Performance

The team performance targets, actual results, weights
and overall performance for each measure for our
NEOs are outlined below. The long-term drivers of
value for YUM are profit growth, same-store sales
growth and new store development. Accordingly, the
Committee selected these performance measures for

incentive plan and were
the Company’s annual
included at both the corporate and divisional levels. For
Divisions, the team performances are weighted 75%
on Division operating measures and 25% on YUM
team performance.

Team Performance

Measures

Adjusted Operating Profit Growth1

System Same-Store Sales Growth

System Net New Units

Target Actual

12% 11.4%

3.0% 2.0%

1,645 3,039

NEO

Creed

Gibbs

Skeans
Russell(2)
Kesselman(2)

FINAL YUM TEAM FACTOR

Eaton

Adjusted Operating Profit Growth1

12% 12.8%

System Same-Store Sales Growth

3.0% 2.4%

System Net New Units

850 1,134

Total Weighted Team
Performance — KFC (75%)

Total Weighted Team
Performance — YUM (25%)

FINAL KFC TEAM FACTOR

Earned Award
as % of Target Weighting Final Team Performance

92

75

200

115

84

200

50%

25%

25%

50%

25%

25%

46

19

50

115

58

21

50

129

115

126

(1) Refer to Appendix A: Reconciliation of Adjusted Operating Profit Growth, as shown above, to GAAP Operating Profit Growth.
(2) Mr. Russell received a 120 team factor based on a discretionary adjustment that was made for all YUM employees who
were not members of the YUM Global Leadership Team. Mr. Kesselman received a 100 team factor in connection with his
departure from the Company.

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YUM! BRANDS, INC. - 2019 Proxy Statement 45

EXECUTIVE COMPENSATION

Individual Performance

Factor

Individual Performance

is
Each NEO’s
the Committee based upon its
determined by
the NEO’s individual
subjective determination of
performance for the year,
including consideration of
specific objective individual performance goals set at
the beginning of the year.

C. Long-Term Equity Performance-Based
Incentives

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

short-term and

between

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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):

(cid:129) Prior year individual and team performance

(cid:129) Expected contribution in future years

(cid:129) Consideration of

the
executive’s role compared with similar roles in
our Executive Peer Group

the market value of

(cid:129) Achievement of stock ownership guidelines

Equity Mix

Each year, the Committee reviews the mix of long-term
incentives. For 2018,
the Committee continued to
choose SARs and PSU awards because these equity
vehicles focus and reward management for enhancing
long-term shareholder value,
thereby aligning our
NEOs with the interests of our shareholders.

At the beginning of 2018, the Committee determined a
the Global
target grant value for each member of

Leadership Team and the split of that value between
SARs and PSU grants. For each NEO (other than
Mr. Russell), the target grant value was split 50% SARs
and 50% PSUs. Mr. Russell received 100% SARs
because PSUs
not granted to Company
employees at his level. For each NEO, the breakdown
between SARs award values and PSU award values
the Summary Compensation
can be found under
Table, page 59 at columns e and f.

are

Stock Appreciation Rights Awards

The Committee believes that SARs reward value
creation generated from sustained results. In 2018, we
granted to each of our NEOs SARs which have
ten-year terms and vest over four years. The exercise
price of each SAR award was based on the closing
market price of the underlying YUM common stock on
the date of grant. Therefore, SAR awards will only have
value if our NEOs are successful in increasing the share
price above the awards’ exercise price.

Performance Share Awards

and

Pursuant to the Performance Share Plan under our
Long Term Incentive Plan (“LTIP”), we granted our
NEOs (other than Mr. Russell) PSU awards in 2018.
PSU awards are earned equally based on the
Company’s 3-year average TSR relative to the
companies in the S&P 500 Consumer Discretionary
Index and on compound annual 3-year growth of the
Company’s Earnings Per Share (“EPS”). Incorporating
TSR
Company’s
supports
pay-for-performance philosophy while diversifying
performance criteria by using measures not used in the
annual bonus plan and aligning our NEOs’ reward with
the creation of shareholder value. If TSR is negative,
payouts may not exceed the target irrespective of the
actual TSR percentile ranking of the Company. The
target, threshold and maximum number of shares that
may be paid under these awards for each NEO are
described at page 61.

EPS

the

For the performance period covering 2018 – 2020, each NEO (other than Mr. Russell) will earn a percentage of his
or her target PSU award, with 50% of the payout based on the achieved TSR percentile ranking and the other 50%
based on EPS growth. Indicative payouts as a percentage of target are as set forth in the table below:

TSR Percentile Ranking
Payout as % of Target
EPS Growth (3-year CAGR, ex foreign currency translation)

Payout as % of Target

46 YUM! BRANDS, INC. - 2019 Proxy Statement

Threshold Target Maximum

<30%
0%

<7%
0%

30%
35%

7%
35%

50%
100%

12%
100%

75%
200%

17%

200%

EXECUTIVE COMPENSATION

Dividend equivalents will accrue during the performance period and will be distributed as additional shares but only
in the same proportion and at the same time as the original awards are earned. If no shares are earned, no
dividend equivalents will be paid. The awards are eligible for deferral under the Company’s Executive Income
Deferral (“EID”) Program.

III. 2018 Named Executive Officer Total Direct Compensation and

Performance Summary

Below is a summary of each of our NEOs’ total direct
compensation – which includes base salary, annual
cash bonus, and long-term incentive awards – and an
their 2018 performance relative to our
overview of
annual and long-term incentive performance goals. The

process the Committee used to determine each
officer’s 2018 compensation is described more fully in
“How Compensation Decisions Are Made” beginning
on page 52.

CEO Compensation

Greg Creed
Chief Executive Officer

2018 Performance Summary

Our Board, under the leadership of the Committee
Chair, approved Mr. Creed’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
included business
achievement of his goals that
and
development
results,
implementation
and
strategies,
development of Company culture and talent.

leadership
of

in
Company

the

The Committee determined that Mr. Creed’s overall
performance for 2018 merited an individual factor of
125. This individual factor was combined with YUM’s
team factor of 115 (discussed at page 44) to calculate
his annual cash bonus. This determination was based
on
of
Mr. Creed’s performance against his goals which
included the following items (without assigning a weight
to any particular item):

the Committee’s

assessment

subjective

(cid:129) YUM Adjusted Operating

Profit Growth

of

approximately 11%

(cid:129) Worldwide system sales growth of 5%

(cid:129) Net new restaurant openings of 3,039; net unit

growth of 7%

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(cid:129) KFC’s and Taco Bell’s above target performance for

Adjusted Operating Profit Growth

(cid:129) KFC’s, and Pizza Hut International’s above target

performance for System Net New Units

(cid:129) Management of

the Company during the second

year of its transformation into a pure-play franchisor

(cid:129) Leadership during the strategic transactions involving

Grubhub Inc., Telepizza and QuikOrder, Inc.

(cid:129) Development of

leadership and leadership bench,

and fostering customer-focused employee culture

2018 Committee Decisions

In January, Mr. Creed’s compensation was adjusted as
follows:

(cid:129) Base salary was increased 3%;

(cid:129) Annual cash bonus target was increased to 175% of

base salary; and

(cid:129) Grant value of

long-term incentive equity awards
were increased by 33% recognizing his performance
in leading the Company in implementing its Recipe
for Growth, time in role and impact on the business.

These decisions positioned Mr. Creed’s total target
compensation to approximately the 50th percentile of
the Company’s Executive Peer Group.

YUM! BRANDS, INC. - 2019 Proxy Statement 47

EXECUTIVE COMPENSATION

The graphics below illustrate Mr. Creed’s direct compensation:

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Other NEO 2018 Total Direct Compensation

David W. Gibbs
President, Chief Operating Officer and Chief Financial Officer

2018 Performance Summary

2018 Committee Decisions

In January, Mr. Gibbs’ compensation was adjusted as
follows:

(cid:129) Base salary was increased 7%;

(cid:129) Annual cash bonus target remained unchanged at

105% of base salary; and

(cid:129) Grant value of

long-term incentive equity awards
were increased by 25% to better align with market
compensation norms and internal peer equity, as
well as to reflect performance and time in role.

total direct
These decisions positioned Mr. Gibbs’
compensation between the 50th and 75th percentile of
the Executive Peer Group (defined at page 54) for his
position.

The Committee determined Mr. Gibbs’ performance for
the year merited a 135 individual performance factor.
The Committee recognized Mr. Gibbs’ performance in
the position of President and CFO of the Company,
including driving shareholder value creation and returns
through optimization of our capital structure, increasing
restaurant development, driving YUM’s Adjusted
Operating Profit Growth of 11%, leading the effort to
refranchise a significant number of Company-owned
restaurants,
continued
and
transformation
implementation of
strategy. Mr. Gibbs was also recognized for his
leadership during the strategic transactions involving
Grubhub Inc., Telepizza and QuikOrder, Inc. Mr. Gibbs’
individual performance factor was combined with a
team factor of 115 (discussed at page 44) to calculate
his annual cash bonus.

in
the Company’s

leading

the

Effective January 25, 2019, Mr. Gibbs was promoted
to President, Chief Operating Officer and Chief
Financial Officer.

48 YUM! BRANDS, INC. - 2019 Proxy Statement

EXECUTIVE COMPENSATION

Roger G. Eaton
Retired Chief Executive Officer of KFC Division

2018 Performance Summary

2018 Committee Decisions

The Committee determined Mr. Eaton’s performance
as the CEO, KFC Division, merited a 125 individual
performance factor. Under Mr. Eaton’s leadership, KFC
achieved significantly above-target net new unit
growth, as well as above-target Adjusted Operating
Profit Growth. Mr. Eaton was also recognized for
increasing KFC delivery capabilities to over 10,000
restaurants, driving compliance with food safety,
information security and Foreign Corrupt Practices Act
(“FCPA”) standards, and providing leadership in the
refranchising of a significant number of restaurants.
Mr. Eaton’s
factor was
individual performance
combined with a team factor of 126 (discussed at
page 44) to calculate his annual cash bonus.

Tracy L. Skeans
Chief Transformation and People Officer

In January, Mr. Eaton’s compensation was adjusted as
follows:

(cid:129) Base salary was increased 3% percent;

(cid:129) Annual cash bonus target remained unchanged at

100% of base salary; and

(cid:129) Grant value of

long-term incentive equity awards

remained unchanged from previous year.

These decisions positioned Mr. Eaton’s total direct
compensation between the 50th and 75th percentile of
the Executive Peer Group (defined at page 54) for his
position.

2018 Performance Summary

2018 Committee Decisions

determined

the Company’s

The Committee
that Ms. Skeans’
performance merited a 125 individual performance
factor. The Committee recognized Ms. Skeans for
providing strategic leadership in the organizational
transformation of the Company, as well as her efforts in
cultivating
talent.
recognized for driving
Ms. Skeans was
compliance with food safety, information security and
FCPA standards and improving brand protection and
crisis
Skeans’
individual factor was combined with a team factor of
115 (discussed at page 44) to calculate her annual
cash bonus.

protocols. Ms.

communications

culture

also

and

In January, Ms. Skeans’ compensation was adjusted
as follows:

(cid:129) Base salary was increased 12%;

(cid:129) Annual cash bonus target remained unchanged at

85% of base salary; and

(cid:129) Grant value of long-term incentive equity awards was
increased by 14% to better align with market
compensation norms and internal peer equity, as
well as to reflect performance and her time in the
role.

(cid:129) Ms. Skeans also received a CEO Award SARs grant
leadership for
recognizing her
of $1,000,000,
accelerating
initiatives,
&
championing the use of repeatable models around
the globe, and developing and implementing talent
and leadership programs that drove attraction,
retention and best-in-class engagement scores.

inclusion

diversity

These decisions positioned Ms. Skeans’ total direct
compensation at slightly above the 50th percentile of
the Executive Peer Group (defined at page 54) for her
position.

YUM! BRANDS, INC. - 2019 Proxy Statement 49

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EXECUTIVE COMPENSATION

David E. Russell
Senior Vice President, Finance and Corporate Controller

2018 Performance Summary

2018 Committee Decisions

The Committee determined Mr. Russell’s performance
for
the year merited a 140 individual performance
factor. The Committee recognized Mr. Russell’s
performance in leading the effort to implement a new
financial management system and in supporting the
Company’s transformation strategy. Mr. Russell was
also recognized for his leadership during the strategic
transactions involving Grubhub Inc., Telepizza and
QuikOrder,
Inc. Mr. Russell’s individual performance
factor was combined with a team factor of 120
(discussed at page 44) to calculate his annual cash
bonus.

In January, Mr. Russell’s compensation was adjusted
as follows:

(cid:129) Base salary was increased 3%;

(cid:129) Annual cash bonus target remained unchanged at

65% of base salary; and

(cid:129) Target grant value of

long-term incentive equity

awards remained unchanged.

These decisions positioned Mr. Russell’s total direct
compensation between the 50th and 75th percentile of
the Executive Peer Group (defined at page 54) for his
position.

Marc L. Kesselman
Former General Counsel, Corporate Secretary and Chief Government Affairs Officer

2018 Performance Summary

2018 Committee Decisions

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Mr. Kesselman was the Company’s General Counsel,
Corporate Secretary and Chief Government Affairs
Officer through June 30, 2018, and is no longer an
employee of YUM. He is included in the Summary
Compensation Table as required by SEC rules
because his compensation while an employee of YUM
was at a level that would have required disclosure had
he been an executive officer at the end of 2018.

The Committee approved a 100 individual performance
factor
in connection with his
for Mr. Kesselman,
departure from the Company.

In January, Mr. Kesselman’s compensation was
adjusted as follows:

(cid:129) Base salary was increased 2%;

(cid:129) Annual cash bonus target remained unchanged at

85% of base salary; and

(cid:129) Grant value of

long-term incentive equity awards

remained unchanged from previous year.

These decisions positioned Mr. Kesselman’s total
direct compensation at approximately
the 50th
percentile of the Executive Peer Group (defined at page
54) for his position.

50 YUM! BRANDS, INC. - 2019 Proxy Statement

The graphic below illustrates the 2018 total direct compensation of our Named Executive Officers, other than
Mr. Creed and Mr. Kesselman:

EXECUTIVE COMPENSATION

IV. 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. The plan is
U.S.-based and was closed to new entrants in 2001.
Mr. Gibbs, Ms. Skeans and Mr. Russell are active
participants in the Retirement Plan and Mr. Creed
maintains a balance in the Retirement Plan from the
years that he was a participant.

For executives hired or re-hired after September 30,
the Company implemented the Leadership
2001,
Retirement Plan (“LRP”). This
is an unfunded,
unsecured account-based retirement plan which
allocates a percentage of pay to an account payable to
the
the executive following the later
executive’s
from the
separation of employment
Company or attainment of age 55. For 2018,
Mr. Kesselman was eligible for the LRP. Under the

to occur of

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LRP, Mr. Kesselman received an annual allocation to
his account equal to 8% of his base salary and target
bonus, and an annual earnings credit of 5% on the
balance.

plan

retirement

account-based

The Company provides retirement benefits for certain
international employees through the Third Country
National Plan (“TCN”). The TCN is an unfunded,
that
unsecured
provides an annual contribution between 7.5% and
15% of salary and target bonus and an annual earnings
credit of 5% on the balance. The level of contribution is
based on the participants’ role and their home country
retirement plan. Messrs. Creed and Eaton are the only
NEOs who participate in the TCN. Under this plan,
Messrs. Creed and Eaton each receive an annual
contribution equal to 15% of 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 66.

YUM! BRANDS, INC. - 2019 Proxy Statement 51

EXECUTIVE COMPENSATION

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
Eligible
salaried
life, dependent life
employees can purchase additional

employees.

Perquisites

The Company provides very
limited number of
perquisites. The CEO and his spouse were required to
use charter or approved commercial aircraft
for
personal as well as business travel pursuant to the
Company’s executive security program established by
the Board of Directors. Our program provides that
upon the CEO reaching $200,000 in costs for his
personal use, any costs for personal aircraft use of

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.

above $200,000 will be reimbursed to the Company in
accordance with the requirements of
the Federal
Aviation Administration regulations. We do not provide
tax gross-ups on the personal use of the charter or
approved
the
incremental cost of Mr. Creed’s personal use of charter
or commercial aircraft was $134,043.

commercial

aircraft.

2018,

For

V. How Compensation Decisions Are Made

Shareholder Outreach, Engagement and 2018 Vote on NEO Compensation

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in

of

favor

At our 2018 Annual Meeting of Shareholders, 95% of
votes cast on our annual advisory vote on NEO
compensation were
our NEOs’
compensation program, as disclosed in our 2018
proxy statement. During 2018, we continued our
shareholder outreach program to better understand
our investors’ opinions on our compensation practices
and respond to their questions. Committee members
and management team members 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:

(cid:129) Contacting our largest 35 shareholders, representing

ownership of approximately 50% of our shares

(cid:129) Dialogue with proxy advisory firms

(cid:129) Investor road shows and conferences

(cid:129) Presenting shareholder feedback to the Committee

(cid:129) Considering letters from shareholders

annual

engagement

Our
allow many
shareholders the opportunity to provide feedback. The
Committee carefully considers shareholder and advisor

efforts

52 YUM! BRANDS, INC. - 2019 Proxy Statement

in making

factors discussed in this
feedback, among other
compensation decisions.
its
CD&A,
Shareholder
including the 2018 voting
results on NEO compensation, has influenced and
reinforced a number of compensation design changes
over the years, including:

feedback,

(cid:129) Continued benchmarking of CEO compensation at

market median.

(cid:129) Continued adjustment of CEO long-term equity
incentive mix from a mix comprised of 75% SARs
and 25% PSUs in 2016 to a mix comprised of 50%
SARs and 50% PSUs in 2017 and 2018.

(cid:129) Moving to two performance metrics under our
PSUs – TSR and EPS, beginning with PSU grants in
2017.

(cid:129) Changed PSU award metrics

to include the
Company’s 3-year average TSR relative to the
companies in the S&P 500 Consumer Discretionary
Index, rather than the average relative to the entire
S&P 500.

The Company and the Committee appreciate the
feedback from our shareholders and plan to continue
these engagement efforts.

EXECUTIVE COMPENSATION

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
and the
Company’s overall performance. The Committee
considers the total compensation of each NEO and

factors

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:

COMMITTEE ANNUAL COMPENSATION PROCESS

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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:

(cid:129) it is to act independently of management and at the

direction of the Committee;

(cid:129) it is to assist the Committee in its determination of
the annual compensation package for our CEO and
other NEOs.

The Committee considered the following factors,
among others,
in determining that Meridian is
independent of management and its provision of
services to the Committee did not give rise to a conflict
of interest:

(cid:129) its ongoing engagement will be determined by the

(cid:129) Meridian did not provide any services to the

Committee;

Company unrelated to executive compensation.

(cid:129) it is to inform the Committee of relevant trends and

regulatory developments;

(cid:129) Meridian has no business or personal relationship
with any member of the Committee or management.

(cid:129) it is to provide compensation comparisons based on
information
is derived from comparable
businesses of a similar size to the Company for the
NEOs; and

that

(cid:129) Meridian’s partners and employees who provide
services to the Committee are prohibited from
owning YUM stock per Meridian’s firm policy.

YUM! BRANDS, INC. - 2019 Proxy Statement 53

EXECUTIVE COMPENSATION

Comparator Compensation Data

situated executives

Our Committee uses an evaluation of how our NEO
target compensation levels compare to those of
that
similarly
comprise our Executive Peer Group (defined below) as
one of the factors in setting executive compensation.
retail,
The Executive Peer Group is made up of
goods
hospitality,
service
companies,

consumer
and quick

nondurable
eatery

food,
specialty

companies

at

restaurants, as these represent the sectors with which
the Company is most likely to compete for executive
talent. The companies selected 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.

Executive Peer Group

The Committee established the current peer group of companies (the “Executive Peer Group”) for all NEOs at the
end of 2016 for pay determinations beginning in 2017. The composition of the Executive Peer Group was updated
at that time to allow for more relevant comparisons following the separation of Yum China Holdings, Inc. in October
2016, given the reduced size of the Company and the current complexities of its business. This Executive Peer
Group is comprised of the following companies:

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At the time the benchmarking analysis was prepared,
the Executive Peer Group’s median annual revenues
were $9.3 billion, while YUM annual revenues were
estimated at $14.4 billion (calculated as described
below).

organization and underlying operating divisions during
the 2017 benchmarking process, our philosophy was
to add 25% of franchisee and licensee sales to the
Company’s sales to establish an appropriate revenue
benchmark. The reason for this approach was twofold:

can be

For companies with significant franchise operations,
measuring size
complex. Management
responsibilities encompass more than just the revenues
and operations directly owned and operated by the
company. There are responsibilities for managing the
relationships, arrangements, and overall scope of the
franchising enterprise, in particular, managing product
introductions, marketing,
new unit
development, and customer satisfaction and overall
operations improvements across the entire franchise
in calibrating the size of our
system. Accordingly,

promoting

(cid:129) Market-competitive compensation opportunities are
related to scope of responsibility, often measured by
company size, i.e., revenues; and

(cid:129) Scope of responsibility for a franchising organization
lies between corporate-reported revenues and
system wide sales.

We believe this approach is measured and reasoned
in its approach to calibrating market competitive
compensation
using
organizations unduly larger than the Company.

opportunities

without

Competitive Positioning and Setting Compensation

At the beginning of 2018, the Committee considered
Executive Peer Group compensation data as a frame
of reference for establishing compensation targets for

base salary, annual bonus and long-term incentives for
each NEO.
the
Committee considers market data for comparable

In making compensation decisions,

54 YUM! BRANDS, INC. - 2019 Proxy Statement

EXECUTIVE COMPENSATION

positions to each of our NEO roles. The Committee
reviews market data and makes a decision for each
NEO, most often in a range around market median for
each element of compensation, including base salary,
target bonus and long-term incentive target. In addition

to the market data, the Committee takes into account
the role, level of responsibility, experience, individual
performance
and potential of each NEO. The
Committee reviews the NEOs’ compensation and
performance annually.

VI. Compensation Policies and Practices

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

We Don’t Do

Employment agreements

Re-pricing of SARs

Grants of SARs with exercise price less than fair market
value 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

Excessive executive perquisites, such as country club
memberships

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✗

✗

✗

✗

We Do

✓

✓

✓

✓

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

Directly link Company performance to pay outcomes

Have executive ownership guidelines that are reviewed
annually against Company guidelines

Have a “clawback” policy under which the Company
may recoup compensation if executive’s conduct
results in significant financial or reputational harm to
Company

✓ Make a substantial portion of NEO target pay “at risk”

✓

✓

✓

✓

✓

✓

Have double-trigger vesting of equity awards upon a
change in control

Utilize an independent Compensation Consultant

Incorporate comprehensive risk mitigation into plan
design

Periodically review our Executive Peer Group to align
appropriately with Company size and complexity

Evaluate CEO and executive succession plans

Conduct annual shareholder engagement program to
obtain feedback from shareholders for consideration in
annual compensation program design

YUM’s Executive Stock Ownership Guidelines

The Committee has established stock ownership guidelines for approximately 190 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 2018, all NEOs and all other employees subject to guidelines met
or exceeded their ownership guidelines.

YUM! BRANDS, INC. - 2019 Proxy Statement 55

EXECUTIVE COMPENSATION

NEO
Creed

Gibbs

Eaton

Skeans

Russell

Kesselman

Ownership Guidelines
7x base salary

Shares Owned(1)
825,179

Value of Shares(2) Multiple of Salary
60.7

$75,850,454

3x base salary

3x base salary

2x base salary

1x base salary

2x base salary

285,316

270,147

67,655

88,602

15,360

$26,226,247

$24,831,912

$ 6,218,848

$ 8,144,296

$ 1,411,891

29.1

29.2

9.2

19.8

2.3

(1) Calculated as of December 31, 2018 and represents shares beneficially owned outright, shares underlying vested

in-the-money SARs, and all RSUs awarded under the Company’s EID Program.

(2) Based on YUM closing stock price of $91.92 as of December 31, 2018.

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.

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The Company’s change-in-control agreements,
in
general, entitle executives who are direct reports to our
CEO and are 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 71.

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,
the Company has implemented “double trigger” vesting
to which outstanding
for equity awards, pursuant
awards will
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.

fully and immediately vest only if

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

The Company does not provide tax gross-ups for
executives, including the NEOs, for any excise tax due
under Section 4999 of the Internal Revenue Code and
has implemented a “best net after-tax” approach to
address
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

any potential

excise

tax

the

overall

policy,

compensation

With respect to consideration of how these benefits fit
into
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 SARs Granting Practices

Historically, we have made SARs 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 these
awards 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

56 YUM! BRANDS, INC. - 2019 Proxy Statement

retroactively. In addition, we do not time such grants in
coordination with our possession or release of material,
non-public or other information. All equity awards are
granted under our shareholder approved LTIP.

Grants may also be made on other dates the Board of
Directors meets. These grants generally are CEO
Awards, which are awards to individual employees
(subject
in recognition of
superlative performance and extraordinary impact on
business results.

to Committee approval)

EXECUTIVE COMPENSATION

recommends the awards be made
Management
pursuant to our LTIP to the Committee, however, the
Committee determines whether and to whom it will
issue grants and determines the amount of the grant.
The Board of Directors has delegated to our CEO and
our Chief People Officer, the ability to make grants to
employees who are not executive officers and whose

is less than approximately 30,000 SARs
grant
annually. In the case of these grants, the Committee
sets all the terms of each award, except the actual
number of SARs, which is determined by our CEO and
our Chief People Officer 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 our NEOs and 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

Pursuant to the Company’s Compensation Recovery
Policy (i.e., “clawback”), the Committee may require
to return
executive officers (including the NEOs)
compensation paid or may cancel any award or
the executive
bonuses not yet vested or earned if
violation of
officers engaged in misconduct or
Company policy that resulted in significant financial or
reputational harm or violation of Company policy, or

incentive compensation. Under

inaccurate metrics in the
contributed to the use of
calculation of
this
policy, when the Board determines that 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.

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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
from, a decline in the Company stock price.
profit
Similarly, no employee or director may enter
into
hedging transactions in the Company’s stock. Such

Deductibility of Executive Compensation

tax

the

limit

the Internal
The provisions of Section 162(m) of
Revenue Code
for
compensation in excess of $1 million paid to certain
NEOs. The Committee believes that
the pre-2018
SARs, RSU and PSU awards satisfy the requirements
Internal Revenue Code
exemption
for
Section 162(m).

deduction

under

the Internal
The provisions of Section 162(m) of
Revenue code limit
the deductibility of all annual
compensation in excess of $1 million paid to certain

transactions include (without 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.

executive officers. The exception for performance-
based compensation does not apply, except with
respect to compensation that is subject to a transition
rule because it is paid pursuant to a binding contract
that was in place on November 2, 2017 and not
that date. The Committee
materially modified after
believes that shareholder interests are best served if its
discretion and flexibility in awarding compensation is
restricted, even though some compensation
not
in non-deductible compensation
awards will

result

YUM! BRANDS, INC. - 2019 Proxy Statement 57

EXECUTIVE COMPENSATION

the Committee has approved
expenses. Therefore,
salaries and other awards for executive officers that
were not fully deductible because of Section 162(m)
and, in light of the repeal of the performance-based

compensation exception to Section 162(m), expects in
the future to approve additional compensation that is
not deductible for income tax purposes.

Management Planning and Development Committee Report

and

The Management
Development
Planning
Committee of the Board of Directors reports that it has
reviewed and discussed with management the section
of
“Compensation
Discussion and Analysis” and, on the basis of that

statement

proxy

titled

this

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

Christopher M. Connor, Chair
Brian C. Cornell
Michael J. Cavanagh
Mirian M. Graddick-Weir
Robert D. Walter

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58 YUM! BRANDS, INC. - 2019 Proxy Statement

EXECUTIVE COMPENSATION

The following tables provide information on the compensation of the Named Executive Officers (“NEOs”) for our
2018 fiscal year. The Company’s NEOs are our Chief Executive Officer, Chief Financial Officer and our three other
most highly compensated executive officers for our 2018 fiscal year determined in accordance with SEC rules and
one former executive officer who was no longer serving as an executive officer as of the end of the year.

Summary Compensation Table

Year
(b)

Salary
($)(1)
(c)

Bonus
($)
(d)

Stock
Awards
($)(2)
(e)

Option/
SAR
Awards
($)(3)
(f)

Non-Equity
Incentive Plan
Compensation
($)(4)
(g)

2018 1,244,615
2017 1,208,846
2016 1,188,942

2018
2017
2016

2018
2017
2016

890,769
833,846
792,115

846,154
821,154
812,500

— 4,450,008 4,450,009
— 3,350,020 3,350,007
— 5,500,066 4,500,008

— 1,375,001 1,375,009
— 1,100,036 1,100,003
— 1,875,052 1,625,020

— 1,000,008 1,000,006
— 1,000,008 1,000,007
— 1,875,052 1,125,009

3,144,531
3,814,493
3,591,094

1,467,113
1,917,027
1,751,680

1,338,750
1,986,600
1,113,600

2018
2017

664,231
600,385

— 625,015 1,625,010
550,009
— 550,052

824,766
1,076,325

2018
2017
2016

410,154
396,154
476,867

— 449,904
544,180
—
397,313
180,000

297,644
328,915
496,870

2018
2017
2016

625,004
603,462
591,923
625,013
530,769 500,000 2,300,083 1,400,006

— 625,015
— 625,056

112,476
136,045
297,984

514,250
814,258
916,162

Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)(5)
(h)

21,348
66,286
56,100

1,870,004
2,564,062
577,153

20,114
30,388
30,853

325,022
776,398

93,860
494,542
162,407

All Other
Compensation
($)(6)
(i)

Total
($)

696,527 14,007,038
578,955 12,368,607
544,472 15,380,682

19,101
19,346
6,969

6,996,997
7,534,320
6,627,989

320,433
301,007
288,290

4,525,465
5,139,164
5,245,304

8,665
8,413

4,072,709
3,561,582

37,676
32,838
33,236

1,701,714
1,932,674
2,044,677

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1,734
1,435
—

560,623
91,304
83,606

2,930,088
2,748,989
5,730,626

Name and
Principal Position
(a)

Greg Creed

Chief Executive
Officer of YUM

David W. Gibbs

President and Chief
Financial Officer
of YUM

Roger G. Eaton
Retired Chief
Executive Officer of
KFC Division
Tracy L. Skeans

Chief Transformation
and People Officer of
YUM(7)

David E. Russell
Senior Vice
President, Finance
and Corporate
Controller of YUM

Marc L. Kesselman
Former General
Counsel, Corporate
Secretary and
Chief Government
Affairs Officer

(1) 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.

(2) Amounts shown in this column, except for Mr. Russell, represent the grant date fair values for performance share units
(PSUs) granted in 2018, 2017 and 2016. Further information regarding the 2018 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 February 2018 PSUs is 200% of target. For 2018,
Mr. Creed’s PSU maximum value at grant date fair value would be $8,900,016; Mr. Gibbs’ PSU maximum value would be
$2,750,002; Mr. Eaton’s PSU maximum value would be $2,000,016; Ms. Skeans’ PSU maximum value would be
$1,250,030; and Mr. Kesselman’s PSU maximum value would be $1,250,030. Mr. Russell did not receive a PSU award for
2018, 2017 or 2016 since he does not directly report to the CEO and therefore is not eligible. Mr. Russell 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 68), an eligible executive may defer all or a portion of his or her annual
incentive award and invest that deferral into stock units, RSUs, or other investment alternatives offered under the 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”) subject to a two-year risk of
forfeiture of the original deferral amount and the additional RSUs. For Mr. Russell, the amount in this column for 2018

YUM! BRANDS, INC. - 2019 Proxy Statement 59

EXECUTIVE COMPENSATION

represents the deferral of 75% of his annual incentive award ($337,428) for 2018, plus his matching contribution ($112,476).
The other NEOs are not eligible to participate in this program, as NEOs who receive PSUs are not eligible for the EID
matching stock program.

(3) The amounts shown in this column represent the grant date fair values of the stock appreciation rights (SARs) awarded in
2018, 2017 and 2016, 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 at Note 15 to
the Consolidated Financial Statements in Item 8 of YUM’s Form 10-K for the fiscal year ended December 31, 2018. For
Ms. Skeans, this amount includes the February 2018 CEO SAR award with a grant date fair value of $1,000,006. See the
Grants of Plan-Based Awards table for details.

(4) Amounts in this column reflect the annual

incentive awards earned for the 2018, 2017 and 2016 fiscal year performance
periods, which were awarded by our Management Planning and Development Committee (“Committee”) in January 2019,
January 2018 and January 2017, respectively, under the Yum Leaders’ Bonus Program, which is described further in our
Compensation Discussion and Analysis (“CD&A”) beginning at page 39 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). For 2018, Mr. Russell elected to defer 75% of his annual
incentive ($337,428) into RSUs resulting in the
remaining portion of his annual incentive ($112,476) reported in column (g).

(5) Amounts in this column represent the above market earnings as established pursuant to SEC rules which have accrued
under each of their accounts under the Third Country National Plan (“TCN”) for Messrs. Creed and Eaton which are
described in more detail beginning at page 68 under the heading “Nonqualified Deferred Compensation”. Also listed in this
column for Messrs. Creed, Gibbs, Russell and Ms. Skeans are the amounts of aggregate change in actuarial present values
of their accrued benefits under all actuarial pension plans during the 2018 fiscal year (using interest rate and mortality
assumptions consistent with those used in the Company’s financial statements). Mr. Creed is not an active participant in the
Retirement Plan but maintains a balance in the Retirement Plan from the two years (2002 and 2003) during which he was a
participant and for 2018 there was no increase in actuarial value of his benefit. For Mr. Gibbs the actuarial present value of
his benefits under the pension plan increased $96,732 during the 2018 fiscal year. For Ms. Skeans and Mr. Russell the
actuarial present value of their benefits under the pension plan did not increase during the 2018 fiscal year. In addition, for
Mr. Gibbs, Ms. Skeans and Mr. Russell, the actuarial present value of their benefits under the Yum! Brands Pension
Equalization Plan (“PEP”) increased $1,773,272, $354,906 and $117,643 respectively, during the 2018 fiscal year. Messrs.
Eaton and Kesselman were hired after September 30, 2001, and are ineligible for the Company’s actuarial pension plans.
See the Pension Benefits Table at page 66 for a detailed discussion of the Company’s pension benefits.

(6) Amounts in this column are explained in the All Other Compensation Table and footnotes to that table, which follows.
(7) Ms. Skeans became an NEO in 2017. No amounts are reported for her for 2016 since she was not an NEO for that year.

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All Other Compensation Table

The following table contains a breakdown of
Compensation in the Summary Compensation Table above for 2018.

the compensation and benefits included under All Other

Name
(a)
Creed
Gibbs
Eaton
Skeans
Russell
Kesselman

Perquisites and
other personal
benefits
($)(1)
(b)
153,794
7,657
34,555
5,009
35,705
467,768

Tax
Reimbursements
($)(2)
(c)
—
—
20,292
—
—
—

Insurance
premiums
($)(3)
(d)
27,108
11,444
10,586
3,656
1,971
3,315

LRP/TCN
Contributions
($)(4)
(e)
515,625

Total
($)
(f)
696,527
— 19,101
320,433
255,000
8,665
—
— 37,676
560,623

89,540

(1) Amounts in this column include executive physical examinations and charitable matching gifts. For Mr. Creed, amount in this
column also includes personal use of charter and commercial aircraft. For Mr. Eaton, amounts in this column represent
expatriate adjustments. None of the amounts in this column individually exceeded the greater of $25,000 or 10% of the total
amount of these perquisites and other personal benefits shown in this column for each NEO, except with respect to the cost
of personal use of charter and commercial aircraft by Mr. Creed ($134,043) and expatriate adjustments ($30,956) for
Mr. Eaton. For Mr. Kesselman, amounts in this column also include payments made in connection with his departure from
the Company totaling $442,768.

60 YUM! BRANDS, INC. - 2019 Proxy Statement

EXECUTIVE COMPENSATION

(2) Amounts in this column reflect payments to the executive of tax reimbursements. For Mr. Eaton, this amount represents a

tax gross up related to home leave expenses.

(3) 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.

(4) For Messrs. Creed and Eaton, this column represents the Company’s annual allocation to the TCN, an unfunded, unsecured
account based retirement plan. For Mr. Kesselman this column represents the Company’s annual allocations to the LRP, an
unfunded, unsecured account based retirement plan.

Grants of Plan-Based Awards

The following table provides information on SARs, RSUs and PSUs granted in 2018 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 59.

Estimated Future Payouts
Under Non-Equity Incentive
Plan Awards(1)

Estimated Future Payouts
Under Equity Incentive Plan
Awards(2)

Grant
Date
(b)

Threshold
($)
(c)

Target
($)
(d)

Maximum
($)
(e)

Threshold
(#)
(f)

Target
(#)
(g)

Maximum
(#)
(h)

All Other
Stock
Awards:
Number
of Shares
of Stock
Units
(#)
(i)

All Other
Option/
SAR
Awards;
Number of
Securities
Underlying
Options
(#)(3)
(j)

Exercise
or Base
Price of
Option/
SAR
Awards
($/Sh)(4)
(k)

Grant
Date Fair
Value
($)(5)
(l)

P
r
o
x
y
S
t
a
t
e
m
e
n
t

0 2,187,500 6,562,500

0

945,000 2,835,000

0

850,000 2,550,000

0

573,750 1,721,250

0

267,800

803,400

0

514,250 1,542,750

— 54,481

108,962

— 16,834

33,668

— 12,243

24,486

— 7,652

15,304

—

—

—

— 7,652

15,304

271,342

78.07 4,450,009
81.68 4,450,008

83,842

78.07 1,375,009
81.68 1,375,001

60,976

78.07 1,000,006
81.68 1,000,008

38,110
60,976

18,149
—

38,110

78.07
625,004
78.07 1,000,006
625,015
81.68

78.07

297,644
—

78.07
81.68

625,004
625,015

Name
(a)
Creed

Gibbs

Eaton

Skeans

Russell

2/12/2018
2/12/2018
3/23/2018

2/12/2018
2/12/2018
3/23/2018

2/12/2018
2/12/2018
3/23/2018

2/12/2018
2/12/2018
2/12/2018
3/23/2018

2/12/2018
2/12/2018

Kesselman 2/12/2018
2/12/2018
3/23/2018

(1) Amounts in columns (c), (d) and (e) provide the minimum amount, target amount and maximum amount 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 2018. The actual amount of annual incentive compensation awards are shown in
column (g) (and columns (e) and (g) for Mr. Russell) of the Summary Compensation Table on page 59. The performance
measurements, performance targets, and target bonus percentages are described in the CD&A beginning on page 39 under
the discussion of annual incentive compensation.

(2) Reflects grants of PSU awards subject to performance-based vesting conditions in 2018. The PSU awards granted
March 23, 2018 vest on December 31, 2020 and PSU award payouts are weighted 50% on the Company’s achievement of
specified relative total shareholder return (“TSR”) rankings against the S&P 500 Consumer Discretionary Index and 50% on
compound annual growth of the Company’s Earnings Per Share (“EPS”) during the performance period ending on
December 31, 2020. With respect to the 50% weighted on a TSR percentile ranking for the Company, payouts are
determined by comparing the Company’s relative TSR ranking against the S&P 500 Consumer Discretionary Index as
measured at the end of the performance period; if a 50% TSR percentile ranking target is achieved, this factor would provide

YUM! BRANDS, INC. - 2019 Proxy Statement 61

EXECUTIVE COMPENSATION

for 100% weighting for the PSU payout with respect to this factor; if less than 30% TSR percentile ranking is achieved, this
factor would provide for 0% weighting for the PSU payout with respect to this factor; if the Company’s TSR percentile
ranking is 75% or higher, it would provide for 200% of target weighting for the PSU payout with respect to this factor. With
respect to the 50% weighted on the compound annual growth of the Company’s EPS measured at the end of the
performance period, if EPS growth of 12% is achieved, this factor would provide for 100% weighting for the PSU payout with
respect to this factor; if less than 7% EPS growth is achieved, this factor would provide for 0% weighting for the PSU payout
with respect to this factor; if Company EPS growth of 17% or higher is achieved, it would provide for weighting of 200% of
target for the PSU payout with respect to this factor. The terms of the PSU awards provide that in case of a change in
control during the first year of the 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.

(3) Amounts in this column reflect the number of SARs granted to executives during the Company’s 2018 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, grants were made on February 12, 2018. These SAR grants become exercisable in equal installments on the first,
second, third and fourth anniversaries of the grant date. In addition to her regular SAR grant ($625,004), Ms. Skeans also
received a CEO Award SAR grant ($1,000,006) which has a different vesting schedule. That grant becomes 100% vested on
the fourth anniversary of the grant date.
The terms of each SAR 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.
Executives who have attained age 55 with 10 years of service who retire at least one year following the grant date will
continue to vest following retirement through the fourth anniversary of the grant date. The SARs that vest in retirement must
be exercised before the earlier of (i) the five year anniversary of the executive’s retirement or (ii) the expiration dates of the
immediately vest and may be
SARs (generally 10 years from the grant date). Unvested SARs of executives who die will
exercised by the executive’s beneficiary before the earlier of (i) the five year anniversary of the executive’s death or (ii) the
expiration dates of the SARs (generally 10 years from the grant date). If an executive’s employment is terminated due to
gross misconduct, the entire award is forfeited. For other employment terminations, all vested or previously exercisable
SARs as of the last day of employment must be exercised within 90 days following termination of employment.
(4) The exercise price of the SARs granted in 2018 equals the closing price of YUM common stock on their grant date.
(5) Amounts in this column reflect the full grant date fair value of the PSU awards shown in column (g) and the SARs shown in
column (j). The grant date fair value is the amount that the Company is expensing in its financial statements over the award’s
vesting schedule. For each PSU award, fair value is calculated by multiplying the per unit value of the award ($81.68) by the
target number of units corresponding to the most probable outcome of performance conditions on the grant date. For
SARs, fair value of $16.40 was calculated using the Black-Scholes method on the grant date. For additional
information
regarding valuation assumptions of SARs, see the discussion of stock awards and option awards contained at Note 15 to
the Consolidated Financial Statements in Item 8 of YUM’s Form 10-K for the fiscal year ended December 31, 2018.

t
n
e
m
e
t
a
t
S
y
x
o
r
P

62 YUM! BRANDS, INC. - 2019 Proxy Statement

EXECUTIVE COMPENSATION

Outstanding Equity Awards at Year-End

The following table shows the number of shares covered by exercisable and unexercisable SARs, and unvested
RSUs and PSUs held by the Company’s NEOs on December 31, 2018.

Option/SAR Awards(1)

Stock Awards

Name
(a)
Creed

Gibbs

Eaton

Number of
Securities
Underlying
Unexercised
Options/
SARs (#)
Exercisable
(c)
169,793
120,564
81,670
89,755
77,025
—
144,447
155,755
58,979
—
—
—
—

Grant
Date
(b)
2/5/2010*
2/4/2011*
2/8/2012*
2/6/2013*
2/5/2014*
2/5/2014*
2/6/2015*
2/5/2016*
2/10/2017*
2/12/2018*
2/5/2014**
2/6/2015**
2/5/2016**

2/5/2009*
2/5/2010*
5/20/2010*
2/4/2011*
2/8/2012*
2/6/2013*
2/6/2013*
2/5/2014*
2/5/2014*
2/6/2015*
2/5/2016*
5/20/2016*
2/10/2017*
2/12/2018*
2/5/2010**
5/20/2010**
2/4/2011**
2/8/2012**
2/6/2013**
2/6/2013**
2/5/2014**
2/5/2014**
2/6/2015**
2/5/2016**
5/20/2016**

2/8/2012*
2/6/2013*
2/5/2014*
2/6/2015*
2/5/2016*
2/10/2017*
2/12/2018*
2/8/2012**
2/6/2013**
2/5/2014**
2/6/2015**
2/5/2016**

8,343
31,128
24,161
30,141
24,501
37,398
37,398
40,718
—
46,476
38,938
15,918
19,366
—
31,143
24,174
30,140
24,531
37,408
37,408
40,783
—
46,491
38,978
15,935

73,503
67,317
64,132
50,751
38,938
17,605
—
73,593
67,335
64,233
50,767
38,978

Number of
Securities
Underlying
Option/
Option/
Unexercised
SAR
SAR
Options/
Exercise
Expiration
SARs (#)
Price
Date
Unexercisable
($)
(f)
(e)
(d)
2/5/2020
— $ 23.48
2/4/2021
— $ 35.10
2/8/2022
— $ 45.88
2/6/2023
— $ 44.81
2/5/2024
— $ 50.22
2/5/2024
$ 50.22
2/6/2025
$ 52.64
155,756(iii) $ 49.66
2/5/2026
176,937(iv) $ 68.00 2/10/2027
271,342(v) $ 78.07 2/12/2028
2/5/2024
$ 21.30
2/6/2025
$ 22.32
2/5/2026
155,912(iii) $ 21.06

67,972(i)
48,165(ii)

67,864(i)
48,150(ii)

2/5/2019
— $ 20.85
— $ 23.48
2/5/2020
— $ 28.22 5/20/2020
2/4/2021
— $ 35.10
2/8/2022
— $ 45.88
2/6/2023
— $ 44.81
2/6/2023
— $ 44.81
2/5/2024
— $ 50.22
2/5/2024
$ 50.22
33,932(i)
2/6/2025
$ 52.64
15,492(ii)
38,940(iii) $ 49.66
2/5/2026
15,920(vi) $ 56.67 5/20/2026
58,099(iv) $ 68.00 2/10/2027
83,842(v) $ 78.07 2/12/2028
— $ 9.96
2/5/2020
— $ 11.97 5/20/2020
2/4/2021
— $ 14.88
2/8/2022
— $ 19.46
2/6/2023
— $ 19.00
2/6/2023
— $ 19.00
2/5/2024
— $ 21.30
2/5/2024
$ 21.30
33,986(i)
2/6/2025
$ 22.32
15,497(ii)
38,978(iii) $ 21.06
2/5/2026
15,936(vi) $ 24.03 5/20/2026

2/8/2022
— $ 45.88
2/6/2023
— $ 44.81
2/5/2024
— $ 50.22
2/6/2025
$ 52.64
16,918(ii)
38,940(iii) $ 49.66
2/5/2026
52,818(iv) $ 68.00 2/10/2027
60,976(v) $ 78.07 2/12/2028
2/8/2022
2/6/2023
2/5/2024
2/6/2025
2/5/2026

— $ 19.46
— $ 19.00
— $ 21.30
$ 22.32
16,923(ii)
38,978(iii) $ 21.06

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

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

Number
of Shares
or Units
of Stock
That
Have Not
Vested
(#)(2)
(g)

Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)(3)
(h)

—

—

239,745 22,037,360

P
r
o
x
y
S
t
a
t
e
m
e
n
t

—

—

78,117

7,180,515

—

—

65,993

6,066,077

YUM! BRANDS, INC. - 2019 Proxy Statement 63

EXECUTIVE COMPENSATION

Option/SAR Awards(1)

Stock Awards

Name
(a)
Skeans

Russell

t
n
e
m
e
t
a
t
S
y
x
o
r
P

Kesselman

Number of
Securities
Underlying
Unexercised
Options/
SARs (#)
Exercisable
(c)
1,627
6,068
6,732
9,065
11,295
11,537
13,573
12,681
19,452
—
9,683
—
—
2,889
13,595
4,229
9,736
—

Grant
Date
(b)
2/5/2010*
2/5/2010*
2/4/2011*
2/8/2012*
2/6/2013*
2/5/2014*
2/5/2014*
2/6/2015*
2/5/2016*
2/5/2016*
2/10/2017*
2/12/2018*
2/12/2018*
2/5/2014**
2/5/2014**
2/6/2015**
2/5/2016**
2/5/2016**

2/5/2010*
2/4/2011*
2/4/2011*
2/8/2012*
2/6/2013*
2/5/2014*
2/6/2015*
2/6/2015*
2/5/2016*
2/5/2016*
2/10/2017*
2/12/2018*
2/5/2010**
2/4/2011**
2/4/2011**
2/8/2012**
2/6/2013**
2/5/2014**
2/6/2015**
2/6/2015**
2/5/2016**
2/5/2016**

2/5/2016*
2/10/2017*
2/12/2018*
2/5/2016**

12,876
12,961
10,047
11,434
11,220
13,573
10,145
—
8,598
—
5,790
—
12,882
12,960
10,047
11,448
11,223
13,595
10,148
—
8,607
—

—
—
—
48,505

Number of
Securities
Option/
Underlying
Option/
SAR
Unexercised
SAR
Exercise
Options/
Expiration
Price
SARs (#)
Date
($)
Unexercisable
(f)
(d)
(e)
2/5/2020
— $ 23.48
2/5/2020
— $ 23.48
2/4/2021
— $ 35.10
2/8/2022
— $ 45.88
2/6/2023
— $ 44.81
2/5/2024
— $ 50.22
2/5/2024
— $ 50.22
2/6/2025
$ 52.64
2/5/2026
19,452(iii) $ 49.66
17,306(vii) $ 49.66
2/5/2026
29,050(iv) $ 68.00 2/10/2027
38,110(v) $ 78.07 2/12/2028
60,976(viii) $ 78.07 2/12/2028
2/5/2024
2/5/2024
2/6/2025
2/5/2026
2/5/2026

— $ 21.30
— $ 21.30
$ 22.32
19,472(iii) $ 21.06
17,323((vii) $ 21.06

4,229(ii)

4,228(ii)

3,382(ii)

2/5/2020
— $ 23.48
2/4/2021
— $ 35.10
2/4/2021
— $ 35.10
2/8/2022
— $ 45.88
2/6/2023
— $ 44.81
2/5/2024
— $ 50.22
2/6/2025
$ 52.64
2/6/2025
13,527(ix) $ 52.64
2/5/2026
8,599(iii) $ 49.66
17,197(x) $ 49.66
2/5/2026
17,373(iv) $ 68.00 2/10/2027
18,149(v) $ 78.07 2/12/2028
2/5/2020
2/4/2021
2/4/2021
2/8/2022
2/6/2023
2/5/2024
2/6/2025
2/6/2025
2/5/2026
2/5/2026

— $ 9.96
— $ 14.88
— $ 14.88
— $ 19.46
— $ 19.00
— $ 21.30
$ 22.32
13,531(ix) $ 22.32
8,608(iii) $ 21.06
17,215(x) $ 21.06

3,383(ii)

48,458(iii) $ 49.66
2/5/2026
33,012(iv) $ 68.00 2/10/2027
38,110(v) $ 78.07 2/12/2028
2/5/2026
48,506(iii) $ 21.06

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

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

Number
of Shares
or Units
of Stock
That
Have Not
Vested
(#)(2)
(g)

Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)(3)
(h)

—

—

39,546

3,635,068

12,811

1,177,587

—

—

5,036*
4,898**

462,941*
164,216**

41,752

3,837,844

YUM Awards
YUM China Awards

*
**
(1) The actual vesting dates for unexercisable awards are as follows:

(i) Unexercisable award will vest on February 5, 2019.
(ii) Remainder of unexercisable award will vest on February 6, 2019.
(iii) One-half of the unexercisable award will vest on each of February 5, 2019 and 2020.
(iv) One-third of the unexercisable award will vest on each of February 10, 2019, 2020 and 2021.
(v) One-fourth of the unexercisable award will vest on each of February 12, 2019, 2020, 2021 and 2022.
(vi) One-half of the unexercisable award will vest on each of May 20, 2019 and 2020.
(vii) Unexercisable award will vest on February 5, 2020.
(viii) Unexercisable award will vest on February 12, 2022.

64 YUM! BRANDS, INC. - 2019 Proxy Statement

(ix) Unexercisable award will vest on February 6, 2019.
(x) Unexercisable award will vest on February 5, 2021.

EXECUTIVE COMPENSATION

(2) For Mr. Russell,

this amount

represents deferrals of bonuses into the EID Program’s Matching Stock Fund. For
Mr. Kesselman, this amount represents deferrals of bonuses into EID Program investments other than the Matching Stock
Fund. For Mr. Russell the amount represents the deferral of his 2016 and 2017 bonuses and for Mr. Kesselman it
represents a 2016 sign-on bonus RSU award that vests one-third each year over 3 years.

(3) The market value of the YUM awards are calculated by multiplying the number of shares covered by the award by $91.92,
the closing price of YUM stock on the NYSE on December 31, 2018. The market value of the Yum China awards are
calculated by multiplying the number of shares covered by the award by $33.53, the closing price of Yum China stock on
the NYSE on December 31, 2018.

(4) 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, 2019 and 2020 if the performance targets are met. Also reflected in this
column are the unvested performance-based Launch Grant PSU awards, which are scheduled to vest on December 31,
2019, if the performance targets are met. The Launch Grants will pay out at the close of the performance period (December
31, 2019) if specified General and Administrative Expense reductions are made by year-end 2019. In accordance with SEC
rules, the PSU awards are reported at their maximum payout value.

Option Exercises and Stock Vested

The table below shows the number of shares of YUM and Yum China common stock acquired during 2018 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.

Name
(a)
Creed
Gibbs
Eaton
Skeans
Russell
Kesselman

Option/SAR Awards
Number
of Shares
Acquired on
Exercise
(#)
(b)
547,080
57,565
355,462
636
11,665
24,188

Value
Realized on
Exercise
($)
(c)
24,895,096
3,499,064
22,324,918
55,961
1,049,904
2,167,204

Stock Awards

Number
of Shares
Acquired on
Vesting
(#)
(d)

Value
realized on
Vesting
($)
(e)
96,849(1)
8,902,360
28,380(1)
2,608,690
28,380(1)
2,608,690
20,454(1)(2) 1,829,621
107,650
30,829(1)(3) 2,543,403

1,349(2)

P
r
o
x
y
S
t
a
t
e
m
e
n
t

(1) For each of Messrs. Creed, Gibbs, Eaton and Kesselman and Ms. Skeans, this amount includes PSUs that vested on
December 31, 2018 with respect to the 2016-2018 performance period and were paid out in 2019. For each of Messrs.
Creed, Gibbs, Eaton and Kesselman and Ms. Skeans, this amount also includes the portion of the 2016 Launch Grant PSUs
that vested on December 31, 2018.

(2) For Messrs. Russell and Ms. Skeans, this amount includes the deferral of the 2015 cash incentive award, which was

deferred into RSUs under the EID program in 2016 and vested in 2018.
(3) For Mr. Kesselman, this amount includes a sign-on RSU that vested in 2018.

YUM! BRANDS, INC. - 2019 Proxy Statement 65

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”), and
the YUM! Brands Pension Equalization Plan (“PEP”) determined using interest rate and mortality rate assumptions
consistent with those used in the Company’s financial statements.

Name
(a)
Creed(i)

Gibbs

Russell

Skeans

Kesselman(ii)

Eaton(ii)

Plan Name
(b)
Qualified Retirement Plan

PEP

Qualified Retirement Plan

PEP

Qualified Retirement Plan

PEP

Qualified Retirement Plan

PEP

—

—

Number of Years of
Credited Service
(#)
(c)
2

Present Value of
Accumulated Benefit
($)
(d)
193,610

Payments During
Last Fiscal Year
($)
(e)
—

—

30

30

20

20

18

18

—

—

—

1,220,964

7,076,064

568,314

973,426

446,922

1,450,049

—

—

—

—

—

—

—

—

—

—

t
n
e
m
e
t
a
t
S
y
x
o
r
P

(i) 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 51, Mr. Creed participates in the Third
Country National plan, an unfunded, unsecured deferred account-based retirement plan.

(ii) Messrs. Eaton and Kesselman are not accruing benefits under these plans because they were hired after September 30,
2001 and are therefore ineligible for these benefits. As discussed at page 51, Mr. Eaton participates in the TCN and
Mr. Kesselman participated in LRP.

(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
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.

replaces

same

level

the

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
of
employment, a participant’s normal retirement benefit
from the plan is equal to

plan. Upon

termination

under

the

A.

3% of Final Average Earnings times Projected Service
up to 10 years of service, plus

66 YUM! BRANDS, INC. - 2019 Proxy Statement

B.

C.

1% of Final Average Earnings times Projected Service in
excess of 10 years of service, minus

0.43% of Final Average Earnings up to Social Security
covered compensation multiplied by Projected Service
up to 35 years of service

the
the result of which is multiplied by a fraction,
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).

leaves employment after becoming
If a participant
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.

EXECUTIVE COMPENSATION

Final Average Earnings

the participant’s base pay and annual

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

Early Retirement Eligibility and Reductions

is eligible for early retirement upon
A participant
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 becomes 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 or she
retired from the Company on December 31, 2018 and received a lump sum payment.

Name
Greg Creed

David W. Gibbs

Tracy L. Skeans

David E. Russell

(1) The Retirement Plan
(2) PEP

Earliest Retirement
Date

January 1, 2019 $

Estimated Lump
Sum from a
Qualified Plan(1)
206,406

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

Total Estimated
Lump Sums
206,406

— $

January 1, 2019 $

1,466,770 $

8,577,230 $

10,044,000

February 1, 2028 $

1,409,109 $

4,289,618 $

5,698,727

September 1, 2024 $

1,137,849 $

2,133,953 $

3,501,802

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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, 2019.
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
is calculated based on actuarial
from the plan,
assumptions for
lump sums required by Internal
Revenue Code Section 417(e)(3).

it

(2) PEP

tax

federal

law bars providing under

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

YUM! BRANDS, INC. - 2019 Proxy Statement 67

EXECUTIVE COMPENSATION

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. Mr. Gibbs
qualifies for benefits under this formula. This formula is
similar
the
Retirement Plan except that part C of the formula is
calculated as follows:

to the formula described above under

1-2/3% of an estimated primary Social Security
amount multiplied by Projected Service up to 30
years

PEP 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
life only annuity.
equivalent of
the participant’s
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) Present Value of Accumulated Benefits

For all plans, the Present Value of Accumulated Benefits
(determined as of December 31, 2018)
is calculated
assuming that each participant is eligible to receive an
unreduced benefit payable in the form of a single lump
sum at
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 in financial
accounting calculations at each measurement date.

age 62. This

is

Nonqualified Deferred Compensation

Amounts
reflected in the Nonqualified Deferred
Compensation table below are provided for under the
Company’s EID, LRP and TCN plans. These plans are
account-based
unfunded,
compensation
year,
calendar
For
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.

unsecured
plans.

deferred,
each

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, as of December 31, 2018, are
shown in parentheses, except
the YUM China
Stock Fund, which was removed as an investment
option as of October 31, 2018, and thus a 10 month
investment return is shown):

for

(cid:129) YUM! Stock Fund (14.60%*)

(cid:129) YUM! Matching Stock Fund (14.60%*)

(cid:129) S&P 500 Index Fund (-4.46%)

(cid:129) Bond Market Index Fund (-0.04%)

(cid:129) Stable Value Fund (2.20%)

(cid:129) YUM China Stock Fund – 10 months (-9.16%*)

is,

that

investments;

the phantom investment alternatives offered
All of
under the EID Program are designed to match the
performance of actual
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
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

between

transfer

funds

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68 YUM! BRANDS, INC. - 2019 Proxy Statement

* Assumes dividends are reinvested.

incentive into this fund acquire
who defer their annual
additional phantom shares (RSUs) equal to 33% of the
RSUs received with respect to the deferral of their
incentive into the YUM! Matching Stock Fund
annual
(the additional RSUs are referred to as “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
Stock Fund are included in column (c) below as
contributions by the Company (and represent amounts
actually credited to the NEO’s account during 2018).

incentive award,
Beginning with their 2009 annual
those who are eligible for PSU awards are no longer
eligible to participate in the Matching Stock Fund.
Following the separation of Yum China Holdings, Inc.,
in October of 2016, the Yum China Stock Fund was
made available as an investment option under the EID
Program, but only with respect to invested amounts
that resulted from the conversion of YUM shares into
Yum China shares at separation. Funds could be
transferred out of this fund, but the fund did not allow
for additional
investment. The Yum China Stock Fund
was
removed as an investment option as of
October 31, 2018.

Fund

Stock

RSUs attributable to annual incentive deferrals into the
YUM! Matching
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,
fully vests in the
the participant
RSUs. Dividend equivalents are accrued during the
restricted period but are only paid if the RSUs vest. In
the case of a participant who has attained age 55 with
10 years of service, or age 65 with five years of service,
RSUs attributable to bonus deferrals into the YUM!
immediately and RSUs
Matching Stock Fund vest

EXECUTIVE COMPENSATION

attributable to the matching contribution vest on the
second anniversary of the deferral date.

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
the executive’s
at a time that begins at or after
retirement, separation or termination of employment.
Distributions can be made in a lump sum or quarterly
or annual
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, participants
may change their distribution schedule, provided the
new elections satisfy the requirements of Section 409A
of the Internal Revenue Code. In general, Section 409A
requires that:

installments for up to 20 years.

(cid:129) Distribution schedules cannot be accelerated (other

than for a hardship)

(cid:129) 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
the

it would have begun without

years after
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
the LRP, Mr. Kesselman received an
year. Under
annual earnings credit equal
to 5% of his account
balance, while he was employed with the Company.
The Company’s contribution (“Employer Credit”)
for
2018 was equal to 8% of salary plus target bonus for
Mr. Kesselman.

Distributions under LRP. Under the LRP, participants
age 55 or older are entitled to a lump sum distribution

YUM! BRANDS, INC. - 2019 Proxy Statement 69

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EXECUTIVE COMPENSATION

of their account balance in the quarter following their
separation of employment. Participants under age 55
with a vested LRP benefit that, 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
participant’s 55th birthday.

TCN

TCN Account Returns. The TCN provides an annual
earnings credit to each participant’s account based on
the value of each participant’s account at the end of

each year. Under the TCN, Messrs. Creed and Eaton
receive an annual earnings credit equal
to 5%. For
Messrs. Creed and Eaton, the Employer Credit for 2018
was equal to 15% of their salaries plus target bonuses.

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)
Creed

Gibbs

Eaton

Skeans

Russell

Kesselman

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Executive
Contributions
in Last FY
($)(1)
(b)
—

Registrant
Contributions
in Last FY
($)(2)
(c)
—

Aggregate
Earnings in
Last FY
($)(3)
(d)
699,884

Aggregate
Withdrawals/
Distributions
($)(4)
(e)
232,306

Aggregate
Balance at
Last FYE
($)(5)
(f)
12,945,177

—

—

—

—

—

—

—

—

—

408,135

408,135

203,565

—

203,565

515,625

515,625

—

—

—

255,000

255,000

—

—

136,045

136,045

—

89,540

89,540

137,469

837,353

103,561

103,561

507,147

98,598

605,745

25,636

25,636

194,512

194,512

(26,890)

8,498

(18,392)

19,233

3,383,245

251,539

16,328,422

83,043

83,043

3,732,617

3,732,617

—

9,207,724

9,512

9,512

2,316,046

11,523,770

331,761

331,761

218,965

218,965

—

—

—

359,754

359,754

1,428,480

1,428,480

675,763

268,007

943,770

Plan
Name

EID

TCN

Total

EID

Total

EID

TCN

Total

EID

Total

EID

Total

EID

LRP

Total

(1) Amounts in column (b) reflect deferred 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, and deferrals of base salary into the EID Program.

(2) Amounts in column (c) reflect Company contributions for EID, LRP and/or TCN allocation. See footnote 5 of the Summary

Compensation Table for more detail.

(3) 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 Mr. Kesselman, of his earnings reflected in this column, $1,734 was deemed above
market earnings accruing to his account under the LRP. For Messrs. Creed and Eaton, of their earnings reflected in this
column, $28,044 and $20,114, respectively, were deemed above market earnings accruing to their accounts under the
TCN. 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.

(4) 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 2018.

Creed

Gibbs

Eaton

Skeans

Russell

Kesselman

70 YUM! BRANDS, INC. - 2019 Proxy Statement

19,233

—

9,512

15,484

10,879

—

(5) 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 2018 and prior years.

EXECUTIVE COMPENSATION

Creed

Gibbs

Eaton

Skeans

Russell

Kesselman

6,072,875

—

823,855

—

1,026,425

497,246

Potential Payments Upon Termination or Change in Control

if

The information below describes and quantifies certain
compensation that would become payable under
existing plans and arrangements
the NEO’s
employment had terminated on December 31, 2018,
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 terminated
SAR Awards.
employment
than retirement,
death, disability or following a change in control as of
December 31, 2018, they could exercise the SARs that
the
were exercisable on that date as shown at
Outstanding Equity Awards at Year-End table on
page 63, otherwise all 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, 2018, exercisable SARs would
remain exercisable through the term of
the award.
Except in the case of a change in control, no 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 68, 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 70 includes each NEO’s aggregate balance at
December 31, 2018. 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 70.

In the case of an involuntary termination of employment
as of December 31, 2018, each NEO would receive
the following: Mr. Creed $12,945,177, Mr. Gibbs
$3,732,617, Mr. Eaton $9,207,724, Ms. Skeans
$359,754, and Mr. Russell $1,428,480. As discussed
at page 68, these amounts reflect bonuses previously
deferred by the executive and appreciation on these
deferred amounts (see page 68 for discussion of
investment alternatives available under the EID). Thus,
these EID account balances represent deferred base
years) and
salary or bonuses (earned in prior
appreciation of their accounts based primarily on the
performance of the Company’s stock.

the

Leadership Retirement Plan. Under
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.

YUM! BRANDS, INC. - 2019 Proxy Statement 71

EXECUTIVE COMPENSATION

the TCN,
Third Country National Plan. Under
participants age 55 or older are entitled to a lump sum
distribution of
their account balance in the quarter
following their 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, 2018,
Mr. Creed would have received $3,383,245 and
Mr. Eaton would have received $2,316,046.

If

for any reason other

Performance Share Unit Awards. If one or more NEOs
than
terminated employment
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.
the NEO had retired, or died as of
December 31, 2018, 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.
these payouts had occurred on
December 31, 2018, Messrs. Creed, Gibbs, and Eaton
entitled
and Ms.
to
and
$3,345,817,
$1,779,827, respectively, assuming target performance.

been
$3,017,885,

Skeans would

$9,992,278,

If any of

have

Pension Benefits. The Pension Benefits Table on
page 66 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, 2018. The table on
page 67 provides the present value of the lump sum
benefit payable to each NEO when they attain eligibility
(i.e., age 55 with 10 years of
for Early Retirement
service) under the plans.

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If

life

insurance plans

the
Life Insurance Benefits. For a description of
supplemental
that provide
coverage to the NEOs, see the All Other Compensation
Table on page 60.
the NEOs had died on
December 31, 2018, the survivors of Messrs. Creed,
Gibbs, Eaton, Ms. Skeans and Mr. Russell would have
received Company-paid life insurance of $3,000,000,
$1,722,000, $1,650,000, $1,120,000 and $660,000,
respectively, under this arrangement. Executives and
all other salaried employees can purchase additional
life insurance benefits up to a maximum combined
life insurance of
company paid and additional
is not paid or
$3.5 million. This additional benefit

72 YUM! BRANDS, INC. - 2019 Proxy Statement

subsidized by the Company and,
shown here.

therefore,

is not

are

These

Skeans).

agreements

Change in Control. Change in control severance
agreements are in effect between YUM and certain key
executives (including Messrs. Creed, Gibbs, Eaton and
general
Ms.
obligations of YUM, and provide, generally,
if,
that
within two years subsequent to a change in control of
YUM, the employment of the executive is terminated
for other limited reasons
(other
specified in
severance
agreements) or the executive 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:

than for cause, or
the

change

control

in

(cid:129) a

annual

incentive

proportionate

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

(cid:129) 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

(cid:129) 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 39 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
the change in control
severance payments under
severance agreements.

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

(i)

(ii)

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

from the Company or

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

(iii) upon the consummation of a merger of

before

change

the
Company or any subsidiary of the Company other
than (a) a merger where the Company’s directors
immediately
control
the
the
constitute a majority of
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.

the directors of

in

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

(cid:129) All outstanding SARs held by the executive and not
otherwise exercisable will fully and immediately vest
the executive is
following a change in control
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 39 for more detail.

if

EXECUTIVE COMPENSATION

(cid:129) All RSUs under the Company’s EID Program held by

the executive will automatically vest.

the portion of

(cid:129) Pursuant to the Company’s Performance Share Plan
under the LTIP, all PSU awards 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
the
a pro rata reduction to reflect
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 performance or projected level of performance at
the time of the change in control, subject to pro rata
reduction to reflect the portion of the performance
In all cases,
the change in control.
period after
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 39 for more detail.

If a change in control and each NEO’s involuntary termination had occurred as of December 31, 2018, the following
payments or other benefits would have been made or become available.

Severance Payment

Annual Incentive

Accelerated Vesting of SARs

Accelerated Vesting of RSUs

Acceleration of PSU
Performance/Vesting

Outplacement

TOTAL

Creed
$
10,128,986

Gibbs
$
5,634,054

Eaton
$
5,673,200

Skeans
$
3,502,650

Russel(1)
$
—

3,144,531

1,467,113

1,338,750

824,766

—

22,609,379

8,008,032

5,093,830

4,292,927 2,932,869

—

—

—

— 1,199,286

9,992,278

3,345,817

3,017,885

1,779,827

25,000

25,000

25,000

25,000

—

—

45,900,174 18,480,016 15,148,665 10,425,170 4,132,155

(1) A severance payment and annual

incentive is not listed for Mr. Russell because he does not have a change in control

agreement with the Company, as he is not a direct report to the CEO.

In connection with his departure from the Company, Mr. Kesselman received payments from the Company totaling
$442,768.

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CEO Pay Ratio

Each year Yum! Brands and our franchisees around
the world create thousands of restaurant jobs, which
are part-time, entry-level opportunities to grow careers
at KFC, Pizza Hut and Taco Bell. Wherever we
operate, our employee compensation practices comply
with local regulations and are designed to attract and
retain the best talent. We’re proud that 80% of our

Company-owned restaurant general managers located
in the U.S. began as hourly employees and often earn
competitive pay greater than the average American
household income. Approximately
90% of our
Company-owned restaurant employees are part-time.
At least 60% have been employed by the Company for
less than a year.

YUM! BRANDS, INC. - 2019 Proxy Statement 73

annual
requirements of the Summary Compensation Table.

accordance with

compensation

in

the

For 2018,
the total compensation of our CEO, as
reported in the Summary Compensation Table at
page 59, was $14,007,038. The total compensation of
our median employee was estimated to be $11,865.
As a result, we estimate that our CEO to median
employee pay ratio is 1181:1.

This pay ratio is a reasonable estimate calculated in a
manner consistent with SEC rules based on our payroll
records and the methodology
and employment
described above. The SEC rules for identifying the
median compensated employee and calculating the
pay ratio based on that employee’s annual
total
compensation allow companies to adopt a variety of
methodologies,
to apply certain exclusions, and to
make reasonable estimates and assumptions that
reflect their compensation practices. As such, the pay
ratio reported by other companies may not be
comparable to the pay ratio reported above, as other
companies may have different employment and
compensation practices and may utilize different
methodologies, exclusions, estimates and assumptions
in calculating their own pay ratios.

EXECUTIVE COMPENSATION

As required by Section 953(b) of the Dodd-Frank Wall
Street Reform and Consumer Protection Act, and
applicable SEC rules, we are providing the following
information about the relationship of the annual total
compensation of our employees and the annual total
compensation of Mr. Creed, our Chief Executive Officer
(our “CEO”).

or base

2018 base wages

To identify the median employee, we used the
December
salary
information for all employees who were employed by
us on December 31, 2018, excluding our CEO. We
full-time and part-time employees and
included all
annualized the employees’ base salary or base wages
to reflect their compensation for 2018. We believe the
use of base wages or base salary for all employees is a
consistently applied compensation measure.

As of December 31, 2018, our global workforce used
for determining the pay ratio was estimated to be
32,076 employees (16,480 in the U.S. and 15,596
internationally).

After calculating employee compensation, our median
employee was identified as a part-time Taco Bell
restaurant employee in the United States. After
identifying the median employee, we calculated total

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74 YUM! BRANDS, INC. - 2019 Proxy Statement

EQUITY COMPENSATION PLAN INFORMATION

The following table summarizes, as of December 31, 2018, the equity compensation plans under which we may
issue shares of stock to our directors, officers, current employees and former employees. Those plans include the
Long Term Incentive Plan (the “LTIP”) and the 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

TOTAL

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

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

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

9,748,812(1)

51.88(2)

28,326,263(3)

170,937(4)

9,919,749(1)

50.33(2)

51.84(2)

—

28,326,263(3)

Includes 2,515,616 shares issuable in respect of RSUs, performance units and deferred units.

(1)
(2) Weighted average exercise price of outstanding Options and SARs only.
(3)

Includes 14,163,131 shares available for issuance of awards of stock units, restricted stock, restricted stock units and
performance share unit awards under the LTIP Plan.

(4) Awards are made under the RGM Plan.

What are the key features of the LTIP?

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units,

stock

performance

The LTIP provides for the issuance of up to 92,600,000
shares of stock as non-qualified stock options,
restricted stock,
incentive stock options, SARs,
restricted
or
shares
performance units. Only our employees and directors
are eligible to receive awards under the LTIP. The
the LTIP is to motivate participants to
purpose of
achieve long range goals, attract and retain eligible
employees, provide incentives competitive with other
similar companies and align the interest of employees
and directors with those of our shareholders. The LTIP
is administered by the Management Planning and
Development Committee of the Board of Directors (the

“Committee”). The exercise price of a stock option
grant or SAR under the LTIP 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 LTIP generally vest over a one to
four year period and expire ten years from the date of
the grant. Our shareholders approved the LTIP in
1999, and the plan as amended in 2003, 2008 and
2016. The performance measures of the LTIP were
re-approved by our shareholders in 2013 and in 2016.

What are the key features of the RGM Plan?

Effective May 20, 2016, we canceled the remaining
shares available for issuance under the RGM Plan,
except
shares
approximately
necessary to satisfy then outstanding awards. No
future awards will be made under the RGM Plan. The
RGM Plan has provided for the issuance shares of

220,000

the

for

common stock at a price equal to or greater than the
closing price of our stock on the date of grant. The
RGM Plan allowed us to award non-qualified stock
options, SARs, restricted stock and RSUs. Employees,
other than executive officers, have been eligible to
receive awards under the RGM Plan. The purpose of

YUM! BRANDS, INC. - 2019 Proxy Statement 75

EQUITY COMPENSATION PLAN INFORMATION

to give restaurant general
the RGM Plan was (i)
managers (“RGMs”) 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 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 have been 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
the Company. The Board of Directors
Officer of
approved the RGM Plan on January 20, 1998.

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76 YUM! BRANDS, INC. - 2019 Proxy Statement

AUDIT COMMITTEE REPORT

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

The members of the Audit Committee are Paget L.
Alves, Tanya L. Domier, P. Justin Skala, Elane B. Stock
and Thomas C. Nelson, Chair.

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 of the
Committee 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.
least
The charter

is reviewed by management at

and any

recommended changes

are
annually,
review and
presented to the Audit Committee for
approval. The charter is available on our Web site at
www.investors.yum.com/corporate-governance/
committee-composition-and-charters.

What are the responsibilities of the Audit Committee?

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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 regulatory requirements, the independent auditors’
qualifications and independence and the performance of
the Company’s internal audit function and independent
auditors. The Committee has the authority 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 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). KPMG LLP has
served as the Company’s independent auditors since
1997. Each year,
the Committee evaluates the
performance, qualifications and independence of the
independent auditors. The Committee is also involved

in the selection of the lead audit partner. In evaluating
the Company’s independent auditors, the Committee
considers the quality of the services provided, as well
as the independent auditors’ and lead partner’s
capabilities and technical expertise and knowledge of
the Company’s operations and industry.

The Committee met 8 times during 2018. 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
in
management deems advisable or appropriate,
connection with issues or concerns
that arise
throughout the year.

Management is responsible for the Company’s financial
reporting process, including its system of internal control
the preparation of
over

reporting, and for

financial

YUM! BRANDS, INC. - 2019 Proxy Statement 77

AUDIT COMMITTEE REPORT

consolidated financial statements in accordance with
accounting principles generally accepted in the U.S. The
Company’s independent auditors are responsible 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
financial
of
reporting. The Committee’s responsibility is to monitor
and review the Company’s financial reporting process
and discuss management’s report on the Company’s
the
internal control over financial reporting.
Committee’s duty or responsibility to conduct audits or

the Company’s internal control over

is not

It

that

without

verification,
the

accounting reviews or procedures. The Committee has
on
relied,
independent
management’s
financial
representations
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 effective. The
independent
Committee has also relied, without
verification, on the opinion of the independent auditors
included in their
regarding the Company’s
financial statements and effectiveness of internal control
over financial reporting.

report

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

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accordance with

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. With respect to each 2018 fiscal
reporting period, management advised the Committee
financial statements reviewed had
that each set of
been prepared in
accounting
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
(“PCAOB”) Auditing Standard
Oversight Board
No. 1301 (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
including a review of audit and
independence,
non-audit fees and the written disclosures and letter
received from KPMG LLP required by applicable

non-audit

The Committee

also
provided

requirements of the PCAOB regarding KPMG LLP’s
communications with the Committee concerning
considered
independence.
the
services
whether
independent
the
are
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.

by
compatible with

auditors

internal

this process,

and disclosure

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

auditing program,

and steps

internal

taken

levels

legal

and

Has the Audit Committee made a recommendation regarding the audited
financial statements for fiscal 2018?

on

the Committee’s

Based
discussions with
management and the independent auditors and the
Committee’s
of
management and the report of
the independent
auditors to the Board of Directors and shareholders,
and subject to the limitations on the Committee’s role

representations

review of

the

and responsibilities referred to above and in the Audit
Committee Charter, the Committee recommended to
the Board of Directors that
include the audited
consolidated financial statements in the Company’s
Annual Report on Form 10-K for the fiscal year ended
December 31, 2018 for filing with the SEC.

it

78 YUM! BRANDS, INC. - 2019 Proxy Statement

AUDIT COMMITTEE REPORT

Who prepared this report?

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

Thomas C. Nelson, Chair
Paget L. Alves
Tanya L. Domier
P. Justin Skala
Elane B. Stock

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YUM! BRANDS, INC. - 2019 Proxy Statement 79

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?

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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
impact and to reduce Annual Report
environmental
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.computershare.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.

If you consent
to receive future proxy materials
electronically, your consent will remain in effect unless
is withdrawn by writing our Transfer Agent,
it
Computershare, Inc., 462 South 4th Street, Suite 1600,
Louisville, Kentucky 40202 or by logging onto our
Transfer Agent’s website at www.computershare.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 Computershare, Inc.

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
Investor
to YUM! Brands,
written request
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.

Inc.,

80 YUM! BRANDS, INC. - 2019 Proxy Statement

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

ADDITIONAL INFORMATION

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 2020 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
December 7, 2019. 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 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 2020 Annual Meeting no later
than the date specified in our bylaws.
the 2020
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. Assuming
that our 2020 Annual Meeting is held within 30 days of
this Annual Meeting, we must
the anniversary of
intention to introduce a
receive notice of your
nomination or other item of business at that meeting by
February 16, 2020.

If

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In addition, our bylaws provide for proxy access for
director nominations by shareholders (as described at
page 18). A shareholder, or group of up to 20
shareholders, owning continuously for at least three
years shares of YUM common stock representing an
aggregate of at least 3% of our outstanding shares,
may nominate, and include in YUM’s proxy materials,
director nominees constituting up to 20% of YUM’s
Board, provided that the shareholder(s) and nominee(s)
satisfy the requirements in YUM’s bylaws. Notice of
proxy access director nominees must be received no
earlier
than
than November 7, 2019, and no later
December 7, 2019.

The Board is not aware of any matters that are
expected to come before the 2019 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
to
acknowledge the nomination of any person, not made
in compliance with the foregoing procedures.

any business, or

transaction of

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

the relevant bylaw provisions

YUM! BRANDS, INC. - 2019 Proxy Statement 81

APPENDIX A: Reconciliation of Adjusted

Operating Profit Growth

The Company uses non-GAAP Adjusted Operating Profit Growth as a key performance measure of results of
operations for the purpose of evaluating performance against targets set under our YUM Leaders’ Bonus Program.
Adjusted Operating Profit Growth is the calculated growth rate from our prior year’s non-GAAP Adjusted Base
Operating Profit to the current fiscal year’s non-GAAP Adjusted Base Operating Profit. Adjusted Operating Profit
Growth includes adjustments to our GAAP Operating Profit that we believe are necessary to ensure that growth
rates for bonus purposes are indicative of underlying business performance. General and administrative expense
reductions expected to be realized in 2018 related to YUM’s Strategic Transformation Initiatives were incorporated
into our targets for KFC and YUM Adjusted Operating Profit Growth during the target-setting process and are thus
not included in the reconciliation below.

Reconciliation of GAAP Operating Profit to Adjusted Base Operating Profit

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2017 GAAP Operating Profit

Special Items (Income) Expense — Operating Profit(a)

Impact of Pizza Hut U.S. Transformation Agreement(d)

Impact of Refranchising(e)

Other

2017 Adjusted Base Operating Profit

2018 GAAP Operating Profit

Special Items (Income) Expense — Operating Profit(a)

Impact of Revenue Recognition Standard(c)

Impact of Pizza Hut U.S. Transformation Agreement(d)

Impact of Refranchising(e)

Other

Foreign Currency Impact on Reported Operating Profit(b)

2018 Adjusted Base Operating Profit

Adjusted Operating Profit Growth

KFC

YUM

$ 981 $ 2,761
(1,001)
25

(75)

(122)

1

19
$ 907 $ 1,682

$ 959 $ 2,296

36

20

8

(530)

41

13

42

13

(1)

$1,023 $ 1,874

12.8% 11.4%

a)

In addition to the results provided in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”), the
Items. The
Company provides non-GAAP measurements which present operating results on a basis excluding Special
Company uses earnings excluding Special Items as a key performance measure of results of operations for the purpose of
evaluating performance internally. 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 excluding 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. Special Items are not
allocated to our Divisions and, thus, are not necessary to include as an adjustment when determining Adjusted Operating
Profit Growth for the KFC Division. Refer to page 29 of YUM’s Form 10-K for further details related to these Special Items.
b) The Company excludes the impact of foreign currency translation from the calculation of Adjusted Operating Profit Growth.
The foreign currency impact is determined 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.

c) The Financial Accounting Standards Board (“FASB”) has issued standards to provide principles within a single framework for
industries (“Topic 606”). As a result, the
revenue recognition of transactions involving contracts with customers across all
Company has changed its accounting policy for revenue recognition as detailed in Note 2 of Item 8 in YUM’s Form 10-K. We
adopted Topic 606 on January 1, 2018, using the modified retrospective method. Therefore, the GAAP Operating Profit for
fiscal 2017 has not been adjusted and continues to be reported under our accounting polices related to revenue recognition
prior to the adoption of Topic 606. The Company has added back to 2018 GAAP Operating Profit the negative impact
resulting from the adoption of Topic 606.

A-1 YUM! BRANDS, INC. - 2019 Proxy Statement

APPENDIX A

d)

improve brand marketing alignment,
In May 2017, we reached an agreement with Pizza Hut U.S. franchisees that will
accelerate enhancements in operations and technology and includes a permanent commitment to incremental advertising
and digital and technology contributions by franchisees. In connection with this agreement, we incurred $13 million of
incremental system advertising expense in 2018 and $25 million of incremental system advertising expense in 2017. These
amounts were added back to GAAP Operating Profit when determining Adjusted Base Operating Profit.

e) We have refranchised a significant number of Company-owned restaurants since the announcement of YUM’s Strategic
Transformation Initiatives in October 2016. The impact on GAAP Operating Profit due to refranchising includes the loss of
restaurant profit, which reflects the decrease in Company sales, and the increase in Franchise and property revenues from
restaurants that have been refranchised. We have removed from 2017 GAAP Operating Profit the net impact of stores
refranchised in 2017 so as to present 2017 Adjusted Base Operating Profit as if those stores were franchised for all of 2017
(as they were in 2018). We have added back to 2018 GAAP Operating Profit the net impact of stores refranchised in 2018
so as to present 2018 Adjusted Based Operating Profit as if those stores were Company-owned for all of 2018 (as they
were in 2017).

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YUM! BRANDS, INC. - 2019 Proxy Statement A-2

[THIS PAGE INTENTIONALLY LEFT BLANK]

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the fiscal year ended December 31, 2018

For the transition period from

to

Commission file number 1-13163

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

Title of Each Class
Common Stock, no par value

Name of Each Exchange on Which Registered
New York Stock Exchange

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

Indicate by check mark

Yes

No

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

(cid:129) if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
(cid:129) 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
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

(cid:129) whether the registrant has submitted electronically every Interactive Data File required to be submitted
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 such files).

(cid:129) 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:129) whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth
company” in Rule 12b-2 of the Exchange Act (Check one):

Large

Smaller

Emerging

accelerated filer:

Accelerated filer:

Non-accelerated filer:

reporting company:

growth company:

(cid:129) If an emerging growth company, indicate by check mark if the registrant has elected not to use the
extended transition period for complying with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act.

(cid:129) whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

The aggregate market value of the voting stock (which consists solely of shares of Common Stock) held by non-affiliates of the registrant as
of June 30, 2018 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 $24.7 billion. 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 13, 2019 was 306,414,175 shares.

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

DOCUMENTS INCORPORATED BY REFERENCE

Table of Contents

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
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information

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

PART I

ITEM 1
ITEM 1A
ITEM 1B
ITEM 2
ITEM 3
ITEM 4

PART II

ITEM 5

ITEM 6
ITEM 7
ITEM 7A
ITEM 8
ITEM 9
ITEM 9A
ITEM 9B

PART III

ITEM 10
ITEM 11
ITEM 12
ITEM 13
ITEM 14

PART IV

ITEM 15

Exhibits and Financial Statement Schedules

2

2
5
13
13
14
14

15

15
17
18
39
40
84
84
84

85

85
85
85
85
85

86

86

Forward-Looking Statements

In this Form 10-K, as well as in other written reports and oral statements, 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 all
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 and by the use of forward-
looking words such as “expect,” “expectation,” “believe,” “anticipate,” “may,” “could,” “intend,” “belief,” “plan,” “estimate,” “target,” “predict,”
“likely,” “seek,” “project,” “model,” “ongoing,” “will,” “should,” “forecast,” “outlook” or similar terminology. Forward-looking statements are based
on our current expectations, estimates, assumptions and/or projections, our perception of historical trends and current conditions, as well as
other factors that we believe are appropriate and reasonable under the circumstances. Forward-looking statements are neither predictions nor
guarantees of
future events, circumstances or performance and are inherently subject to known and unknown risks, uncertainties and
assumptions that could cause our actual results to differ materially from those indicated by those statements. There can be no assurance that
our expectations, estimates, assumptions and/or projections will be achieved. Factors that could cause actual results and events 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 they are made. The forward-looking statements included in this Form 10-K are only made as of the date of this Form 10-K and we
disclaim any obligation to publicly update any forward-looking statement to reflect subsequent events or circumstances.

YUM! BRANDS, INC. - 2018 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://www.yum.com.

Overview of Business

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”
and “our” are also used in the Form 10-K to refer
to the
Company. Throughout
the terms “restaurants,”
this Form 10-K,
“stores” and “units” are used interchangeably. While YUM does not
directly own or operate any restaurants, throughout this document
we may refer to restaurants that are owned or operated by our
subsidiaries as being Company-owned.

YUM has over 48,000 restaurants in more than 140 countries and territories primarily operating under the three concepts of KFC, Pizza Hut and
leaders of the chicken, pizza and Mexican-style food categories, respectively. At
Taco Bell (the “Concepts”). These three concepts are global
franchise or license
December 31, 2018, 98% of our units are operated by independent franchisees or licensees under the terms of
agreements. The terms “franchise” or “franchisee” within this Form 10-K are meant to describe third parties that operate units under either
franchise or license agreements.

Following is a summary of our Concepts’ operations and a brief description of each Concept as of and for the year ended December 31, 2018:

KFC Division

Pizza Hut Division*

Taco Bell Division

YUM*

Number of
Units

% of Units
International

Number of
Countries and
Territories

%
Franchised

System Sales
(in Millions)

22,621

18,431

7,072

48,124

82%

59%

7%

62%

136

111

27

145

99%

99%

93%

98%

$ 26,239

12,212

10,786

$ 49,237

* Unit information includes 1,282 units operating under the Telepizza brand as of December 31, 2018. See Part II, Item 7 for a description of the

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Telepizza strategic alliance.

KFC

the restaurant

(cid:129) KFC was founded in Corbin, Kentucky by Colonel Harland D.
Sanders, an early developer of the quick service food business and
a pioneer of
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 restaurants across the world offer fried and non-fried chicken
strips,
products
chicken-on-the-bone and other chicken products marketed under
a variety of names.

sandwiches,

chicken

such

as

Pizza Hut

(cid:129) The first Pizza Hut restaurant was opened in 1958 in Wichita,
Kansas, and within a year,
franchise unit was
opened. Today, Pizza Hut is the largest restaurant chain in the

the first

2 YUM! BRANDS, INC. - 2018 Form 10-K

world specializing in the sale of ready-to-eat pizza products. Pizza
Hut operates in the delivery, carryout and casual dining segments
around the world.

Taco Bell

(cid:129) 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 specializes in Mexican-style food products,
including various types of
tacos, burritos, quesadillas, salads,
nachos and other related items.

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

(cid:129) Building Relevant, Easy and Distinctive Brands

(cid:129) Developing Unmatched Franchise Operating Capability

(cid:129) Driving Bold Restaurant Development

(cid:129) Growing Unrivaled Culture and Talent

Information about Operating Segments
As of December 31, 2018, YUM consists of
segments:

three operating

(cid:129) The KFC Division which includes the worldwide operations of the

KFC concept

(cid:129) The Pizza Hut Division which includes the worldwide operations of

the Pizza Hut concept

(cid:129) The Taco Bell Division which includes the worldwide operations of

the Taco Bell concept

Franchise Agreements
The franchise programs of the Company are designed to promote
consistency and quality, and the Company is selective in granting
franchises. The Company is focused on partnering with franchisees
who have the commitment, capability and capitalization to grow our
Concepts. Franchisees can range in size from individuals owning just
one restaurant to large publicly-traded companies.

In certain historical

The Company utilizes both store-level franchise and master franchise
programs to grow its businesses. Of our over 47,000 franchised units
at December 31, 2018, approximately 30% operate under our
master
franchise programs, primarily units in China and those
operating under the Telepizza strategic alliance (see Part II, Item 7 for
a description of the Telepizza strategic alliance). The remainder of our
franchise agreements.
franchise units operate under store-level
Under both types of franchise programs, franchisees supply capital
by purchasing or
leasing the land, building, equipment, signs,
inventories and supplies and, over the longer term, by
seating,
reinvesting in the business.
refranchising
transactions the Company may have retained ownership of land and
building and continues to lease them to the franchisee. Store-level
franchise agreements typically require payment to the Company of
certain upfront fees such as initial fees paid upon opening of a store,
fees paid to renew the term of the franchise agreement and fees paid
is transferred to another
in the event
franchisee. Franchisees also pay monthly continuing fees based on a
percentage of their restaurants’ sales (typically 4% - 6%) and are
required to spend a certain amount to advertise and promote the
brand. Under master franchise arrangements, the Company enters
into agreements that allow master franchisees to operate restaurants
as well as sub-franchise restaurants within certain geographic
territories. Master franchisees are typically responsible for overseeing
development within their
territories and performing certain other
administrative duties with regard to the oversight of sub-franchisees.
In exchange, master franchisees retain a certain percentage of fees
payable by the sub-franchisees under their franchise agreements and
typically pay lower fees for the restaurants they operate. Our largest
master franchisee, Yum China, pays the Company a continuing fee
of 3% on system sales of our Concepts in mainland China.

the franchise agreement

PART I
ITEM 1 Business

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
including products, equipment,
on key aspects of the business,
and management
operational
techniques.

and standards

improvements

Restaurant Operations
Through its Concepts, YUM develops, operates and franchises a
worldwide system of both traditional and non-traditional Quick
Service Restaurants (“QSR”). Traditional units can feature dine-in,
carryout, drive-thru and delivery services. Non-traditional units
include express units and kiosks that have a more limited menu,
usually generate lower sales volumes and operate in non-traditional
locations like malls, airports, gasoline service stations, train stations,
subways, convenience stores, stadiums, amusement parks and
colleges, where a full-scale traditional outlet would not be practical or
efficient.

Most restaurants in each Concept offer consumers the ability to dine
in and/or carryout 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 typically offers delivery service,
while, on a more limited but expanding basis, KFC and Taco Bell
allow for consumers to have the Concepts’ food delivered either
through store-level or third-party delivery services. On February 7,
2018, certain of our subsidiaries entered into a master services
agreement with an affiliate of Grubhub, Inc. (“Grubhub”), an online
and mobile takeout food-ordering company in the U.S., which is
intended to provide dedicated support for the KFC and Taco Bell
branded online delivery channels in the U.S. through Grubhub’s
online ordering platform, logistics and last-mile support for delivery
orders, as well as point-of-sale integration to streamline operations.

and

local

product

preparation

including food safety and quality,

Restaurant management structure varies by Concept and unit
is led by a restaurant general
size. Generally, each restaurant
manager (“RGM”), together with one or more assistant managers,
depending on the operating complexity and sales volume of the
restaurant. Each Concept issues detailed manuals, which may then
be customized to meet
regulations and customs. These
manuals set forth standards and requirements for all aspects of
food
restaurant operations,
equipment
handling
maintenance,
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 for
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, where sufficient scale allows. Area
Coaches typically work with approximately six to twelve restaurants.

procedures,

accounting

standards

facility

and

Supply and Distribution
The Company and franchisees of
the Concepts are substantial
purchasers of a number of food and paper products, equipment and
other restaurant supplies. The principal
items purchased include
chicken, cheese, beef and pork products, paper and packaging
materials. 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

YUM! BRANDS, INC. - 2018 Form 10-K 3

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PART I
ITEM 1 Business

typically experience
done practically. The Company does not
significant continuous shortages of supplies, and alternative sources
for most of these products are generally available.

In the U.S., the Company, along with the representatives of the
Company’s KFC, Pizza Hut and Taco Bell franchisee groups, are
members of Restaurant Supply Chain Solutions, LLC (“RSCS”),
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
Foodservice, Inc. is the exclusive distributor for the majority of items
used in Company-owned restaurants and for a substantial number of
franchisee stores.

Outside the U.S., we and our Concepts’ franchisees primarily use
decentralized sourcing and distribution systems involving many
different global, regional and local suppliers and distributors. We and
our franchisees have approximately 6,300 food and paper suppliers,
including U.S.-based suppliers that export to many countries.

their

Advertising and Promotional Programs
Company-owned and franchise restaurants are required to spend a
respective restaurants’ sales on advertising
percentage of
programs with the goal of
increasing sales and enhancing the
reputation of the Concepts. Advertising may be conducted nationally,
regionally and locally. When multiple franchisees operate in the same
country or region the national and regional advertising spending is
typically conducted by a cooperative to which the franchisees and
Company-owned stores, if any, contribute funds as a percentage of
restaurants’ sales. The contributions are primarily used to pay for
expenses relating to purchasing media for advertising, market
research, commercial production, talent payments and other support
functions for the respective Concepts. We control the advertising
activities of certain advertising cooperatives through our majority
voting rights.

Trademarks and Patents
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®, KFC®, Pizza
Hut® and Taco Bell® marks, have significant value and are materially
important
to its business. The Company’s policy is to pursue
registration of its important marks whenever feasible and to oppose
vigorously any infringement of its marks.

The use of certain of
these marks by franchisees has been
authorized in our franchise 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.

Working Capital
Information about
is included in
MD&A in Part II, Item 7 and the Consolidated Statements of Cash
Flows in Part II, Item 8.

the Company’s working capital

4 YUM! BRANDS, INC. - 2018 Form 10-K

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Seasonal Operations
The Company does not consider its operations to be seasonal to any
material degree.

restaurant

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 those in the QSR segment), and is intensely competitive
with respect to price and quality of
food products, new product
development, digital engagement, advertising levels and promotional
initiatives, customer service reputation,
location and
attractiveness and maintenance of properties. Competition from
food delivery services has also
delivery aggregators and other
increased in recent years, particularly in urbanized areas. The retail
food industry is often affected by changes in consumer tastes;
national, regional or local economic conditions; currency fluctuations;
demographic trends; traffic patterns; the type, number and location
of competing food retailers and products; and disposable purchasing
power. Each of our 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.

Environmental Matters
local
The Company is not aware of any federal, state or
its
environmental
laws or
earnings or competitive position, or
in material capital
expenditures. However, the Company cannot predict the effect on its
or
operations
regulations. During 2018, there were no material capital expenditures
for environmental control facilities and no such material expenditures
are anticipated.

regulations that will materially affect
result

environmental

legislation

possible

future

of

Government Regulation
U.S. Operations. The Company and its U.S. operations, as well as
our franchisees, are subject to various federal, state and local
laws
affecting its business,
including laws and regulations concerning
information security, labor and employment, health, marketing, food
labeling, sanitation and safety. Each of our and our Concepts’
franchisees’
restaurants in the U.S. must comply with licensing
requirements and regulations promulgated 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 requirements and regulations or by any
difficulty, delay or failure to obtain required licenses or approvals.

franchisees’
International Operations. Our and our Concepts’
laws
restaurants outside the U.S. are subject to national and local
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 anti-
corruption laws.

See Item 1A “Risk Factors” for a discussion of risks relating to
federal, state, local and international regulation of our business.

PART I
ITEM 1A Risk Factors

Employees
As of year end 2018, the Company and its subsidiaries employed
approximately 34,000 persons. The Company believes that
it
provides working conditions and compensation that compare

its principal competitors. The majority of
favorably with those of
employees are paid on an hourly basis. Some employees are subject
to labor council relationships that vary due to the diverse countries in
which the Company operates. The Company and its Concepts
consider employee relations to be good.

Available Information

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

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
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.

and should not be considered part of

ITEM 1A Risk Factors

You should carefully review the risks described below as they identify
important
results to differ
materially from our forward-looking statements and historical trends.

factors that could cause our actual

Food safety and food-borne illness
concerns may have an adverse effect
on our business.
Food-borne illnesses, such as E. coli, Listeria, Salmonella and
Trichinosis, occur or may occur within our system from time to time. In
addition, food safety issues such as food tampering, contamination and
adulteration occur or may occur within our system from time to time. Any
report or publicity linking us or one of our Concepts’ restaurants,
including restaurants operated by us or our Concepts’ franchisees, or
linking our competitors or the retail food industry generally, to instances
of food-borne illness or food safety issues could adversely affect our
Concepts’ brands and reputations as well as our revenues and profits,
and possibly lead to product liability claims, litigation and damages. If a
customer of one 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 could disrupt our operations and have a
material adverse effect on our business, financial condition and results of
operations. In addition, instances or allegations of food-borne illness or
food safety issues,
restaurants,
restaurants of competitors, or 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 or the
sales of our Concepts’
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.

franchisees. The occurrence of

real or perceived,

involving our

of avian flu or swine flu, such as H1N1. The occurrence of such an
outbreak of an epidemic,
illness or other adverse public health
developments could materially disrupt our business and operations.
Such events could also significantly impact our industry and cause a
temporary closure of restaurants, which could severely disrupt our
operations and have a material adverse effect on our business,
financial condition and results of operations.

Our operations could be disrupted if any of our employees or
employees of our business partners were suspected of having the
avian flu or swine flu, or other illnesses such as hepatitis A or
norovirus, since this could require us or our business partners to
quarantine some or all of such employees or disinfect our restaurant
facilities. Outbreaks of avian flu occur from time to time around the
world, and such outbreaks have resulted in confirmed human cases.
It is possible that outbreaks 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. Because poultry is a menu offering for our
Concepts, this would likely result in lower revenues and profits for us
and our Concepts’
franchisees. Avian flu outbreaks could also
adversely affect the price and availability of poultry, which could
negatively impact profit margins and revenues for us and our
Concepts’ franchisees.

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traffic or

restaurant guest

Furthermore, other viruses 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
the ability to adequately staff
affect
restaurants. We could also be adversely affected if government
authorities impose mandatory closures, seek voluntary closures,
impose restrictions on operations of restaurants, or restrict the import
or export of products, or
if suppliers issue mass recalls of
products. 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.

Health concerns arising from outbreaks
of viruses or other diseases may have
an adverse effect on our business.
Our business could be materially and adversely affected by the
outbreak of a widespread health epidemic, including various strains

YUM! BRANDS, INC. - 2018 Form 10-K 5

PART I
ITEM 1A Risk Factors

Our operating results and growth
strategies are closely and increasingly
tied to the success of our Concepts’
franchisees.
A significant and growing portion of our restaurants are operated by
our Concepts’ franchisees. At the end of 2018, over 98% of our
stores are operated by franchisees. Our refranchising efforts have
increased our dependence on the financial success and cooperation
of our Concepts’ franchisees. In addition, our long-term system sales
growth targets depend on an acceleration of our historical net
system unit growth rate. Nearly all of this unit growth is expected to
result from new unit openings by our Concepts’ franchisees. If our
Concepts’ franchisees do not meet our expectations for new unit
development, we may fall short of our system sales targets.

it could result

in their financial distress,

We have limited control over how our Concepts’
franchisees’
businesses are run, and their inability to operate successfully could
adversely affect our operating results through decreased royalty
payments. If our Concepts’ franchisees fail to adequately capitalize
their businesses or incur too much debt, if their operating expenses
or commodity prices increase or
if economic or sales trends
deteriorate such that they are unable to operate profitably or repay
existing debt,
including
insolvency or bankruptcy. If a significant franchisee of one of our
Concepts becomes, or a significant number of our Concepts’
franchisees in the aggregate become,
financially distressed, our
operating results could be impacted through reduced or delayed
royalty payments and reduced new unit development. In addition, we
are secondarily liable on certain of our Concepts’ franchisees’ lease
agreements, including lease agreements that we have guaranteed or
assigned to franchisees in connection with the refranchising of
certain Company-owned restaurants. Our operating results could be
impacted by any increased rent obligations for such leased
properties to the extent our Concepts’ franchisees default on such
lease agreements.

franchisees to implement major

Our success also depends on the willingness and ability of our
Concepts’
initiatives such as
restaurant remodels or equipment or technology upgrades, which
may require financial
investment. Our Concepts may be unable to
successfully implement strategies that we believe are necessary for
further growth if their franchisees do not participate, which in turn
may harm the growth prospects and financial condition of
the
Company. Additionally, the failure of our Concepts’ franchisees to
focus on the fundamentals of restaurant operations, such as quality,
service and cleanliness (even if such failures do not rise to the level of
breaching the related franchise documents), could have a negative
impact on our business.

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We may not achieve our target
development goals, aggressive
development could cannibalize existing
sales and new restaurants may not be
profitable.
Our growth strategy depends on our and our Concepts’ franchisees’
ability to increase net
in markets around the
restaurant count
world. The successful development of new units depends in large
franchisees to open new
part on the ability of our Concepts’
restaurants and to operate these restaurants profitably. We cannot
guarantee that we, or our Concepts’
including Yum
China, will be able to achieve our expansion goals or that new
restaurants will be operated profitably. Further, there is no assurance

franchisees,

6 YUM! BRANDS, INC. - 2018 Form 10-K

that any new restaurant will produce operating results similar to those
of our existing restaurants. Other risks that could impact our ability to
increase the number of our restaurants include prevailing economic
conditions and trade or economic sanctions and our, or our
Concepts’ franchisees’, ability to obtain suitable restaurant locations,
negotiate acceptable lease or purchase terms for the locations,
obtain required permits and approvals in a timely manner, hire and
train qualified management teams and restaurant crews, and meet
construction schedules.

Expansion into target markets could also be affected by our
Concepts’ franchisees’ willingness to invest capital or ability to obtain
financing to construct and open new restaurants. If it becomes more
difficult or more expensive for our Concepts’ franchisees to obtain
financing to develop new restaurants, or if the perceived return on
invested capital
is not sufficiently attractive, the expected growth of
our system could slow and our future revenues and operating cash
flows could be adversely impacted.

In addition, the development of new restaurants could impact the
sales of our Concepts’ 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.

capital

annual

We may not successfully implement
our transformation initiatives or fully
realize the anticipated benefits from
the transformation.
We are in the process of implementing our previously announced
strategic transformation plans to drive global expansion of our KFC,
Pizza Hut and Taco Bell brands. Following our becoming 98%
franchised as of the end of 2018, the remaining components of this
transformation include, among other things, a plan to significantly
and
expenditures
reduce
administrative costs by the end of 2019. We cannot assure you that
we will be able to successfully implement our
transformation
initiatives. Further, our ability to achieve the anticipated benefits of
this transformation, including the anticipated levels of cost savings
to many
and efficiency, within expected timeframes is subject
estimates and assumptions, which are, in turn, subject to significant
economic, competitive and other uncertainties, some of which are
beyond our control. There is no assurance that we will successfully
implement, or fully realize the anticipated positive impact of, our
our
transformation
transformation strategy,
In
addition, there can be no assurance that our efforts, if properly
executed, will result in our desired outcome of improved financial
performance.

in the expected timeframes or at all.

and our general

successfully

initiatives,

execute

on

or

We have significant exposure to the
Chinese market through our largest
franchisee, Yum China, which subjects
us to risks that could negatively affect
our business.
In connection with the spin-off of our China business in 2016, we
entered into a Master License Agreement with Yum China pursuant
to which Yum China is the exclusive licensee of the KFC, Pizza Hut
and Taco Bell Concepts and their related marks and other intellectual
property rights for
restaurant services in China. Following the
Separation, Yum China became, and continues to be, our largest

franchisee. As a result, our overall financial results are significantly
affected by Yum China’s results. Yum China’s business is exposed
to risks in China, which include, among others, changes in economic
conditions (including consumer spending, unemployment levels and
wage and commodity inflation), consumer preferences, the regulatory
environment, and tax laws and regulations including the tax
treatment of the royalty paid to YUM, as well as increased media
scrutiny of our Concepts and industry,
fluctuations in foreign
exchange rates, increased restrictions or tariffs on imported supplies
as a result of trade disputes and increased competition. Further, any
significant or prolonged deterioration in U.S.-China relations could
adversely affect our Concepts in China if Chinese consumers reduce
the frequency of their visits to Yum China’s restaurants. Chinese law
regulates Yum China’s business conducted within China. Our royalty
to
income from the Yum China business is therefore subject
numerous uncertainties based on the policies of
the Chinese
government, as they may change from time to time. If Yum China’s
business is harmed or development of our Concepts’ restaurants is
slowed in China due to any of these factors, it could negatively
impact the royalty paid by Yum China to us, which would negatively
impact our financial results or our growth prospects.

In addition,

if we are unable to enforce our

Our relationship with Yum China is governed primarily by a Master
License Agreement, which may be terminated upon the occurrence
of certain events, such as the insolvency or bankruptcy of Yum
China.
intellectual
if Yum China is unable or
property or contract rights in China,
the Master License
unwilling to satisfy its obligations under
Agreement, or
is otherwise
terminated, it could result in an interruption in the operation of our
brands that have been exclusively licensed to Yum China for use in
China. Such interruption could cause a delay in, or loss of, royalty
income to us, which would negatively impact our financial results.

the Master License Agreement

if

include political

Our international 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., including in emerging
markets, and we intend to continue expansion of our international
operations. As a result, our business and the businesses of our
Concepts’ franchisees are increasingly exposed to risks inherent in
international operations. These risks, which can vary substantially by
country,
instability, corruption, anti-American
sentiment and social and ethnic unrest, as well as changes in
economic conditions (including consumer spending, unemployment
levels
regulatory
environment, income and non-income based tax rates and laws,
sanctions, foreign exchange control regimes including restrictions on
currency conversion, consumer preferences and the laws and
in countries where our
policies that govern foreign investment
Concepts’
In addition, we and our
franchisees do business in jurisdictions that may be subject to trade
or economic sanction regimes and such sanctions could be
expanded. Any failure to comply with such sanction regimes or other
in the assessment of
similar
damages,
the imposition of penalties, suspension of business
licenses, or a cessation of operations at our or our franchisees’
businesses, as well as damage to our and our Concepts’ brands’
images and reputations, all of which could harm our profitability.

restaurants are operated.

regulations could result

and commodity

and wage

inflation),

laws or

the

PART I
ITEM 1A Risk Factors

Foreign currency risks and foreign
exchange controls could adversely
affect our financial results.
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
Chinese Renminbi (“RMB”), Australian Dollar, the British Pound and
the Euro, as well as currencies in certain other markets, such as the
Malaysian Ringgit and 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.
the governments in certain
countries where we operate, including China, restrict the conversion
of local currency into foreign currencies and, in certain cases, the
remittance of currency out of the country. Yum China’s income is
almost exclusively derived from the earnings of
its Chinese
subsidiaries, with substantially all revenues of its Chinese subsidiaries
denominated in RMB. Any significant fluctuation in the value of the
royalty
RMB could materially impact
payments made to us by Yum China, which could result in lower
revenues. In addition, restrictions on the conversion of RMB to U.S.
dollars or further restrictions on the remittance of currency out of
China could result in delays in the remittance of Yum China’s license
fee, which could impact our liquidity.

the U.S. dollar value of

In addition,

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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.
financial and other
We receive and maintain certain personal,
information about our customers, employees and franchisees.
In
addition, our vendors and/or franchisees receive and maintain certain
personal, financial and other information about our employees and
customers. The use and handling of this information is regulated by
evolving and increasingly demanding laws and regulations in various
jurisdictions, 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 if
our employees, franchisees or vendors fail to comply with these laws
and regulations and this information is obtained by unauthorized
it could result
persons or used inappropriately,
in liabilities and
penalties and could damage our
reputation, cause us to incur
substantial costs and result in a loss of customer confidence, which
results of operations and financial
could adversely affect our
to litigation and
condition. Additionally, we could be subject
government enforcement actions as a result of any such failure.

Further, data privacy is subject to frequently changing rules and
regulations, which sometimes conflict among the various jurisdictions
and countries where we, our Concepts and our Concepts’
franchisees do business. For example, the European Union adopted a
new regulation that became effective in May 2018, The General Data
Protection Regulation (“GDPR”), which requires companies to meet
new requirements regarding the handling of personal data. In addition,
in June 2018 the State of California enacted the California Consumer
(the “CCPA”), which will become effective in 2020,
Privacy Act
requiring companies that process information on California residents
to, among other things, make new disclosures to consumers about
data collection, use and sharing practices. Our failure to adhere to or
successfully implement appropriate processes to adhere to the

YUM! BRANDS, INC. - 2018 Form 10-K 7

PART I
ITEM 1A Risk Factors

requirements of GDPR, CCPA and other evolving laws and
regulations in this area could result in financial penalties, legal liability
and could damage our and our Concepts’ brands’ reputations.

franchisees’

Unreliable or inefficient restaurant or
consumer interfacing technology or the
failure to successfully implement
technology initiatives in the future
could adversely impact operating
results.
We and our Concepts’
rely heavily on information
technology systems in the conduct of our business, some of which
are managed, hosted, provided and/or used by third parties,
including, for example, point-of-sale processing in our restaurants,
management of our supply chain and various other processes and
procedures. These systems are subject to damage, interruption or
failure due to theft, fire, power outages, telecommunications failure,
computer viruses, security breaches, malicious cyber-attacks or
other catastrophic events. Certain technology systems may also be
unreliable or
inefficient, and technology vendors may limit or
terminate product support and maintenance, which could impact the
If our or our Concepts’
reliability of critical systems operations.
franchisees’ information technology systems are damaged or fail to
function properly, we may incur substantial costs to repair or replace
them, and may experience loss of critical data and interruptions or
delays in our ability to manage inventories or process transactions,
employee
which
dissatisfaction, or negative publicity that could negatively impact our
reputation, results of operations and financial condition.

customer or

could result

sales,

lost

in

We and our Concepts’ franchisees rely on technology not only to
efficiently operate our restaurants but also to drive the customer
experience, sales growth and margin improvement. Execution of our
growth strategy will be dependent on our initiatives to implement
technology solutions and gather and leverage data to enhance
restaurant operations and improve the customer experience. Our
strategic technology initiatives may not be timely implemented or
may not achieve the desired results. Even if we effectively implement
and manage our technology initiatives, they may not result in sales
growth or margin improvement. Additionally,
implementing the
evolving technology demands of
the consumer may place a
significant financial burden on us and our Concepts’ franchisees.

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There are risks associated with our
increasing dependence on digital
commerce platforms to maintain and
grow sales. Such platforms may
experience disruptions, which could
harm our ability to compete and
conduct our business.
Customers are increasingly using e-commerce websites and apps,
both domestically and internationally, like pizzahut.com, Pizza Hut,
KFC and Taco Bell apps, as well as apps owned by third-party
delivery aggregators such as Grubhub and third-party mobile
payment processors, to order and pay for our Concepts’ products.
As a result, our Concepts and our Concepts’
franchisees are
increasingly reliant on digital ordering and payment as a sales
channel. These digital ordering and payment platforms could be

8 YUM! BRANDS, INC. - 2018 Form 10-K

damaged or interrupted by power loss, technological failures, user
errors, cyber-attacks, other forms of sabotage or acts of God. In
particular, Pizza Hut relies on digital orders for a significant portion of
its sales and could experience interruptions of
its digital ordering
platforms, which could limit or delay customers’ ability to order
through such platforms. Any such limitation or delay would negatively
impact Pizza Hut’s sales and customer experience and perception.
In addition,
if Pizza Hut’s digital ordering platforms do not meet
customers’ expectations in terms of security, speed, attractiveness,
or ease of use, customers may be less inclined to return to such
digital ordering platforms, which could negatively impact our sales,
results of operations and financial condition.

largest

Yum China, our
franchisee, utilizes third-party mobile
payment apps such as Alipay and WeChat as a means through
which to generate sales and process payments. Should customers
become unable to access mobile payment apps in China, or should
the relationship between Yum China and one or more third-party
mobile payment processors become interrupted, our
results of
operations could be negatively impacted.

Our inability or failure to recognize,
respond to and effectively manage the
accelerated impact of social media
could adversely impact our business.
In recent years, there has been a marked increase in the use of social
media platforms,
including blogs, chat platforms, social media
websites, and other forms of Internet-based communications which
allow individuals access to a broad audience of consumers and other
interested persons. The rising popularity of social media and other
consumer-oriented technologies has increased the speed and
information dissemination. Many social media
accessibility of
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,
reputation, financial condition, and results of operations, regardless
the information’s accuracy. The damage may be immediate
of
without affording us an opportunity for redress or correction.

In addition, social media is frequently used by our Concepts to
communicate with their
respective customers and the public in
general. Failure by our Concepts to use social media effectively or
appropriately, particularly as compared to our Concepts’ respective
competitors, could lead to a decline in brand value, customer visits
and revenue. Other risks associated with the use of social media
include improper disclosure of proprietary information, negative
comments about our Concepts’ brands, exposure of personally
identifiable information, fraud, hoaxes or malicious dissemination of
false information. 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 and
adversely affect our results of operations.

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.

at

our

restaurants.

that meet

specifications

In February 2018, we and our

We, along with our Concepts’ franchisees, are also dependent upon
food products and
third parties to make frequent deliveries of
supplies
competitive
prices. Shortages or interruptions in the supply of food items and
other supplies to our Concepts’ restaurants could adversely affect
the availability, quality and cost of items we use and the operations of
our
franchisees
transitioned to a new distributor for the products supplied to our
approximately 900 KFCs in the United Kingdom and Ireland.
In
connection with this transition, certain of the restaurants experienced
supply availability issues which resulted in store closures or stores
operating under a limited menu for a period of time. Future, similar
shortages or disruptions could be caused by inclement weather,
natural disasters,
inaccurate forecasting of customer demand,
problems in production or distribution, restrictions on imports or
exports including due to trade disputes, the inability of vendors to
obtain credit, political instability in the countries in which the suppliers
and distributors are located, the financial
instability of suppliers and
distributors, suppliers’ or distributors’ failure to meet our standards or
requirements, 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, product
the cancellation of supply or
distribution agreements or an inability to renew such arrangements or
to find replacements on commercially reasonable terms, or other
conditions beyond our control or
the control of our Concepts’
franchisees. The pending withdrawal of the United Kingdom from the
European Union, particularly if such withdrawal occurs without a
transition agreement
in the reimposition of
in effect, may result
customs and border controls, which in turn may result in shortages
or interruptions in supply to our Concepts in the United Kingdom with
consequences similar to those described above. In the U.S., the
Company, along with 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. Any failure or
inability of RSCS to perform its purchasing obligations could result in
food and other
shortages or
supplies.

interruptions in the availability of

recalls,

A shortage or interruption in the availability of certain food products
or supplies could increase costs and limit the availability of products
critical to restaurant operations, which in turn could lead to restaurant
closures and/or a decrease in sales. In addition, failure by a key
for our Concepts and/or our Concepts’
supplier or distributor
franchisees to meet
its service requirements could lead to a
disruption of service or supply until a new supplier or distributor is
engaged, and any disruption could have an adverse effect on our
business.

Labor shortages or difficulty finding
qualified employees could slow our
growth, harm our business and reduce
our profitability.
Restaurant operations are highly service-oriented and our success
depends in part upon our and our Concepts’ franchisees’ ability to
attract,
retain and motivate a sufficient number of qualified
employees, including franchisee management, restaurant managers
and other crew members. The market for qualified employees in the
retail food industry is very competitive. Any future inability to recruit
and retain qualified individuals may delay the planned openings of
new restaurants by us and our Concepts’ franchisees and could
adversely impact operation of our Concepts’ existing restaurants.
Any such delays, material
increases in employee turnover rate in
franchisee management or existing restaurants or widespread

PART I
ITEM 1A Risk Factors

employee dissatisfaction could have a material adverse effect on our
and our Concepts’ franchisees’ business and results of operations.

In addition, strikes, work slowdowns or other
job actions may
become more common. In the event of a strike, work slowdown or
other labor unrest,
the ability to adequately staff our Concepts’
restaurants could be impaired, which could result in reduced revenue
and customer claims, and may distract our management
from
focusing on our business and strategic priorities.

Changes in labor and other operating
costs could adversely affect our results
of operations.
An increase in the costs of employee wages, benefits and insurance
(including workers’ compensation, general
liability, property and
health) as well as other operating costs such as rent and energy
costs could adversely affect our operating results. Such increases
could result from government imposition of higher minimum wages or
from general economic or competitive conditions. Any increase in
such operating expenses could adversely affect our and our
Concepts’ franchisees’ profit margins. In addition, competition for
qualified employees could also compel us or our Concepts’
franchisees to pay higher wages to attract or
retain key crew
members, which could result in higher labor costs and decreased
profitability.

A broader standard for determining
joint employer status may adversely
affect our business operations and
increase our liabilities.
The National Labor Relations Board (the “NLRB”) in 2014 adopted a
new and broader standard for determining when two or more
otherwise unrelated employers may be found to be a joint employer
of the same employees under the National Labor Relations Act. If this
liability standard is upheld or adopted by other
joint employer
to franchise
government
relationships under other laws like the U.S. Fair Labor Standards Act,
it could cause us or our Concepts to be liable or held responsible for
unfair labor practices and other violations and could subject our
Concepts to other liabilities, and/or require our Concepts to conduct
collective bargaining negotiations,
totally
independent employers, most notably our Concepts’
separate,
franchisees. In such event, our operating expenses may increase as
required modifications to our business practices,
a result of
increased litigation, governmental
investigations or proceedings,
administrative enforcement actions, fines and civil liability.

regarding employees of

applied generally

agencies

and/or

An increase in food prices may have an
adverse impact on our and our
Concepts’ franchisees’ profit margins.
Our and our Concepts’ franchisees’ businesses depend on reliable
sources of
raw materials such as proteins
(including poultry, pork, beef and seafood), cheese, oil, flour and
and lettuce). Raw materials
vegetables
purchased for use in our Concepts’ restaurants are subject to price
volatility caused by any fluctuation in aggregate supply and demand,
or other external conditions, such as weather conditions or natural
events or disasters that affect expected harvests of such raw

(including potatoes

large quantities of

YUM! BRANDS, INC. - 2018 Form 10-K 9

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PART I
ITEM 1A Risk Factors

materials, or taxes and tariffs including as a result of trade disputes.
As a result, the historical prices of raw materials used in the operation
of our Concepts’ restaurants have fluctuated. We cannot assure you
that we or our Concepts’ franchisees will continue to be able to
purchase raw materials at reasonable prices, or that the cost of raw
materials will remain stable in the future. In addition, a significant
increase in gasoline prices could result in the imposition of
fuel
surcharges by our distributors.

Because we and our Concepts’ franchisees provide competitively
priced food, we may not have the ability to pass through to our
customers the full amount of any commodity price increases. If we
and our Concepts’ franchisees are unable to manage the cost of raw
materials or to increase the prices of products proportionately, our
and our franchisees’ profit margins may be adversely impacted.

Our Concepts’ brands may be harmed
or diluted through franchisee and third-
party activity.
Although we monitor and regulate franchisee activities through our
Concepts’ franchise agreements, franchisees or other third parties
may refer to or make statements about our Concepts’ brands that do
not make proper use of our trademarks or required designations, that
improperly alter trademarks or branding, or that are critical of our
Concepts’ brands or place our Concepts’ brands in a context that
may tarnish their reputation. This may result in dilution of, or harm to,
our intellectual property or the value of our Concepts’ brands.

Franchisee noncompliance with the terms and conditions of our
franchise agreements may reduce the overall goodwill of our
Concepts’ brands, whether through the failure to meet health and
safety standards, engage in quality control or maintain product
consistency, or through the participation in improper or objectionable
business practices. Moreover, unauthorized third parties, including
franchisees, may use our
our Concepts’ current and former
intellectual property to trade on the goodwill of our Concepts’
brands,
resulting in consumer confusion or brand dilution. Any
reduction of our Concepts’ brands’ goodwill, consumer confusion, or
brand dilution is likely to impact sales, and could materially and
adversely impact our business and results of operations.

Our success depends substantially on
our corporate reputation and on the
value and perception of our brands.
Our success depends in large part upon our ability and our
Concepts’ franchisees’ ability to maintain and enhance the value of
our brands and our customers’ loyalty to our brands. Brand value is
based in part on consumer perceptions on a variety of subjective
qualities. Business incidents, whether
recurring, and
whether originating from us, franchisees, competitors, governments,
suppliers or distributors, can significantly reduce brand value and
consumer
the incidents receive considerable
publicity or result in litigation. For example, our Concepts’ brands
could be damaged by claims or perceptions about the quality or
safety of our products or the quality or reputation of our suppliers,
distributors or franchisees, regardless of whether such claims or
perceptions are true. Similarly, entities in our supply chain may
including alleged human rights abuses or
engage in conduct,
environmental wrongdoing, and any such conduct could damage our
or our Concepts’ brands’ reputations. Any such incidents (even if
resulting from actions of a competitor or franchisee) could cause a
decline directly or
the
perception of, our Concepts’ brands and/or our products and reduce

indirectly in consumer confidence in, or

trust, particularly if

isolated or

10 YUM! BRANDS, INC. - 2018 Form 10-K

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consumer demand for our products, which would likely result in
lower revenues and profits. Additionally, our corporate reputation
could suffer from a real or perceived failure of corporate governance
or misconduct by a Company officer, or an employee or
representative of us or a franchisee.

We could be party to litigation that
could adversely affect us by increasing
our expenses, diverting management
attention or subjecting us to significant
monetary damages and other
remedies.
We are regularly involved in legal proceedings, which include
consumer, employment, real estate related, tort, intellectual property,
breach of contract, securities, derivative and other litigation. See the
discussion of
legal proceedings in Note 19 to the Consolidated
Financial Statements included in Item 8 of this Form 10-K. Plaintiffs in
lawsuits often seek recovery of very large or
these types of
loss
indeterminate amounts, and the magnitude of
relating
accurately
not
lawsuits may
estimated. Regardless of whether any such claims have merit, or
whether we are ultimately held liable or settle, such litigation may be
expensive to defend and may divert resources and management
attention away from our operations and 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
Concepts’
reputations, which in turn could adversely affect our
results of operations.

the potential

such

be

to

the restaurant

to claims that

relate to the nutritional content of

industry around the world has been
In addition,
food
subject
the menus and practices of
products, as well as claims that
restaurant chains have led to customer health issues,
including
weight gain and other adverse effects. These concerns could lead to
an increase in the regulation of the content or marketing of our
products. We may also be subject to such claims 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 retail
food
industry) may harm our Concepts’ reputations and adversely affect
our business, financial condition and results of operations.

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:

(cid:129) 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.

(cid:129) 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.

(cid:129) Laws and regulations in government-mandated health care
benefits such as the Patient Protection and Affordable Care Act in
the U.S.

(cid:129) Laws and regulations relating to nutritional content, nutritional
labeling, product safety, product marketing and menu labeling.

(cid:129) Laws relating to state and local licensing.

(cid:129) Laws relating to the relationship between franchisors and

franchisees.

(cid:129) Laws and regulations relating to health, sanitation, food, workplace
safety, child labor, including laws regulating the use of certain
“hazardous equipment”, and fire safety and prevention.

(cid:129) Laws and regulations relating to union organizing rights and

activities.

(cid:129) Laws relating to information security, privacy (including the
European Union’s GDPR), cashless payments, and consumer
protection.

(cid:129) Laws relating to currency conversion or exchange.

(cid:129) Laws relating to international trade and sanctions.

(cid:129) Tax laws and regulations.

(cid:129) Anti-bribery and anti-corruption laws.

(cid:129) Environmental laws and regulations.

(cid:129) Federal and state immigration laws and regulations in the U.S.

Compliance with new or existing laws and regulations could impact
our or our Concepts’ franchisees’ 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 results or result in, among other
internal
of
things,
required
investigations,
proceedings,
investigations
administrative enforcement actions,
fines and civil and criminal
liability. Publicity relating to any such noncompliance could also harm
our Concepts’ reputations and adversely affect our revenues.

revocation
governmental

licenses,
or

litigation,

Failure to comply with anti-bribery or
anti-corruption laws could adversely
affect our business operations.
The U.S. Foreign Corrupt Practices Act, the UK Bribery Act and other
similar applicable laws prohibiting bribery of government officials and
other corrupt practices are the subject of increasing emphasis and
enforcement around the world. There can be no assurance that our
employees, contractors, agents or other third parties will not take
actions in violation of our policies or applicable law, particularly as we
expand our operations in emerging markets and elsewhere. Any such
violations or suspected violations could subject us to civil or criminal
investigation
penalties,
costs, and could also materially damage our reputation, brands,
international expansion efforts and growth prospects, business and
operating results. Publicity relating to any noncompliance or alleged
noncompliance could also harm our Concepts’
reputations and
adversely affect our revenues and results of operations.

fines and significant

including substantial

PART I
ITEM 1A Risk Factors

Tax matters, including changes in tax
rates or laws, disagreements with
taxing authorities and imposition of
new taxes could impact our results of
operations and financial condition.
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 ongoing and/or regular reviews,
examinations and audits by the U.S. Internal Revenue Service (“IRS”)
and other
to such income and
non-income based taxes inside and outside of the U.S. Our accruals
for tax liabilities are based on past experience, interpretations of
applicable law, and judgments about potential actions by tax
authorities, but such accruals require significant judgment which may
be incorrect and may result in payments greater than the amounts
accrued. If the IRS or another taxing authority disagrees with our tax
positions, we could face additional tax liabilities, including interest
and penalties. Payment of additional amounts upon final settlement
or adjudication of any disputes could have a material impact on our
results of operations and financial position.

taxing authorities with respect

In addition, we are directly and indirectly affected by new tax laws
and regulation and the interpretation of tax laws and regulations
worldwide. Changes in laws, regulation or interpretation of existing
laws and regulations in the U.S. and other jurisdictions where we are
subject to taxation could increase our taxes and have an adverse
effect on our results of operations and financial condition. Changes in
tax laws may arise as a result of guidance issued by the Organisation
for Economic Co-operation and Development (“OECD”), a coalition of
member nations including the United States. The OECD guidance,
referred to as the Base Erosion and Profit Shifting (“BEPS”) Action
Plan, does not have the force of law, but certain countries may enact
tax legislation, modify tax treaties, and/or increase audit scrutiny
based on the BEPS guidance. To the extent BEPS principles are
adopted by major jurisdictions in which we operate, it could increase
our taxes and have a material adverse impact on our results of
operations and financial position. In addition, public perception that
we are not paying a sufficient amount of taxes could damage our
Concepts’ reputations, which could harm our profitability.

The Yum China spin-off and certain
related transactions could result in
substantial U.S. tax liability.
We received opinions of outside counsel substantially to the effect
that, for U.S. federal
income tax purposes, the Yum China spin-off
and certain related transactions qualified as generally tax-free under
Sections 355 and 361 of the U.S.
Internal Revenue Code. The
opinions relied on various facts and assumptions, as well as certain
representations as to factual matters and undertakings (including
with respect to future conduct) made by Yum China and us. If any of
these facts, assumptions,
representations or undertakings are
incorrect or not satisfied, we may not be able to rely on these
opinions of outside counsel. Accordingly, notwithstanding receipt of
the opinions of outside counsel, the conclusions reached in the tax
opinions may be challenged by the IRS. Because the opinions are
not binding on the IRS or the courts, there can be no assurance that
the IRS or the courts will not prevail in any such challenge.

the Yum China spin-off was taxable,

If, notwithstanding receipt of any opinion, the IRS were to conclude
that
in general, we would
recognize taxable gain as if we had sold the Yum China common
stock in a taxable sale for its fair market value. In addition, each

YUM! BRANDS, INC. - 2018 Form 10-K 11

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PART I
ITEM 1A Risk Factors

U.S. holder of our Common Stock who received shares of Yum
China common stock in connection with the spin-off transaction
would generally be treated as having received a taxable distribution
of property in an amount equal to the fair market value of the shares
of Yum China common stock received. That distribution would be
taxable to each such U.S. stockholder as a dividend to the extent of
our current and accumulated earnings and profits. For each such
U.S. stockholder, any amount that exceeded our earnings and profits
would be treated first as a non-taxable return of capital to the extent
of such stockholder’s tax basis in our shares of Common Stock with
any remaining amount being taxed as a capital gain.

transfer” of Chinese taxable assets,

The Yum China spin-off may be subject
to China indirect transfer tax.
the Chinese State Administration of Taxation
In February 2015,
(“SAT”) issued the Bulletin on Several
Issues of Enterprise Income
Tax on Income Arising from Indirect Transfers of Property by
Non-resident Enterprises (“Bulletin 7”). Pursuant to Bulletin 7, an
including equity
“indirect
interests in a China resident enterprise (“Chinese interests”), by a
non-resident enterprise, may be recharacterized and treated as a
direct transfer of Chinese taxable assets, if such arrangement does
not have reasonable commercial purpose and the transferor has
avoided payment of Chinese enterprise income tax. Using general
anti-tax avoidance provisions, the SAT may treat an indirect transfer
as a direct transfer of Chinese interests if the transfer has avoided
Chinese tax by way of an arrangement without
reasonable
commercial purpose. As a result, gains derived from such indirect
transfer may be subject to Chinese enterprise income tax, and the
transferee or other person who is obligated to pay for the transfer
would be obligated to withhold the applicable taxes, currently at a
rate of up to 10% of the capital gain in the case of an indirect transfer
of equity interests in a China resident enterprise.

We evaluated the potential applicability of Bulletin 7 in connection
with the Separation in the form of a tax free restructuring and believe
it is more likely than not that Bulletin 7 does not apply. We believe
that the restructuring has reasonable commercial purpose.

confusingly similar to our service marks being used by other persons.
Although our policy is to oppose any such infringement, further or
unknown unauthorized uses or other misappropriation of our
trademarks or service marks could diminish the value of our brands
and adversely affect our business. In addition, effective intellectual
property protection may not be available in every country in which
our Concepts have, or may in the future open or franchise, a
restaurant. There can be no assurance that these protections will be
adequate, and defending or enforcing our service marks and other
in the expenditure of significant
intellectual property could result
that could
resources. We may also face claims of
interfere with the use of
the proprietary know-how, concepts,
recipes, or trade secrets used in our business. Defending against
such claims may be costly, and we may be prohibited from using
such proprietary information in the future or forced to pay damages,
royalties, or other fees for using such proprietary information, any of
financial
which could negatively affect our business,
condition, and results of operations.

infringement

reputation,

Our business may be adversely
impacted by changes in consumer
discretionary spending and general
economic conditions.
Purchases at our Concepts’
restaurants are discretionary for
consumers and, therefore, our results of operations are susceptible
to economic slowdowns and recessions. Our and our franchisees’
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 rates, fluctuations in the level of disposable income,
the price of gasoline, stock market performance and changes in the
level of 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.

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are

there

significant uncertainties

However,
regarding what
constitutes a reasonable commercial purpose, how the safe harbor
provisions for group restructurings are to be interpreted and how the
Chinese tax authorities will ultimately view the spin-off. As a result,
our position could be challenged by the Chinese tax authorities
resulting in a tax at a rate of 10% assessed on the difference
between the fair market value and the tax basis of Yum China. As our
tax basis in Yum China was minimal, the amount of such a tax could
be significant and have a material adverse effect on our results of
operations and our financial condition.

Failure to protect our service marks or
other intellectual property could harm
our business.
We regard our Yum®, KFC®, Pizza Hut® and Taco Bell® service
marks, and other service marks and trademarks related to our
restaurant businesses, as having significant value and being
important to our marketing efforts. We rely on a combination of
protections provided by contracts, copyrights, patents, trademarks,
service marks and other common law rights, such as trade secret
and unfair competition laws, to protect our restaurants and services
from infringement. We have registered certain trademarks and
service marks in the U.S. and foreign jurisdictions. However, from
time to time we become aware of names and marks identical or

12 YUM! BRANDS, INC. - 2018 Form 10-K

reputation,

initiatives, customer service,

The retail food industry in which we
operate is highly competitive.
The retail
food industry in which our Concepts operate is highly
competitive with respect to price and quality of food products, new
product development, digital engagement, advertising levels and
restaurant
promotional
location, and attractiveness and maintenance of properties.
If
consumer or dietary preferences change, if our marketing efforts are
unsuccessful, or if our Concepts’ restaurants are unable to compete
food outlets in new and existing
successfully with other
markets, our and our franchisees’ businesses could be adversely
affected. We also face growing competition as a result of
convergence in grocery, convenience, deli and restaurant services,
including the offering by the grocery industry of convenient meals,
including pizzas and entrees with side dishes. Competition from
delivery aggregators and other
food delivery services has also
increased in recent years, particularly in urbanized areas, and is
expected to continue to increase. Increased competition could have
an adverse effect on sales, profitability or development plans, which
could harm our or our franchisees’ financial condition and operating
results.

retail

PART I

Our substantial indebtedness makes us
more sensitive to adverse economic
conditions, may limit our ability to plan
for or respond to significant changes in
our business, and requires a significant
amount of cash to service our debt
payment obligations that we may be
unable to generate or obtain.
As of December 31, 2018, our
total outstanding short-term
borrowings and long-term debt was approximately $10 billion. Subject
to the limits contained in the agreements governing our outstanding
indebtedness, we may incur additional debt from time to time, which
would increase the risks related to our high level of indebtedness.

Specifically, our high level of
potential consequences, including, but not limited to:

indebtedness could have important

(cid:129) increasing our vulnerability to, and reducing our flexibility to plan for
and respond to, adverse economic and industry conditions and
changes in our business and the competitive environment;

(cid:129) requiring the dedication of a substantial portion of our cash flow
from operations to the payment of principal of, and interest on,
indebtedness, thereby reducing the availability of such cash flow to
fund working capital, capital expenditures, acquisitions, dividends,
share repurchases or other corporate purposes;

(cid:129) increasing our vulnerability to a downgrade of our credit rating,
which could adversely affect our cost of funds, liquidity and access
to capital markets;

(cid:129) restricting us from making strategic acquisitions or causing us to

make non-strategic divestitures;

(cid:129) placing us at a disadvantage compared to other less leveraged
competitors or competitors with comparable debt at more
favorable interest rates;

(cid:129) increasing our exposure to the risk of

increased interest rates
insofar as current and future borrowings are subject to variable
rates of interest;

(cid:129) increasing our exposure to the risk of discontinuance or
modification of certain reference rates including LIBOR, which are
used to calculate applicable interest rates of our indebtedness and
certain derivative instruments that hedge interest rate risk;

(cid:129) making it more difficult for us to repay, refinance or satisfy our

obligations with respect to our debt;

(cid:129) limiting our ability to borrow additional

funds in the future and

increasing the cost of any such borrowing;

(cid:129) imposing restrictive covenants on our operations, which, if not
complied with, could result in an event of default, which in turn, if
the
not cured or waived, could result
applicable debt, and may result in the acceleration of any other
debt
to which a cross-acceleration or cross-default provision
applies; and

in the acceleration of

(cid:129) increasing our exposure to risks related to fluctuations in foreign
currency as we earn profits in a variety of currencies around the
world and our debt is primarily denominated in U.S. dollars.

There is no assurance that we will generate cash flow from
operations or that future debt or equity financings will be available to
us to enable us to pay our indebtedness or to fund other liquidity
needs. If our business does not generate sufficient cash flow from
operations in the amounts projected or at all, or if future borrowings
are not available to us in amounts sufficient to pay our indebtedness
or to fund other liquidity needs, our financial condition and results of
operations may be adversely affected. As a result, we may need to
refinance all or a portion of our indebtedness on or before maturity.
There is no assurance that we will be able to refinance any of our
indebtedness on favorable terms, or at all. Any inability to generate
sufficient cash flow or refinance our indebtedness on favorable terms
could have a material adverse effect on our business and financial
condition.

ITEM 1B Unresolved Staff Comments

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 2018 fiscal year and that remain unresolved.

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ITEM 2 Properties

As of year end 2018, the Company’s Concepts owned land, building
or both for 339 units worldwide in connection with the operation of
our 856 Company-owned restaurants. These units are further
detailed as follows:

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 the U.S. with leases
have initial lease terms and renewal options that vary by country.

(cid:129) The KFC Division owned land, building or both for 72 units.

(cid:129) The Pizza Hut Division owned land, building or both for 4 units.

(cid:129) The Taco Bell Division owned land, building or both for 263 units.

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

Company-owned restaurants in the U.S. with leases are generally
leased for initial terms of 15 or 20 years and generally have renewal

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’s properties is
KFC. Additional
included in the Consolidated Financial Statements in Part II, Item 8.

information about

The Company believes that
its properties are generally in good
operating condition and are suitable for the purposes for which they
are being used.

YUM! BRANDS, INC. - 2018 Form 10-K 13

PART I
ITEM 4 Mine Safety Disclosures

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

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 significant current
specific claims and contingencies,
in Note 19,
Contingencies, to the Consolidated Financial Statements included in
Part II, Item 8, which is incorporated by reference into this item.

if any, appear

ITEM 4 Mine Safety Disclosures

Not applicable.

Executive Officers of the Registrant

The executive officers of the Company as of February 20, 2019, and
their ages and current positions as of that date are as follows:

Greg Creed, 61, is Chief Executive Officer of YUM. He has served in
this position since January 2015. He served as Chief Executive
Officer of Taco Bell Division from January 2014 to December 2014
and as Chief Executive Officer of Taco Bell U.S.
from 2011 to
December 2013. Prior to this position, Mr. Creed served as President
and Chief Concept Officer of Taco Bell U.S., a position he held
beginning in December 2006.

David Gibbs, 55, is President, Chief Operating Officer and Chief
Financial Officer of YUM. He has served as President and Chief
Financial Officer since May 2016 and as Chief Operating Officer since
January 2019. Prior to these positions, he served as Chief Executive
Officer of Pizza Hut Division from January 2015 to April 2016. 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.

Scott Catlett, 42, is General Counsel and Corporate Secretary of
YUM. He has severed in this position since July 2018. Prior to
serving as General Counsel he served as Vice President and Deputy
General Counsel of YUM from November 2015 to June 2018. From
September 2007 to October 2015 Mr. Catlett held various Yum
positions including Vice President & Associate General Counsel.

Tony Lowings, 60, is Chief Executive Officer of KFC Division, a
position he has held since January 2019. Prior to that, he served as

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President and Chief Operations Officer of KFC Division from August
2018 to December 2018. From November 2016 to July 2018 he
served as Managing Director of Asia-Pacific and from February 2013
to October 2016 as Managing Director of KFC SOPAC (Australia and
New Zealand). Mr. Lowings served in various positions including
Chief Operations Officer of YRI and Managing Director of Latin
America and the Caribbean for KFC, Pizza Hut and Taco Bell and
General Manager of KFC and Pizza Hut in Australia and New Zealand
from January 2010 to January 2013.

David Russell, 49, is Senior Vice President, Finance and Corporate
Controller of YUM. He has served as YUM’s Corporate Controller
since February 2011 and as Senior Vice President, Finance since
February 2017. Prior to serving as Corporate Controller, Mr. Russell
served in various positions at the Vice President-level
in the Yum
Finance Department, including Controller-Designate from November
2010 to February 2011 and Vice President, Assistant Controller from
January 2008 to December 2010.

Tracy Skeans, 46, is Chief Transformation and People Officer of
YUM. She has served as Chief People Officer since January 2016
and Chief Transformation Officer since November 2016. From
January 2015 to December 2015, she was President of Pizza Hut
International. Prior to this position, Ms. Skeans served as Chief
People Officer of Pizza Hut Division from December 2013 to
December 2014 and Chief People Officer of Pizza Hut U.S. from
October 2011 to November 2013. From July 2009 to September
2011, she served as Director of Human Resources for Pizza Hut U.S
and was on the Pizza Hut U.S. Finance team from September 2000
to June 2009.

Executive officers are elected by and serve at the discretion of the
Board of Directors.

14 YUM! BRANDS, INC. - 2018 Form 10-K

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 dividends per common share declared by quarter for the Company’s Common Stock.

Quarter

First

Second

Third

Fourth

2018

2017

$ 0.36

$ 0.30

0.36

0.36

0.36

0.30

—

0.30

In 2018, the Company paid four cash dividends of $0.36 per share. In 2017, the Company paid four cash dividends of $0.30 per share. This
included a dividend distributed February 3, 2017, that had been declared on December 21, 2016. Over the long term, the Company targets an
annual dividend payout ratio of 45% to 50% of Net Income, before Special Items.

As of February 13, 2019, there were 43,458 registered holders of record of the Company’s Common Stock.

Issuer Purchases of Equity Securities

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

Fiscal Periods

10/1/18 – 10/31/18

11/1/18 – 11/30/18

12/1/18 – 12/31/18

Total

Total number
of shares
purchased
(thousands)

1,249

1,478

5,032

7,759

Average price
paid per share

Total number of shares purchased as
part of publicly announced plans or
programs (thousands)

Approximate dollar value of shares
that may yet be purchased under
the plans or programs (millions)

$ 89.12

$ 89.44

$ 90.01

1,249

1,478

5,032

7,759

$ 1,691

$ 1,559

$ 1,106

$ 1,106

On August 10, 2018, our Board of Directors authorized share repurchases through December 2019 of up to $2 billion (excluding applicable
transaction fees) of our outstanding Common Stock. As of December 31, 2018, we have remaining capacity to repurchase up to $1.1 billion of
Common Stock under this authorization.

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YUM! BRANDS, INC. - 2018 Form 10-K 15

PART II
ITEM 5 Market for the Registrant’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities

Stock Performance Graph

This graph compares the cumulative total return of our Common Stock to the cumulative total return of the S&P 500 Index and the S&P 500
Consumer Discretionary Sector Index, a peer group that includes YUM, for the period from December 31, 2013 to December 31, 2018. The
graph assumes that the value of the investment in our Common Stock and each index was $100 at December 31, 2013 and that all cash
dividends were reinvested.

In $

200.00

150.00

100.00

50.00

2013

YUM

2014

2015

2016

2017

2018

S&P 500

S&P 500 Consumer Discretionary

12/31/2013

12/31/2014

12/31/2015

12/30/2016

12/29/2017

12/31/2018

$ 100

$ 100

$ 100

$

98

$ 114

$ 110

$ 101

$ 115

$ 121

$ 124

$ 129

$ 128

$ 163

$ 157

$ 157

$ 187

$ 150

$ 159

YUM

S&P 500

S&P Consumer Discretionary

Source of total return data: Bloomberg

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16 YUM! BRANDS, INC. - 2018 Form 10-K

PART II

ITEM 6 Selected Financial Data

SELECTED FINANCIAL DATA

YUM! BRANDS, INC. AND SUBSIDIARIES

(in millions, except per share and unit amounts)

2018

2017

2016

2015

2014

Income Statement Data

Revenues

Company sales

Franchise and property revenues

Franchise contributions for advertising and other services

Total

Refranchising (gain) loss

Operating Profit

Other pension (income) expense

Interest expense, net

Income from continuing operations before income taxes

Income from continuing operations

Income from discontinued operations, net of tax

Net Income

Basic earnings per share from continuing operations

Basic earnings per share from discontinued operations

Basic earnings per share

Diluted earnings per share from continuing operations

Diluted earnings per share from discontinued operations

Diluted earnings per share

Diluted earnings per share from continuing operations excluding Special
Items

Cash Flow Data

Provided by operating activities

Capital spending

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 units at year end

Franchise

Company

System

System net new unit growth

$ 2,000

$ 3,572

$ 4,189

$ 4,336

$ 4,503

2,306

2,167

2,082

2,084

2,482

1,206

5,688

—

5,878

(540)

(1,083)

2,296

2,761

14

452

1,839

1,542

N/A

1,542

4.80

N/A

4.80

4.69

N/A

4.69

3.17

47

445

2,274

1,340

N/A

1,340

3.86

N/A

3.86

3.77

N/A

3.77

2.96

—

6,356

(163)

1,682

32

307

1,345

1,018

625

1,643

2.58

1.59

4.17

2.54

1.56

4.10

2.46

—

—

6,418

6,587

23

(16)

1,434

1,517

40

141

1,253

926

357

1,283

2.13

0.82

2.95

2.09

0.81

2.90

2.31

N/A

146

1,374

1,006

45

1,051

2.27

0.10

2.37

2.22

0.10

2.32

2.20

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$ 1,176

$ 1,030

$ 1,248

$ 1,260

$ 1,217

234

825

2,390

462

318

1,773

1,960

416

427

370

5,403

744

442

213

1,200

730

508

83

820

669

$ 4,130

$ 5,311

$ 5,453

$ 4,939

$ 5,073

9,751

10,072

9,429

9,804

9,059

9,125

2,988

3,908

3,003

3,268

47,268

43,603

40,834

39,320

37,959

856

1,481

2,841

3,163

3,279

48,124

45,084

43,675

42,483

41,238

7%

3%

3%

3%

3%

YUM! BRANDS, INC. - 2018 Form 10-K 17

PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations

System and same-store sales

KFC Division System sales

System sales growth

System sales growth, ex FX

Same-store sales growth

Pizza Hut Division System sales

System sales growth (decline)

System sales growth, ex FX

Same-store sales growth (decline)

Taco Bell Division System sales

System sales growth

System sales growth, ex FX

Same-store sales growth

Shares outstanding at year end

2018

2017

2016

2015

2014

$26,239

$24,515

$23,242

$22,628

$23,458

7%

6%

2%

5%

6%

3%

3%

7%

2%

(3)%

5%

1%

1%

4%

1%

12,212

12,034

12,019

11,999

12,106

1%

1%

—%

—%

1%

—%

—%

2%

(2)%

(1)%

3%

—%

10,786

10,145

9,660

9,102

6%

6%

4%

306

5%

5%

4%

332

6%

6%

2%

355

8%

8%

5%

420

1%

2%

(2)%

8,459

4%

4%

3%

434

Cash dividends declared per common share

$

1.44

$

0.90

$

1.73

$

1.74

$

1.56

Market price per share at year end

$ 91.92

$ 81.61

$ 63.33

$ 73.05

$ 73.14

The table above reflects the impact of the adoption of new revenue
recognition accounting standards in fiscal year 2018. Refer to Note 2
in our Consolidated Financial Statements for information regarding
our adoption of the new revenue recognition standards.

System unit growth in 2018 includes addition of 1,282 Telepizza
units. See Management’s Discussion and Analysis (“MD&A”) Part II,
Item 7 for a description of the Telepizza strategic alliance.

Fiscal years for our U.S. and certain international subsidiaries that
operate on a weekly periodic calendar include 52 weeks in 2018,
2017, 2015 and 2014 and 53 weeks in 2016. Refer to Note 2 in our
Consolidated Financial Statements for additional details related to our
fiscal calendar.

Discontinued operations in 2016, 2015 and 2014 reflects the spin-off
of our China business into an independent, publicly traded company
(the “Separation”). See Note 1 in our Consolidated Financial
Statements.

Historical stock prices prior to November 1, 2016, do not reflect any
adjustment for the impact of the Separation.

per share from continuing operations excluding Special
discussed in further detail in our MD&A within Part II, Item 7.

Items are

See discussion of our 2018, 2017 and 2016 Special
Items in our
MD&A. Special Items in 2015 negatively impacted Operating Profit by
$91 million and negatively impacted Net Income by $95 million, due
to costs associated with the KFC Acceleration Agreement and
Items in 2014 positively impacted
Refranchising losses. Special
Operating Profit by $16 million and positively impacted Net Income
by $12 million, primarily due to Refranchising gains.

Selected financial data for years 2016 and 2015 has been recast
from that originally presented to present the change in our reporting
calendar and retroactively adopting a new accounting standard
related to the presentation of net periodic pension cost and net
periodic postretirement benefit cost. 2014 reflects our Balance Sheet
and store count data that were recast for purposes of presenting
2015 Consolidated Statement of Cash Flows and unit growth. No
other data presented in 2014 has been recast. Refer to Note 5 in our
Consolidated Financial Statements for additional details related to our
change in reporting calendar.

The non-GAAP measures of System sales, System sales excluding
the impacts of foreign currency translation (“FX”) and Diluted earnings

The selected financial data should be read in conjunction with the
Consolidated Financial Statements.

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ITEM 7 Management’s Discussion and Analysis

of Financial Condition and Results of
Operations

Introduction and Overview

The following Management’s Discussion and Analysis (“MD&A”),
should be read in conjunction with the Consolidated Financial
Statements (“Financial Statements”)
in Item 8 and the Forward-
Looking Statements and the Risk Factors set forth in Item 1A. All
Note references herein refer to the Notes to the Financial Statements.

Tabular amounts are displayed in millions of U.S. dollars except per
share and unit count amounts, or as otherwise specifically identified.
Unless otherwise stated, financial results herein reflect continuing
operations of the Company. Percentages may not recompute due to
rounding.

18 YUM! BRANDS, INC. - 2018 Form 10-K

PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations

YUM! Brands, Inc. (“YUM” or the “Company”) franchises or operates
a worldwide system of over 48,000 restaurants in more than 140
countries and territories, primarily under the concepts of KFC, Pizza
Hut and Taco Bell
the “Concepts”). These three
Concepts are global leaders of the chicken, pizza and Mexican-style
food categories, respectively. Of the over 48,000 restaurants, 98%
are operated by franchisees.

(collectively,

As of December 31, 2018, YUM consists of
segments:

three operating

(cid:129) The KFC Division which includes our worldwide operations of the

KFC concept

(cid:129) The Pizza Hut Division which includes our worldwide operations of

the Pizza Hut concept

(cid:129) The Taco Bell Division which includes our worldwide operations of

the Taco Bell concept

record as of

On October 31, 2016, (the “Distribution Date”), we completed the
spin-off of our China business (the “Separation”) into an independent,
publicly-traded company under the name of Yum China Holdings,
Inc. (“Yum China”). On the Distribution Date, we distributed to each
of our shareholders of
the close of business on
October 19, 2016 (the “Record Date”) one share of Yum China
common stock for each share of YUM common stock (“Common
Stock”) held as of the Record Date. The distribution was structured
to be a tax free distribution to our U.S. shareholders for federal
income tax purposes in the United States. Concurrent with the
Separation, a subsidiary of the Company entered into a Master
License Agreement with a subsidiary of Yum China for the exclusive
right to use and sublicense the use of intellectual property owned by
YUM and its affiliates for the development and operation of KFC,
Pizza Hut and Taco Bell restaurants in mainland China. Prior to the
Separation, our operations in mainland China were reported in our
former China Division segment results. As a result of the Separation,
the results of operations and cash flows of the separated business
are presented as discontinued operations in our Consolidated
Statements of Income and Consolidated Statements of Cash Flows
for periods prior to the Separation. See additional information related
to the impact of the Separation in Note 4.

On October 11, 2016, we announced our strategic transformation
plans to drive global expansion of our KFC, Pizza Hut and Taco Bell
following the
brands (“YUM’s Strategic Transformation Initiatives”)
Separation. Major features of the Company’s transformation and
growth strategy involve being more focused, franchised and efficient.
YUM’s Strategic Transformation Initiatives below represent
the
continuation of YUM’s transformation of
its operating model and
capital structure.

(cid:129) More Focused. Four growth drivers form the basis of YUM’s
strategic plans and repeatable business model
to accelerate
same-store sales growth and net-new restaurant development at
KFC, Pizza Hut and Taco Bell around the world over the long term.
The Company is focused on becoming best-in-class in:

(cid:129) Building Relevant, Easy and Distinctive Brands

(cid:129) Developing Unmatched Franchise Operating Capability

(cid:129) Driving Bold Restaurant Development

(cid:129) Growing Unrivaled Culture and Talent

(cid:129) More Franchised. YUM successfully increased franchise restaurant

ownership to 98% as of December 31, 2018.

(cid:129) More Efficient. The Company is revamping its financial profile,
its organization and cost structure

improving the efficiency of
globally, by:

(cid:129) Lowering General and administrative expenses (“G&A”) to 1.7%

of system sales in 2019; and

(cid:129) Maintaining an optimized capital structure of ~5.0x Earnings
and Amortization
Taxes, Depreciation

Before
(“EBITDA”) leverage.

Interest,

From 2017 through 2019, we intend to return an additional $6.5—
$7.0 billion to shareholders through share repurchases and cash
dividends. We intend to fund these shareholder returns through a
combination of refranchising proceeds, free cash flow generation and
five times EBITDA leverage. We generated
maintenance of our
pre-tax proceeds of $2.8 billion through our refranchising initiatives to
achieve targeted franchise ownership of 98%, which were completed
in December 2018. Refer to the Liquidity and Capital Resources
section of this MD&A for additional details.

Beginning in 2017, we changed our fiscal year from a year ending on
the last Saturday of December to a year beginning on January 1 and
ending on December 31 of each year. Concurrently, we removed the
reporting lags from the fiscal calendars of our
international
subsidiaries. Our MD&A has been recast to reflect the change in our
reporting calendar. See Notes 2 and 5 for additional details related to
our fiscal calendar.

in understanding our

We intend for this MD&A to provide the reader with information that
will assist
including
performance metrics that management uses to assess the
this MD&A, we commonly
Company’s performance. Throughout
discuss the following performance metrics:

results of operations,

(cid:129) Same-store sales growth is the estimated percentage change in
sales of all restaurants that have been open and in the YUM
system for one year or more.

(cid:129) Net new units represents new unit openings, offset by store

closures.

(cid:129) Company restaurant profit

(“Restaurant profit”)

is defined as
Company sales less expenses incurred directly by our Company-
owned restaurants in generating Company sales. Company
restaurant margin as a percentage of sales is defined as
Restaurant profit divided by Company sales. Within the Company
sales and Restaurant profit sections of this MD&A, Store Portfolio
impact of new unit openings,
Actions represent
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.

the net

In addition to the results provided in accordance with Generally
Accepted Accounting Principles in the United States of America
(“GAAP”),
non-GAAP
measurements.

the Company provides

following

the

(cid:129) System sales, System sales excluding the impacts of

foreign
currency translation (“FX”), and System sales excluding FX and the
impact of the 53rd week in 2016. System sales include the results
of all restaurants regardless of ownership, including Company-
owned and franchise restaurants that operate our Concepts. Sales
of franchise restaurants typically generate ongoing franchise and
license fees for the Company at a rate of 3% to 6% of sales.
Franchise restaurant sales are not included in Company sales on
the Consolidated Statements of Income; however, the franchise
and license fees 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.

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(cid:129) Reducing

annual

capital

expenditures

to

approximately

(cid:129) Diluted Earnings Per Share from Continuing Operations excluding

$100 million in 2019;

Special Items (as defined below);

YUM! BRANDS, INC. - 2018 Form 10-K 19

PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations

(cid:129) Effective Tax Rate excluding Special Items;

(cid:129) Core Operating Profit and Core Operating Profit excluding the
impact of the 53rd week in 2016. Core Operating Profit excludes
Special
Items and FX and we use Core Operating Profit for the
purposes of evaluating performance internally.

These non-GAAP measurements are not intended to replace the
results in accordance with GAAP.
presentation of our
Rather,
these
the presentation of
non-GAAP measurements provide additional information to investors
to facilitate the comparison of past and present operations.

the Company believes that

financial

Special Items are not included in any of our Division segment results
as the Company does not believe they are indicative of our ongoing

Results of Operations

Summary
All comparisons within this summary are versus the same period a
year ago.

2018 financial highlights:

operations due to their size and/or nature. Our chief operating
decision maker does not consider the impact of Special Items when
assessing segment performance.

Certain non-GAAP measurements are presented excluding the
impact of FX. These amounts are derived by translating current year
results at prior year average exchange rates. We believe the
elimination of
year-to-year
comparability without the distortion of foreign currency fluctuations.

FX impact provides better

the

For 2016 we provided Core Operating Profit excluding 53rd week
and System sales excluding 53rd week to further enhance the
comparability with the lapping of the 53rd week that was part of our
fiscal calendar in 2016.

For 2018, GAAP diluted EPS from continuing operations increased
24% to $4.69 per share, and diluted EPS from continuing operations
excluding Special Items, increased 7% to $3.17 per share.

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System Sales,
Ex FX

Same-Store
Sales

% Change
Net
New Units

GAAP
Operating Profit

Core Operating
Profit

+6

+1

+6

+5

+2

Even

+4

+2

+5

+10

+3

+7

(2)

+2

+2

(17)

(2)

+2

+2

Even

KFC Division

Pizza Hut Division

Taco Bell Division

Worldwide

Additionally:

(cid:129) During the year, we opened 1,757 net new units and added 1,282 Telepizza units for 7% net new unit growth.

(cid:129) During the year, we refranchised 660 restaurants, including 364 KFC, 97 Pizza Hut and 199 Taco Bell units, for pre-tax proceeds of

$825 million. We recorded net refranchising gains of $540 million in Special Items.

(cid:129) During the year, we repurchased 28.2 million shares totaling $2.4 billion at an average share price of $85.

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

2017 financial highlights:

KFC Division

Pizza Hut Division

Taco Bell Division

Worldwide

KFC Division

Pizza Hut Division

Taco Bell Division

Worldwide

System Sales,
Ex FX

Same-Store
Sales

% Change
Net
New Units

GAAP
Operating Profit

Core Operating
Profit

+6

+1

+5

+4

+3

Even

+4

+2

+4

+2

+4

+3

+13

(7)

+4

+64

+12

(6)

+4

+7

Results Excluding 53rd Week in 2016 (% Change)
Core Operating Profit
System Sales, Ex FX

+6

+2

+7

+5

+14

(5)

+6

+9

20 YUM! BRANDS, INC. - 2018 Form 10-K

PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations

Additionally:

(cid:129) During the year, we opened 1,407 net new units for 3% net new unit growth.

(cid:129) During the year, we refranchised 1,470 restaurants, including 828 KFC, 389 Pizza Hut and 253 Taco Bell units, for pre-tax proceeds of

$1.8 billion. We recorded net refranchising gains of $1.1 billion in Special Items.

(cid:129) During the year, we repurchased 26.6 million shares totaling $1.9 billion at an average share price of $72.

Worldwide
GAAP Results

Company sales

Franchise and property revenues

Franchise contributions for advertising and other services

Total revenues

Restaurant profit

Restaurant margin %

G&A expenses

Franchise and property expenses

Franchise advertising and other services expense

Refranchising (gain) loss

Other (income) expense

Operating Profit

Investment (income) expense, net

Other pension (income) expense

Interest expense, net

Income tax provision

Income from continuing operations

Income from discontinued operations, net of tax

Net Income

Diluted EPS from continuing operations(a)

Diluted EPS from discontinued operations(a)

Diluted EPS(a)

2018

Amount
2017

2016

2018

2017

% B/(W)

$ 2,000

$ 3,572

$ 4,189

2,482

1,206

2,306

—

2,167

—

$ 5,688

$ 5,878

$ 6,356

618

$

700

(44)

8

N/A

(3)

(41)

(15)

6

N/A

(8)

(12)

17.3%

16.7%

1.0 ppts.

0.6 ppts.

$

$

$

$

366

18.3%

895

188

1,208

(540)

7

999

237

—

(1,083)

10

$ 1,129

201

—

(163)

18

$ 2,296

$ 2,761

$ 1,682

(9)

14

452

297

1,542

N/A

(5)

47

445

934

1,340

N/A

(2)

32

307

327

1,018

625

$ 1,542

$ 1,340

$ 1,643

$

$

4.69

N/A

4.69

$

$

3.77

N/A

3.77

$

$

$

2.54

1.56

4.10

10

21

N/A

(50)

NM

(17)

88

70

(1)

68

15

NM

15

24

NM

24

12

(18)

N/A

NM

NM

64

NM

(45)

(45)

NM

32

NM

(18)

48

NM

(8)

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Effective tax rate – continuing operations

16.2%

41.1%

24.3%

24.9 ppts.

(16.8) ppts.

(a) See Note 3 for the number of shares used in these calculations.

Performance Metrics

Unit Count

Franchise(a)

Company-owned

% Increase
(Decrease)

2018

2017

2016

2018

2017

47,268

43,603

40,834

856

1,481

2,841

48,124

45,084

43,675

8

(42)

7

7

(48)

3

(a)

Includes 1,282 Telepizza units as of December 31, 2018. See description of the Telepizza strategic alliance within this MD&A.

YUM! BRANDS, INC. - 2018 Form 10-K 21

PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations

Same-Store Sales Growth

Non-GAAP Items

2018

2017

2016

2

2

1

Non-GAAP Items, along with the reconciliation to the most comparable GAAP financial measure, are presented below.

System Sales Growth, reported

System Sales Growth, excluding FX

System Sales Growth, excluding FX and 53rd week

Core Operating Profit Growth

Core Operating Profit Growth, excluding 53rd week

Diluted EPS from Continuing Operations Growth, excluding Special Items

2018

2017

2016

5

5

N/A

Even

N/A

7

4

4

5

7

9

20

3

5

4

11

9

7

Effective Tax Rate excluding Special Items

20.4%

18.8%

26.3%

Detail of Special Items

Refranchising gain (loss) (See Note 5)

YUM’s Strategic Transformation Initiatives (See Note 5)

Costs associated with Pizza Hut U.S. Transformation Agreement (See Note 5)

Costs associated with KFC U.S. Acceleration Agreement (See Note 5)

Non-cash credits (charges) associated with share-based compensation (See Note 5)

Other Special Items Income (Expense)

Special Items Income – Operating Profit

Special Items – Other Pension Income (Expense) (See Note 5)

Special Items Income from Continuing Operations before Income Taxes

Tax Benefit (Expense) on Special Items(a)

Tax Benefit (Expense) – U.S. Tax Act(b)

Special Items Income, net of tax

Average diluted shares outstanding

Special Items diluted EPS

Reconciliation of GAAP Operating Profit to Core Operating Profit and Core Operating Profit,
excluding 53rd Week

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Consolidated

GAAP Operating Profit

Special Items Income – Operating Profit

Foreign Currency Impact on Divisional Operating Profit(c)

Core Operating Profit

Impact of 53rd Week

Core Operating Profit, excluding 53rd Week

KFC Division

GAAP Operating Profit

Foreign Currency Impact on Divisional Operating Profit(c)

Core Operating Profit

Impact of 53rd Week

Core Operating Profit, excluding 53rd Week

22 YUM! BRANDS, INC. - 2018 Form 10-K

2018

Year

2017

2016

$

540

$ 1,083

$

163

(8)

(6)

(2)

3

3

530

—

530

(96)

66

500

329

(23)

(31)

(17)

(18)

7

1,001

(23)

978

(256)

(434)

288

355

$

$

(67)

—

(26)

(30)

(5)

35

(26)

9

24

—

33

400

1.52

$

0.81

$

0.08

$

$

$ 2,296

$ 2,761

$ 1,682

530

1

1,765

N/A

1,001

—

1,760

N/A

35

N/A

1,647

28

$ 1,765

$ 1,760

$ 1,619

$

959

$

981

$

—

959

N/A

959

$

4

977

N/A

977

$

$

871

N/A

871

11

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PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations

Reconciliation of GAAP Operating Profit to Core Operating Profit and Core Operating
Profit, excluding 53rd Week

2018

2017

2016

Year

Pizza Hut Division

GAAP Operating Profit

Foreign Currency Impact on Divisional Operating Profit(c)

Core Operating Profit

Impact of 53rd Week

Core Operating Profit, excluding 53rd Week

Taco Bell Division

GAAP Operating Profit

Foreign Currency Impact on Divisional Operating Profit(c)

Core Operating Profit

Impact of 53rd Week

Core Operating Profit, excluding 53rd Week

Reconciliation of Diluted EPS from Continuing Operations to Diluted EPS from Continuing
Operations, excluding Special Items

Diluted EPS from Continuing Operations

Special Items Diluted EPS

Diluted EPS from Continuing Operations excluding Special Items

Reconciliation of GAAP Effective Tax Rate to Effective Tax Rate, excluding Special Items

GAAP Effective Tax Rate

Impact on Tax Rate as a result of Special Items(a)

Effective Tax Rate excluding Special Items(b)

Reconciliation of GAAP Company sales to System sales

Consolidated

GAAP Company sales(d)

Franchise sales

System sales

Foreign Currency Impact on System sales(e)

System sales, excluding FX

Impact of 53rd week

System sales, excluding FX and 53rd Week

KFC Division

GAAP Company sales(d)

Franchise sales

System sales

Foreign Currency Impact on System sales(e)

System sales, excluding FX

Impact of 53rd week

System sales, excluding FX and 53rd Week

Pizza Hut Division

GAAP Company sales(d)

Franchise sales

System sales

Foreign Currency Impact on System sales(e)

System sales, excluding FX

Impact of 53rd week

System sales, excluding FX and 53rd Week

$

348

$

341

$

$

$

$

$

$

$

$

$

$

$

1

347

N/A

347

633

—

633

N/A

633

4.69

1.52

3.17

16.2%

(4.2)%

20.4%

$

$

$

$

$

(4)

345

N/A

345

619

—

619

N/A

619

3.77

0.81

2.96

41.1%

22.3%

18.8%

367

N/A

367

5

362

595

N/A

595

12

583

2.54

0.08

2.46

24.3%

(2.0)%

26.3%

$

2,000

$

3,572

$

4,189

47,237

49,237

186

43,122

46,694

(90)

40,732

44,921

N/A

49,051

46,784

44,921

N/A

N/A

434

$ 49,051

$ 46,784

$ 44,487

$

894

$

1,928

$

2,156

25,345

26,239

142

22,587

24,515

(28)

21,086

23,242

N/A

26,097

24,543

23,242

N/A

N/A

165

$ 26,097

$ 24,543

$ 23,077

$

69

$

285

$

493

12,143

12,212

47

11,749

12,034

(66)

11,526

12,019

N/A

12,165

12,100

12,019

N/A

N/A

113

$ 12,165

$ 12,100

$ 11,906

YUM! BRANDS, INC. - 2018 Form 10-K 23

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ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations

Reconciliation of GAAP Company sales to System sales

Taco Bell Division

GAAP Company sales(d)

Franchise sales

System sales

Foreign Currency Impact on System sales(e)

System sales, excluding FX

Impact of 53rd week

System sales, excluding FX and 53rd Week

Year

2018

2017

2016

$

1,037

$

1,359

$ 1,540

9,749

8,786

10,786

10,145

(3)

4

10,789

10,141

N/A

N/A

8,120

9,660

N/A

9,660

156

$ 10,789

$ 10,141

$ 9,504

(a) Tax Benefit (Expense) on Special Items was determined based upon the impact of the nature, as well as the jurisdiction of the respective individual
Items. In 2018, we also recorded a $19 million increase to our Income tax provision for the correction of an error
components within Special
associated with the tax recorded on a prior year divestiture, the effects of which were previously recorded as a Special Item. In 2016, our tax rate on
Special Items was favorably impacted by the recognition of capital loss carryforwards in anticipation of U.S. refranchising gains.

(b) During the year ended December 31, 2018, we recorded a $35 million decrease related to our provisional tax expense recorded in the fourth quarter
of 2017 associated with the Tax Cuts and Jobs Act of 2017 (“Tax Act”) that was reported as a Special Item. We also recorded a Special Items tax
benefit of $31 million in the year ended December 31, 2018 related to current year U.S. foreign tax credits that became realizable directly as a result
of the impact of deemed repatriation tax expense associated with the Tax Act. We recognized $434 million in our 2017 Income tax provision that was
reported as a Special Item as a result of the December 22, 2017 enactment of the Tax Act.

(c) The foreign currency impact on reported Operating Profit is presented in relation only to the immediately preceding year presented. When
determining applicable Core Operating Profit Growth percentages, the Core Operating Profit for the current year should be compared to the prior
year Operating Profit, prior to adjustment for the prior year FX impact.

(d) Company sales represents sales from our Company-operated stores as presented on our Consolidated Statements of Income.

(e) The foreign currency impact on System sales is presented in relation only to the immediately preceding year presented. When determining applicable
System sales growth percentages, the System sales excluding FX for the current year should be compared to the prior year System sales prior to
adjustment for the prior year FX impact.

Items Impacting Reported Results and/or Expected to Impact Future Results

Strategic Transformation Initiatives Impact
We have refranchised a significant number of Company-owned restaurants since the announcement of YUM’s Strategic Transformation
Initiatives in October 2016. The impact on Operating Profit due to refranchising includes the loss of Restaurant profit, which reflects the decrease
in Company sales, and the increase in Franchise and property revenues from restaurants that have been refranchised. We have made G&A
reductions, including reductions directly attributable to refranchising, such that beginning in 2019, on an annual basis, the impact of lost
Operating Profit from our refranchising initiatives will be largely offset by G&A reductions we have made. Operating Profit was negatively
impacted throughout 2018 as certain G&A reductions lagged the loss of Operating Profit due to refranchising. The impact of refranchising, net of
G&A reductions, negatively impacted Core Operating Profit growth for 2018 by 4 percentage points.

KFC United Kingdom (“UK”) Supply Availability Issues
On February 14, 2018, we and our franchisees transitioned to a new distributor for the products supplied to our approximately 900 KFCs in the
United Kingdom and Ireland (those restaurants accounted for approximately 3% of YUM’s global system sales in the year ended December 31,
2018). In connection with this transition, certain of the restaurants experienced supply availability issues which resulted in store closures or
stores operating under a limited menu. Beginning mid-May 2018, all restaurants opened for business, offering their full menus, with advertising
beginning at the end of May. On a full-year basis, Core Operating Profit growth was negatively impacted by approximately 2 percentage points
for KFC Division and approximately 1 percentage point for YUM as a result of these first-half supply availability issues. The negative impact to
full-year same-store sales growth for 2018 was approximately 50 basis points for our KFC Division and approximately 25 basis points for YUM.

Investment in Grubhub
For the year ended December 31, 2018 we recognized pre-tax income of $14 million related to our investment in Grubhub. See Note 5 for
further discussion of our investment in Grubhub.

Telepizza Strategic Alliance
On December 30, 2018, the Company consummated a strategic alliance with Telepizza Group S.A. (“Telepizza”), the largest non U.S.-based
pizza delivery company in the world, to be the master franchisee of Pizza Hut in Latin America and portions of Europe. The key terms of the
alliance are set forth below:

(cid:129) In Spain and Portugal Telepizza will continue operating the Telepizza brand and will oversee franchisees operating Pizza Hut branded

restaurants

(cid:129) In Latin America (excluding Brazil), the Caribbean and Switzerland, Telepizza will progressively convert its existing restaurants to the Pizza

Hut brand and oversee franchisees operating Pizza Hut branded restaurants

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24 YUM! BRANDS, INC. - 2018 Form 10-K

PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(cid:129) Telepizza will manage supply chain logistics for the entire master franchise territory and will become an authorized supplier of Pizza Hut

branded restaurants

(cid:129) Across the regions covered by the master franchise agreement, Telepizza will target opening at least 1,300 new units over the next ten

years and 2,550 units in total over 20 years

As a result of the alliance we added 1,282 Telepizza units to our Pizza Hut Division unit count at December 31, 2018. In total approximately
2,300 Pizza Hut and Telepizza units are subject to the master franchise agreement as of December 31, 2018. Of these 2,300 units, we
anticipate between 100 and 150 may close due to overlap in a particular trade area.

Based upon our ongoing and active maintenance of the Pizza Hut intellectual property as well as Telepizza’s active involvement in supply chain
management and their role as a master franchisee, both parties are exposed to significant risks and rewards depending on the commercial
success of the alliance. As a result, the alliance has been identified as a collaborative arrangement and upon consummation of the alliance no
amounts were recorded in our Consolidated Financial Statements (other than insignificant success fees that were paid to third-party advisors).
Subsequent to consummation of the deal, for all Pizza Hut restaurants that are part of the alliance, we will receive a continuing fee of 3.5% of
restaurant sales. Likewise, for most Telepizza restaurants that are part of the alliance we will receive an alliance fee of 3.5% of restaurant sales.
These fees will be recorded as Franchise and property revenues within our Consolidated Statement of Income when the related sales occur,
consistent with our recognition of continuing fees for all other restaurants subject to our franchise agreements. These fees will be reduced by a
sales-based credit that decreases over time and, potentially, certain incentive payments if development or conversion targets are met.
Previously, the existing Pizza Hut restaurants that are now subject to the master franchise agreement with Telepizza generally paid a continuing
fee of 6% of restaurant sales consistent with our standard International franchise agreement terms.

Adoption of Topic 606, “Revenue from Contracts with Customers”

The Financial Accounting Standards Board (“FASB”) has issued standards to provide principles within a single framework for revenue recognition
of transactions involving contracts with customers across all
industries (“Topic 606”). As a result, the Company has changed its accounting
policy for revenue recognition as detailed in Note 2. We adopted Topic 606 on January 1, 2018, using the modified retrospective method.
Therefore, the comparative information for fiscal 2017 and 2016 has not been adjusted and continues to be reported under our accounting
polices related to revenue recognition prior to the adoption of Topic 606 (“Legacy GAAP”). GAAP Operating Profit for the year ended
December 31, 2018 was $14 million lower and Core Operating Profit was $41 million lower (2 percentage points) than what would have been
recognized under Legacy GAAP.

Increase (Decrease) vs. Legacy GAAP

KFC
Division

Pizza Hut
Division

2018

Taco Bell

Division Unallocated(a)

Total

Amortization of upfront fees

$

Amortization of franchise incentive payments

Upfront fee cash received

Incentive payments made

Franchise and property revenues

Franchise and property expenses

Refranchising gain

Operating Profit

$

$

40

(14)

(64)

1

(37)

1

—

16

(5)

(15)

2

(2)

—

—

$

(36)

$

(2)

$

10

(1)

(13)

1

(3)

—

—

(3)

$

— $

—

—

18

18

5

4

66

(20)

(92)

22

(24)

6

4

$

27

$

(14)

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a) Reflects incentive payments made to or on behalf of franchisees during 2018 that under Legacy GAAP would have been recognized as expense in
full in 2018. Due to the size and nature of such payments, we historically would have included such amounts as Special Items and thus in the table
above have not allocated their impact to our Divisional results. Such amounts are now being capitalized with related amortization recognized as a
reduction of Franchise and property revenues over the period of expected cash flows from the franchise agreements to which the payments relate.
Also reflects the recognition as Refranchising gain of deferred franchise fees upon the modification of existing franchise agreements when entering
into master franchise agreements.

Topic 606 also impacted transactions that were not historically included in our revenues and expenses such as franchisee contributions to, and
subsequent expenditures from, advertising cooperatives that we are required to consolidate, as well as receipts and expenditures for other
services we provide to our franchisees. Based on Legacy GAAP, these transactions were reported on a net basis in our Consolidated
Statements of Income. This change did not have a significant impact on Operating Profit, as the contributions that are now recorded in
Franchise contributions for advertising and other services are largely offset by the expenditures recorded in Franchise advertising and other
services expense. Refer to Notes 2 and 5 for further details of the significant changes and quantitative impact of Topic 606.

Income Tax Matters

The Tax Cuts and Jobs Act of 2017 (“Tax Act”) was enacted on December 22, 2017 (See Note 17 for discussion of the charge recorded as a
result of the enactment). The Tax Act significantly modified the U.S. corporate income tax system by, among other things, reducing the federal
income tax rate from 35% to 21% beginning in 2018, limiting certain deductions, including limiting the deductibility of interest expense to 30% of
U.S. Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”), imposing a mandatory one-time deemed repatriation tax on
accumulated foreign earnings and creating a territorial tax system that changes the manner in which foreign earnings are now subject to U.S.
tax.

YUM! BRANDS, INC. - 2018 Form 10-K 25

PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations

After considering the impacts of the Tax Act, we anticipate a 2019 and ongoing effective tax rate of 20% to 22%, compared to our pre-2018
annual guidance of 26% to 27%, as we expect to benefit from the lower U.S. tax rate and the territorial tax system due to a majority of our
earnings being generated outside the U.S. We anticipate this benefit will be partially offset by taxes incurred under the Global
Intangible
Low-Taxed Income (“GILTI”) provisions of the Tax Act. We originally anticipated that our 2018 effective tax would be slightly below the ongoing
anticipated range of 20% to 22%, primarily due to a delay in the applicability of the GILTI provisions of the Tax Act. Our actual 2018 Effective Tax
Items of 20.4% was higher than we originally expected. This was due to the negative impact of a reserve of
Rate, excluding Special
approximately $20 million we recorded related to a dispute concerning the income tax rate to be applied to our 2018 income in a foreign market.

Extra Week in 2016 (As Restated for Change in Reporting Calendar)
Fiscal 2016 included a 53rd week for all of our U.S. businesses and certain of our non-U.S. businesses that report 13 four-week periods versus
12 months. See Notes 2 and 5 for additional details related to our fiscal calendar. The following table summarizes the estimated impact of the
53rd week on Revenues and Operating Profit for the year ended December 31, 2016:

Revenues

Company sales

Franchise and property revenues

Total revenues

Operating Profit

Franchise and property expenses

Restaurant profit

G&A expenses

Operating Profit

KFC
Division

Pizza Hut
Division

Taco Bell
Division

Total

$

$

$

$

26

8

34

8

6

(3)

11

$

$

$

$

5

6

11

6

1

(2)

5

$

$

$

24

$

7

31

$

$

7

7

(2)

$

12

$

55

21

76

21

14

(7)

28

KFC Division
The KFC Division has 22,621 units, 82% of which are located outside the U.S. Additionally, 99% of the KFC Division units were operated by
franchisees as of the end of 2018.

% B/(W)
2018

% B/(W)
2017

2018

2017

2016 Reported

Ex FX

Reported

Ex FX

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System Sales

$ 26,239

$ 24,515

$ 23,242

Same-Store Sales Growth
(Decline)

Company sales

$

894

$

1,928

$

2,156

Franchise and property
revenues

Franchise contributions for
advertising and other
services

$

$

$

Total revenues

Restaurant profit

Restaurant margin %

G&A expenses

Franchise and property
expenses

Franchise advertising and
other services expense

1,294

1,182

1,069

456

2,644

119

—

—

$

$

3,110

289

$

$

3,225

317

350

$

370

$

396

107

452

117

108

—

—

Operating Profit

$

959

$

981

$

871

26 YUM! BRANDS, INC. - 2018 Form 10-K

7

2

(54)

10

N/A

(15)

(59)

6

N/A

(53)

9

N/A

(15)

(58)

5

3

(11)

11

N/A

(4)

(9)

6

N/A

(12)

10

N/A

(4)

(10)

Ex FX and
53rd Week
in 2016

6

N/A

(11)

11

N/A

(3)

(8)

5

8

N/A

(2)

5

9

N/A

(2)

7

(8)

N/A

13

7

(7)

N/A

12

7

(8)

N/A

14

13.3%

15.0%

14.7%

(1.7) ppts.

(1.5) ppts.

0.3 ppts.

0.3 ppts.

0.4 ppts.

PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations

Unit Count

Franchise

Company-owned

Total

Franchise

Company-owned

Total

Franchise

Company-owned

Total

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

Company restaurant expenses

Restaurant profit

Income / (Expense)

Company sales

Cost of sales

Cost of labor

Occupancy and other

Company restaurant expenses

Restaurant profit

2018

22,297

324

22,621

2017

20,819

668

21,487

2016

19,236

1,407

20,643

% Increase
(Decrease)

2018

2017

7

(51)

5

8

(53)

4

2017 New Builds

Closures

Refranchised

2018

20,819

668

21,487

1,576

28

1,604

(462)

(8)

(470)

364

(364)

22,297

324

—

22,621

2016 New Builds

Closures

Refranchised

2017

19,236

1,407

20,643

1,169

102

1,271

(414)

(13)

(427)

828

(828)

20,819

668

—

21,487

2018 vs. 2017

Store Portfolio
Actions

Other

FX

2018

$ (1,036)

$ 17

$ (15)

$ 894

351

244

283

878

(17)

(5)

(4)

6

2

4

(324)

(210)

(241)

$ (26)

$ 12

$ (775)

(158)

$ (9)

$ (3)

$ 119

$

$

2017

$ 1,928

(664)

(451)

(524)

$ (1,639)

$

289

2017 vs. 2016

Store Portfolio

2016

Actions Other

FX

53rd Week

2017

$ 2,156

$ (286)

$ 61

$ 23

$ (26) $ 1,928

(733)

(507)

(599)

$ (1,839)

$

317

93

69

82

(22)

(16)

(7)

(11)

(3)

(5)

9

6

5

(664)

(451)

(524)

$ 244

$ (45) $ (19)

$ 20

$ (1,639)

$ (42)

$ 16

$

4

$ (6) $

289

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In 2018, the decreases in Company sales and Restaurant profit associated with store portfolio actions were driven by refranchising. Significant
other factors impacting Company sales and/or Restaurant profit were company same-store sales growth of 2%, including the impact of the
supply interruptions in our KFC UK business.

In 2017, the decreases in Company sales and Restaurant profit associated with store portfolio actions were driven by refranchising, partially
offset by international net new unit growth. Significant other factors impacting Company sales and/or Restaurant profit were company same-
store sales growth of 4%, partially offset by higher commodity and labor costs.

Franchise and property revenues
In 2018, the increase in Franchise and property revenues, excluding the impacts of foreign currency translation and the adoption of Topic 606,
was driven by refranchising, international net new unit growth, and franchise same-store sales growth of 2%, including the impact of the supply
interruptions in our KFC UK business, partially offset by lapping higher than normal renewal and transfer fees that were recognized upfront in the
prior year.

In 2017, the increase in Franchise and property revenues, excluding the impacts of foreign currency translation and lapping the 53rd week in
2016, was driven by international net new unit growth, franchise same-store sales growth of 3%, refranchising and higher renewal and transfer
fees.

YUM! BRANDS, INC. - 2018 Form 10-K 27

PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations

G&A

In 2018, the decrease in G&A expenses, excluding the impacts of foreign currency translation, was driven by the positive impact of YUM’s
Transformation initiatives, including reductions in G&A directly attributable to refranchising.

In 2017, the decrease in G&A, excluding the impacts of foreign currency translation and lapping the 53rd week in 2016, was driven by the
positive impact of YUM’s Strategic Transformation Initiatives, including reductions in G&A directly attributable to refranchising, partially offset by
higher incentive compensation.

Operating Profit

In 2018, the increase in Operating Profit, excluding the impacts of foreign currency translation and the adoption of Topic 606, was driven by net
new unit growth, same-store sales growth, lower G&A and lower advertising costs associated with the KFC U.S. Acceleration Agreement
recorded in Franchise and property expenses, partially offset by refranchising, the supply interruptions in our KFC UK business and lapping
higher than normal renewal and transfer fees that were recognized upfront in the prior year.

In 2017, the increase in Operating Profit, excluding the impacts of foreign currency translation and lapping the 53rd week in 2016, was driven by
same-store sales growth, international net new unit growth, lower G&A and higher renewal and transfer fees, partially offset by higher restaurant
operating costs and refranchising.

Pizza Hut Division
The Pizza Hut Division has 18,431 units, 59% of which are located outside 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). Additionally, over 99% of the Pizza Hut Division units were
operated by franchisees as of the end of 2018.

% B/(W)
2018

% B/(W)
2017

2018

2017

2016 Reported

Ex FX

Reported

Ex FX

System Sales

$ 12,212

$ 12,034

$ 12,019

1

1

Same-Store Sales
Growth (Decline)

Company sales

$

69

$

285

$

493

Even

(76)

N/A

(76)

598

608

615

(2)

(2)

Ex FX and
53rd Week
in 2016

2

N/A

(41)

—

N/A

(18)

(62)

—

Even

(42)

(1)

N/A

(19)

(63)

1

N/A

(42)

(1)

N/A

(19)

(63)

N/A

11

NM

N/A

10

NM

(5.4) ppts.

(5.3) ppts.

(3.0) ppts.

(3.0) ppts.

(2.9) ppts.

7

35

N/A

2

7

36

N/A

2

13

(42)

N/A

(7)

13

(41)

N/A

(6)

12

(41)

N/A

(5)

2018

18,369

62

18,431

2017

16,588

160

16,748

2016

15,871

549

16,420

% Increase
(Decrease)

2018

2017

11

(61)

10

5

(71)

2

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Franchise and property
revenues

Franchise contributions
for advertising and
other services

Total revenues

Restaurant profit

Restaurant margin %

G&A expenses

Franchise and property
expenses

Franchise advertising
and other services
expense

321

—

988

$

893

— $

14

$

$

(0.1)%

5.3%

—

1,108

41

8.3%

197

$

211

$

242

$

$

$

45

328

68

—

48

—

Operating Profit

$

348

$

341

$

367

Unit Count

Franchise

Company-owned

Total

28 YUM! BRANDS, INC. - 2018 Form 10-K

PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations

Franchise

Company-owned

Total

Franchise

Company-owned

Total

2017 New Builds

Closures

Refranchised

Other(a)

2018

16,588

160

16,748

1,106

2

1,108

(705)

(3)

(708)

97

(97)

—

1,283

18,369

—

62

1,283

18,431

2016 New Builds

Closures

Refranchised

Other

2017

15,871

549

16,420

1,035

12

1,047

(708)

(12)

(720)

389

(389)

—

1

—

1

16,588

160

16,748

(a)

Includes 1,282 Telepizza restaurants.

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

Company restaurant expenses

Restaurant profit

Income / (Expense)

Company sales

Cost of sales

Cost of labor

Occupancy and other

Company restaurant expenses

Restaurant profit

2018 vs. 2017

Store Portfolio
Actions

Other

FX

$ (218)

$ 1

$

64

70

69

—

(2)

2

1

—

—

(1)

2018

$ 69

(19)

(26)

(24)

$ 203

$

(15)

$ —

$ 1

$ (1)

$ —

$ (69)

$ —

2017

$ 285

(83)

(94)

(94)

$ (271)

$

14

2017 vs. 2016

Store Portfolio
Actions

Other

FX

53rd Week

2017

$ (193)

$ (9)

$ (1)

$ (5)

$ 285

56

61

61

(4)

(1)

3

—

1

—

2

1

1

(83)

(94)

(94)

$ 178

$

(15)

$ (2)

$ (11)

$ 1

$ —

$ 4

$ (271)

$ (1)

$

14

2016

$ 493

(137)

(156)

(159)

$ (452)

$

41

In 2018, the decreases in Company sales and Restaurant profit associated with store portfolio actions were driven by refranchising. Company
same-store sales growth was 1%.

In 2017, the decreases in Company sales and Restaurant profit associated with store portfolio actions were driven by refranchising. Significant
other factors impacting Company sales and/or Restaurant profit were company same-store sales declines of 3% and higher commodity and
labor costs, partially offset by lower property and casualty losses.

Franchise and property revenues
In 2018, the increase in Franchise and property revenues, excluding the impacts of foreign currency translation and the adoption of Topic 606,
was driven by net new unit growth and refranchising. Franchise same-store sales were even.

In 2017, Franchise and property revenues, excluding the impact of foreign currency translation and lapping the 53rd week in 2016, was even with
prior year as the favorable impacts of refranchising and net new unit growth were offset by lower fees from expiring development agreements.
Franchise same-store sales were even.

G&A
In 2018, the decrease in G&A, excluding the impacts of foreign currency translation, was driven by Yum’s Strategic Transformation Initiatives,
including reductions in G&A directly attributable to refranchising, and lapping higher litigation costs.

In 2017, the decrease in G&A, excluding the impact of foreign currency translation and lapping the 53rd week in 2016, was driven by the positive
impact of YUM’s Strategic Transformation Initiatives, including reductions in G&A directly attributable to refranchising, partially offset by
increased litigation costs.

YUM! BRANDS, INC. - 2018 Form 10-K 29

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Operating Profit

In 2018, the increase in Operating Profit, excluding the impact of foreign currency translation and the adoption of Topic 606, was driven by lower
G&A, lower advertising costs associated with the Pizza Hut Transformation Agreement recorded in Franchise and property expenses, net new
unit growth and refranchising.

In 2017, the decrease in Operating Profit, excluding the impact of foreign currency translation and lapping the 53rd week in 2016, was driven by
increased advertising costs associated with the Pizza Hut U.S. Transformation Agreement recorded in Franchise and property expenses,
partially offset by lower G&A.

Taco Bell Division
The Taco Bell Division has 7,072 units, 93% of which are in the U.S. The Company-owned 7% of the Taco Bell units in the U.S. as of the end of
2018.

% B/(W)
2018

% B/(W)
2017

2018

2017

2016 Reported

Ex FX

Reported

Ex FX

System Sales

$ 10,786

$ 10,145

$ 9,660

Same-Store Sales Growth

Company sales

$ 1,037

$ 1,359

$ 1,540

Franchise and property
revenues

Franchise contributions for
advertising and other services

590

429

521

485

—

—

Total revenues

$ 2,056

$ 1,880

$ 2,025

244

$

305

$

342

6

4

(24)

13

N/A

9

(20)

6

N/A

(24)

13

N/A

9

(20)

5

4

(12)

7

N/A

(7)

(11)

5

N/A

(12)

7

N/A

(7)

(11)

$

$

Restaurant profit

Restaurant margin %

G&A expenses

Franchise and property
expenses

Franchise advertising and
other services expense

23.5%

22.4%

22.2%

1.1 ppts.

1.1 ppts.

0.2 ppts.

0.2 ppts.

0.3 ppts.

177

$

188

$

211

6

6

28

428

22

—

21

—

(31)

(31)

N/A

2

N/A

2

11

(6)

N/A

4

11

(5)

N/A

4

10

(6)

N/A

6

Ex FX and
53rd Week
in 2016

7

N/A

(10)

9

N/A

(6)

(9)

Operating Profit

$

633

$

619

$

595

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Unit Count

Franchise

Company-owned

Total

Franchise

Company-owned

Total

Franchise

Company-owned

Total

30 YUM! BRANDS, INC. - 2018 Form 10-K

% Increase
(Decrease)

2018

2017

2018

6,602

470

7,072

2017

6,196

653

6,849

2016

5,727

885

6,612

7

(28)

3

2017 New Builds

Closures

Refranchised

Other

6,196

653

6,849

293

16

309

(86)

—

(86)

199

(199)

—

—

—

—

2016 New Builds

Closures

Refranchised

Other

5,727

885

6,612

293

21

314

(78)

—

(78)

253

(253)

—

1

—

1

8

(26)

4

2018

6,602

470

7,072

2017

6,196

653

6,849

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

Company restaurant expense

Restaurant profit

Income / (Expense)

Company sales

Cost of sales

Cost of labor

Occupancy and other

Company restaurant expense

Restaurant profit

2018 vs. 2017

Store Portfolio
Actions

Other

2018

$ (363)

$ 41

$ 1,037

96

103

74

(1)

(8)

(3)

(261)

(299)

(233)

$ 273

$ (12)

$ (793)

$ (90)

$ 29

$

244

2017

$ 1,359

(356)

(394)

(304)

$ (1,054)

$

305

2017 vs. 2016

2016

Store Portfolio
Actions

Other

53rd Week

2017

$ 1,540

$ (195)

$ 38

$ (24) $ 1,359

(397)

(443)

(358)

$ (1,198)

$

342

50

55

44

(15)

(13)

6

6

7

4

(356)

(394)

(304)

$ 149

$ (22)

$ 17

$ (1,054)

$ (46)

$ 16

$ (7) $

305

In 2018, the decreases in Company sales and Restaurant profit associated with store portfolio actions were driven by refranchising, partially
offset by net unit growth. Significant other factors impacting Company sales and/or Restaurant profit were company same-store sales growth of
4%, partially offset by higher labor costs.

In 2017, the decreases in Company sales and Restaurant profit associated with store portfolio actions were driven by refranchising, partially
offset by net unit growth. Significant other factors impacting Company sales and/or Restaurant profit were company same-store sales growth of
3%, partially offset by higher labor costs, commodity cost inflation, and increased cost of sales associated with value offerings.

Franchise and property revenues

In 2018, the increase in Franchise and property revenues, excluding the adoption of Topic 606, was driven by refranchising, franchise same-
store sales growth of 4% and net new unit growth.

In 2017, the increase in Franchise and property revenues, excluding the impact of lapping the 53rd week in 2016, was driven by refranchising,
franchise same-store sales growth of 4% and net new unit growth.

G&A

In 2018, the decrease in G&A was driven by the positive impact of YUM’s Strategic Transformation initiatives, including reductions in G&A
directly attributable to refranchising, and the favorable impact of forfeitures related to share based compensation awards, partially offset by
lapping lower litigation costs.

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YUM! BRANDS, INC. - 2018 Form 10-K 31

PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations

In 2017, the decrease in G&A, excluding the impact of lapping the 53rd week in 2016, was driven by the positive impact of YUM’s Strategic
Transformation Initiatives, including reductions in G&A directly attributable to refranchising, and lower litigation costs.

Operating Profit

In 2018, the increase in Operating Profit, excluding the impacts of the adoption of Topic 606, was driven by same-store sales growth and net
new unit growth, partially offset by refranchising and higher restaurant operating costs.

In 2017, the increase in Operating Profit, excluding the impact of lapping the 53rd week in 2016, was driven by same-store sales growth, lower
G&A and net new unit growth, partially offset by refranchising and higher restaurant operating costs.

Corporate & Unallocated

(Expense)/Income

Corporate and unallocated G&A

Unallocated restaurant costs

Unallocated Franchise and property revenues

Unallocated Franchise and property expenses

Refranchising gain (loss) (See Note 5)

Unallocated Other income (expense)

Investment income (expense), net (See Note 5)

Other pension income (expense) (See Note 14)

Interest expense, net

Income tax provision (See Note 17)

Effective tax rate (See Note 17)

Corporate and unallocated G&A

2018

2017

2016

2018

2017

% B/(W)

$

(171)

$

(230)

$

(280)

3

—

(8)

540

(8)

9

(14)

(452)

(297)

10

(5)

(30)

1,083

(8)

5

(47)

(445)

(934)

—

(2)

(24)

163

(8)

2

(32)

(307)

(327)

26

(69)

NM

73

(50)

NM

88

70

(1)

68

18

NM

NM

(26)

NM

NM

NM

(45)

(44)

NM

16.2%

41.1%

24.3%

24.9 ppts.

(16.8) ppts.

In 2018, the decrease in Corporate G&A expenses was driven by non-cash credits in the current year associated with the modification of
Executive Income Deferral (“EID”) share-based compensation awards when compared with charges in the prior year (See Note 5), current year
G&A reductions due to the impact of YUM’s Strategic Transformation Initiatives, lapping higher costs associated with YUM’s Strategic
Transformation Initiatives (See Note 5), and lapping charges related to the Pizza Hut U.S. Transformation Agreement (See Note 5).

In 2017, the decrease in Corporate and unallocated G&A was driven by lower year-over-year costs associated with YUM’s Strategic
Transformation Initiatives (See Note 5), current year G&A reductions due to the impact of YUM’s Strategic Transformation Initiatives and lower
non-cash charges associated with the modification of EID share-based compensation awards when compared to the prior year (See Note 5),
partially offset by charges related to the Pizza Hut U.S. Transformation Agreement (See Note 5).

Unallocated restaurant costs

In 2018 and 2017, Unallocated restaurant costs represents the cessation of depreciation on held-for-sale assets that were not allocated to the
Division segments.

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Unallocated Franchise and property revenues

In 2017, Unallocated Franchise and property revenues primarily reflects charges related to the Pizza Hut U.S. Transformation Agreement. See
Note 5.

Unallocated Franchise and property expenses

Unallocated Franchise and property expenses reflect charges related to the Pizza Hut U.S. Transformation Agreement and/or the KFC U.S.
Acceleration Agreement. See Note 5.

Unallocated Other income (expense)

In 2018 and 2017, Unallocated Other income (expense) primarily includes foreign exchange gains (losses). See Note 7.

In 2016, Unallocated Other income (expense) primarily includes write-downs related to our decision to dispose of our corporate aircraft and
foreign exchange gains (losses). See Note 7.

32 YUM! BRANDS, INC. - 2018 Form 10-K

PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations

Other Pension (Income) Expense

In 2017, Other Pension (Income) Expense includes an adjustment related to our deferred vested pension obligation and settlement charges in
our U.S. plans. See Note 5.

Interest expense, net

The increases in Interest expense, net for 2018 and 2017 were driven by increased outstanding borrowings. See Note 10.

Income from Discontinued Operations, Net of Tax
The following table is a summary of the operating results of the China business which have been reflected in discontinued operations. See
Note 4 for additional information.

Total revenues

Total income from discontinued operations before income taxes(b)

Income tax (benefit) provision(c)

Income from discontinued operations, net of tax

2016(a)

$ 5,776

571

(65)

625

(a)
(b)

Includes Yum China financial results from January 1, 2016 to October 31, 2016.
Includes costs incurred to execute the Separation of $68 million for 2016. Such costs primarily related to transaction advisors, legal and other
consulting fees.

(c) During 2016, we recorded a tax benefit of $233 million related to previously recorded losses associated with our Little Sheep business. The tax
benefit associated with these losses was able to be recognized as a result of legal entity restructuring completed in anticipation of the China spin-off.

Consolidated Cash Flows

Net cash provided by operating activities from continuing
operations was $1,176 million in 2018 compared to $1,030 million
in 2017. The increase was primarily driven by lower retirement and
deferred compensation payouts to retirees and a decrease in income
tax payments.

In 2017, net cash provided by investing activities from continuing
operations was $1,472 million compared to net cash used in
investing activities of $4 million in 2016. The increase was primarily
driven by higher proceeds from refranchising of restaurants and
lower capital spending

In 2017, net cash provided by operating activities from continuing
operations was $1,030 million compared to $1,248 million in
2016. The decrease was primarily driven by an increase in interest
payments and retirement and deferred compensation payouts to
retirees, partially offset by an increase in Operating profit before
Special Items

Net cash provided by investing activities from continuing
operations was $313 million in 2018 compared to $1,472 million in
2017. The decrease was primarily driven by lower refranchising
proceeds and our $200 million investment in Grubhub common
stock in 2018.

Consolidated Financial Condition

Net cash used in financing activities from continuing operations
was $2,620 million in 2018 compared to $1,795 million in 2017. The
increase was primarily driven by lower net borrowings and higher
share repurchases.

In 2017, net cash used in financing activities from continuing
operations was $1,795 million compared to $744 million in 2016.
The increase was primarily driven by lower net borrowings, partially
offset by lower share repurchases.

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Our Consolidated Balance Sheet was impacted by the adoption of
Topic 606 (See Note 2). Other assets also increased due to the
inclusion of our investment in Grubhub common stock (See Note 5).

The refranchising of Company-operated stores drove decreases in
restaurant-level assets and liabilities on our Consolidated Balance
Sheet, including within Property, plant and equipment (“PP&E”).

Liquidity and Capital Resources

In October 2016, we announced YUM’s Strategic Transformation
Initiatives to drive global expansion of the KFC, Pizza Hut and Taco
Bell brands following the Separation on October 31, 2016. As part of
this transformation we announced our intention to own less than
1,000 stores by the end of 2018. As of December 31, 2018 we
owned 856 stores. Additionally, we announced our intention to, by

2019, reduce annual recurring capital expenditures to approximately
$100 million, improve our efficiency by lowering G&A to 1.7% of
system sales and increase free cash flow conversion to 100%.

In 2018 and 2017, we returned a cumulative $5.2 billion to
shareholders through share repurchases and cash dividends towards

YUM! BRANDS, INC. - 2018 Form 10-K 33

PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations

our commitment to return between $6.5 and $7.0 billion from 2017
to 2019. We are funding these shareholder
returns through a
combination of refranchising proceeds, free cash flow generation and
maintenance of our five times EBITDA leverage. We generated total
gross refranchising proceeds of $2.8 billion in connection with our
initiative to increase franchise ownership to 98%, which we achieved
in December 2018.

Our primary sources of liquidity are cash on hand, cash generated by
operations and our revolving facilities. As of December 31, 2018, we
had Cash and cash equivalents of $292 million. Cash and cash
equivalents decreased from $1,522 million at December 31, 2017
due to share repurchases, dividend payments, the repayment of
$325 million in YUM Senior Unsecured Notes that matured in March
2018 and our investment in Grubhub. We have historically generated
substantial cash flows from the operations of our Company-owned
stores and from our extensive franchise operations, which require a
limited YUM investment. Our annual operating cash flows from
continuing operations have historically been in excess of $1 billion.
Decreases in operating cash flows from the operation of
fewer
Company-owned stores due to refranchising have been offset, and

Debt Instruments
As of December 31, 2018, approximately 91%, including the impact
of interest rate swaps, of our $10.1 billion of total debt outstanding is
fixed with an effective overall interest rate of approximately 4.7%. We
are managing a capital structure which is levered in-line with our
target of approximately five times EBITDA, and which we believe
provides an attractive balance between optimized interest rates,
duration and flexibility with diversified sources of
liquidity and
maturities spread over multiple years. We have credit ratings of BB
(Standard & Poor’s)/Ba3 (Moody’s) with a balance sheet consistent
with highly-levered peer restaurant franchise companies.

the Company,

Securitization Notes. In May 2016, Taco Bell Funding, LLC, a newly
formed special purpose subsidiary of
issued an
aggregate of $2.3 billion of fixed rate senior secured notes (the “2016
Class A-2 Notes”). On November 14, 2018, Taco Bell Funding, LLC,
completed a refinancing agreement and issued two fixed rate senior
secured notes in the aggregate amount of $1.45 billion (the “2018
Class A-2 Notes”, and, together with the 2016 Class A-2 Notes, the
“Securitization Notes”). Proceeds from the 2018 issuance were used
to repay $788 million of existing Securitization Notes issued in 2016
and to repay the then outstanding balance on the Revolving Facility
(see below). The Securitization Notes contain cross-default
provisions whereby the failure to pay principal on any outstanding
Securitization Notes will constitute an event of default under any
other Securitization Notes.

Credit Agreement. On June 16, 2016,
three wholly-owned
subsidiaries of the Company, KFC Holding Co., Pizza Hut Holdings,
LLC and Taco Bell of America, LLC, as co-borrowers (the
(the “Credit
“Borrowers”) entered into a new credit agreement
Agreement”) providing for the following (each of which may be
increased subject to certain conditions): (i) a $500 million Term Loan
A facility (the “Term Loan A Facility”), (ii) a $2 billion Term Loan B
facility (the “Term Loan B Facility”) and (iii) a $1 billion revolving facility
(the “Revolving Facility”) which has no outstanding borrowings and
has $7 million in letters of credit outstanding as of December 31,
2018, each of which may be increased subject to certain conditions.
Our Term Loan A Facility and Term Loan B Facility contain cross-
default provisions whereby the failure to pay principal of or otherwise

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34 YUM! BRANDS, INC. - 2018 Form 10-K

are expected to continue to be offset, with savings generated from
decreased capital investment and G&A required to support company
operations. To the extent operating cash flows plus other sources of
cash such as refranchising proceeds do not cover our anticipated
cash needs, we maintain a revolving credit facility with total capacity
of $1 billion that was undrawn as of year end 2018.

Our balance sheet often reflects a working capital deficit, which is not
uncommon in our industry and is also historically common for YUM.
Our royalty receivables from franchisees are generally due within 30
days of the period in which the related sales occur and Company
sales are paid in cash or by credit card (which is quickly converted
into cash). Substantial amounts of cash received have historically
been either returned to shareholders or invested in new restaurant
assets which are non-current in nature. As part of our working capital
strategy, we negotiate favorable credit terms with vendors and, as a
result, our on-hand inventory turns faster than the related short-term
liabilities. Accordingly, it is not unusual for current liabilities to exceed
current assets. We believe such a deficit has no significant impact on
our liquidity or operations.

perform any agreement or condition under indebtedness of certain
subsidiaries with a principal amount in excess of $100 million will
constitute an event of default under the Credit Agreement.

On April 3, 2018, the Borrowers completed the repricing of the then
existing $1.97 billion under the Term Loan B Facility pursuant to an
amendment to the Credit Agreement. The amendment reduces the
interest rate applicable to the Term Loan B Facility by 25 basis points
to adjusted LIBOR plus 1.75% or Base Rate plus 0.75%, at the
Borrowers’ election, and extends the maturity date for the Term Loan
B Facility by 2 years to April 3, 2025. All other material provisions
under the Credit Agreement remained unchanged as a result of this
amendment.

Subsidiary Senior Unsecured Notes. On June 16, 2016,
the
Borrowers issued an aggregate of $1.05 billion Senior Unsecured
Notes due 2024 and an aggregate of $1.05 billion Senior Unsecured
Notes due 2026. On June 15, 2017,
the Borrowers issued an
aggregate of $750 million Senior Unsecured Notes due June 1, 2027
(together with the June 16, 2016 issuances, the “Subsidiary Senior
Unsecured Notes”). Our Subsidiary Senior Unsecured Notes contain
cross-default provisions whereby the acceleration of the maturity of
the indebtedness of certain subsidiaries with a principal amount in
excess of $100 million or
the failure to pay principal of such
indebtedness will constitute an event of default under the Subsidiary
Senior Unsecured Notes.

unsecured

unsubordinated

The majority of our remaining long-term debt primarily comprises
senior, unsecured obligations (“YUM Senior Unsecured Notes”)
which ranks equally in right of payment with all of our existing and
future
Amounts
outstanding under YUM Senior Unsecured Notes were $1.9 billion at
December 31, 2018. Our YUM Senior Unsecured Notes contain
cross-default provisions whereby the acceleration of the maturity of
any of our
in excess of
indebtedness in a principal amount
$50 million will constitute a default under the YUM Senior Unsecured
Notes unless such indebtedness is discharged, or the acceleration of
the maturity of that indebtedness is annulled, within 30 days after
notice.

indebtedness.

PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following table summarizes the future maturities of our outstanding long-term debt, excluding capital leases, as of December 31, 2018.

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2037

2043

Total

Securitization
Notes

$   29

$   29

$   29

$   29 $ 1,281

$   16

$   16 $   921

$   6

$ 572

Credit Agreement

45

51

76

395

20

20

1,836

1,050

1,050

750

$   2,928

2,443

2,850

Subsidiary Senior
Unsecured Notes

YUM Senior
Unsecured Notes

250

350

350

325

325

275

1,875

Total

$ 324

$ 430

$ 455

$ 424 $ 1,626 $ 1,086 $ 1,852

$ 1,971

$ 756

$ 572

$ 325

$ 275

$ 10,096

See Note 10 for details on the the Securitization Notes, Subsidiary Senior Unsecured Notes, the Credit Agreement and YUM Senior Unsecured
Notes.

Contractual Obligations
Our significant contractual obligations and payments as of December 31, 2018 included:

Long-term debt obligations(a)

$ 13,477

$

773

$ 1,756

$ 2,861

$ 8,087

Total

Less than
1 Year

1-3 Years

3-5 Years

More than
5 Years

Capital leases(b)

Operating leases(b)

Purchase obligations(c)

Benefit plans and other(d)

Total contractual obligations

103

786

301

220

10

103

139

73

19

167

149

37

16

132

11

34

58

384

2

76

$ 14,887

$ 1,098

$ 2,128

$ 3,054

$ 8,607

(a) Amounts include maturities of debt outstanding as of December 31, 2018 and expected interest payments on those outstanding amounts on a
nominal basis. The estimated interest payments related to the variable rate portion of our debt is based on current LIBOR interest rates. See
Note 10.

(b) These obligations, which are shown on a nominal basis and represent the non cancellable term of the lease, relate primarily to approximately 500

Company-owned restaurants. See Note 11.

(d)

(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 cancellable without penalty. Purchase obligations relate primarily to marketing, information
technology and supply agreements.
Includes actuarially-determined timing of payments from our most significant unfunded pension plan as well as scheduled payments from our
deferred compensation plan and other unfunded benefit plans where payment dates are determinable. This table excludes $43 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. Other amounts include a cash tax obligation related to the
mandatory deemed repatriation tax provisions of the Tax Act (See Note 17) and anticipated investments related to the KFC U.S. Acceleration
Agreement and the Pizza Hut U.S. Transformation Agreement (See Note 5).

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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
the minimum amounts
annually amounts that will at least equal
required to
of
comply with
2006. However, additional voluntary contributions are made from
time-to-time to improve the Plan’s funded status. At December 31,
2018 the Plan was in a net underfunded position of $42 million. The
UK pension plans were in a net overfunded position of $86 million at
our 2018 measurement date.

the Pension Protection Act

We do not anticipate making any significant contributions to the Plan
in 2019. 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 2019 and beyond.

Our post-retirement health care 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 2018 and no future funding
amounts are included in the contractual obligations table. See
Note 14.

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
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.

We have not included in the contractual obligations table $117 million
of
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.

YUM! BRANDS, INC. - 2018 Form 10-K 35

PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations

Off-Balance Sheet Arrangements

See the Lease Guarantees and Franchise Loan Pool and Equipment Guarantees sections of Note 19 for discussion of our off-balance sheet
arrangements.

New Accounting Pronouncements Not Yet Adopted

The Financial Accounting Standards Board (“FASB”) has issued
standards on the recognition and measurement of leases that are
intended to increase transparency and comparability among
organizations by requiring that substantially all
lease assets and
liabilities be recognized on the balance sheet and by requiring the
disclosure of key information about leasing arrangements. We will
adopt
these standards using a modified retrospective transition
approach for leases existing at, or entered into after, the beginning of
the first quarter of 2019 and will not recast the comparative periods
presented in the Financial Statements upon adoption. See “Recent

Accounting Pronouncements” in Note 2 for additional
regarding our adoption of the new lease accounting standards.

information

the FASB issued a standard that

In June 2016,
requires
measurement and recognition of expected versus incurred credit
losses for financial assets held. The standard is effective for the
fiscal 2020 with early adoption
Company in our first quarter of
fiscal 2019. We are
permitted beginning in the first quarter of
currently evaluating the impact the adoption of this standard will have
on our Financial Statements.

Critical Accounting Policies and Estimates

Our reported results are impacted by the application of certain
accounting policies that require us to make subjective or complex
judgments. These judgments involve estimations of the effect of
matters that are inherently uncertain and may significantly impact our
quarterly or annual
financial condition.
results of operations or
Changes in the estimates and judgments could significantly affect our
results of operations and financial condition and cash flows in future
years. A description of what we consider to be our most significant
critical accounting policies follows.

terms substantially at market entered into simultaneously with the
refranchising transaction.

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
transactions and is
returns for historical
refranchising market
commensurate with the risks and uncertainty inherent
in the
forecasted cash flows.

Impairment or Disposal of Long-Lived
Assets
restaurants (primarily PP&E and
We review long-lived assets of
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 the restaurant’s
forecasted undiscounted cash flows, which incorporate our best
estimate of sales growth and margin improvement based upon our
plans for the unit and actual results at comparable restaurants. For
restaurant assets that are deemed to not be recoverable, we write-
down the impaired restaurant
to its estimated fair value. 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
if available, or anticipated bids given the
bids from the buyer,
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 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

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. Fair value
is the price a willing buyer would pay for the reporting unit, and is
generally estimated using discounted expected future after-tax cash
flows from franchise royalties and Company-owned restaurant
operations, if any.

Future cash flow estimates and the discount
rate are the key
assumptions when estimating the fair value of a reporting unit. Future
cash flows are based on growth expectations relative to recent
historical performance and incorporate sales growth (from net new
restaurants or same-sales growth) and margin improvement
(for
those reporting units which include Company-owned restaurant
operations) assumptions that we believe a third-party buyer would
the reporting
assume when determining a purchase price for
unit. Any margin improvement assumptions that
into the
discounted cash flows are highly correlated with sales growth as
cash flow growth can be achieved through various interrelated
strategies such as product pricing and restaurant productivity
initiatives. The discount rate is our estimate of the required rate of
return that a third-party buyer would expect
to receive when
purchasing a business from us that constitutes a reporting unit. We
rate is commensurate with the risks and
believe the discount
uncertainty inherent in the forecasted cash flows.

factor

The fair values of all our reporting units with goodwill balances were
substantially in excess of their respective carrying values as of the
2018 goodwill testing date.

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36 YUM! BRANDS, INC. - 2018 Form 10-K

PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations

the portion of

the reporting unit disposed of

When we refranchise restaurants, we include goodwill in the carrying
amount of the restaurants disposed of based on the relative fair
values of
in the
refranchising versus the portion of the reporting unit that will be
retained. The fair value of the portion of the reporting unit disposed of
in a refranchising is determined by reference to the discounted value
of the future cash flows expected to be generated by the restaurant
and retained by the franchisee, which include a deduction for the
anticipated, future royalties the franchisee will pay us associated with
the franchise agreement entered into simultaneously with the
refranchising transaction. 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 agreement
rates our primary
is at prevailing market
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
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.

be written

goodwill

the

to

of

During 2018,
refranchising activity completed by the Company
resulted in the write-off of $12 million in Goodwill within Refranchising
(gain) loss, representing 2% of beginning-of-year Company goodwill.
Of the $12 million, the most significant write-offs were recognized
within our KFC UK, Taco Bell U.S. and KFC Russia reporting units.
Within KFC UK, 91 restaurants were refranchised (representing 65%
of beginning-of-year company units) and $5 million in goodwill was
written off (representing 13% of beginning-of-year goodwill). Within
Taco Bell U.S., 199 restaurants were refranchised (representing 31%
of beginning-of-year company units) and $4 million in goodwill was
written off
(representing 4% of beginning-of-year goodwill). Within
KFC Russia, 194 restaurants were refranchised (representing 91% of
beginning-of-year company units) and $2 million in goodwill was
written off (representing 11% of beginning-of-year goodwill).

See Note 2 for a further discussion of our policies regarding goodwill.

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 $873 million and a fair
value of plan assets of $755 million at December 31, 2018.

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 4.6% at December 31,
2018. This discount rate was determined with the assistance of our
independent actuary. The primary basis for
rate
determination is a model that consists of a hypothetical portfolio of
ten or more corporate debt
instruments rated Aa or higher by
Moody’s or Standard & Poor’s (“S&P”) with cash flows that mirror our

this discount

those corporate debt

expected benefit payment cash flows under the plans. We exclude
instruments flagged by
from the model
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 $50 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 $60 million at our
measurement date.

The net periodic benefit cost we will record in 2019 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 net periodic benefit cost plus expected pension
settlement charges for our U.S. plans to decrease approximately
$13 million in 2019. A 50 basis-point decrease or increase in our
discount rate assumption at our 2018 measurement date would not
significantly impact our 2019 U.S. net periodic benefit cost. The
impacts of changes in net periodic benefit costs are reflected
primarily in Other pension (income) expense.

Our estimated long-term rate of return on U.S. plan assets is based
upon the weighted-average of historical and expected future returns
for each asset category. Our expected long-term rate of return on
U.S. plan assets,
for purposes of determining 2019 pension
expense, at December 31, 2018 was 5.75%, net of administrative
and investment fees paid from plan assets. 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
2019 U.S. net periodic benefit cost by approximately $8 million.
Additionally, every 100 basis point variation in actual return on plan
impact our
assets versus our expected return of 5.75% will
unrecognized pre-tax actuarial net loss by approximately $8 million.

A decrease in discount rates over time has largely contributed to an
unrecognized pre-tax actuarial net loss of $101 million included in
AOCI for these U.S. plans at December 31, 2018. We will recognize
approximately $1 million of such loss in net periodic benefit cost in
2019 versus $16 million recognized in 2018. See Note 14.

Income Taxes
At December 31, 2018, we had valuation allowances of
approximately $454 million to reduce our $748 million of deferred tax
assets to amounts that are more likely than not to be realized. The
net deferred tax assets primarily relate to temporary differences in
federal, state and foreign jurisdictions and net
profitable U.S.
operating losses in certain foreign jurisdictions, the majority of which
do not expire. In evaluating our ability to recover our deferred tax
assets, we consider future taxable income in the various jurisdictions
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 and refranchising plans. Thus,
recorded valuation allowances may be subject to material
future
changes.

YUM! BRANDS, INC. - 2018 Form 10-K 37

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PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations

As a matter of course, we are regularly audited by federal, state and
foreign tax authorities. We recognize the benefit of positions taken or
expected to be taken in our tax returns in our Income tax provision
when it is more likely than not that the position would be sustained
upon examination by these tax authorities. A recognized tax position
is then measured at the largest amount of benefit that is greater than
fifty percent likely of being realized upon settlement. At December 31,
2018, we had $113 million of unrecognized tax benefits, $10 million
of which are temporary in nature and,
if recognized, would not
impact the effective tax rate. We evaluate unrecognized tax benefits,
including interest thereon, on a quarterly basis to ensure that they
including audit
have been appropriately adjusted for events,
settlements, which may impact our ultimate payment
for such
exposures.

The 2017 Tax Cuts and Jobs Act included a mandatory deemed
repatriation tax on accumulated earnings of foreign subsidiaries, and
as a result, previously unremitted earnings for which no U.S. deferred
tax liability had been provided have now been subject to U.S. tax.
Our cash currently held overseas is primarily limited to that necessary
to fund working capital requirements. Thus, we have not provided
taxes on our foreign unremitted earnings, including U.S. state income
and foreign withholding taxes, as we believe they are indefinitely
reinvested. See Note 17 for a further discussion of our Income taxes.

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38 YUM! BRANDS, INC. - 2018 Form 10-K

PART II
ITEM 7A Quantitative and Qualitative Disclosures About Market Risk

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, commodity prices and the
value of our equity investment in Grubhub. 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

risk exposure to changes in interest

rates,
We have a market
principally in the U.S. Our outstanding total debt of $10.1 billion
includes 76% fixed-rate debt and 24% variable-rate debt. We have
attempted to minimize the interest rate risk from variable-rate debt
through the use of interest rate swaps that, as of December 31,
2018, result in a fixed interest rate on $1.55 billion of our variable rate
debt. As a result, approximately 91% of our $10.1 billion of
outstanding debt at December 31, 2018 is effectively fixed-rate debt.
See Note 10 for details on these issuances and repayments and
Note 12 for details related to interest rate swaps.

As of both December 31, 2018 and December 31, 2017 a
hypothetical 100 basis-point increase in short-term interest rates
the following twelve-month period after
would result, over
consideration of
in an
increase of approximately $9 million in Interest expense, net within

the aforementioned interest

rate swaps,

Foreign Currency Exchange Rate Risk

instruments.

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
to minimize the
financial
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
receivables and payables. At times, we utilize forward contracts and
cross-currency swaps to reduce our exposure related to these
intercompany receivables and payables. The notional amount and
maturity dates of these contracts match those of the underlying

In addition, we attempt

our Consolidated Statements of Income. These estimated amounts
are based upon the current level of variable-rate debt that has not
been swapped to fixed and assume no changes in the volume or
composition of
from interest
income related to cash and cash equivalents.

that debt and exclude any impact

The fair value of our cumulative fixed-rate debt of $7.7 billion as of
December 31, 2018, would decrease approximately $400 million as
a result of
increase. At
the same hypothetical 100 basis-point
December 31, 2018, a hypothetical 100 basis-point decrease in
short-term interest rates would decrease the fair value of our interest
rate swaps approximately $100 million. 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 durations.

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 $1.6 billion as of December 31, 2018. 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 31, 2018 Operating Profit would
have decreased approximately $135 million if all foreign currencies
had uniformly weakened 10% relative to the U.S. dollar. This
estimated reduction assumes no changes in sales volumes, local
currency sales or input prices.

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Commodity Price Risk

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.

Equity Investment Risk

YUM holds 2,820,464 shares of Grubhub common stock (See
Note 5). As of December 31, 2018, the NYSE composite closing
sales price of Grubhub was $76.81. A hypothetical 10% decline in
the price of these shares would result in a $21 million decrease in the
fair value of these investments, which would be reflected as a charge

(income) expense, net within our Consolidated
in Investment
Statements of Income. The effects of changes in market prices for
equity securities are unpredictable, which could cause significant
fluctuations in our quarterly and annual results.

YUM! BRANDS, INC. - 2018 Form 10-K 39

PART II
ITEM 8 Financial Statements and Supplementary Data

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

Consolidated Statements of Comprehensive Income

Consolidated Statements of Cash Flows

Consolidated Balance Sheets

Consolidated Statements of Shareholders’ Equity (Deficit)

Notes to Consolidated Financial Statements

Financial Statement Schedules

Page
Reference

41

42

43

44

45

46

47

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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40 YUM! BRANDS, INC. - 2018 Form 10-K

PART II
ITEM 8 Financial Statements and Supplementary Data

Report of Independent Registered Public
Accounting Firm

To the Shareholders and Board of Directors
YUM! Brands, Inc.:

Opinions on the Consolidated Financial Statements
and Internal Control Over Financial Reporting

Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of
(the Company) as of
YUM! Brands,
December 31, 2018 and 2017, the related consolidated statements
of income, comprehensive income, cash flows, and shareholders’
equity (deficit) for each of the fiscal years in the three-year period
ended December 31, 2018, and the related notes (collectively, the
“consolidated financial statements”). We also have audited the
of
Company’s
December 31, 2018, based on criteria established in Internal Control
– Integrated Framework (2013)
issued by the Committee of
Sponsoring Organizations of the Treadway Commission.

reporting as

control over

financial

internal

the consolidated financial statements referred to
In our opinion,
above present fairly, in all material respects, the financial position of
the Company as of December 31, 2018 and 2017, and the results of
its operations and its cash flows for each of the years in the three-
year period ended December 31, 2018,
in conformity with U.S.
generally accepted accounting principles. Also in our opinion, the
Company maintained,
respects, effective internal
control over financial reporting as of December 31, 2018 based on
criteria established in Internal Control—Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission.

in all material

Change in Accounting Principle

As discussed in Notes 2 and 5 to the consolidated financial
statements, the Company has changed its method of accounting for
revenue from contracts with customers in fiscal year 2018 due to the
adoption of Topic 606: Revenue from Contracts with Customers.

Basis for Opinions

The Company’s management is responsible for these consolidated
financial statements, for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of
internal control over financial reporting, included in Management’s
Report on Internal Control Over Financial Reporting in the
accompanying Item 9A. Our responsibility is to express an opinion on
the Company’s consolidated financial statements and an opinion on
the Company’s internal control over financial reporting based on our
audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (PCAOB) and
are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission
and the PCAOB.

We conducted our audits in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the

to obtain reasonable assurance about whether

audits
the
consolidated financial statements are free of material misstatement,
whether due to error or fraud, and whether effective internal control
over financial reporting was maintained in all material respects.

Our audits of
the consolidated financial statements included
performing procedures to assess the risks of material misstatement
of the consolidated financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding
the amounts and disclosures
in the consolidated financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as
the consolidated
well as evaluating the overall presentation of
financial
financial statements. Our audit of
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.

internal control over

Definition and Limitations of Internal Control Over
Financial Reporting

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
financial
principles. A company’s internal control over
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.

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limitations,

its inherent

Because of
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.

/s/ KPMG LLP

We have served as the Company’s auditor since 1997.

Louisville, Kentucky

February 20, 2019

YUM! BRANDS, INC. - 2018 Form 10-K 41

PART II
ITEM 8 Financial Statements and Supplementary Data

Consolidated Statements of Income

YUM! BRANDS, INC. AND SUBSIDIARIES

FISCAL YEARS ENDED DECEMBER 31, 2018, 2017 AND 2016

(in millions, except per share data)

Revenues

Company sales

Franchise and property revenues

Franchise contributions for advertising and other services

Total revenues

Costs and Expenses, Net

Company restaurant expenses

General and administrative expenses

Franchise and property expenses

Franchise advertising and other services expense

Refranchising (gain) loss

Other (income) expense

Total costs and expenses, net

Operating Profit

Investment (income) expense, net

Other pension (income) expense

Interest expense, net

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Income from continuing operations before income taxes

Income tax provision

Income from continuing operations

Income from discontinued operations, net of tax

Net Income

Basic Earnings per Common Share from continuing operations

Basic Earnings per Common Share from discontinued operations

Basic Earnings Per Common Share

Diluted Earnings per Common Share from continuing operations

Diluted Earnings per Common Share from discontinued operations

Diluted Earnings Per Common Share

Dividends Declared Per Common Share

See accompanying Notes to Consolidated Financial Statements.

42 YUM! BRANDS, INC. - 2018 Form 10-K

2018

2017

2016
(As Restated)

$ 2,000

$

3,572

$ 4,189

2,482

1,206

5,688

2,306

—

5,878

1,634

2,954

895

188

1,208

(540)

7

3,392

2,296

(9)

14

452

1,839

297

1,542

N/A

$ 1,542

$

$

$

$

$

4.80

N/A

4.80

4.69

N/A

4.69

1.44

$

$

$

$

$

$

999

237

—

(1,083)

10

3,117

2,761

(5)

47

445

2,274

934

1,340

N/A

1,340

3.86

N/A

3.86

3.77

N/A

3.77

0.90

2,167

—

6,356

3,489

1,129

201

—

(163)

18

4,674

1,682

(2)

32

307

1,345

327

1,018

625

$ 1,643

$

$

$

$

$

$

$

2.58

1.59

4.17

2.54

1.56

4.10

1.73

PART II
ITEM 8 Financial Statements and Supplementary Data

Consolidated Statements of Comprehensive Income

YUM! BRANDS, INC. AND SUBSIDIARIES

FISCAL YEARS ENDED DECEMBER 31, 2018, 2017 AND 2016

(in millions)

Net Income

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

See accompanying Notes to Consolidated Financial Statements.

2018

2017

2016
(As Restated)

$

1,542

$

1,340

$

1,643

(94)

(4)

(98)

6

(92)

32

22

54

(13)

41

19

(39)

(20)

6

(14)

(65)

115

55

170

(8)

162

(17)

52

35

(14)

21

(52)

58

6

(2)

4

(174)

(11)

(185)

21

(164)

(62)

44

(18)

4

(14)

57

(22)

35

(16)

19

187

(159)

$

1,477

$

1,527

$

1,484

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YUM! BRANDS, INC. - 2018 Form 10-K 43

PART II
ITEM 8 Financial Statements and Supplementary Data

Consolidated Statements of Cash Flows

YUM! BRANDS, INC. AND SUBSIDIARIES

FISCAL YEARS ENDED DECEMBER 31, 2018, 2017 AND 2016

(in millions)

Cash Flows – Operating Activities from Continuing Operations
Net Income
Income from discontinued operations, net of tax
Depreciation and amortization
Refranchising (gain) loss
Investment (income) expense, net
Contributions to defined benefit pension plans
Deferred income taxes
Share-based compensation expense
Changes in accounts and notes receivable
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 from Continuing Operations

Cash Flows – Investing Activities from Continuing Operations
Capital spending
QuikOrder acquisition, net of cash acquired
Investment in Grubhub Inc. common stock
Proceeds from refranchising of restaurants
Other, net

Net Cash Provided by (Used in) Investing Activities from Continuing Operations

Cash Flows – Financing Activities from Continuing Operations
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
Dividends paid on Common Stock
Debt issuance costs
Net transfers from discontinued operations
Other, net

2018

2017

2016
(As Restated)

$

$

$

1,542
—
137
(540)
(9)
(16)
(11)
50
(66)
—
(68)
65
92

1,176

(234)
(66)
(200)
825
(12)

313

1,556
(1,264)
—

59
(59)
—
(2,390)
(462)
(13)
—
(47)

1,340
—
253
(1,083)
(5)
(55)
634
65
(19)
(10)
(173)
(55)
138

1,030

(318)
—
—
1,773
17

1,472

1,088
(385)
—

—
—
—
(1,960)
(416)
(32)
—
(90)

1,643
(625)
310
(163)
(2)
(41)
28
80
(23)
—
(40)
20
61

1,248

(427)
—
—
370
53

(4)

6,900
(323)
(685)

1,400
(2,000)
—
(5,403)
(744)
(86)
289
(92)

(744)

(34)

466

365

831

829
(287)
(292)

Net Cash Used in Financing Activities from Continuing Operations

(2,620)

(1,795)

Effect of Exchange Rate on Cash and Cash Equivalents

Net Increase (Decrease) in Cash, Cash Equivalents, Restricted Cash and Restricted
Cash Equivalents — Continuing Operations
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents –
Beginning of Year

Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents –
End of Year

Cash Provided by Operating Activities from Discontinued Operations
Cash Used in Investing Activities from Discontinued Operations
Cash Used in Financing Activities from Discontinued Operations

See accompanying Notes to Consolidated Financial Statements.

(63)

(1,194)

1,668

61

768

831

$

$

474

$

1,599

— $
—
—

—
—
—

$

$

44 YUM! BRANDS, INC. - 2018 Form 10-K

PART II
ITEM 8 Financial Statements and Supplementary Data

Consolidated Balance Sheets

YUM! BRANDS, INC. AND SUBSIDIARIES

DECEMBER 31, 2018 AND 2017

(in millions)

ASSETS

Current Assets

Cash and cash equivalents

Accounts and notes receivable, net

Prepaid expenses and other current assets

Advertising cooperative assets, restricted

Total Current Assets

Property, plant and equipment, net

Goodwill

Intangible assets, net

Other assets

Deferred income taxes

Total Assets

LIABILITIES AND SHAREHOLDERS’ DEFICIT

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

Shareholders’ Deficit

Common Stock, no par value, 750 shares authorized; 306 shares and 332 shares issued in 2018 and 2017,
respectively

Accumulated deficit

Accumulated other comprehensive loss

Total Shareholders’ Deficit

Total Liabilities and Shareholders’ Deficit

See accompanying Notes to Consolidated Financial Statements.

2018

2017

$

292 $

1,522

561

354

—

1,207

1,237

525

242

724

195

400

384

201

2,507

1,594

512

214

345

139

$

4,130 $

5,311

$

911 $

69

321

—

1,301

9,751

1,004

813

123

375

201

1,512

9,429

704

12,056

11,645

—

—

(7,592)

(6,063)

(334)

(271)

(7,926)

(6,334)

$

4,130 $

5,311

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PART II
ITEM 8 Financial Statements and Supplementary Data

Consolidated Statements of Shareholders’ Equity (Deficit)

YUM! BRANDS, INC. AND SUBSIDIARIES

FISCAL YEARS ENDED DECEMBER 31, 2018, 2017 AND 2016

(in millions)

Yum! Brands, Inc.

Issued Common
Stock
Shares Amount

Retained
Earnings
(Accumulated
Deficit)

Accumulated Other
Comprehensive
Income (Loss)

Noncontrolling
Interests

Total
Shareholders’
Equity (Deficit)

Redeemable
Noncontrolling
Interest

Balance at December 31, 2015 (As Restated)

420

$ —

$ 1,187

$ (252)

$ 58

18

$

993

1,661

$ 6

(7)

Net Income (loss)

Translation adjustments and gains (losses) from
intra-entity transactions of a long-term investment
nature (net of tax impact of $21 million)

Reclassification of translation adjustments into
income

Pension and post-retirement benefit plans (net of
tax impact of $4 million)

Net gain on derivative instruments (net of tax
impact of $16 million)

Comprehensive Income (loss)

Dividends declared

Separation of China business

Repurchase of shares of Common Stock

(68)

(49)

Employee share-based award exercises (includes
tax impact of $85 million)

3

Share-based compensation events

(4)

53

1,643

(661)

(1,927)

(5,399)

(153)

(3)

(156)

1

(11)

(14)

19

(47)

(6)

(67)

(11)

(14)

19

1,499

(667)

(2,041)

(5,448)

(4)

53

(6)

Balance at December 31, 2016 (As Restated)

355

$ —

$ (5,157)

$ (458)

$ —

$ (5,615)

$ —

Net Income

Translation adjustments and gains (losses) from
intra-entity transactions of a long-term investment
nature (net of tax impact of $8 million)

Reclassification of translation adjustments into
income

Pension and post-retirement benefit plans (net of
tax impact of $14 million)

Net gain on derivative instruments (net of tax
impact of $2 million)

1,340

107

55

21

4

K
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F

Comprehensive Income

Dividends declared

Repurchase of shares of Common Stock

Employee share-based award exercises

Share-based compensation events

(27)

4

—

—

(58)

58

(311)

(1,915)

(20)

—

1,340

107

55

21

4

1,527

(311)

(1,915)

(78)

58

Balance at December 31, 2017

332

$ —

$ (6,063)

$ (271)

$ —

$ (6,334)

$ —

Net Income

Translation adjustments and gains (losses) from
intra-entity transactions of a long-term investment
nature (net of tax impact of $6 million)

Reclassification of translation adjustments into
income

Pension and post-retirement benefit plans (net of
tax impact of $13 million)

Net loss on derivative instruments (net of tax
impact of $6 million)

Comprehensive Income

Dividends declared

Repurchase of shares of Common Stock

Employee share-based award exercises

Share-based compensation events

Adoption of accounting standards

(28)

2

(38)

(41)

79

1,542

(464)

(2,356)

(88)

(4)

41

(14)

(251)

2

1,542

(88)

(4)

41

(14)

1,477

(464)

(2,394)

(41)

79

(249)

Balance at December 31, 2018

306

$ —

$ (7,592)

$ (334)

$ —

$ (7,926)

$ —

See accompanying Notes to Consolidated Financial Statements.

46 YUM! BRANDS, INC. - 2018 Form 10-K

PART II
ITEM 8 Financial Statements and Supplementary Data

Notes to Consolidated Financial Statements

(Tabular amounts in millions, except share data)

NOTE 1

Description of Business

YUM! Brands, Inc. and its Subsidiaries (collectively referred to herein
as the “Company,” “YUM,” “we,” “us” or “our”) franchises or operates
a system of over 48,000 quick service restaurants in more than 140
countries and territories. At December 31, 2018, 98% of
these
franchisees. The
restaurants were owned and operated by
company’s KFC, Pizza Hut and Taco Bell brands (collectively the
“Concepts”) are global
leaders of the chicken, pizza and Mexican-
style food categories.

Through our widely-recognized Concepts, we develop, operate or
franchise a system of both traditional and non-traditional quick
service restaurants. The terms “franchise” or “franchisee” within
these Consolidated Financial Statements are meant to describe third
parties that operate units under either
license
agreements. Our traditional restaurants feature dine-in, carryout and,
in some instances, drive-thru or delivery service. Non-traditional units
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
or franchise multibrand units, where two or more of our Concepts are
operated in a single unit.

franchise or

As of December 31, 2018, YUM consisted of
segments:

three operating

(cid:129) The KFC Division which includes our worldwide operations of the

KFC concept

(cid:129) The Pizza Hut Division which includes our worldwide operations of

the Pizza Hut concept

(cid:129) The Taco Bell Division which includes our worldwide operations of

the Taco Bell concept

On October 31, 2016 (the “Distribution Date”), we completed the
spin-off of our China business (the “Separation”) into an independent,
publicly-traded company under the name of Yum China Holdings,
Inc. (“Yum China”). On the Distribution Date, we distributed to each
of our shareholders of
the close of business on
October 19, 2016 (the “Record Date”) one share of Yum China
common stock for each share of our Common Stock held as of the
Record Date. The distribution was structured to be a tax free
distribution to our U.S. shareholders for federal income tax purposes
in the U.S. Yum China’s common stock trades on the New York
Stock Exchange under the symbol “YUMC.” After the distribution, we
do not beneficially own any shares of Yum China common stock.

record as of

Concurrent with the Separation, a subsidiary of
the Company
entered into a Master License Agreement with a subsidiary of Yum
to use and sublicense the use of
China for the exclusive right
intellectual property owned by YUM and its affiliates for
the
development and operation of KFC, Pizza Hut and Taco Bell
restaurants in China. Prior
to the Separation, our operations in
mainland China were reported in our former China Division segment
results. As a result of the Separation, the results of operations and
cash flows of the separated business are presented as discontinued
operations
Income and
Consolidated Statements of Cash Flows for all periods presented.
See additional
information related to the impact of the Separation in
Note 4.

in our Consolidated Statements of

NOTE 2

Summary of Significant Accounting Policies

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the accompanying Consolidated Financial
Our preparation of
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 Consolidated Financial Statements, and the reported
amounts of
reporting
period. Actual results could differ from these estimates.

and expenses during the

revenues

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.

and

under

franchise

our Concepts’

Our most significant variable interests are in entities that operate
restaurants
license
arrangements. We do not have an equity interest in any of our
franchisee businesses. Additionally, we do not
typically provide
significant
financial support such as loans or guarantees to our
franchisees. However, we do have variable interests in certain
franchisees through real estate lease arrangements to which we are
a party. At the end of 2018, YUM has future lease payments due
from franchisees, on a nominal basis, of approximately $1.1 billion,
and we are secondarily liable on certain other lease agreements that
have been assigned to franchisees. See the Lease Guarantees and
Franchise Loan Pool and Equipment Guarantees sections in Note 19.
As our franchise and license arrangements provide our franchisee
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 19 for additional
information on our entity that operates a
franchise lending program that is a VIE in which we have a variable
interest but for which we are not the primary beneficiary and thus do
not consolidate.

YUM! BRANDS, INC. - 2018 Form 10-K 47

PART II
ITEM 8 Financial Statements and Supplementary Data

We participate in various advertising cooperatives with our
franchisees, typically within a country where we have both Company-
owned restaurants and franchise restaurants, 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
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.

to permit

Fiscal Year. Our fiscal years have historically ended on the last
Saturday in December and, as a result, a 53rd week was added every
five or six years. The first three quarters of each fiscal year consisted
of 12 weeks and the fourth quarter consisted of 16 weeks in fiscal
years with 52 weeks and 17 weeks in fiscal years with 53 weeks. Our
U.S. subsidiaries and certain international subsidiaries operated on
similar
remaining international subsidiaries
operated on a monthly calendar, and thus never had a 53rd week,
with two months in the first quarter, three months in the second and
third quarters and four months in the fourth quarter. Certain
international subsidiaries within our KFC, Pizza Hut and Taco Bell
divisions have historically closed approximately one month or one
period earlier to facilitate consolidated reporting.

fiscal calendars. Our

Fiscal year 2016 included 53 weeks for our U.S. businesses and for
our international subsidiaries that reported on a period calendar. The
53rd week added $76 million to Total revenues and $28 million to
Operating Profit in our 2016 Consolidated Statement of Income.

On January 27, 2017, YUM’s Board of Directors approved a change
in the Company’s fiscal year from a year ending on the last Saturday
to a year beginning on January 1 and ending
of December
December 31 of each year, commencing with the year ending
December 31, 2017. In connection with this change, the Company
moved from a 52-week periodic fiscal calendar with three 12-week
interim quarters and a 16-week fourth quarter to a monthly reporting
calendar with each quarter comprised of three months. Our U.S.
subsidiaries continue to report on a period calendar as described
above.

Concurrent with the change in the Company’s fiscal year, we also
eliminated the one month or one period reporting lags of our
international subsidiaries. As a result of removing these reporting
lags, each international subsidiary operates either on a monthly
calendar consistent with the Company’s new calendar or on a
periodic calendar consistent with our U.S. subsidiaries. We believe
this change in our international subsidiary reporting calendars and
the resulting elimination of reporting lags is preferable because a
more current reporting calendar allows the Consolidated Financial
Statements to more consistently and more timely reflect the impact
of current events, economic conditions and global trends.

The change to the Company’s fiscal year and removal of
the
international reporting lags became effective beginning in 2017. We
applied this change in accounting principle retrospectively to financial
periods presented prior to 2017 and the impact of this change is

Company Sales

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

Our next fiscal year scheduled to include a 53rd week is 2019.

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 U.S. are initially measured using the functional
currency of
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 31, 2018, net cumulative translation adjustment losses
of $245 million are recorded in Accumulated other comprehensive
loss (“AOCI”) in the Consolidated Balance Sheet.

that entity.

The majority of our
foreign currency net asset 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 AOCI 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 foreign 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 Statements
of Income.

Reclassifications. We have reclassified certain items in the
Consolidated Financial Statements
to be
comparable with the classification for
the fiscal year ended
December 31, 2018. These reclassifications had no effect on
previously reported Net Income.

for prior periods

Revenue Recognition. From 2014 through 2017,
the Financial
Accounting Standards Board (“FASB”) issued standards to provide
revenue recognition of
principles within a single framework for
transactions involving contracts with customers across all
industries
(“Topic 606”). We adopted Topic 606 at the beginning of the year
ended December 31, 2018. Below is a discussion of how our
revenues are earned, our accounting policies pertaining to revenue
recognition prior to the adoption of Topic 606 (“Legacy GAAP”), our
accounting policies pertaining to revenue recognition subsequent to
the adoption of Topic 606 and other required disclosures. Refer to
Note 5 for information regarding the cumulative effect adjustment
recorded to Accumulated deficit as of the beginning of the year
ended December 31, 2018 to reflect the adoption of Topic 606. Also
the amount by which each
included in Note 5 is disclosure of
balance sheet and income statement line item was impacted in the
current reporting period as compared to Legacy GAAP.

Revenues from the sale of
food items by Company-owned
restaurants are recognized as Company sales when a customer
purchases the food, which is when our obligation to perform is

satisfied. The timing and amount of revenue recognized related to
Company sales was not impacted by the adoption of Topic 606.

48 YUM! BRANDS, INC. - 2018 Form 10-K

Franchise and Property Revenues

Franchise Revenues

Our most significant source of revenues arises from the operation of
our Concepts’ stores by our franchisees. Franchise rights may be
franchise agreement or through a
granted through a store-level
master
the terms of our
that set out
franchise agreement
arrangement with the franchisee. Our franchise agreements require
that the franchisee remit continuing fees to us as a percentage of the
applicable restaurant’s sales in exchange for the license of
the
intellectual property associated with our Concepts’ brands (the
“franchise right”). Our franchise agreements also typically require
certain, less significant, upfront franchise fees such as initial fees paid
upon opening of a store, fees paid to renew the term of the franchise
right and fees paid in the event the franchise agreement is transferred
to another franchisee.

fees

represent
receive

the
under our

franchise agreements. Master

substantial majority of
franchise

the
Continuing
consideration we
agreements.
Continuing fees are typically billed and paid monthly and are usually
4%-6% for store-level
franchise
agreements allow master franchisees to operate restaurants as well
as sub-franchise restaurants within certain geographic territories. The
percentage of sales that we receive for
restaurants owned or
operated by our master franchisees as a continuing fee is typically
less than the percentage we receive for restaurants operating under
a store-level franchise agreement. Upfront franchise fees are typically
billed and paid when a new franchise or sub-franchise agreement
becomes effective or when an existing agreement is transferred to
another franchisee or sub-franchisee.

Under Legacy GAAP, continuing fees were recognized as the related
revenue
restaurant sales occurred. The timing and amount of
recognized related to continuing fees was not
impacted by the
adoption of Topic 606 based on the application of the sales-based
royalty exception within Topic 606. Under Legacy GAAP, revenue
related to initial fees was recognized upon store opening and renewal
and transfer fees were recognized when the related agreement
became effective. Upon the adoption of Topic 606, we have
determined that
the services we provide in exchange for these
upfront franchise fees, which primarily relate to pre-opening support,
are highly interrelated with the franchise right and are not individually
distinct from the ongoing services we provide to our franchisees. As
a result, upon the adoption of Topic 606, upfront franchise fees are

PART II
ITEM 8 Financial Statements and Supplementary Data

recognized as revenue over the term of each respective franchise or
sub-franchise agreement. Revenues for these upfront franchise fees
are recognized on a straight-line basis, which is consistent with the
franchisee’s or sub-franchisee’s right to use and benefit from the
intellectual property. Revenues from continuing fees and upfront
franchise fees are presented within Franchise and property revenues
in our Consolidated Statements of Income.

intent

provide

from time-to-time we

Additionally,
non-refundable
consideration to franchisees in the form of cash or other incentives
(e.g. cash payments to incent new unit openings, free or subsidized
equipment, etc.). The Company’s
in providing such
consideration is to drive new unit development or same-store sales
growth that will result in higher future revenues for the Company.
Under Legacy GAAP, this consideration was recognized when we
were obligated to provide the incentive and was presented as either
a reduction to Franchise and property revenues, if cash was provided
directly to the franchisee, or as Franchise and property expenses, if
cash was not provided directly to the franchisee. Due to the adoption
of Topic 606, such payments are capitalized and presented within
Prepaid expense and other current assets or Other assets. These
capitalized balances are being amortized as a reduction in Franchise
and property revenues over the period of expected cash flows from
the franchise agreements to which the payment relates.

Property Revenues

restaurant

the lease or sublease of

From time to time, we enter into rental agreements with franchisees
for
locations. These rental
agreements typically originate from refranchising transactions and
revenues related to the agreements are recognized as they are
earned. Amounts owed under the rental agreements are typically
billed and paid on a monthly basis. Revenues from rental agreements
with franchisees are presented within Franchise and property
revenues within our Consolidated Statements of
Income. Related
expenses are presented as Franchise and property expenses within
our Consolidated Statements of
Income and primarily include
depreciation or, in the case of a sublease, rental expense. The timing
and amount of revenue and expenses recognized related to the
rental of restaurants we lease or sublease was not impacted by the
adoption of Topic 606.

Franchise Contributions for Advertising and Other Services

Advertising Cooperatives

receipts and expenditures

Under Legacy GAAP,
related to
advertising cooperatives we were required to consolidate were
presented on a net basis in our Consolidated Statements of Income
and Consolidated Statements of Cash Flow. Additionally, assets and
liabilities of
the advertising cooperatives we were required to
consolidate were presented within Advertising cooperative assets,
restricted and Advertising cooperative liabilities, respectively, within
our Consolidated Balance Sheets. In accordance with the provisions
of Topic 606, we have determined we act as a principal
in the
transactions entered into by the advertising cooperatives we are
required to consolidate based on our responsibility to define the
nature of the goods or services provided and/or our responsibility to
define which franchisees receive the benefit of the goods or services.
Additionally, we have determined the advertising services provided to
franchisees are highly interrelated with the franchise right and
therefore not distinct. Franchisees remit
to us a percentage of
restaurant sales as consideration for providing the advertising
services. As a result, revenues for advertising services are recognized
when the related restaurant sales occur based on the application of

the sales-based royalty exception within Topic 606. Revenues for
these services are typically billed and paid on a monthly basis. These
revenues are presented as Franchise contributions for advertising
and other services. Expenses incurred to provide these services are
presented as Franchise advertising and other services expense.
When revenues of an advertising cooperative exceed the related
advertising expenses, advertising costs are accrued up to the
amount of revenues on an annual basis. Lastly, upon adoption of
Topic 606 we have reclassified assets and liabilities of advertising
cooperatives we are required to consolidate to the respective
balance sheet caption to which the assets and liabilities relate.

Other Services

On a much more limited basis, we provide goods or services to
certain franchisees that are individually distinct from the franchise
right because they do not require integration with other goods or
services we provide. Such arrangements typically relate to supply
chain, quality assurance and information technology services.
In
instances where we rely on third parties to provide goods or services

YUM! BRANDS, INC. - 2018 Form 10-K 49

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PART II
ITEM 8 Financial Statements and Supplementary Data

to franchisees at our direction, we have determined we act as a
principal in these transactions. The extent to which we provide such
goods or services varies by brand, geographic region and, in some
instances, franchisee. Similar to advertising services, receipts and
expenditures related to these other services were presented on a net
basis under Legacy GAAP. Upon adoption of Topic 606, revenues
from the goods or services described above are presented as
Franchise contributions for advertising and other services within our
Consolidated Statements of
Income. Expenses related to the
provisioning of these goods and services are recorded in Franchise
advertising and other services expense. These revenues are
recognized as the goods or services are transferred to the franchisee
and related expenses are recognized as incurred.

Franchise Support Costs

The internal costs we incur to provide support services to our
franchisees for which we do not receive a direct reimbursement are
charged to General and administrative expenses (“G&A”) as
incurred. Certain direct costs of our franchise operations are charged
to Franchise and property expenses. These costs include provisions
for estimated uncollectible fees,
rent or depreciation expense
associated with restaurants we lease or sublease to franchisees,
franchise marketing funding, amortization expense for
franchise-
related intangible assets, value added taxes on royalties and certain
other direct incremental franchise support costs.

Taxes assessed by a governmental authority that are both imposed
on and concurrent with a specific revenue transaction and collected
from a customer are excluded from revenue under both Legacy
GAAP and Topic 606.

Disaggregation of Total Revenues

The following table disaggregates revenue by Concept, for our two most significant markets based on Operating Profit and for all other markets.
We believe this disaggregation best reflects the extent to which the nature, amount, timing and uncertainty of our revenues and cash flows are
impacted by economic factors.

U.S.

Company sales

Franchise revenues

Property revenues

Franchise contributions for advertising and other services

China

Franchise revenues

Other

Company sales

Franchise revenues

Property revenues

Franchise contributions for advertising and other services

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2018

KFC
Division

Pizza Hut
Division

Taco Bell
Division

Total

$

72

171

23

9

201

822

825

74

447

$

37

$ 1,034 $ 1,143

284

4

269

59

32

248

3

52

539

27

428

—

3

24

—

1

994

54

706

260

857

1,097

77

500

$ 2,644

$ 988

$ 2,056 $ 5,688

Contract Liabilities

Our contract liabilities are comprised of unamortized upfront fees received from franchisees. A summary of significant changes to the contract
liability balance during 2018 is presented below.

Balance at January 1, 2018

Revenue recognized that was included in unamortized upfront fees received from franchisees at the beginning of the
period

Increase for upfront fees associated with contracts that became effective during the period, net of amounts recognized as
revenue during the period

Other(a)

Balance at December 31, 2018

Deferred
Franchise Fees

$ 392

(66)

102

(14)

$ 414

(a)

Includes impact of
modification of existing franchise agreements when entering into master franchise agreements.

foreign currency translation as well as the recognition of deferred franchise fees into Refranchising (gain)

loss upon the

50 YUM! BRANDS, INC. - 2018 Form 10-K

We expect to recognize contract liabilities as revenue over the remaining term of the associated franchise agreement as follows:

PART II
ITEM 8 Financial Statements and Supplementary Data

Less than 1 year

1 - 2 years

2 - 3 years

3 - 4 years

4 - 5 years

Thereafter

Total

We have applied the optional exemption, as provided for under Topic
606, which allows us to not disclose the transaction price allocated
to unsatisfied performance obligations when the transaction price is a
sales-based royalty.

the year

time in the next

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 of our Company restaurants. We
charge direct marketing costs incurred outside of a cooperative to
expense ratably in relation to revenues over
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 that will generally be used for the
first
fiscal year and have historically not been
significant. We report the majority of our direct marketing costs in
Company restaurant expenses. Advertising incurred on behalf of
franchised restaurants by the Company is recorded within Franchise
and property expenses,
including $12.5 million and $25 million
related to the Pizza Hut U.S. Transformation Agreement in 2018 and
2017, respectively, and $10 million, $20 million and $20 million
related to the KFC U.S. Acceleration Agreement in 2018, 2017 and
2016,
these
agreements. Advertising expenses incurred by our Company-owned
restaurants and those incurred on behalf of franchised restaurants by
the Company totaled $131 million, $245 million and $260 million in
2018, 2017 and 2016,
In 2018 we incurred an
respectively.
additional $1,035 million in spending attributable to franchise
contributions to advertising cooperatives that we consolidate and are
now reporting on a gross basis within our Consolidated Statements
of Income subsequent to the adoption Topic 606.

respectively. See Note 5 for

further discussion of

is recognized over

Share-Based Employee Compensation. We recognize ongoing
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
the service period on a
straight-line basis, net of an assumed forfeiture rate, for awards that
actually vest. Forfeiture rates are estimated at grant date based on
is adjusted in
historical experience and compensation cost
subsequent periods for differences in actual
forfeitures from the
previous estimates. We present this compensation cost consistent
with the other compensation costs for the employee recipient in
either Company restaurant expenses or G&A. See Note 15 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,
general
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 19 for further discussion of our legal proceedings.

liability, automobile liability, product

$

60

55

51

47

42

159

$ 414

Impairment or Disposal of Property, Plant and Equipment.
is tested for impairment
Property, plant and equipment (“PP&E”)
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.

restaurant

is the lowest

impairment testing for our restaurants, we have
For purposes of
concluded that an individual
level of
independent cash flows unless it is more likely than not that we will
refranchise restaurants as a group. We review our long-lived assets
of such individual restaurants (primarily PP&E and allocated intangible
impairment, or
assets subject
to amortization) semi-annually for
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
Individual
and uncertainty inherent
restaurant-level
(income)
expense.

in the forecasted cash flows.
is recorded within Other

impairment

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,
the
if any,
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

to the carrying value of

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impairment evaluation. We recognize any such
terms in our
impairment charges in Refranchising (gain) loss. 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 associated termination, relocation or retention
costs associated with store-level employees of refranchised stores or
employees of restaurant-support centers which we have closed due
to refranchising. We recognize gains on restaurant refranchisings
when the sale transaction closes and control of
the restaurant
operations have transferred to the franchisee.

are generally

closed stores

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
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 Other (income) expense. To the extent we
sell assets, primarily land, associated with a closed store, any gain or
loss upon that sale is also recorded in Other (income) expense.

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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.

Guarantees. We recognize, at inception of a guarantee, a liability for
the fair value of certain obligations undertaken. The majority of our
in
guarantees are issued as a result of assigning our
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 secondarily
liable. The related expense and any subsequent changes are
included in Refranchising (gain) loss. Any expense and subsequent
changes in the guarantees for other franchise support guarantees not
associated with a refranchising transaction are included in Franchise
and property expenses.

interest

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 income in the years in which 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 our Income tax provision 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 all or a portion of an asset will not be realized, we
record a valuation allowance.

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

52 YUM! BRANDS, INC. - 2018 Form 10-K

that

they have been appropriately adjusted for audit
ensure that
settlements and other events we believe may impact the outcome.
Changes in judgment
recognition,
result
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.

in subsequent

We do not record a deferred tax liability for unremitted earnings of
our foreign subsidiaries to the extent that the earnings meet the
indefinite reversal criteria. This criteria is met if the foreign subsidiary
has invested, or will invest, the earnings indefinitely. The decision as
to the amount of unremitted 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 U.S.

See Note 17 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
the duration. The fair values are
assigned a level within the fair value hierarchy, depending on the
source of the inputs into the calculation.

rates appropriate for

Level 1

Level 2

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.

Level 3

Inputs that are unobservable for the asset.

Cash and Cash Equivalents. Cash equivalents represent funds we
have temporarily invested (with original maturities not exceeding
including short-term, highly liquid debt securities.
three months),
Cash and overdraft balances that meet the criteria for right of setoff
are presented net on our Consolidated Balance Sheet.

Receivables. The Company’s receivables are primarily generated
from ongoing business relationships with our franchisees as a result
of franchise and lease agreements. Trade receivables consisting of
royalties from franchisees, including Yum China, are generally due
within 30 days of the period in which the corresponding sales occur
and are classified as Accounts and notes receivable, net on our
Consolidated Balance Sheet. Upon adoption of Topic 606, Accounts
and notes receivable, net also includes receivables generated from
advertising cooperatives that we consolidate that, under Legacy
GAAP, were previously recorded in Advertising cooperative assets,
restricted. Our provision for uncollectible franchisee 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 record provisions
for estimated losses on
receivables when we believe it probable that our franchisees will be
unable to make their required payments. While we use the best
the ultimate
information available in making our determination,
recovery of recorded receivables is also dependent upon future
economic events and other conditions that may be beyond our
control. We recorded $11 million, $5 million and less than $1 million
in net provisions within Franchise and property expenses in 2018,
2017 and 2016, respectively, related to uncollectible franchise and

license receivables. 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.

2018

2017

Accounts and notes receivable

$ 592

$ 419

Allowance for doubtful accounts

(31)

(19)

Accounts and notes receivable, net

$ 561

$ 400

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, 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 record provisions
for estimated losses on
receivables when we believe it is probable that our franchisees 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, net while amounts due
beyond one year are included in Other assets. Amounts included in
Other assets totaled $62 million (net of an allowance of $1 million)
and $38 million at December 31, 2018 and December 31, 2017,
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 historically been
insignificant.

less
Property, Plant and Equipment. We state PP&E at cost
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 leasehold
improvements and 3 to 20 years for machinery and equipment. We
suspend depreciation and amortization on assets that are held for sale.

Leases and Leasehold Improvements. The Company leases land,
buildings or both for certain of its restaurants and restaurant support
centers worldwide. The length of our lease terms, which vary by
country and often include renewal options, are an important factor in
determining the 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 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 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.

is being constructed whether rent

We expense rent associated with leased land or buildings while a
restaurant
is paid or we are
subject to a rent holiday. Additionally, certain of the Company’s
the
operating leases contain predetermined fixed escalations of
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 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).

PART II
ITEM 8 Financial Statements and Supplementary Data

Goodwill and Intangible Assets. From time-to-time, the Company
acquires restaurants from one of our Concept’s franchisees or
acquires another business. Goodwill
from these acquisitions
represents the excess of the cost of a business acquired over the net
of the amounts assigned to assets acquired, including identifiable
is not amortized
intangible assets and liabilities assumed. Goodwill
and has been assigned to reporting units for purposes of impairment
testing. Our reporting units are our business units (which are aligned
based on geography) in our KFC, Pizza Hut and Taco Bell Divisions.

We evaluate goodwill for impairment on an annual basis or more
indicate
often if an event occurs or circumstances change that
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
rate is commensurate with the risks and
believe the discount
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.

the reporting unit

to its acquisition, we include goodwill

from a
If we record goodwill upon acquisition of a restaurant(s)
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
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
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 into simultaneously with 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
franchise agreements. Appropriate
and includes the value of
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.

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
the intangible asset based on discounted
buyer would pay for

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ITEM 8 Financial Statements and Supplementary Data

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.

Capitalized Software. We state capitalized software at cost less
accumulated amortization within Intangible assets, net on our
Consolidated Balance Sheets. We calculate amortization on a
straight line basis over the estimated useful life of the software which
ranges from 3 to 7 years.

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
not use derivative instruments for trading purposes and we have
procedures in place to monitor and control their use.

We record all derivative instruments on our Consolidated Balance
Sheet at fair value. For derivative instruments that are designated and
qualify as a cash flow hedge, the effective portion of the gain or loss
on the derivative instrument is reported as a component of AOCI and
reclassified into earnings in the same period or periods during which
the hedged transaction affects earnings. Any ineffective portion of the
gain or loss on the derivative instrument for a cash flow 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.

fail

to meet

the counterparties will

into contracts with carefully selected major

As a result of the use of derivative instruments, the Company is
exposed to risk that
their
contractual obligations. To mitigate the counterparty credit risk, we
only enter
financial
institutions based upon their credit ratings and other factors, and
continually assess the creditworthiness of counterparties. At
December 31, 2018 and December 31, 2017, all of
the
counterparties to our interest rate swaps, foreign currency 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.

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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, or other deductions to Common Stock
such as shares cancelled upon employee share-based award
exercises, 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, or other deductions to Common Stock as an addition
to Accumulated deficit. Due to the large number of share
repurchases of our stock over the past several years, our Common
Stock balance is frequently zero at
the end of any period.
Accordingly, $2,356 million, $1,915 million and $5,399 million in
share repurchases in 2018, 2017 and 2016,
respectively, and
$20 million related to shares cancelled upon employee share-based
award exercises in 2017 were recorded as an addition to
Accumulated deficit. See Note 16 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

54 YUM! BRANDS, INC. - 2018 Form 10-K

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 recognized in our Consolidated Statement of
Income is recorded as a component of AOCI.

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, or remeasurement period, if
applicable. We record the service cost component of net periodic
benefit costs in G&A. Non-service cost components are recorded in
Other pension (income) expense. We have elected to use a market-
related value of plan assets to calculate the expected return on
assets, net of administrative and investment fees paid from plan
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 AOCI, 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.

Recent Accounting Pronouncements. Starting in February 2016
and continuing into 2018,
the FASB issued standards on the
recognition and measurement of leases that are intended to increase
transparency and comparability among organizations by requiring
that substantially all lease assets and liabilities be recognized on the
balance sheet and by requiring the disclosure of key information
about leasing arrangements. We will adopt these standards using a
modified retrospective transition approach for leases existing at, or
entered into after, the beginning of the first quarter of 2019 and will
not recast the comparative periods presented in the Consolidated
Financial Statements upon adoption.

to elect

The standards provide a number of optional practical expedients and
policy elections in transition. We currently expect
the
‘package of practical expedients’ under which we will not reassess
under the standards our prior conclusions about lease identification,
lease classification and initial direct costs. We do not expect to elect
the use-of-hindsight or the practical expedient pertaining to land
easements; the latter not being applicable to us. We currently expect
to elect the short-term lease recognition exemption for all leases that
qualify, meaning we would not recognize right-of-use assets or lease
liabilities for those leases. We do not currently expect to elect the
practical expedient to not separate lease and non-lease components
for leases with franchisees, which is our most significant leasing
activity with both lease and non-lease components.

We have made significant progress in assessing the impact of the
standards and planning for their adoption and implementation. We
have completed a scoping analysis and worldwide data gathering
process of our current lease portfolio. We are substantially complete
with reviewing the information for completeness of the lease portfolio,

analyzing the financial statement impact of adopting the standards,
and evaluating the impact of adoption on our existing accounting
policies and disclosures.

result

in a material

Based on our current volume of store leases we expect this adoption
will
increase in the Total Assets and Total
Liabilities on our Consolidated Balance Sheet. We do not anticipate
adoption will have a significant
impact on our Consolidated
Statements of Income or Cash Flows. Upon adoption, we currently
expect to recognize additional
lease liabilities of $750 million and
corresponding right-of-use assets of $675 million.

In January 2016, the FASB issued a standard that updates certain
aspects of recognition, measurement, presentation and disclosure of
financial
instruments. We adopted this standard beginning with the
quarter ended March 31, 2018. While the adoption of this standard
impact on our Financial Statements the
did not have a material
standard requires our investment in Grubhub common stock, which
was consummated in April 2018 (See Note 5), to be remeasured to
fair value in each future reporting period with corresponding changes
recorded in our Consolidated Statement of Income.

In October 2016, the FASB issued a standard that requires the
recognition of
the income tax consequences of an intra-entity
transfer of an asset, other than inventory, when the transfer occurs.

PART II
ITEM 8 Financial Statements and Supplementary Data

As required, we adopted this standard in the quarter ended
March 31, 2018 and have recorded a cumulative adjustment to
beginning retained earnings to write-off
the unamortized tax
consequences of certain historical intra-entity transfers of assets. As
a result, we recognized a reduction in Other assets of $30 million
with an offsetting increase to our Accumulated deficit.

the FASB issued a standard that

In August 2017,
refines and
expands existing hedge accounting guidance. We adopted this
standard beginning with the quarter ended March 31, 2018. The
adoption of this standard did not have a material
impact on the
Financial Statements.

In February 2018,
the FASB issued a standard that allows a
reclassification to retained earnings for tax effects that were stranded
within AOCI subsequent to the accounting in the fourth quarter of
2017 necessary as a result of the enactment of the Tax Cuts and
Jobs Act of 2017. We adopted this standard during the quarter
ended March 31, 2018 and reclassified stranded tax effects of
$19 million from AOCI with a corresponding decrease to
Accumulated deficit at the beginning of our first quarter 2018. These
stranded tax effects primarily related to the remeasurement of
deferred tax assets associated with pension losses within AOCI. The
Company’s policy is to follow the specific identification approach for
releasing stranded tax effects from AOCI.

NOTE 3

Earnings Per Common Share (“EPS”)

Income from continuing operations

Income from discontinued operations

Net Income

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 from continuing operations

Basic EPS from discontinued operations

Basic EPS

Diluted EPS from continuing operations

Diluted EPS from discontinued operations

Diluted EPS

2018

2017

2016

$ 1,542

$ 1,340

$ 1,018

N/A

N/A

625

$ 1,542

$ 1,340

$ 1,643

322

7

329

347

8

355

4.80

$

3.86

$

N/A

4.80

4.69

N/A

$

$

N/A

3.86

3.77

$

$

N/A $

394

6

400

2.58

1.59

4.17

2.54

1.56

4.69

$

3.77

$

4.10

$

$

$

$

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Unexercised employee stock options and stock appreciation rights (in millions) excluded from the diluted
EPS computation(a)

2.0

2.3

5.0

(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

Discontinued Operations

As discussed in Note 1, on October 31, 2016,
completed the Separation of our China business.

the Company

In connection with the Separation, the Company and Yum China
entered into a Separation and Distribution Agreement as well as
various other agreements that provide a framework for
the
relationships between the parties,
including among others a Tax
Matters Agreement, an Employee Matters Agreement, a Transition
Services Agreement and a Master License Agreement. These

agreements provided for the allocation between the Company and
Yum China of assets, employees, liabilities and obligations (including
investments, property, employee benefits and tax-related assets and
liabilities) attributable to periods prior to, at and after the Separation
and govern certain relationships between the Company and Yum
China after the Separation.

For all the periods prior to the Separation, the financial results of Yum
China are presented as Income from discontinued operations, net of

YUM! BRANDS, INC. - 2018 Form 10-K 55

PART II
ITEM 8 Financial Statements and Supplementary Data

tax in the Consolidated Statements of Income and Cash flows from
discontinued operations in our Consolidated Statements of Cash
Flows.

the results of

results of Yum China presented in discontinued
The financial
operations reflect
the former China Division, an
operating segment of the Company until the Separation, adjusted for
the inclusion of certain G&A, non-cash impairment charges,
refranchising gains, interest and income taxes that were previously
not allocated to but were related to the former China Division’s
historical results of operations.

Additionally, these financial results reflect a deduction for royalties on
sales of KFC and Pizza Hut Company-owned stores in China that
prior to the Separation were paid, pursuant to an intercompany

franchise agreement, by an entity of Yum China to a Company entity.
This royalty expense was not reflected in our China Division results
that were presented prior to the Separation, as it was then an
intercompany transaction that was eliminated in consolidation, but
has been reflected in our Company’s discontinued operations as
such royalty arrangement continued pursuant to the Master License
Agreement. Additionally, our China Division results that were
presented prior to the Separation have been adjusted to exclude the
portion of the royalties paid by third-party franchisees in China that
have historically and continue to be remitted to a Company entity.
These adjustments to our previously presented China Division results
in determining Income from discontinued operations, net of tax were
offset by adjustments to our KFC and Pizza Hut Divisions’ results
such that there was no impact on total reported Net Income.

The following table presents the financial results of the Company’s discontinued operations:

Company sales

Franchise and property revenues

Company restaurant expenses

G&A expenses(b)

Franchise and property expenses

Other income (expense)(c)

Refranchising gain

Interest income, net

Income from discontinued operations before income taxes

Income tax benefit(d)

Income from discontinued operations — including noncontrolling interests

Income from discontinued operations — noncontrolling interests

Income from discontinued operations, net of tax

2016(a)

$ 5,667

109

(4,766)

(406)

(45)

(8)

12

8

571

65

636

(11)

$

625

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(a)
(b)

Includes Yum China financial results from January 1, 2016 to October 31, 2016.
Includes costs incurred to execute the Separation of $68 million for 2016. Such costs primarily relate to transaction advisors, legal and other
consulting fees.
Includes store closure and impairment expenses and equity income from KFC franchisees in which Yum China owns a minority interest.

(c)
(d) During 2016, we recorded a tax benefit of $233 million related to previously recorded losses associated with our Little Sheep business. The tax
benefit associated with these losses was able to be recognized as a result of legal entity restructuring completed in anticipation of the Separation.

Cash inflows from Yum China to the Company in 2018, 2017 and 2016, subsequent to the Separation, related to the Master License Agreement
was $233 million, $217 million and $16 million, respectively, net of taxes paid and primarily related to royalty revenues.

NOTE 5

Items Affecting Comparability of Net Income and Cash Flows

QuikOrder Acquisition

On December 21, 2018, we completed the acquisition of QuikOrder, LLC, an online ordering software and service provider for the restaurant
industry (“QuikOrder”), who has been a provider of services to Company and franchise restaurants of our Pizza Hut U.S. business for nearly two
decades. The purchase price to be allocated for accounting purposes of $77 million consisted of cash, net of cash acquired, in the amount of
$66 million, settlement of a prepaid asset of $6 million related to our preexisting contractual relationship with QuikOrder and contingent
consideration of $5 million. The acquisition is part of our strategy to deliver an easy and personalized online ordering experience and accelerate
digital
innovation. The financial results of QuikOrder have been included in our Consolidated Financial Statements since the date of the
acquisition but did not significantly impact our results for the year ended December 31, 2018. Subsequent to the acquisition, fees paid by
franchisees for use of the QuikOrder software are being presented within Franchise contributions for advertising and other services. Associated
costs we incur are being primarily presented within Franchise advertising and other services expense.

The primary assets recorded as a result of the preliminary purchase price allocation were goodwill of $39 million and amortizable intangible
assets (primarily software) of $33 million. The goodwill recorded resulted from increased synergies expected to be achieved through leveraging
our scale and resources to enhance the services previously offered by QuikOrder. The goodwill amortization is deductible for tax purposes and
has been allocated to the Pizza Hut U.S. reporting unit.

56 YUM! BRANDS, INC. - 2018 Form 10-K

PART II
ITEM 8 Financial Statements and Supplementary Data

The pro forma impact on our results of operations if the acquisition had been completed as of the beginning of 2017 would not have been
significant. The direct transaction costs associated with the acquisition were also not material and were expensed as incurred.

Tax Cuts and Jobs Act of 2017 (“Tax Act”)

We recognized $434 million in our Income tax provision for the year ended December 31, 2017 as a result of the December 22, 2017 enactment
of the Tax Act. During the year ended December 31, 2018, we recorded a $35 million decrease related to our provisional tax expense recorded
in the fourth quarter of 2017 associated with the Tax Act. See Note 17.

Refranchising (Gain) Loss
The Refranchising (gain) loss by reportable segment is presented below. Given the size and volatility of recent refranchising initiatives, our chief
operating decision maker (“CODM”) does not consider the impact of Refranchising (gain) loss when assessing segment performance. As such,
we do not allocate such gains and losses to our segments for performance reporting purposes.

During the years ended December 31, 2018, 2017 and 2016, we refranchised 660, 1,470 and 432 restaurants, respectively. We received
$825 million, $1,773 million and $370 million in pre-tax proceeds in 2018, 2017 and 2016, respectively, related to these transactions.

A summary of Refranchising (gain) loss is as follows:

KFC Division

Pizza Hut Division

Taco Bell Division

Worldwide

Refranchising (gain) loss

2018

2017

2016

$ (240)

$

(581)

$

13

(313)

(16)

(486)

(44)

(48)

(71)

$ (540)

$ (1,083)

$ (163)

As a result of classifying restaurant and related assets as held-for-sale and ceasing depreciation expense as well as recording any related
write-downs to fair value, depreciation expense was reduced versus what would have otherwise been recorded by $3 million and $10 million
during the years ended December 31, 2018 and 2017, respectively. Our CODM does not consider the impact of these depreciation reductions,
which were recorded within Company restaurant expenses when assessing segment performance. These depreciation reductions were not
allocated to the Division segments resulting in depreciation expense continuing to be recorded within our Divisional results at the rate at which it
was prior to the held-for-sale classification.

features of

YUM’s Strategic Transformation Initiatives
In October 2016, we announced our strategic transformation plans
to drive global expansion of the KFC, Pizza Hut and Taco Bell brands
(“YUM’s Strategic Transformation Initiatives”)
following the then
anticipated separation of our China business on October 31, 2016.
Major
the Company’s strategic transformation plans
involve being more focused on the development of our three brands,
increasing our franchise ownership and creating a leaner, more
efficient cost structure. We incurred pre-tax costs of $8 million,
$23 million and $67 million related to our Strategic Transformation
Initiatives in 2018, 2017 and 2016, respectively, primarily recorded in
G&A. In 2018 and 2017, these costs included contract termination
costs and relocation and severance costs for restaurant-support
center employees. In 2016, these costs included restaurant-support
center employee severance costs, charges associated with a
restaurant-
voluntary retirement program offered to certain U.S.
support center employees, consulting costs incurred to facilitate
YUM’s Strategic Transformation Initiatives and losses associated with
our sale of Corporate aircraft upon our decision to no longer own
aircraft. Due to the scope of
the initiatives as well as their
significance, our CODM does not consider the associated cost when
assessing segment performance. As such, these costs are not being
allocated to any of our segment operating results for performance
reporting purposes.

Modifications of Share-based
Compensation Awards
In connection with the Separation, we modified certain share-based
compensation awards held as part of our Executive Income Deferral

(“EID”) Plan in phantom shares of YUM Common Stock to provide
one phantom Yum China share-based award for each outstanding
phantom YUM share-based award. Through October 31, 2018,
these Yum China awards could be settled in cash, as opposed to
stock, which requires recognition of the fair value of these awards
within G&A in our Consolidated Income Statement. During 2018,
2017 and 2016, we recorded pre-tax credits of $3 million, charges of
$18 million and charges of $30 million, respectively, related to these
awards due to changes in the market price of Yum China’s common
stock. Given these adjustments were a direct
the
Separation, our CODM did not consider their impact when assessing
segment performance. As such,
these amounts were not being
allocated to any of our segment operating results.

result of

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As of October 31, 2018, deferrals in phantom shares of Yum China
common stock are no longer an investment option within our EID
Plan and any balances relating to these shares were moved to
another available EID Plan investment option as selected by the
participants. Amounts directed into cash or phantom shares of a
Stock Index Fund or a Bond Index Fund remained classified as a
liability and any appreciation or depreciation in these investments
from the transfer date forward will be recognized as compensation
expense and included in our segment operating results consistent
with existing investments in these funds. Any balances directed into
phantom shares of YUM Common Stock were reclassified to
Common Stock on our Consolidated Balance Sheet. We do not
recognize
or
expense
the
investments in phantom shares of our
depreciation,
Common Stock. See Note 15 for further description of our EID Plan.

compensation
if any, of

appreciation

for

YUM! BRANDS, INC. - 2018 Form 10-K 57

PART II
ITEM 8 Financial Statements and Supplementary Data

Pizza Hut U.S. Transformation Agreement
In May 2017, we reached an agreement with Pizza Hut U.S.
franchisees that will
improve brand marketing alignment, accelerate
enhancements in operations and technology and that includes a
permanent franchisee commitment to incremental advertising as well
as digital and technology contributions
(the “Transformation
Agreement”). In connection with the Transformation Agreement we
anticipate investing approximately $90 million from 2017 to 2019 to
to improve operations,
upgrade
fund
improvements in restaurant
technology and enhance digital and
e-commerce capabilities.

restaurant equipment

We invested $39 million related to the Transformation Agreement in
2017, which included $8 million of investments that we capitalized
and $31 million that was expensed primarily as Franchise and
property expenses or G&A. The $31 million expense amount
included $5 million of
franchisee incentive payments that under
Legacy GAAP were expensed as incurred, but that upon adoption of
Topic 606 in 2018 were capitalized.
In 2018, both amounts
capitalized upon adoption of Topic 606 and franchisee incentive
payments capitalized thereafter are being amortized as a reduction to
Franchise and property revenues over the period of expected cash
flows from the franchise agreements to which the payments relate.

We invested $25 million in the year ended December 31, 2018
related to the Transformation Agreement, primarily consisting of
investments and franchisee incentive payments that were
capital
capitalized.

Due to their unique and long-term brand-building nature as well as
the
their non-recurring impact on Pizza Hut’s Division results,
financial
the
impact of operating investments that are part of
Transformation Agreement are not being considered by our CODM
when assessing segment performance in 2017 or 2018. For the
same reasons,
franchisee incentive payments in 2017 that were
expensed as incurred under Legacy GAAP were not considered in
assessing segment performance in 2017. As such, these amounts
were not allocated to the Pizza Hut Division operating segment
results for performance reporting purposes. Depreciation on capital
investments made as part of the Transformation Agreement is being
allocated to Pizza Hut segment results as the expense is recurring
and is not expected to significantly impact
the comparability of
results in any given period. For the same reasons, the amortization
related to franchisee incentive payments that were capitalized upon
the adoption of Topic 606 and amortization related to franchisee
incentive payments that are being capitalized going forward are
being allocated to Pizza Hut Division operating segment results
starting in 2018.

In addition to the investments above, we agreed to fund $37.5 million
of incremental system advertising dollars from the second half of
2017 through 2018. During the year ended December 31, 2018, we

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incurred $12.5 million in related incremental system advertising
expense,
fulfilling our advertising spend obligation. We funded
approximately $25 million of such advertising during 2017, which
was expensed in the third and fourth quarters of 2017. These
advertising amounts were recorded primarily in Franchise and
property expenses and are included in Pizza Hut’s segment
operating results.

KFC U.S. Acceleration Agreement
During 2015, we reached an agreement with our KFC U.S.
franchisees that gave us brand marketing control as well as an
accelerated path to expanded menu offerings, improved assets and
enhanced customer experience. In connection with this agreement
we are investing approximately $130 million from 2015 through 2019
primarily to fund new back-of-house equipment for franchisees and
to provide incentives to accelerate franchisee store remodels. Under
Legacy GAAP these amounts were expensed as incurred including
$17 million and $26 million during the years ended December 31,
2017 and 2016, respectively. We recorded total pre-tax charges for
such amounts of $115 million, primarily as Franchise and property
expenses, during the three year period ended December 31,
2017. Due to their size and unique and long-term brand building
nature, as well as their non-recurring impact on KFC Division’s
results when expensed upfront, our CODM did not consider the
impact of these investments when assessing segment performance
from 2015 through 2017. As such, prior to 2018 the investments
were not allocated to the KFC Division segment operating results for
performance reporting purposes.

Upon adoption of Topic 606 in 2018, approximately $100 million of
these incentives paid to franchisees from 2015 through 2017 were
capitalized, which was net of amortization of $19 million. These
capitalized amounts are now being amortized as a reduction to
Franchise and property revenues over the period of expected cash
flows from the franchise agreements to which the payment
relates. Amortization related to both franchise incentive payments
that were capitalized upon the adoption of Topic 606 and franchise
incentive payments that will be capitalized going forward will be
allocated to KFC segment operating results as the expense is
recurring and is not expected to significantly impact the comparability
of results in any given period.

In addition to the investments above, we agreed to fund $60 million
of incremental system advertising from 2015 through 2018. During
the years ended December 31, 2018, 2017 and 2016, we incurred
$10 million, $20 million and $20 million, respectively, in incremental
system advertising expense. As $10 million in incremental system
advertising expense was incurred in 2015, we have now fulfilled our
advertising spend obligation. These advertising amounts were
recorded primarily in Franchise and property expenses and were
included in the KFC Division segment operating results.

58 YUM! BRANDS, INC. - 2018 Form 10-K

PART II
ITEM 8 Financial Statements and Supplementary Data

Impact of Adopting New Revenue Recognition Standards
As discussed in Note 2, we adopted Topic 606 at the beginning of the year ended December 31, 2018, using the modified retrospective
method. Topic 606 was applied to all contracts with customers as of January 1, 2018 and the cumulative effective of this transition was
recorded as an adjustment to Accumulated deficit as of this date. As a result, the following adjustments were made to the Consolidated Balance
Sheet as of January 1, 2018:

Consolidated Balance Sheet

ASSETS

Current Assets

Cash and cash equivalents

Accounts and notes receivable, net

Prepaid expenses and other current assets

Advertising cooperative assets, restricted

Total Current Assets

Property, plant and equipment, net

Goodwill

Intangible assets, net

Other assets

Deferred income taxes

Total Assets

LIABILITIES AND SHAREHOLDERS’ DEFICIT

Current Liabilities

As
Reported

12/31/2017 Adjustments

Balances with
Adoption of
Topic 606
1/1/2018

$

1,522

$

400

384

201

2,507

1,594

512

214

345

139

11

112

76(a)

(201)

(2)

2

—

9

118

26

$

1,533

512

460

—

2,505

1,596

512

223

463

165

$

5,311

$

153

$

5,464

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

Shareholders’ Deficit

Accumulated deficit

Accumulated other comprehensive loss

Total Shareholders’ Deficit

813

123

375

201

1,512

9,429

704

11,645

(6,063)

(271)

(6,334)

$

220

$

1,033

—

—

(201)

19

—

353

372

(240)

21

(219)

123

375

—

1,531

9,429

1,057

12,017

(6,303)

(250)

(6,553)

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Total Liabilities and Shareholders’ Deficit

$

5,311

$

153

$

5,464

(a)

Includes $58 million of restricted cash related to advertising cooperatives. These balances can only be used to settle obligations of the respective
cooperatives.

We recorded an increase in Accounts payable and other current liabilities and Other liabilities and deferred credits of $57 million and
$335 million, respectively, as part of our cumulative adjustment related to unamortized upfront franchise fees, with a corresponding $392 million
increase in Accumulated deficit. We recorded increases in Prepaid expenses and other current assets and Other assets of $18 million and
$118 million, respectively, as part of our cumulative adjustment related to unamortized franchise incentives, with a corresponding $136 million
decrease in Accumulated deficit.

Deferred income taxes increased $26 million as a result of recording the tax effects of the two adjustments noted above, with a corresponding
decrease to Accumulated deficit. Accumulated other comprehensive loss decreased $21 million as a result of recognizing the impact of foreign
currency translation related to the three adjustments noted above, with a corresponding increase in Accumulated deficit.

YUM! BRANDS, INC. - 2018 Form 10-K 59

PART II
ITEM 8 Financial Statements and Supplementary Data

The remaining adjustments to our December 31, 2017 Consolidated Balance Sheet are primarily a result of reclassifying the assets and liabilities
of our consolidated advertising cooperates from Advertising cooperative assets, restricted and Advertising cooperative liabilities to the respective
balance sheet caption to which the assets and liabilities relate.

The following tables reflect the impact of the adoption of Topic 606 on our Consolidated Statement of Income for the year ended December 31,
2018 and our Consolidated Balance Sheet as of December 31, 2018.

Consolidated Statement of Income

Revenues

Company sales

Franchise and property revenues

Franchise contributions for advertising and other services

Total revenues

Costs and Expenses, Net

Company restaurant expenses

General and administrative expenses

Franchise and property expenses

Franchise advertising and other services expense

Refranchising (gain) loss

Other (income) expense

Total costs and expenses, net

Operating Profit

Investment (income) expense, net

Other pension (income) expense

Interest expense, net

Income from continuing operations before income taxes

Income tax provision (benefit)

Net Income

Basic Earnings Per Common Share

Diluted Earnings Per Common Share

Year ended 12/31/2018

As
Reported

Impact

Balances under
Legacy GAAP

$

2,000

$

2,482

1,206

5,688

1,634

895

188

1,208

(540)

7

3,392

2,296

(9)

14

452

1,839

297

1,542

4.80

4.69

$

$

$

$

$

$

—

43

(1,206)

(1,163)

—

—

27

(1,208)

4

—

(1,177)

14(a)

—

—

—

14

3

11

0.03

0.03

$

2,000

2,525

—

4,525

1,634

895

215

—

(536)

7

2,215

2,310

(9)

14

452

1,853

300

1,553

4.83

4.72

$

$

$

(a)

Includes $23 million of franchise incentive payments made to or on behalf of franchisees during 2018 that under Legacy GAAP would have been
in 2018. Due to the size and nature of such payments, we historically would not have allocated their impact to our
recognized as expense in full
Divisional results. Upon the adoption of Topic 606, these payments have been capitalized as assets.

Upon the adoption of Topic 606, the timing and amount of revenue recognized for upfront franchise fees and franchise incentives changed from
upfront recognition under Legacy GAAP to recognition over the term of the franchise agreement to which the fees and incentives relate. Also,
under Legacy GAAP, amounts reported as Franchise contributions for advertising and other services and Franchise advertising and other
services expense were presented on a net basis. Upon the adoption of Topic 606, these amounts require gross presentation in our
Consolidated Statements of Income. Lastly, Legacy GAAP required that certain value-added taxes withheld and remitted on our behalf by our
franchisees be reported as revenue and corresponding expense in our Consolidated Statements of Income. Upon adoption of Topic 606, these
taxes are reported on a net basis as a reduction in Franchise and property revenues.

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60 YUM! BRANDS, INC. - 2018 Form 10-K

Consolidated Balance Sheet

ASSETS

Current Assets

Cash and cash equivalents

Accounts and notes receivable, net

Prepaid expenses and other current assets

Advertising cooperative assets, restricted

Total Current Assets

Property, plant and equipment, net

Goodwill

Intangible assets, net

Other assets

Deferred income taxes

Total Assets

LIABILITIES AND SHAREHOLDERS’ DEFICIT

Current Liabilities

PART II
ITEM 8 Financial Statements and Supplementary Data

As
Reported
12/31/2018

Balances under
Legacy GAAP
12/31/2018

Impact

$

292

561

354

—

1,207

1,237

525

242

724

195

$

(13)

$

(120)

(107)

241

1

(2)

—

(16)

(127)

(25)

279

441

247

241

1,208

1,235

525

226

597

170

$

4,130

$ (169)

$

3,961

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

Shareholders’ Deficit

Accumulated deficit

Accumulated other comprehensive loss

Total Shareholders’ Deficit

911

69

321

—

1,301

9,751

1,004

12,056

(7,592)

(334)

(7,926)

$ (287)

$

—

—

241

(46)

—

(354)

(400)

251

(20)

231

624

69

321

241

1,255

9,751

650

11,656

(7,341)

(354)

(7,695)

Total Liabilities and Shareholders’ Deficit

$

4,130

$ (169)

$

3,961

The significant impacts resulting from the adoption of Topic 606 on our Consolidated Balance Sheet as of December 31, 2018, are consistent
with those recorded as of January 1, 2018 as described previously.

Under Legacy GAAP, Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents pertaining to advertising cooperatives that we
were required to consolidate were classified within Advertising cooperative assets, restricted. Upon adoption of Topic 606, these amounts are
reflected on our Consolidated Balance Sheet and changes in these balances are reported within our Consolidated Statement of Cash Flows.

Investment in Grubhub
On February 7, 2018, certain of our subsidiaries entered into a master services agreement with a subsidiary of Grubhub, the leading online and
mobile takeout food-ordering company in the U.S., which is intended to provide dedicated support for the KFC and Taco Bell branded online
delivery channels in the U.S. through Grubhub’s online ordering platform, logistics and last-mile support for delivery orders, as well as
point-of-sale integration to streamline operations. Concurrently with the master services agreement, one of our subsidiaries entered into an
investment agreement with Grubhub to invest $200 million in exchange for approximately 2.8 million shares of Grubhub common stock. In April
2018, all necessary regulatory approvals were obtained and the purchase of Grubhub shares was consummated. Shares acquired as part of this
purchase are restricted from being transferred until the earlier of the two-year anniversary of closing the investment agreement or 30 days
following the termination of our master services agreement with Grubhub. In the year ended December 31, 2018 we recognized pre-tax income
of $14 million, which includes the appreciation in the market price of Grubhub common stock less valuation adjustments related to the transfer
restrictions. Changes in the fair value of our investment in Grubhub common stock are presented as Investment (income) expense, net within our
Consolidated Statements of Income.

YUM! BRANDS, INC. - 2018 Form 10-K 61

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PART II
ITEM 8 Financial Statements and Supplementary Data

Items Impacting Other Pension (Income) Expense
During the first quarter of 2017, as a result of the completion of a pension data review and reconciliation, we recorded a non-cash, out-of-year
charge of $22 million to Other pension (income) expense to adjust our historical U.S. pension liability related to our deferred vested participants.
Our CODM does not consider the impact of this charge when assessing segment performance given the number of years over which it
accumulated. As such, this cost is not being allocated to any of our segment operating results for performance reporting purposes. See Note 14
for further discussion of our pension plans.

During the fourth quarter of 2016, the Company allowed certain former employees with deferred vested balances in the YUM Retirement Plan
(“the Plan”) an opportunity to voluntarily elect an early payout of their pension benefits. As a result of settlement payments made of
approximately $205 million related to this program, all of which were funded from existing Plan assets, we recorded a settlement charge of
$24 million to Other pension (income) expense. Due to the size and non-recurring nature of the program, our CODM does not consider the
impact of these charges when assessing performance so they were not allocated to any of our segment operating results for performance
reporting purposes.

Impact of Change in Reporting Calendar
As discussed in Note 2, we have changed our fiscal year from a year ending on the last Saturday of December to a year beginning on January 1
and ending on December 31 of each year commencing with the year ending December 31, 2017. We also removed the monthly or period
reporting lags certain of our international subsidiaries historically used to report results. The impacts on our Consolidated Financial Statements of
retrospectively applying these changes are included below:

Total revenues

Operating Profit

Income from continuing operations

Income from discontinued operations, net of tax

Net Income

Diluted EPS from continuing operations

Diluted EPS from discontinued operations

Diluted EPS

2016

As
Previously
Reported Adjustments

After Change in
Reporting Calendar

$

$

$

$

6,366

1,625

994

625

1,619

2.48

1.56

4.04

$

$

$

$

(10)

25(a)

24

—

24

0.06

—

0.06

$

6,356

1,650(b)

1,018

625

1,643

2.54

1.56

4.10

$

$

$

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(a) Primarily represents gains of $24 million related to the refranchising of certain international restaurants which occurred in December 2016.
(b) Amount does not reconcile to our Consolidated Statements of Income for the year ended December 31, 2016 due to the impact of retrospectively

adopting a new accounting standard on Benefit Costs of $32 million.

In 2016, the impact on our Consolidated Statement of Cash Flows was a decrease in cash provided by operating activities of $39 million, a
decrease in cash used in investing activities of $20 million and a decrease in cash used in financing activities of $16 million.

NOTE 6

Supplemental Cash Flow Data

Cash Paid For:

Interest

Income taxes

Significant Non-Cash Investing and Financing Activities:

Capital lease obligations incurred

Capital lease and other debt obligations transferred through refranchising

Reconciliation of Cash and cash equivalents to Consolidated Statements of Cash Flows:

2018

2017

2016

$

455

$

442

$

279

346

$

4

$

8

$

(24)

(35)

297

314

10

(1)

Cash and cash equivalents as presented in Consolidated Balance Sheets

$

292

$

1,522

$

725

Restricted cash included in Prepaid expenses and other current assets(a)

Restricted cash and restricted cash equivalents included in Other assets(b)

151

31

60

17

55

51

Cash, Cash Equivalents and Restricted Cash as presented in Consolidated Statements of Cash Flows(c) $

474

$

1,599

$

831

(a) Restricted cash within Prepaid expenses and other current assets reflects the cash related to advertising cooperatives that we consolidate that can

only be used to settle obligations of the respective cooperatives and Taco Bell Securitization interest reserves. See Note 10.

62 YUM! BRANDS, INC. - 2018 Form 10-K

PART II
ITEM 8 Financial Statements and Supplementary Data

(b) Primarily trust accounts related to our self-insurance program. 2016 also includes cash balances required, to the extent necessary, to meet statutory

minimum net worth requirements for legal entities which enter into U.S. franchise agreements.

(c) Upon adoption of Topic 606 we reclassified cash of $11 million and restricted cash of $58 million, respectively, from Advertising cooperative assets,
restricted to Cash and cash equivalents and Prepaid expenses and other current assets. These amounts are included in the Beginning of Period
balance of Cash, Cash Equivalents, Restricted Cash and Restricted Cash equivalents in our Consolidated Statement of Cash Flows for the year
ended December 31, 2018.

NOTE 7 Other (Income) Expense

Foreign exchange net (gain) loss and other

Loss associated with corporate aircraft(a)

Closure and impairment expense

Other (income) expense

2018

2017

2016

$ 1

$

—

6

5

2

3

$

(6)

9

15

$ 7

$ 10

$ 18

(a) During 2016, we made the decision to no longer operate a corporate aircraft fleet and offered our owned aircraft for sale, one of which was sold
during 2016 and one that was sold in 2017. The losses associated with these sales reflect the shortfall of the proceeds, including estimated
proceeds in held-for-sale impairment evaluations, less any selling costs, over the carrying value of the aircraft.

NOTE 8

Supplemental Balance Sheet Information

Prepaid Expenses and Other Current Assets

Income tax receivable

Restricted cash(a)

Assets held for sale(b)

Other prepaid expenses and current assets

Prepaid expenses and other current assets

Property, Plant and Equipment

Land

Buildings and improvements

Capital leases, primarily buildings

Machinery and equipment

Property, plant and equipment, gross

Accumulated depreciation and amortization

Property, plant and equipment, net

2018

2017

$

36

$

175

151

24

143

60

37

112

$

354

$

384

2018

2017

$

422

$

452

1,349

1,661

59

523

123

700

2,353

2,936

(1,116)

(1,342)

$ 1,237

$ 1,594

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Depreciation and amortization expense related to PP&E was $146 million, $215 million and $276 million in 2018, 2017 and 2016, respectively.

Other Assets

Investment in Grubhub common stock(c)

Franchise incentives(a)

Other

Other assets

Accounts Payable and Other Current Liabilities

Accounts payable(a)

Accrued compensation and benefits

Accrued advertising(a)

Accrued taxes, other than income taxes

Other current liabilities

Accounts payable and other current liabilities

2018

2017

$

214

$

141

369

—

—

345

$

724

$

345

2018

2017

$

202

$

206

108

48

347

119

252

9

90

343

$

911

$

813

(a)

Increase from 2017 primarily due to the adoption of Topic 606 beginning with the year ended December 31, 2018. See Note 2.

YUM! BRANDS, INC. - 2018 Form 10-K 63

PART II
ITEM 8 Financial Statements and Supplementary Data

(b) Reflects the carrying value of restaurants we have offered for sale to franchisees and excess properties that we do not intend to use for restaurant

operations in the future.

(c) Refer to Note 5 for additional discussion regarding our investment in Grubhub.

NOTE 9 Goodwill and Intangible Assets

The changes in the carrying amount of goodwill are as follows:

Goodwill, net as of December 31, 2016(a)

Disposals and other, net(b)

Goodwill, net as of December 31, 2017(a)

Disposal and other, net(b)

QuikOrder acquisition (See Note 5)

Goodwill, net as of December 31, 2018(a)

KFC Pizza Hut

Taco Bell Worldwide

$

268

$

157

$

111

$

536

(21)

247

(17)

—

5

162

(5)

39

$

230

$

196

$

(8)

103

(4)

—

99

(24)

512

(26)

39

$

525

(a) Goodwill, net includes $17 million of accumulated impairment losses for each year presented related to our Pizza Hut segment.
(b) Disposals and other, net

foreign currency translation on existing balances and goodwill write-offs associated with

includes the impact of

refranchising.

Intangible assets, net for the years ended 2018 and 2017 are as follows:

Definite-lived intangible assets

Capitalized software costs

Reacquired franchise rights

Franchise contract rights

Lease tenancy rights

Other

Indefinite-lived intangible assets

KFC trademark

2018

2017

Gross Carrying
Amount

Accumulated
Amortization

Gross Carrying
Amount

Accumulated
Amortization

$

319

$

(156)

$

243

$

(139)

37

99

11

38

(30)

(79)

(1)

(27)

$

$

504

$

(293)

31

60

100

32

37

472

31

$

$

(42)

(77)

(6)

(25)

$

(289)

Amortization expense for all definite-lived intangible assets was $37 million in 2018, $33 million in 2017 and $31 million in 2016. Amortization
expense for definite-lived intangible assets is expected to approximate $47 million in 2019, $44 million in 2020, $34 million in 2021, $19 million in
2022 and $16 million in 2023.

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NOTE 10

Short-term Borrowings and Long-term Debt

PART II
ITEM 8 Financial Statements and Supplementary Data

Short-term Borrowings

Current maturities of long-term debt

Less current portion of debt issuance costs and discounts

Short-term borrowings

Long-term Debt

Securitization Notes

Subsidiary Senior Unsecured Notes

Term Loan A Facility

Term Loan B Facility

YUM Senior Unsecured Notes

Capital lease obligations (See Note 11)

Less debt issuance costs and discounts

Less current maturities of long-term debt

Long-term debt

2018

2017

331

$

(10)

321

$

386

(11)

375

2,928

$

2,271

$

$

$

2,850

488

1,955

1,875

71

2,850

500

1,975

2,200

105

$

10,167

$

9,901

(85)

(331)

(86)

(386)

$

9,751

$

9,429

Securitization Notes
On May 11, 2016, Taco Bell Funding, LLC (the “Issuer”), a newly
formed, special purpose limited liability company and a direct,
wholly-owned subsidiary of Taco Bell Corp. (“TBC”) completed a
securitization transaction and issued $800 million of its Series 2016-1
3.832% Fixed Rate Senior Secured Notes, Class A-2-I (the “2016
Class A-2-I Notes”), $500 million of its Series 2016-1 4.377% Fixed
Rate Senior Secured Notes, Class A-2-II
(the “2016 Class A-2-II
its Series 2016-1 4.970% Fixed Rate
Notes”) and $1.0 billion of
Senior Secured Notes, Class A-2-III (the “2016 Class A-2-III Notes”
and,
together with the 2016 Class A-2-I Notes and the 2016
Class A-2-II Notes, the “2016 Class A-2 Notes”). In connection with
the issuance of the 2016 Class A-2 Notes, the Issuer also entered
into a revolving financing facility of Series 2016-1 Senior Notes,
Class A-1 (the “Variable Funding Notes”), which allowed for the
borrowing of up to $100 million and the issuance of up to $50 million
in letters of credit. The 2016 Class A-2 Notes were issued under a
Base Indenture, dated as of May 11, 2016 (the “Base Indenture”),
and the related Series 2016-1 Supplement thereto, dated as of
May 11, 2016 (the “Series 2016-1 Supplement”). The Base Indenture
and the Series 2016-1 Supplement
the “Indenture”)
allow the Issuer to issue additional series of notes. On October 16,
2017, the Issuer terminated the Variable Funding Notes.

(collectively,

the Issuer completed a refinancing
On November 28, 2018,
transaction and issued $825 million of
its Series 2018-1 4.318%
Fixed Rate Senior Secured Notes, Class A-2-I (the “2018 Class A-2-I
Notes”) and $625 million of its Series 2018- 1 4.940% Fixed Rate
Senior Secured Notes, Class A-2-II (the “2018 Class A-2-II Notes”
and, together with the Series 2018-1 Class A-2-I Notes, the “2018
Class A-2 Notes”). The net proceeds from the issuance of the 2018
Class A-2 Notes were used to repay in full the 2016 Class A-2-I
Notes, to repay $273 million of borrowings that were outstanding
under the Revolving Facility (see below) and for general corporate
purposes,
return to shareholders. The 2016
Class A-2 Notes and the 2018 Class A-2 Notes are referred to
collectively as the “Securitization Notes”.

including capital

The Securitization Notes were issued in a transaction pursuant to
which certain of TBC’s domestic assets, consisting principally of

the “Securitization Entities”)

franchise-related agreements and domestic intellectual property,
were contributed to the Issuer and the Issuer’s special purpose,
wholly-owned subsidiaries (the “Guarantors”, and collectively with the
to secure the Securitization
Issuer,
Notes. The Securitization Notes are secured by substantially all of the
assets of the Securitization Entities, and include a lien on all existing
and future U.S. Taco Bell franchise and license agreements and the
royalties payable thereunder, existing and future U.S. Taco Bell
intellectual property, certain transaction accounts and a pledge of the
equity interests in asset-owning Securitization Entities. The remaining
U.S. Taco Bell assets that were excluded from the transfers to the
Securitization Entities continue to be held by Taco Bell of America,
LLC, a limited liability company (“TBA”) and TBC. The Securitization
Notes are not guaranteed by the remaining U.S. Taco Bell assets,
the Company, or any other subsidiary of the Company.

restaurants,

Payments of interest and principal on the Securitization Notes are
made from the royalty fees paid pursuant to the franchise and license
agreements with all U.S. Taco Bell
including both
company and franchise operated restaurants.
Interest on and
principal payments of the Securitization Notes are due on a quarterly
basis. In general, no amortization of principal of the Securitization
Notes is required prior to their anticipated repayment dates unless as
of any quarterly measurement date the consolidated leverage ratio
(the ratio of total debt to Net Cash Flow (as defined in the Indenture))
for the preceding four fiscal quarters of either the Company and its
subsidiaries or the Issuer and its subsidiaries exceeds 5.0:1, in which
case amortization payments of 1% per year of
the outstanding
principal as of the closing of the Securitization Notes is required. As
of the most recent quarterly measurement date the consolidated
leverage ratio exceeded 5.0:1 and, as a result, amortization
payments are required. The legal final maturity dates of the 2016
Class A-2 Notes and the 2018 Class A-2 Notes are May 2046 and
November 2048, respectively. However, the anticipated repayment
dates of the the 2016 Class A-2-II Notes, the 2016 Class A-2-III
Notes, the 2018 Class A-2-I Notes and the 2018 Class A-2-II Notes
are 7, 10, 5 and 10 years (the “Anticipated Repayment Dates”),
respectively, from the date of issuance. If the Issuer has not repaid or
refinanced a series of Securitization Notes prior to its respective
Anticipated Repayment Dates, rapid amortization of principal on all

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PART II
ITEM 8 Financial Statements and Supplementary Data

Securitization Notes will occur and additional
the Securitization Notes, as stated in the Indenture.

interest will accrue on

The Company paid debt
issuance costs of $13 million and
$31 million in connection with the 2018 and 2016 issuances of the
Securitization Notes, respectively. The debt issuance costs are being
through the Anticipated
amortized to Interest expense, net
Repayment Dates of the Securitization Notes utilizing the effective
interest rate method. As of December 31, 2018, the effective interest
rates, including the amortization of debt issuance costs, were 4.59%,
5.14%, 4.53% and 5.06% for the 2016 Class A-2-II Notes, 2016
Class A-2-III Notes, 2018 Class A-2-I Notes and 2018 Class A-2-II
Notes, respectively. During 2018 and 2017, $4 million and $2 million,
respectively, of unamortized debt issuance costs were recognized
within Interest expense, net due to the extinguishment of the 2016
Class A-2-I Notes and the termination of the Variable Funding Notes.

The Securitization Notes are subject to a series of covenants and
restrictions customary for transactions of this type, including (i) that
the Issuer maintains specified reserve accounts to be available to
make required interest payments in respect of the Securitization
Notes, (ii) provisions relating to optional and mandatory prepayments
and the related payment of specified amounts, including specified
make-whole payments in the case of the Seuritization Notes under
certain circumstances, (iii) certain indemnification payments relating
to taxes, enforcement costs and other customary items and
(iv) covenants relating to recordkeeping, access to information and
similar matters. The Securitization Notes are also subject to rapid
amortization events provided for in the Indenture, including events
tied to failure to maintain a stated debt service coverage ratio (as
defined in the Indenture) of at least 1.1:1, gross domestic sales for
branded restaurants being below certain levels on certain
termination event, an event of
measurement dates, a manager
default and the failure to repay or refinance the Securitization Notes
on the Anticipated Repayment Date (subject to limited cure rights).
The Securitization Notes are also subject to certain customary events
of default,
including events relating to non-payment of required
interest or principal due on the Securitization Notes, failure to comply
with covenants within certain time frames, certain bankruptcy events,
breaches of specified representations and warranties,
failure of
security interests to be effective, certain judgments and failure of the
Securitization Entities to maintain a stated debt service coverage
ratio. As of December 31, 2018, we were in compliance with all of
our debt covenant requirements and were not subject to any rapid
amortization events.

In accordance with the Indenture, certain cash accounts have been
established with the Indenture trustee for the benefit of the note
holders, and are restricted in their use. The Indenture requires a
certain amount of securitization cash flow collections to be allocated
on a weekly basis and maintained in a cash reserve account. As of
December 31, 2018, the Company had restricted cash of $82 million
primarily related to required interest reserves included in Prepaid
expenses and other current assets on the Consolidated Balance
Sheets. Once the required obligations are satisfied, there are no
further restrictions, including payment of dividends, on the cash flows
of the Securitization Entities.

Additional cash reserves are required if any of the rapid amortization
events occur, as noted above, or in the event that as of any quarterly
measurement date the Securitization Entities fail to maintain a debt
service coverage ratio (or the ratio of Net Cash Flow to all debt
service payments for the preceding four fiscal quarters) of at least
1.75:1. The amount of weekly securitization cash flow collections that
exceed the required weekly allocations is generally remitted to the
the
Company. During the quarter ended December 31, 2018,
Securitization Entities maintained a debt service coverage ratio
significantly in excess of the 1.75:1 requirement.

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66 YUM! BRANDS, INC. - 2018 Form 10-K

Credit Facilities and Subsidiary Senior
Unsecured Notes
On June 16, 2016, KFC Holding Co., Pizza Hut Holdings, LLC, a
limited liability company, and TBA, each of which is a wholly-owned
the Company, as co-borrowers (the “Borrowers”),
subsidiary of
entered into a credit agreement providing for senior secured credit
facilities consisting of a $500 million Term Loan A facility (the “Term
Loan A Facility”), a $2.0 billion Term Loan B facility (the “Term Loan B
Facility”) and a $1.0 billion revolving facility (the “Revolving Facility”),
each of which may be increased subject to certain conditions. The
Term Loan A Facility, the Term Loan B Facility, and the Revolving
Facility are collectively referred to as the “Credit Agreement”. There
are no outstanding borrowings under the Revolving Facility and
$7 million of letters of credit outstanding as of December 31, 2018.

to quarterly
The Term Loan A Facility was originally subject
amortization payments beginning one full fiscal quarter after the first
anniversary of the closing date, in an amount equal to 1.25% of the
initial principal amount of the facility, in each of the second and third
years of the facility; in an amount equal to 1.875% of the initial
principal amount of the facility, in the fourth year of the facility; and in
an amount equal to 3.75% of the initial principal amount of the
facility, in the fifth year of the facility, with the balance payable at
maturity on the fifth anniversary of the closing date. Subsequently,
this amortization schedule was delayed by approximately one year
and the maturity date was extended to June 7, 2022 as a result of
the Term Loan A repricing in 2017 (see below). The Term Loan B
Facility is subject to quarterly amortization payments in an amount
equal to 0.25% of the initial principal amount of the facility, with the
balance payable at maturity on the seventh anniversary of the closing
date.

On March 21, 2017, the Borrowers completed the repricing of the
then existing $1.99 billion under the Term Loan B Facility pursuant to
an amendment to the Credit Agreement. The amendment reduces
the interest rate applicable to the Term Loan B Facility by 75 basis
the
points to LIBOR plus 2.00% or Base Rate plus1.00%, at
Borrower’s election, with an additional rate stepdown to LIBOR
plus 1.75% or Base Rate plus 0.75% in the event the secured net
leverage ratio (as defined in the Credit Agreement) is less than 1 to 1.
As a result of repricing the Term Loan B Facility, $192 million in
principal was assigned to new lenders or existing lenders electing to
increase their holdings in the loan. The maturity date and all other
material provisions under the Credit Agreement remained unchanged
as a result of this amendment.

reduced the interest

On June 7, 2017, the Borrowers completed the repricing of the
the Term Loan A Facility and $1
existing $500 million under
billion under the Revolving Facility pursuant to an amendment to the
Credit Agreement. The amendment
rate
applicable to the Term Loan A Facility and for borrowings under the
Revolving Facility by 75 basis points. Subsequent to the repricing the
rate ranges from 1.25% to 1.75% plus LIBOR or
interest
from 0.25% to 0.75% plus the Base Rate, at the Borrower’s election,
based upon the total net leverage ratio of the Borrowers and the
Specified Guarantors (as defined in the Credit Agreement). As a
result of repricing the Term Loan A Facility, $146 million in principal
was assigned to new lenders or existing lenders electing to increase
their holdings in the loan. There was no change in lender participation
in the Revolving Facility. The maturity date for the Term Loan A
Facility and the Revolving Facility has been extended to June 7,
2022. Amortization payments on the Term Loan A Facility will begin
one full fiscal quarter after the first anniversary of the amendment
effective date, which delays the original amortization schedule by
approximately one year. All other material provisions under the Credit
Agreement remained unchanged.

PART II
ITEM 8 Financial Statements and Supplementary Data

On April 3, 2018, the Borrowers completed the repricing of the then
existing$1.97 billion under the Term Loan B Facility pursuant to an
amendment to the Credit Agreement. The amendment reduces the
interest rate applicable to the Term Loan B Facility by 25 basis points
to adjusted LIBOR plus 1.75% or Base Rate plus 0.75%, at the
Borrowers’ election, and extends the maturity date for the Term Loan
B Facility by 2 years to April 3, 2025. All other material provisions
under the Credit Agreement remained unchanged as a result of this
amendment.

December 1 of each year. The Subsidiary Senior Unsecured Notes
are guaranteed on a senior unsecured basis by (i) the Company,
(ii) the Specified Guarantors and (iii) by each of the Borrower’s and
the Specified Guarantors’ domestic subsidiaries that guarantees the
Borrower’s obligations under the Credit Agreement, except for any of
the Company’s foreign subsidiaries. The indenture governing the
Subsidiary Senior Unsecured Notes contains covenants and events
of default that are customary for debt securities of this type. We were
in compliance with all debt covenants as of December 31, 2018.

The Credit Agreement is unconditionally guaranteed by the Company
and certain of the Borrowers’ principal domestic subsidiaries and
excludes Taco Bell Funding LLC and its special purpose, wholly-
is also
owned subsidiaries (see above). The Credit Agreement
secured by first priority liens on substantially all assets of
the
Borrowers and each subsidiary guarantor, excluding the stock of
certain subsidiaries and certain real property, and subject to other
customary exceptions.

The Credit Agreement is subject to certain mandatory prepayments,
including an amount equal to 50% of excess cash flow (as defined in
the Credit Agreement) on an annual basis and the proceeds of
certain asset sales, casualty events and issuances of indebtedness,
subject to customary exceptions and reinvestment rights.

The Credit Agreement includes two financial maintenance covenants
which require the Borrowers to maintain a total
leverage ratio
(defined as the ratio of Consolidated Total Debt to Consolidated
EBITDA (as these terms are defined in the Credit Agreement)) of
5.0:1 or less and a fixed charge coverage ratio (defined as the ratio of
EBITDA minus capital expenditures to fixed charges (inclusive of
rental expense and scheduled amortization)) of at least 1.5:1, each
as of the last day of each fiscal quarter. The Credit Agreement
includes other affirmative and negative covenants and events of
this type. The Credit
default
Agreement contains, among other
limitations on certain
additional
indebtedness and liens, and certain other transactions
specified in the agreement. We were in compliance with all debt
covenants as of December 31, 2018.

that are customary for facilities of
things,

On June 16, 2016, the Borrowers issued $1.05 billion aggregate
principal amount of 5.00% Senior Unsecured Notes due 2024 and
$1.05 billion aggregate principal amount of 5.25% Senior Unsecured
the Borrowers issued
Notes due 2026 and on June 15, 2017,
$750 million aggregate principal amount of 4.75% Senior Notes due
June 1, 2027 (the “2027 Notes” and collectively the “Subsidiary
Senior Unsecured Notes”).
Interest on the Subsidiary Senior
Unsecured Notes is payable semi-annually in arrears on June 1 and

During 2016, the Company paid debt issuance costs of $56 million in
the Credit Agreement and the
connection with the issuance of
Subsidiary Senior Unsecured Notes. During 2017, $32 million of fees
related to the repricing of the Term Loan A, Term Loan B and
Revolving Facilities and the issuance of
the 2027 Notes were
capitalized as debt issuance costs. The debt issuance costs are
being amortized to Interest expense, net through the contractual
maturity of the agreements utilizing the effective interest rate method.
We classify these deferred costs on our Consolidated Balance Sheet
as a reduction in the related debt when borrowings are outstanding
or within Other assets if borrowings are not outstanding. Additionally,
fees and unamortized debt issuance
$5 million and $8 million of
costs were recognized within Interest expense, net due to the
repricings in the years ended December 31, 2018 and 2017,
respectively. As of December 31, 2018, the effective interest rates,
including the amortization of debt issuance costs and the impact of
the interest rate swaps on Term Loan B Facility (See Note 12), were
5.16%, 5.39%, 4.90%, 3.43%, and 3.74% for the Subsidiary Senior
Unsecured Notes due 2024, the Subsidiary Senior Unsecured Notes
due 2026, the Subsidiary Senior Unsecured Notes due 2027, the
Term Loan A Facility, and the Term Loan B Facility, respectively.

YUM Senior Unsecured Notes
The majority of our remaining long-term debt primarily comprises
YUM Senior Unsecured Notes with varying maturity dates from 2020
through 2043 and stated interest
rates ranging from 3.75% to
6.88%. The YUM 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
YUM Senior Unsecured Notes contain cross-default provisions
whereby 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 YUM 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 YUM Senior Unsecured Notes issued that remain outstanding at December 31, 2018:

Issuance Date(a)

October 2007

August 2009

August 2010

August 2011

October 2013

October 2013

Maturity Date

November 2037

September 2019

November 2020

November 2021

November 2023

November 2043

Principal Amount
(in millions)

Interest Rate

Stated

Effective(b)

325

250

350

350

325

275

6.88%

5.30%

3.88%

3.75%

3.88%

5.35%

7.45%

5.59%

4.01%

3.88%

4.01%

5.42%

(a)
(b)

Interest payments commenced approximately six months after issuance date and are payable semi-annually thereafter.
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 debt issuance.

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YUM! BRANDS, INC. - 2018 Form 10-K 67

PART II
ITEM 8 Financial Statements and Supplementary Data

The annual maturities of short-term borrowings and long-term debt as of December 31, 2018, excluding capital lease obligations of $71 million
are as follows:

Year ended:

2019

2020

2021

2022

2023

Thereafter

Total

$

324

430

455

424

1,626

6,837

$

10,096

Interest expense on short-term borrowings and long-term debt was $496 million, $473 million and $331 million in 2018, 2017 and 2016,
respectively.

NOTE 11

Leases

At December 31, 2018, we operated 856 restaurants, leasing the
underlying land and/or building in 517 of those restaurants with the
vast majority of our commitments expiring within 20 years from the
inception of the lease. In addition, the Company leases or subleases
1,020 units to franchisees, principally in the U.S., United Kingdom,
Australia, Germany and France.

We also lease office space for headquarters and support functions,
as well as certain office and restaurant equipment. We do not
consider
our
individual
operations. Most leases require us to pay related executory costs,
which include property taxes, maintenance and insurance.

leases material

these

any

to

of

Future minimum commitments and amounts to be received as lessor or sublessor under non cancellable leases are set forth below:

Commitments

Lease Receivables

Capital

Operating Direct Financing Operating

2019

2020

2021

2022

2023

Thereafter

$

10

10

9

8

8

58

$

103

89

78

71

61

384

786

$

$

6

5

4

4

3

30

52

$

89

79

74

69

67

638

$

1,016

$

103

$

At December 31, 2018 and December 31, 2017, the present value of minimum payments under capital leases was $71 million and $105 million,
respectively. At December 31, 2018, unearned income associated with direct financing lease receivables was $19 million.

Upon adoption of the new lease accounting standards at the beginning of the first quarter of 2019 we currently expect to recognize additional
lease liabilities of approximately $750 million, with corresponding right-of-use assets of approximately $675 million based on the present value of
the remaining operating lease payments that include scheduled rent increases. These remaining lease payments include both future minimum
commitments under non cancellable leases as set forth above as well as approximately $50 million of nominal operating lease payments
pertaining to renewal options that, at lease inception, we determined were reasonably assured of being exercised.

The details of rental expense and income are set forth below:

Rental expense

Minimum

Contingent

Rental income

68 YUM! BRANDS, INC. - 2018 Form 10-K

2018

2017

2016

$

$

$

142

$

193

$

208

9

151

131

$

$

21

214

86

$

$

26

234

73

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PART II
ITEM 8 Financial Statements and Supplementary Data

NOTE 12

Derivative Instruments

We use derivative instruments to manage certain of our market risks related to fluctuations in interest rates and foreign currency exchange rates.

Interest Rate Swaps
We enter into interest rate swaps with the objective of reducing our
exposure to interest rate risk for a portion of our variable-rate debt
interest payments. On July 25, 2016, we agreed with multiple
counterparties to swap the variable LIBOR-based component of the
interest payments related to $1.55 billion of borrowings under our
Term Loan B Facility resulting in a fixed rate of 3.92% on the
swapped portion of the Term Loan B Facility. These interest rate
swaps will expire in July 2021. Further, on May 14, 2018 we entered
into forward-starting interest rate swaps to fix the interest rate on
$1.5 billion of borrowings under our Term Loan B Facility from the
date the July 2016 swaps expire through March 2025. The interest
rate swaps executed in May 2018 will result in a fixed rate of 4.81%
on the swapped portion of the Term Loan B Facility from July 2021
through March 2025. These interest rate swaps are designated cash
flow hedges as the changes in the future cash flows of the swaps
and are expected to offset changes in expected future interest
payments on the related variable-rate debt. There were no other
interest rate swaps outstanding as of December 31, 2018.

losses on the interest

rate swaps are reported as a
Gains or
component of AOCI and reclassified into Interest expense, net in our
Consolidated Statements of Income in the same period or periods
during which the related hedged interest payments affect earnings.
Through December 31, 2018, the swaps were highly effective cash
flow hedges.

Foreign Currency Contracts
We have entered into foreign currency forward and swap contracts
with the objective of reducing our exposure to earnings volatility
arising from foreign currency fluctuations associated with certain
receivables and
foreign currency denominated intercompany

payables. The notional amount, maturity date, and currency of these
contracts match those of the underlying intercompany receivables or
payables. Our foreign currency contracts are designated cash flow
hedges as the future cash flows of the contracts are expected to
offset changes in intercompany receivables and payables due to
foreign currency exchange rate fluctuations.

foreign currency transaction gains or

Gains or losses on the foreign currency contracts are reported as a
component of AOCI. Amounts are reclassified from AOCI each
quarter
losses
to offset
(income) expense when the related
recorded within Other
intercompany receivables and payables affect earnings due to their
functional currency remeasurements. Through December 31, 2018,
all
foreign currency forward and swap contracts related to
intercompany receivables and payables were highly effective cash
flow hedges.

As of December 31, 2018 and December 31, 2017, foreign currency
forward and swap contracts outstanding related to intercompany
receivables and payables had total notional amounts of $459 million
and $456 million, respectively. As of December 31, 2018, we have
foreign currency forward and swap contracts with durations expiring
as early as February 2019 and as late as June 2020.

fail

to meet

As a result of the use of interest rate swaps and foreign currency
contracts, the Company is exposed to risk that the counterparties
will
their contractual obligations. To mitigate the
counterparty credit risk, we only enter into contracts with major
financial institutions carefully selected based upon their credit ratings
and other factors, and continually assess the creditworthiness of
counterparties. At December 31, 2018, all of the counterparties to
rate swaps and foreign currency contracts had
our
ratings
investment grade ratings according to the three major
agencies. To date, all counterparties have performed in accordance
with their contractual obligations.

interest

Gains and losses on derivative instruments designated as cash flow hedges recognized in OCI and reclassifications from AOCI into Net Income:

Interest rate swaps

Foreign currency contracts

Income tax benefit/(expense)

Gains/(Losses)
Recognized in
OCI

(Gains)/Losses
Reclassified from
AOCI into Net
Income

2018

2017

2018

2017

$

(3) $

4

$

22

1

(56)

1

(19)

(20)

5

$

2

56

(3)

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As of December 31, 2018, the estimated net gain included in AOCI related to our cash flow hedges that will be reclassified into earnings in the
next 12 months is $26 million, based on current LIBOR interest rates.

See Note 13 for the fair value of our derivative assets and liabilities.

YUM! BRANDS, INC. - 2018 Form 10-K 69

PART II
ITEM 8 Financial Statements and Supplementary Data

NOTE 13

Fair Value Disclosures

As of December 31, 2018 the carrying values of cash and cash equivalents, restricted cash, short-term investments, accounts receivable,
short-term borrowings 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 following table
presents the carrying value and estimated fair value of the Company’s debt obligations:

Securitization Notes(a)

Subsidiary Senior Unsecured Notes(b)

Term Loan A Facility(b)

Term Loan B Facility(b)

YUM Senior Unsecured Notes(b)

12/31/2018

12/31/2017

Carrying
Value

Fair Value
(Level 2)

Carrying
Value

Fair Value
(Level 2)

$

2,928

$

2,967

$

2,271

$

2,367

2,850

488

1,955

1,875

2,733

479

1,915

1,798

2,850

500

1,975

2,200

2,983

503

1,990

2,277

(a) We estimated the fair value of the Securitization Notes by obtaining broker quotes from two separate brokerage firms that are knowledgeable about
the Company’s Securitization Notes and, at times, trade these notes. The markets in which the Securitization Notes trade are not considered active
markets.

(b) We estimated the fair value of the YUM and Subsidiary Senior Unsecured Notes, Term Loan A Facility, and Term Loan B Facility using market quotes

and calculations based on market rates.

Recurring Fair Value Measurements
The Company has interest rate swaps, foreign currency contracts, an investment in Grubhub common stock and other investments, all of which
are required to be measured at fair value on a recurring basis (See Note 12 for discussion regarding derivative instruments and Note 5 for
discussion regarding our investment in Grubhub common stock). 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.

Interest Rate Swaps—Asset

Interest Rate Swaps—Asset

Interest Rate Swaps—Liability

Foreign Currency Contracts—Asset

Foreign Currency Contracts—Liability

Investment in Grubhub Common Stock

Other Investments

Fair Value
2018

Level

$

2

2

2

2

2

1

1

21

29

23

5

24

214

27

2017

Consolidated Balance Sheet

$

9 Prepaid expenses and other current assets

40 Other assets

— Accounts payable and other current liabilities

5 Prepaid expenses and other current assets

46 Other Liabilities and deferred credits

— Other assets

29 Other assets

The fair value of the Company’s foreign currency contracts 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 on
observable inputs. The fair value of the investment in Grubhub common stock was determined primarily based on closing market prices for the
shares. The other investments include investments in mutual
funds, which are used to offset fluctuations for a portion of our deferred
compensation liabilities. The other investments’ fair value is determined based on the closing market prices of the respective mutual funds as of
December 31, 2018 and December 31, 2017.

Non-Recurring Fair Value Measurements
During the years ended December 31, 2018 and December 31, 2017, we recognized non-recurring fair value measurements of $1 million and
$2 million, respectively, related to restaurant-level impairment. Restaurant-level impairment charges are recorded in Other (income) expense 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). These amounts exclude fair value measurements made for assets that were
subsequently disposed of prior to those respective year end dates. The remaining net book value of restaurant assets measured at fair value
during the years ended December 31, 2018 and December 31, 2017 is insignificant.

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70 YUM! BRANDS, INC. - 2018 Form 10-K

PART II
ITEM 8 Financial Statements and Supplementary Data

NOTE 14

Pension, Retiree Medical and Retiree Savings Plans

U.S. Pension Plans
We sponsor qualified and supplemental (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 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. We do not expect to
make any significant contributions to the Plan in 2019. 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.

During the fourth quarter of 2016, the Company allowed certain former employees with deferred vested balances in the Plan an opportunity to
voluntarily elect an early payout of their benefits. See Note 5 for details.

We do not anticipate any plan assets being returned to the Company during 2019 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

Settlement payments

Actuarial (gain) loss

Administrative expense

Benefit obligation at end of year

2018

2017

$ 1,007 $

993

8

38

1

—

1

(73)

—

(109)

—

10

41

2

(2)

2

(76)

(73)

115

(5)

$

873 $ 1,007

A significant component of the overall decrease in the Company’s benefit obligation for the year ended December 31, 2018 was due to the
change in discount rates used to measure our benefit obligation, which increased from 3.90% at December 31, 2017 to 4.60% at December 31,
2018. A significant component of the overall increase in the Company’s benefit obligation for the year ended December 31, 2017 was also due
to the change in discount rates used to measure our benefit obligation, which decreased from 4.60% at December 31, 2016 to 3.90% at
December 31, 2017.

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Change in plan assets:

Fair value of plan assets at beginning of year

Actual return on plan assets

Employer contributions

Settlement payments

Benefits paid

Administrative expenses

Fair value of plan assets at end of year

Funded status at end of year

Amounts recognized in the Consolidated Balance Sheet:

Accrued benefit liability—current

Accrued benefit liability—non-current

$

864 $

(49)

13

—

(73)

—

837

129

52

(73)

(76)

(5)

$

755 $

864

$ (118) $ (143)

2018

2017

$

(5)

$

(8)

(113)

(135)

$ (118)

$ (143)

YUM! BRANDS, INC. - 2018 Form 10-K 71

PART II
ITEM 8 Financial Statements and Supplementary Data

The accumulated benefit obligation was $849 million and $976 million at December 31, 2018 and December 31, 2017, 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

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:

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:
Settlement charges(b)

Special termination benefits

Pension data adjustment(c)

2018

2017

$ 873

$ 1,007

849

755

976

864

2018

2017

$ 873

$ 1,007

849

755

976

864

2018

2017

2016

$

8

38

5

(44)

16

$ 10

$ 17

41

6

(45)

5

54

6

(65)

6

$ 23

$ 17

$ 18

$ — $ 19

$ 32

$

1

$

2

$

3

$ — $ 22

$ —

(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. These losses

were recorded in Other pension (income) expense.

(c) Reflects a non-cash, out-of-year charge related to the adjustment of certain historical deferred vested liability balances in the Plan during the first

quarter of 2017 recorded in Other pension (income) expense. See Note 5.

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Pension gains (losses) in AOCI:

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

Accumulated pre-tax losses recognized within AOCI:

Actuarial net loss

Prior service cost

72 YUM! BRANDS, INC. - 2018 Form 10-K

2018

2017

$ (160)

$ (180)

17

—

16

5

(1)

—

(10)

2

5

6

(2)

19

$ (123)

$ (160)

2018

2017

$ (101)

$ (134)

(22)

(26)

$ (123)

$ (160)

PART II
ITEM 8 Financial Statements and Supplementary Data

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

(a) Reflects a weighted average due to interim re-measurements in 2017.

2018

2017

4.60%

3.00%

3.90%

3.75%

2018

2017(a)

2016

3.90%

5.65%

3.75%

4.53%

6.06%

3.75%

4.90%

6.75%

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 and future growth expectations.

Plan Assets

The fair values of our pension plan assets at December 31, 2018 and December 31, 2017 by asset category and level within the fair value
hierarchy are as follows:

Level 1:

Cash

Cash Equivalents(a)

Fixed Income Securities—U.S. Corporate(b)

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)

Level 2:

Fixed Income Securities—U.S. Corporate(c)

Fixed Income Securities—U.S. Government and Government Agencies(d)

Fixed Income Securities—Other(d)

Total fair value of plan assets(e)

(a) Short-term investments in money market funds.
(b) Securities held in common trusts.
(c)
(d)
(e) 2018 and 2017 exclude net unsettled trade payables of $41 million and $56 million, respectively.

Investments held directly by the Plan.
Includes securities held in common trusts and investments held directly by the Plan.

2018

2017

$

3

10

140

215

35

34

74

106

161

18

$

3

12

177

257

43

43

87

86

177

35

$ 796

$ 920

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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. The Plan’s
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. The Plan diversifies its equity risk by
investing in several different U.S. and foreign market
index
funds. Investing in these index funds provides the Plan 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
Common Stock valued at $0.3 million at both December 31, 2018
and December 31, 2017 (less than 1% of total plan assets in each
instance).

YUM! BRANDS, INC. - 2018 Form 10-K 73

PART II
ITEM 8 Financial Statements and Supplementary Data

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:

2019

2020

2021

2022

2023

2024 - 2028

$

39

40

43

45

48

269

Expected benefit payments 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.
Both of our UK plans have previously been frozen such that they are
closed to new participants and existing participants can no longer
earn future service credits.

At the end of 2018 and 2017, the projected benefit obligations of
these UK plans totaled $233 million and $287 million, respectively
and plan assets totaled $319 million and $358 million, respectively.
These plans were both in a net overfunded position at the end of
2018 and 2017 and related expense amounts recorded in each of
2018, 2017 and 2016 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
2019.

Retiree Medical Benefits
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.

and

was

obligation

$45 million

At the end of 2018 and 2017, the accumulated post-retirement
benefit
$55 million,
respectively. Actuarial pre-tax gains of $13 million and $8 million
were recognized in AOCI at the end of 2018 and 2017, respectively.
The net periodic benefit cost recorded was $2 million in 2018,
$2 million in 2017 and $3 million in 2016, the majority of which is
interest
benefit
accumulated
obligation. The weighted-average assumptions used to determine
benefit obligations and net periodic benefit cost
the post-
retirement medical plan are identical to those as shown for the U.S.
pension plans.

post-retirement

cost

the

for

on

There is a cap on our medical
liability for all retirees at the end of
2018 and certain retirees at the end of 2017. The benefits expected
to be paid in each of the next five years are approximately $4 million
and in aggregate for the five years thereafter are $16 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
for eligible U.S. salaried and hourly employees.
“401(k) Plan”)
Participants are able to elect to contribute up to 75% of eligible
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 2018, $13 million in 2017
and $14 million in 2016.

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NOTE 15

Share-based and Deferred Compensation Plans

Overview

At year end 2018, we had one stock award plan in effect: the YUM!
Brands, Inc. Long-Term Incentive Plan (the “LTIP”). Under the LTIP,
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 LTIP include stock options,
incentive stock options, SARs,
restricted stock,
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 LTIP. While awards under the LTIP can have
varying vesting provisions and exercise periods, outstanding awards
under the LTIP vest in periods ranging from immediate to five years.
Stock options and SARs generally expire ten years after grant.

At year end 2018, approximately 28 million shares were available for
future share-based compensation grants under the LTIP.

Our EID Plan allows participants to defer receipt of a portion of their
annual salary and all or a portion of their incentive compensation. As
the amounts deferred with
defined by the EID Plan, we credit

74 YUM! BRANDS, INC. - 2018 Form 10-K

the appreciation or

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
the
recognize compensation expense for
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 LTIP, 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
depreciation,
investments in phantom shares of our
if any, of
Common Stock. Our EID plan also allows certain 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

the appreciation or

PART II
ITEM 8 Financial Statements and Supplementary Data

incentive compensation amount 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 2019.

In connection with the Separation of our China business in the prior
year, under the provisions of our LTIP, employee stock options,
SARs, RSUs and PSUs were adjusted to maintain the pre-spin
intrinsic value of the awards. Depending on the tax laws of the
the
country of employment, awards were modified using either
shareholder method or the employer method. The modifications to
the outstanding equity awards resulted in an insignificant amount of
additional compensation expense in the year ended December 31,
2016. Share-based compensation as recorded in Income from
continuing operations is based on the amortization of the fair value
for both YUM and Yum China awards held by YUM employees.
Share issuances for Yum China awards held by YUM employees will
be satisfied by Yum China. Share issuances for YUM awards held by
Yum China employees are being satisfied by YUM.

Under the shareholder method, investments in phantom shares of
our Common Stock held within our EID Plan were partially converted
into phantom investments in Yum China. Through October 31, 2018,
distributions of investments in phantom shares of Yum China could
be settled in cash, as opposed to stock, at a date as elected by the
employee and, therefore, were classified as a liability and remeasured
to fair value at each reporting period in our Consolidated Balance
Sheet. During 2018, 2017 and 2016, we recorded a $3 million credit,
a $18 million charge and a $30 million charge, respectively, within
G&A related to these awards (See Note 5).

As of October 31, 2018, deferrals in phantom shares of Yum China
common stock are no longer an investment option within our EID
Plan and any balances relating to these shares were moved to
another available EID Plan investment option as selected by the
participants. Amounts directed into cash or phantom shares of a
Stock Index Fund or a Bond Index Fund remained classified as a
liability and any appreciation or depreciation in these investments
from the transfer date forward will be recognized as compensation

expense. Any amounts directed into phantom shares of YUM
Common Stock were reclassified to Common Stock on our
Consolidated Balance Sheet. We do not recognize compensation
expense for the appreciation or depreciation, if any, of investments in
phantom shares of our Common Stock.

Award Valuation
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:

2018

2017

2016

Risk-free interest rate

2.5%

1.9%

1.4%

Expected term (years)

6.5 years 6.4 years 6.4 years

Expected volatility

22.0%

22.9%

27.0%

Expected dividend yield

1.8%

1.8%

2.6%

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, which cliff-vest after 4 years and expire 10 years
after grant, and grants made to executives, which typically have a
graded vesting schedule of 25% per year over 4 years and expire 10
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 5 years and 6.5
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.

The fair values of RSU and PSU awards are based on the closing
price of our Common Stock on the date of grant.

Award Activity

Stock Options and SARs

Shares
(in thousands)

Weighted-Average
Exercise
Price

Weighted-Average
Remaining
Contractual Term
(years)

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

18,285

2,580

(3,832)

(842)

16,191(a)

10,297

$ 44.85

78.35

34.05

71.72

51.84

$ 43.23

5.50

4.02

$ 626

$ 501

(a) Outstanding awards include 753 options and 15,438 SARs with weighted average exercise prices of $42.40 and $52.30, respectively. Outstanding

awards represent YUM awards held by employees of both YUM and Yum China.

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The weighted-average grant-date fair value of stock options and
SARs granted during 2018, 2017 and 2016 was $16.45, $14.08 and
$14.40, respectively. The total
intrinsic value of stock options and
SARs exercised during the years ended December 31, 2018,
December 31, 2017 and December 31, 2016, was $195 million,
$154 million and $263 million, respectively.

As of December 31, 2018, $48 million of unrecognized
compensation cost related to unvested stock options and SARs,
which will be reduced by any forfeitures that occur, is expected to be
recognized
of
approximately 1.6 years. This reflects unrecognized cost for both
YUM and Yum China awards held by YUM employees. The total fair

remaining weighted-average

period

over

a

YUM! BRANDS, INC. - 2018 Form 10-K 75

PART II
ITEM 8 Financial Statements and Supplementary Data

value at grant date of awards for both YUM and Yum China awards
held by YUM employees that vested during 2018, 2017 and 2016
was $28 million, $33 million and $41 million, respectively.

RSUs and PSUs

As of December 31, 2018, there was $21 million of unrecognized
compensation cost related to 1.0 million unvested RSUs and PSUs,
none of which related to Yum China common stock. The total fair
value at grant date of awards that vested during 2018, 2017 and
2016 was $16 million, $10 million and $7 million, respectively.

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

2018

$ 37

6

7

2017

$ 30

26

9

2016

$ 38

38

4

$ 50(a)

$ 65(a)

$ 80(b)

$

$

9

(2)

$ 22(c)

$ 26(c)

$ 12

$

5

(a)

(b)

Includes $3 million of appreciation and $18 million of depreciation in the market price of Yum China’s stock in 2018 and 2017, respectively. See
Note 5.
Includes $30 million due to modifications of awards in connection with the Separation that was not allocated to any of our operating segments for
performance purposes. See Note 5.

(c) Deferred tax benefit recognized does not reflect the impact of the Tax Act. See Note 17.

Cash received from stock option exercises for 2018, 2017 and 2016, was $5.5 million, $12 million and $5 million, respectively. Tax benefits
realized on our tax returns from tax deductions associated with share-based compensation for 2018, 2017 and 2016 totaled $60 million,
$153 million and $109 million, respectively.

NOTE 16

Shareholders’ Deficit

Under the authority of our Board of Directors, we repurchased shares of our Common Stock during 2018, 2017 and 2016. All amounts exclude
applicable transaction fees.

K
-
0
1
m
r
o
F

Authorization Date

August 2018

November 2017

November 2016

May 2016

March 2016

December 2015

Total

Shares Repurchased
(thousands)
2017

2018

2016

Dollar Value of Shares
Repurchased
2017

2018

2016

10,003

18,240

—

—

— $

894

$

— $

—

1,500

— 26,561

1,337

—

—

—

— 50,435

—

2,823

— 13,368

—

—

—

—

—

—

85

4,200

229

933

—

1,915

—

—

—

28,243(a)

26,561(b)

67,963(b)

$ 2,394(a)

$ 1,915(b) $ 5,447(b)

(a)

Includes the effect of $5 million in share repurchases (0.1 million shares) with trade dates on, or prior to, December 31, 2018 but settlement dates
subsequent to December 31, 2018.

(b) 2017 amount excludes and 2016 amount includes the effect of $45 million in share repurchases (0.7 million shares) with trade dates prior to

December 31, 2016 but settlement dates subsequent to December 31, 2016.

On August 10, 2018, our Board of Directors authorized share repurchases through December 2019 of up to $2 billion (excluding applicable
transaction fees) of our outstanding Common Stock. As of December 31, 2018, we have remaining capacity to repurchase up to $1.1 billion of
Common Stock under this authorization.

76 YUM! BRANDS, INC. - 2018 Form 10-K

PART II
ITEM 8 Financial Statements and Supplementary Data

Changes in AOCI are presented below.

Balance at December 31, 2016, net of tax

$

(336)

$

(127)

$

5

$

(458)

Translation Adjustments
and Gains (Losses) From
Intra-Entity Transactions
of a Long-Term Nature(a)

Pension and
Post-Retirement Benefits(b)

Derivative
Instruments(c)

Total

OCI, net of tax

Gains (losses) arising during the year classified
into AOCI, net of tax

(Gains) losses reclassified from AOCI, net of tax

Balance at December 31, 2017, net of tax

Adoption of accounting standards

OCI, net of tax

Gains (losses) arising during the year classified
into AOCI, net of tax

(Gains) losses reclassified from AOCI, net of tax

107

55

162

$

(174)

21(d)

(88)

(4)

(92)

(13)

34

21

$

(106)

$

(51)

55

4

9

43

144

187

$

(271)

(17)(e)

(2)(e)

2

24

17

41

20

(34)

(14)

(44)

(21)

(65)

Balance at December 31, 2018, net of tax

$

(245)

$

(82)

$

(7) $

(334)

(a) Amounts reclassified from AOCI are due to substantially complete liquidations of foreign entities related to the KFC and Pizza Hut Brazil refranchising

transactions during 2018 and KFC Turkey, Pizza Hut Turkey, Pizza Hut Thailand and Pizza Hut Korea refranchising transactions during 2017.

(b) Amounts reclassified from AOCI for pension and post-retirement benefit plan losses during 2018 include amortization of net losses of $17 million,
amortization of prior service cost of $5 million and related income tax benefit of $5 million. Amounts reclassified from AOCI for pension and post-
retirement benefit plan losses during 2017 include amortization of net losses of $5 million, historical pension data adjustment of $22 million,
settlement charges of $20 million, amortization of prior service cost of $5 million and related income tax benefit of $18 million. See Note 14.

(c) See Note 12 for details on amounts reclassified from AOCI.
(d) Represents the impact of foreign currency translation from the adoption of Topic 606. See Notes 2 and 5.
(e) During the quarter ended March 31, 2018, we adopted a standard that allows for the reclassification from AOCI to Accumulated deficit for stranded

tax effects resulting from the Tax Act. See Note 2.

NOTE 17

Income Taxes

U.S. and foreign income before taxes are set forth below:

U.S.

Foreign

The details of our income tax provision (benefit) are set forth below:

Current:

Deferred:

Federal

Foreign

State

Federal

Foreign

State

2018

2017

2016

$

726

$

662

$

1,113

1,612

366

979

$ 1,839

$ 2,274

$ 1,345

F
o
r
m
1
0
-
K

2018

2017

2016

$

102 $

(2) $

181

25

290

12

126

160

13

$

$

$

$

308 $

300 $

299

(24) $

603 $

19

5

8

19

12

3

6

(11) $

634 $

28

297 $

934 $

327

YUM! BRANDS, INC. - 2018 Form 10-K 77

PART II
ITEM 8 Financial Statements and Supplementary Data

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

Statutory rate differential attributable to foreign operations

Adjustments to reserves and prior years

Share-based compensation

Change in valuation allowances

Other, net

Tax Act Enactment

Effective income tax rate

foreign tax credits.

Statutory rate differential attributable to foreign operations. This item
includes local taxes, withholding taxes, and shareholder-level taxes,
net of
this benefit was positively
In 2018,
impacted by approximately 8 percentage points due to a transaction
resulting in the recognition of excess foreign tax credits that were
fully offset by expense included in change in valuation allowances.
2016 and 2017 is favorably impacted by a majority of our income
being earned outside of the U.S. where tax rates were generally
lower than the U.S. 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
including any
Income to amounts reflected on our
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 2018, this
item was unfavorably impacted by a $20 million reserve related to a
current year uncertain tax position related to a dispute concerning
the income tax rate to be applied to our 2018 income in a foreign
market and a $19 million charge for the correction of an error
associated with the tax recorded on a prior year divestiture. In 2016,
this item was favorably impacted by the resolution of uncertain tax
positions in the U.S.

tax returns,

Share-based compensation. 2018 and 2017 includes $47 million and
$117 million, respectively, of excess tax benefit related to share-
based compensation. The 2017 excess tax benefits were largely
associated with deferred compensation payouts to recently retired
employees.

K
-
0
1
m
r
o
F

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 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’
In 2018,
$156 million of net tax expense was driven by valuation allowances
recorded against deferred tax assets generated in the current year.
This amount excludes a valuation allowance release of $78 million,
In 2017,
which is included in the “Tax Act Enactment”
$34 million of net tax expense was driven by valuation allowances
recorded against deferred tax assets generated in the current year.
This amount excludes a valuation allowance of $189 million, which is
included in the “Tax Act Enactment” line. In 2016, $3 million of net
tax benefit was driven by $14 million in net tax expense for valuation
allowances recorded against deferred tax assets generated in the

line.

line.

78 YUM! BRANDS, INC. - 2018 Form 10-K

2018

2017

2016

21.0% 35.0% 35.0%

1.0

0.5

1.1

(12.3)

(9.3)

(10.5)

2.8

(2.5)

8.5

(0.4)

(1.9)

0.5

(5.1)

1.5

(1.1)

19.1

(0.8)

—

(0.2)

(0.3)

—

16.2% 41.1% 24.3%

current year and $17 million in net
for valuation
allowances resulting from a change in judgment regarding the future
use of certain deferred tax assets that existed at the beginning of the
year.

tax benefit

Other. This item primarily includes the net impact of permanent
differences related to current year earnings as well as U.S. tax credits
and deductions. In 2018 and 2017, this item was primarily driven by
the favorable impact of certain international refranchising gains.

Tax Act Enactment. On December 22, 2017, the U.S. government
enacted comprehensive Federal tax legislation commonly referred to
as the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). The Tax Act
significantly modifies the U.S. corporate income tax system by,
among other things, reducing the federal income tax rate from 35%
to 21%, limiting certain deductions, including limiting the deductibility
of interest expense to 30% of U.S. Earnings Before Interest, Taxes,
Depreciation and Amortization,
imposing a mandatory one-time
deemed repatriation tax on accumulated foreign earnings and
creating a territorial tax system that changes the manner in which
foreign earnings are subject to U.S. tax.

On December 22, 2017,
issued Staff Accounting
the SEC staff
Bulletin 118 which allowed us to record provisional amounts related
to the impacts of the Tax Act during a measurement period not to
extend beyond one year of the enactment date. As a result, we
recorded a $434 million provisional estimate of the effect of the Tax
Act in 2017. This expense was comprised of an estimate of our
deemed repatriation tax, the remeasurement of net deferred tax
assets resulting from the permanent reduction in the U.S. tax rate to
21%, and establishment of a valuation allowance on foreign tax
credit carryforwards which are unlikely to be realized under the U.S.
territorial tax system.

In 2018, we completed the accounting for the tax effects of the
enactment of the Tax Act. As a result of the Tax Act, we recorded
cumulative net tax expense of $399 million ($35 million benefit in
2018 and $434 million expense in 2017). This net expense was
comprised of $241 million for our deemed repatriation tax liability,
$47 million related to the remeasurement of our net deferred tax
assets to the 21% U.S. tax rate and $111 million to establish a
valuation allowance on foreign tax credits that are unlikely to be
realized under the U.S. territorial tax system.

to the Global

Companies subject
Intangible Low-Taxed Income
provision (GILTI) have the option to account for the GILTI tax as a
period cost if and when incurred, or to recognize deferred taxes for
outside basis temporary differences expected to reverse as GILTI.
The Company has elected to account for GILTI as a period cost.

The details of 2018 and 2017 deferred tax assets (liabilities) are set forth below:

PART II
ITEM 8 Financial Statements and Supplementary Data

Operating losses

Capital losses

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

Deemed repatriation tax

Other

Gross deferred tax liabilities

Net deferred tax assets (liabilities)

Reported in Consolidated Balance Sheets as:

Deferred income taxes

Other liabilities and deferred credits

2018

2017

$

180

$

216

3

266

72

62

7

43

43

19

53

4

311

94

58

7

51

51

24

31

748

(454)

847

(421)

294

$

426

(42) $

(33)

—

(31)

(69)

(18)

(170)

(36)

(106) $

(293)

188

$

133

195

$

139

(7)

(6)

188

$

133

$

$

$

$

$

$

As of December 31, 2018, we had approximately $3.6 billion of
unremitted foreign retained earnings. The Tax Act imposed U.S.
federal tax on all post-1986 foreign Earnings and Profits accumulated
through December 31, 2017. Repatriation of earnings generated
after December 31, 2017, will generally be eligible for the 100%
dividends received deduction and, therefore, exempt from U.S. tax.
All undistributed earnings may still be subject to certain taxes upon
repatriation, primarily where foreign withholding taxes apply. Our
intent is to indefinitely reinvest our unremitted earnings outside the
U.S. and our current plans do not demonstrate a need to repatriate
these amounts to fund our U.S. operations. Thus, we have not
provided taxes,
foreign income, or
foreign withholding taxes, for the unremitted earnings that we believe

including U.S. state income,

are permanently invested. However, if these funds were repatriated in
taxable transactions, we would be required to accrue and pay
applicable income taxes (if any) and foreign withholding taxes. A
determination of
is not
practicable due to the complexities, variables and assumptions
inherent in the hypothetical calculations.

the deferred tax liability on this amount

At December 31, 2018, the Company has foreign operating and
capital
loss carryforwards of $0.4 billion, U.S. state operating loss
and tax credit carryforwards of $1.0 billion, and U.S. federal tax
credit carryforwards of $0.3 billion. The tax losses are being carried
forward in jurisdictions where we are permitted to use losses from
prior periods to reduce future taxable income. The losses and tax
credits will expire as follows:

F
o
r
m
1
0
-
K

Foreign

U.S. state

U.S. federal

2019

$

$

2

—

—

2

Year of Expiration
2024-2037

2020-2023

$

$

22

78

49

46

941

207

Indefinitely

Total

$

346

$

416

—

—

1,019

256

$

149

$

1,194

$

346

$ 1,691

Valuation allowances of $0.1 billion, $0.1 billion and $0.3 billion have
been recorded against the foreign operating loss and capital
loss
the U.S. state operating loss and tax credit
carryforwards,
carryforwards, and the U.S.
tax credit carryforwards,
respectively, that are not likely to be realized.

federal

We recognize the benefit of positions taken or expected to be taken
in tax returns in the Consolidated 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.

YUM! BRANDS, INC. - 2018 Form 10-K 79

PART II
ITEM 8 Financial Statements and Supplementary Data

The Company had $113 million and $100 million of unrecognized tax
benefits at December 31, 2018 and December 31, 2017,
respectively, $10 million of which, for both years, are temporary in

nature and if recognized, would not impact the effective income tax
rate. A reconciliation of
the beginning and ending amount of
unrecognized tax benefits follows:

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

The Company believes it is reasonably possible that its unrecognized
tax benefits as of December 31, 2018 may decrease by
approximately $22 million in the next 12 months due to settlements
or statute of limitations expirations.

The Company’s income tax returns are subject to examination in the
U.S.
jurisdiction and numerous U.S. state and foreign
federal
jurisdictions.

The Company has settled audits with the IRS through fiscal year
2010 and is currently under IRS examination for 2011-2015. Our
to
operations

in certain foreign jurisdictions

remain subject

2018

2017

$ 100

$

91

19

—

(5)

—

(1)

—

3

8

—

(1)

(1)

—

$ 113

$ 100

examination for tax years as far back as 2006, some of which years
are currently under audit by local tax authorities.

The accrued interest and penalties related to income taxes at
December 31, 2018 and December 31, 2017 were $12 million and
$14 million, respectively.

During 2018, 2017 and 2016, a net benefit of $2 million, a net
expense of $5 million and a net benefit of $4 million, respectively, for
interest and penalties was
recognized in our Consolidated
Statements of Income as components of its Income tax provision.

NOTE 18

Reportable Operating Segments

See Note 1 for a description of our operating segments.

K
-
0
1
m
r
o
F

KFC Division(a)

Pizza Hut Division(a)

Taco Bell Division(a)

Unallocated(b)(f)

KFC Division

Pizza Hut Division

Taco Bell Division

Corporate and unallocated G&A expenses(b)(g)

Unallocated restaurant costs(b)(i)

Unallocated Franchise and property revenues(b)(f)

Unallocated Franchise and property expenses(b)(f)

Unallocated Refranchising gain (loss)(b)

Unallocated Other income (expense)(b)(h)

Operating Profit

Investment income (expense), net(b)

Other pension income (expense)(b)(j)

Interest expense, net(b)

2018

Revenues
2017

2016

$ 2,644

$ 3,110

$ 3,225

988

2,056

—

893

1,880

(5)

1,108

2,025

(2)

$ 5,688

$ 5,878

$ 6,356

Operating Profit; Interest Expense, Net;
and Income Before Income Taxes

$

2018

959

348

633

(171)

3

—

(8)

540

(8)

2,296

9

(14)

(452)

2017

2016

$

981

341

619

(230)

10

(5)

(30)

1,083

(8)

2,761

5

(47)

(445)

$

871

367

595

(280)

—

(2)

(24)

163

(8)

1,682

2

(32)

(307)

Income from continuing operations before income taxes

$ 1,839

$ 2,274

$ 1,345

80 YUM! BRANDS, INC. - 2018 Form 10-K

PART II
ITEM 8 Financial Statements and Supplementary Data

Depreciation and Amortization
2016

2018

2017

KFC Division

Pizza Hut Division

Taco Bell Division

Corporate

KFC Division

Pizza Hut Division

Taco Bell Division

Corporate

KFC Division

Pizza Hut Division

Taco Bell Division

Corporate(c)

KFC Division

Pizza Hut Division

Taco Bell Division

Corporate

$

58

10

61

8

$

138 $

172

26

82

7

36

90

12

$

137

$

253 $

310

Capital Spending

2018

2017

2016

$

105

$

176 $

38

85

6

42

95

5

$

234

$

318 $

216

69

132

10

427

Identifiable Assets(e)

2018

2017

$

1,481

$

1,791

701

1,074

874

628

1,086

1,806

$

4,130

$

5,311

Long-Lived Assets(d)

2018

2017

$

868

$

1,200

384

720

32

311

778

31

$

2,004

$

2,320

(a) U.S. revenues included in the combined KFC, Pizza Hut and Taco Bell Divisions totaled $2.9 billion in 2018, $2.8 billion in 2017 and $3.1 billion in

2016.

(b) Amounts have not been allocated to any segment for performance reporting purposes.
(c) Primarily includes cash, our Grubhub investment and deferred tax assets.
(d)
(e) U.S. identifiable assets included in the combined Corporate and KFC, Pizza Hut and Taco Bell Divisions totaled $2.0 billion and $3.0 billion in 2018

Includes PP&E, goodwill, and intangible assets, net.

and 2017, respectively.

(f) Represents costs associated with the KFC U.S. Acceleration Agreement and Pizza Hut U.S. Transformation Agreement. See Note 5.
(g) Amounts in 2018 include costs related to YUM’s Strategic Transformation Initiatives of $8 million, partially offset by non-cash credits associated with
modifications of share-based compensation awards of $3 million. Amounts in 2017 include costs related to YUM’s Strategic Transformation
Initiatives of $21 million, non-cash charges associated with modifications of share-based compensation awards of $18 million and costs associated
with the Pizza Hut U.S. Transformation Agreement of $13 million. See Note 5.

(h) Amounts include losses associated with the sale of corporate aircraft related to YUM’s Strategic Transformation Initiatives of $2 million in 2017. See

Note 7.

(i) Represents depreciation reductions arising primarily from KFC restaurants that were held-for-sale. See Note 5.
(j) Amounts in 2017 include a non-cash charge of $22 million related to the adjustment of certain historical deferred vested liability balances in our

qualified U.S. plan. See Note 5.

F
o
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m
1
0
-
K

YUM! BRANDS, INC. - 2018 Form 10-K 81

PART II
ITEM 8 Financial Statements and Supplementary Data

NOTE 19

Contingencies

Lease Guarantees
As a result of having assigned our interest in obligations under real
estate leases as a condition to the refranchising of certain
Company-owned restaurants, and guaranteeing certain other leases,
we are frequently secondarily liable on lease agreements. These
leases have varying terms, the latest of which expires in 2065. As of
December 31, 2018, the potential amount of undiscounted payments
we could be required to make in the event of non-payment by the
primary lessee was approximately $525 million. The present value of
these potential payments discounted at our pre-tax cost of debt at
December 31, 2018 was approximately $425 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
the liability
recorded for our probable exposure under such leases at
December 31, 2018 and December 31, 2017 was not material.

these leases. Accordingly,

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 31, 2018 our guarantee exposure under this program is
$2 million based on total loans outstanding of $9 million.

In addition to the guarantees described above, YUM has agreed to
provide guarantees of up to $26 million on behalf of franchisees for
several
financing programs related to equipment purchases and
refranchising. At December 31, 2018, our guarantee exposure under
these financing programs is $10 million based on total
loans
outstanding of $50 million.

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 loss 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.

The following table summarizes the 2018 and 2017 activity related to our net self-insured property and casualty reserves as of December 31,
2018.

2018 Activity

2017 Activity

K
-
0
1
m
r
o
F

it

Due to the inherent volatility of actuarially determined property and
is reasonably possible that we could
casualty loss estimates,
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.

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.

Beginning Balance Expense Payments Ending Balance

$ 84

$ 98

11

27

(29)

(41)

$ 66

$ 84

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.

We are currently engaged in various 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.

82 YUM! BRANDS, INC. - 2018 Form 10-K

PART II
ITEM 8 Financial Statements and Supplementary Data

NOTE 20

Selected Quarterly Financial Data (Unaudited)

First Quarter Second Quarter

Third Quarter

Fourth Quarter

Total

2018

Revenues:

Company sales

Franchise and property revenues

Franchise contributions for advertising and other
services

Total revenues

Restaurant profit

Operating Profit(a)

Net Income

Basic earnings per common share from continuing
operations

Diluted earnings per common share from continuing
operations

Dividends declared per common share

$

512

584

275

1,371

74

553

433

1.30

1.27

0.36

$

512

584

272

1,368

91

449

321

0.99

0.97

0.36

$

499

605

287

1,391

100

553

454

1.43

1.40

0.36

2017

$

477 $

2,000

709

2,482

372

1,558

101

741

334

1,206

5,688

366

2,296

1,542

1.07

4.80

1.04

0.36

4.69

1.44

Revenues:

Company sales

Franchise and property revenues

Total revenues

Restaurant profit

Operating Profit(b)

Net Income

Basic earnings per common share from continuing
operations

Diluted earnings per common share from continuing
operations

Dividends declared per common share

First Quarter Second Quarter

Third Quarter

Fourth Quarter

Total

$

902

515

1,417

144

484

280

0.78

0.77

0.30

$

909

539

1,448

161

419

206

0.59

0.58

0.30

$

871

565

1,436

154

643

418

1.21

1.18

—

$

890 $

3,572

687

1,577

159

1,215

436

2,306

5,878

618

2,761

1,340

1.29

3.86

1.26

0.30

3.77

0.90

(a)

(b)

Includes net gains from refranchising initiatives of $156 million, $29 million, $100 million and $255 million in the first, second, third and fourth
quarters, respectively.
Includes net gains from refranchising initiatives of $111 million, $19 million, $201 million and $752 million in the first, second, third and fourth
quarters, respectively.

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YUM! BRANDS, INC. - 2018 Form 10-K 83

PART II

ITEM 9 Changes In and Disagreements

with Accountants on Accounting
and Financial Disclosure

None.

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
supervision and with the
the
evaluation, performed under

including the Chief
participation of the Company’s management,
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
issued by the
Internal Control – Integrated Framework (2013)
Treadway
the
Committee

of Sponsoring Organizations

of

Commission. Based on our evaluation under
the framework in
Internal Control – Integrated Framework (2013), our management
concluded that our
reporting was
effective as of December 31, 2018.

internal control over

financial

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.

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 31,
2018.

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ITEM 9B Other Information

None.

84 YUM! BRANDS, INC. - 2018 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 31, 2018.

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 31, 2018.

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 31, 2018.

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 31, 2018.

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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 31, 2018.

YUM! BRANDS, INC. - 2018 Form 10-K 85

PART IV

ITEM 15

Exhibits and Financial Statement Schedules

(a)

(1)

(2)

(3)

Financial Statements: Consolidated Financial Statements filed as part of this report are listed under Part II, Item 8 of this Form 10-K.

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.

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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86 YUM! BRANDS, INC. - 2018 Form 10-K

PART IV

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 20, 2019

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

Date

Chief Executive Officer (principal executive officer)

February 20, 2019

President, Chief Operating Officer and Chief Financial Officer
(principal financial officer)

February 20, 2019

Senior Vice President, Finance and Corporate Controller (principal accounting officer)

February 20, 2019

/s/ Greg Creed
Greg Creed

/s/ David W. Gibbs
David W. Gibbs

/s/ David E. Russell
David E. Russell

/s/ Paget L. Alves
Paget L. Alves

/s/ Michael J. Cavanagh
Michael J. Cavanagh

Director

Director

/s/ Christopher M. Connor
Christopher M. Connor

Director

/s/ Brian C. Cornell
Brian C. Cornell

/s/ Tanya L. Domier
Tanya L. Domier

Director

Director

/s/ Mirian M. Graddick-Weir
Mirian M. Graddick-Weir

Director

/s/ Thomas C. Nelson
Thomas C. Nelson

/s/ P. Justin Skala
P. Justin Skala

/s/ Elane B. Stock
Elane B. Stock

/s/ Robert D. Walter
Robert D. Walter

Director

Director

Director

Director

February 20, 2019

February 20, 2019

February 20, 2019

February 20, 2019

February 20, 2019

February 20, 2019

February 20, 2019

February 20, 2019

February 20, 2019

February 20, 2019

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YUM! BRANDS, INC. - 2018 Form 10-K 87

PART IV

YUM! Brands, Inc.
Exhibit Index (Item 15)

Exhibit
Number Description of Exhibits

2.1

3.1

3.2

4.1

Separation and Distribution Agreement, dated as of October 31, 2016, by and among YUM, Yum Restaurants Consulting
(Shanghai) Company Limited and Yum China Holdings, Inc., which is incorporated herein by reference from Exhibit 2.1 to YUM’s
Report on Form 8-K filed on November 3, 2016.

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 July 15, 2016, which are incorporated herein by reference from Exhibit 3.1 to
YUM’s Report on Form 8-K filed on July 19, 2016.

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)

(ii)

(iii)

(iv)

(v)

(vi)

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 (included in Exhibit 4.1) to YUM’s Report on Form 8-K filed on October 22,
2007.

5.30% Senior Notes due September 15, 2019 issued under the foregoing May 1, 1998 indenture, which notes are
incorporated by reference from Exhibit 4.3 (included in Exhibit 4.1) to YUM’s Report on Form 8-K filed on August 25,
2009.

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 (included in Exhibit 4.1) to YUM’s Report on Form 8-K filed on August 31,
2010.

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 (included in Exhibit 4.1) to YUM’s Report on Form 8-K filed August 29, 2011.

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 (included in Exhibit 4.1) to YUM’s Report on Form 8-K filed October 31,
2013.

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 (included in Exhibit 4.1) to YUM’s Report on Form 8-K filed October 31,
2013.

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10.1

10.1.1

10.1.2

10.1.3

Credit Agreement, dated as of June 16, 2016, by and among Pizza Hut Holdings, LLC, KFC Holding Co., and Taco Bell of
America, LLC, as the borrowers, the lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent and Collateral
Agent, JPMorgan Chase Bank, N.A., Goldman Sachs Bank USA, Wells Fargo Securities, LLC, Citigroup Global Markets Inc.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley Senior Funding, Inc., Fifth Third Bank and The Bank of
Tokyo-Mitsubishi UFJ, Ltd., as Joint Lead Arrangers and Joint Bookrunners, Barclays Bank PLC, The Bank of Nova Scotia,
Cooperatieve Rabobank U.A., New York Branch, and Industrial and Commercial Bank of China Limited, New York Branch, as
Co-Documentation Agents and Co-Managers, which is incorporated herein by reference from Exhibit 4.1 to YUM’s Quarterly
Report on Form 10-Q for the quarter ended June 11, 2016.

Refinancing Amendment, dated as of March 21, 2017, to Credit Agreement dated as of June 16, 2016 among Pizza Hut
Holdings, LLC, KFC Holding Co. and Taco Bell of America, LLC, as borrowers, the Lenders from time to time party thereto and
JPMorgan Chase Bank, N.A., as Collateral Agent, Swing Line Lender, an L/C Issuer and Administrative Agent for the Lenders,
which is incorporated herein by reference from Exhibit 10.1 to YUM’s Report on Form 8-K as filed on March 23, 2017.

Refinancing Amendment No. 2, dated as of June 7, 2017, to Credit Agreement dated as of June 16, 2016, as amended, among
Pizza Hut Holdings, LLC, KFC Holding Co. and Taco Bell of America, LLC, as borrowers, the Lenders from time to time party
thereto and JPMorgan Chase Bank, N.A., as Collateral Agent, Swing Line Lender, an L/C Issuer and Administrative Agent for
the Lenders, which is incorporated herein by reference from Exhibit 10.1 to YUM’s Report on Form 8-K as filed on June 8,
2017.

Refinancing Amendment, dated as of April 3, 2018, to Credit Agreement dated as of June 16, 2016 among Pizza Hut Holdings,
LLC, KFC Holding Co. and Taco Bell of America, LLC, as borrowers, the Lenders from time to time party thereto and JPMorgan
Chase Bank, N.A., as Collateral Agent, Swing Line Lender, an L/C Issuer and Administrative Agent for the Lenders, which is
incorporated herein by reference from Exhibit 10.1 to YUM’s Report on Form 8-K as filed on April 9, 2018.

10.2†

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.

88 YUM! BRANDS, INC. - 2018 Form 10-K

PART IV
ITEM 15 Exhibit Index

Exhibit
Number Description of Exhibits

10.2.1†

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.

10.3†

10.4†

10.4.1†

10.5†

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.

10.5.1†

The Yum! Brands, Inc. Pension Equalization Plan, Restated Plan Document for the 409A Program effective January 1, 2005, as
amended through January 1, 2017 as filed herewith.

10.6†

10.7†

10.8†

10.9†

10.10†

10.11†

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 and Restated effective as of May 20, 2016 as incorporated by reference from
Form DEF 14A filed on April 8, 2016.

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.

10.11.1†

Form of YUM 1999 Long Term Incentive Plan Award Agreement (2013) (Stock Options), which is incorporated herein by
reference from Exhibit 10.15.1 to YUM’s Quarterly Report on Form 10-Q for the quarter ended March 23, 2013.

10.11.2†

Form of YUM 1999 Long Term Incentive Plan Award Agreement (2015) (Stock Options), which is incorporated herein by
reference from Exhibit 10.15.2 to YUM’s Annual Report on Form 10-K for the fiscal year ended December 27, 2014.

10.12†

10.13†

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.

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.

10.13.1†

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.

10.13.2†

Form of YUM 1999 Long Term Incentive Plan Award Agreement (2015) (Stock Appreciation Rights), which is incorporated
herein by reference from Exhibit 10.18.2 to YUM’s Annual Report on Form 10-K for the fiscal year ended December 27, 2014.

10.14†

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.

10.14.1†

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.

10.15†

10.16†

10.17†

YUM! Performance Share Plan, as amended and restated January 1, 2013, which is incorporated by reference from Exhibit 10.1
to YUM’s Quarterly Report on Form 10-Q for the quarter ended June 13, 2015.

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.

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YUM! BRANDS, INC. - 2018 Form 10-K 89

PART IV
ITEM 15 Exhibit Index

Exhibit
Number Description of Exhibits

10.18†

10.19†

10.20

10.21

10.22

10.22.1

10.22.2

10.22.3

10.22.4

10.24

10.25

10.25.1

10.25.2

10.26

10.27

21.1

23.1

31.1

31.2

32.1

1999 Long Term Incentive Plan Award (Stock Appreciation Rights) by and between the Company and David C. Novak, dated as
of February 6, 2015, 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 27, 2014.

YUM! Brands, Inc. Compensation Recovery Policy, Amended and Restated January 1, 2015, 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 27, 2014.

Indenture, dated as of June 16, 2016, by and among KFC Holding Co., Pizza Hut Holdings, LLC and Taco Bell of America, LLC,
as issuers, the Guarantors named therein and The Bank of New York Mellon Trust Company, N.A., as trustee, which is
incorporated herein by reference from Exhibit 4.1 to YUM’s Report on Form 8-K filed on June 21, 2016.

Indenture, dated as of June 15, 2017, by and among KFC Holding Co., Pizza Hut Holdings, LLC and Taco Bell of America, LLC,
as issuers, the Guarantors named therein and The Bank of New York Mellon Trust Company, N.A., as trustee, which is
incorporated herein by reference from Exhibit 4.1 to YUM’s Report on Form 8-K filed on June 16, 2017.

Base Indenture, dated as of May 11, 2016, between Taco Bell Funding, LLC, as issuer and Citibank, N.A., as trustee and
securities intermediary, which is incorporated herein by reference from Exhibit 4.1 to YUM’s Report on Form 8-K filed on
May 16, 2016.

Series 2016-1 Supplement to Base Indenture dated as of May 11, 2016, by and between Taco Bell Funding, LLC, as issuer and
Citibank, N.A. as Trustee and Series 2016-1 securities intermediary, which is incorporated herein by reference from Exhibit 4.2
to YUM’s Report on Form 8-K filed on May 16, 2016.

Series 2018-1 Supplement to Base Indenture, dated as of November 28, 2018, by and between the Issuer and Citibank, N.A.
as Trustee and Series 2018-1 securities intermediary, which is incorporated herein by reference from Exhibit 10.1 to YUM’s
Report on Form 8-K filed on December 3, 2018.

Amendment No. 1 to Base Indenture, dated as of August 23, 2016, by and between the Issuer and Citibank, N.A. as Trustee
and Series 2016-1 securities intermediary as filed herein.

Amendment No. 2 to Base Indenture, dated as of November 28, 2018, by and between the Issuer and Citibank, N.A. as Trustee
and the Series 2018-1 securities intermediary, which is incorporated herein by reference from Exhibit 10.2 to YUM’s Report on
Form 8-K filed on December 3, 2018.

Guarantee and Collateral Agreement, dated as of May 11, 2016, by Taco Bell Franchise Holder 1, LLC, Taco Bell Franchisor,
LLC, Taco Bell IP Holder, LLC and Taco Bell Franchisor Holdings, LLC in favor of Citibank, N.A., which is incorporated herein by
reference from Exhibit 10.2 to YUM’s Report on Form 8-K filed on May 16, 2016.

Management Agreement, dated as of May 11, 2016, among Taco Bell Funding, LLC, as issuer, Taco Bell Franchise Holder 1,
LLC, Taco Bell Franchisor, LLC, Taco Bell IP Holder, LLC, Taco Bell Franchisor Holdings, LLC, Citibank, N.A. and Taco Bell
Corp., as manager, which is incorporated herein by reference from Exhibit 10.3 to YUM’s Report on Form 8-K filed on May 16,
2016.

Amendment No.1 to Management Agreement, dated as of August 24, 2016, among Taco Bell Funding, LLC, as issuer, Taco
Bell Franchise Holder 1, LLC, Taco Bell Franchisor, LLC, Taco Bell IP Holder, LLC, Taco Bell Franchisor Holdings, LLC and
Taco Bell Corp., as manager as filed herein.

Amendment No. 2 to Management Agreement, dated as of November 28, 2018, among Taco Bell Funding, LLC, as issuer,
Taco Bell Franchise Holder 1, LLC, Taco Bell Franchisor, LLC, Taco Bell IP Holder, LLC, Taco Bell Franchisor Holdings, LLC,
Citibank, N.A. and Taco Bell Corp., as manager as filed herein.

Master License Agreement, dated as of October 31, 2016, by and between Yum! Restaurants Asia Pte. Ltd. and Yum
Restaurants Consulting (Shanghai) Company Limited, which is incorporated herein by reference from Exhibit 10.1 to YUM’s
Report on Form 8-K filed on November 3, 2016.

Tax Matters Agreement, dated as of October 31, 2016, by and among YUM, Yum China Holdings, Inc. and Yum Restaurants
Consulting (Shanghai) Company Limited, which is incorporated herein by reference from Exhibit 10.2 to YUM’s Report on
Form 8-K filed on November 3, 2016.

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.

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.

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90 YUM! BRANDS, INC. - 2018 Form 10-K

PART IV
ITEM 15 Exhibit Index

Exhibit
Number Description of Exhibits

32.2

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.

101.INS

Instance Document—the instance document does not appear in the Interactive Data File because its XBRL tags are embedded
within the Inline XBRL document

101.SCH XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

†

Indicates a management contract or compensatory plan.

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YUM! BRANDS, INC. - 2018 Form 10-K 91

[THIS PAGE INTENTIONALLY LEFT BLANK]

Cautionary Language Regarding
Forward-Looking Statements

are

“will,”

“model,”

“project,”

“ongoing,”

appropriate

under
are

statements” within

Forward-Looking Statements. This
report may contain
of
“forward-looking
the meaning
Section 27A of the Securities Act of 1933 and Section 21E of
the Securities Exchange Act of 1934. We intend all forward-
looking statements to be covered by the safe harbor
provisions of the Private Securities Litigation Reform Act of
1995. Forward-looking statements generally can be identified
by the fact that they do not relate strictly to historical or current
facts and by the use of
forward-looking words such as
“expect,” “expectation,” “believe,” “anticipate,” “may,” “could,”
“intend,” “belief,” “plan,” “estimate,” “target,” “predict,” “likely,”
“seek,”
“should,”
“forecast,” “outlook” or similar terminology. These statements
are based on and reflect our current expectations, estimates,
assumptions and/or projections, our perception of historical
trends and current conditions, as well as other factors that we
the
believe
reasonable
and
circumstances.
neither
Forward-looking statements
predictions nor guarantees of future events, circumstances or
to known and
performance and are inherently subject
unknown risks, uncertainties and assumptions that could
cause our actual
results to differ materially from those
indicated by those statements. There can be no assurance
that our
and/or
projections, including with respect to the future earnings and
performance or capital structure of Yum! Brands, will prove to
be correct or
that any of our expectations, estimates or
projections will be achieved. Numerous factors could cause
our actual results and events to differ materially from those
expressed or implied by forward-looking statements, including,
without limitation: food safety and food borne-illness issues;
health concerns arising from outbreaks of viruses or other
diseases; the success of our franchisees and licensees, and
including our
the success of our transformation initiatives,
refranchising strategy; our significant exposure to the Chinese
market; changes in economic and political conditions in
countries and territories outside of the U.S. where we operate;
our ability to protect the integrity and security of individually
identifiable data of our customers and employees; our
increasing dependence on digital commerce platforms and
information technology systems; the impact of social media;
our ability to secure and maintain distribution and adequate
supply to our restaurants; the success of our development
strategy in emerging markets; changes in commodity, labor
and other operating costs; pending or future litigation and legal
claims or proceedings; changes in or noncompliance with
government regulations, including labor standards and anti-

expectations,

assumptions

estimates,

bribery or anti-corruption laws; recent changes in U.S. tax law
and other tax matters, including disagreements with taxing
authorities; consumer preferences and perceptions of our
brands; changes in consumer discretionary spending and
general economic conditions; competition within the retail food
industry; and risks relating to our significant amount of
indebtedness. In addition, other risks and uncertainties not
presently known to us or that we currently believe to be
immaterial could affect the accuracy of any such forward-
looking statements. All forward-looking statements should be
evaluated with the understanding of their inherent uncertainty.
The forward-looking statements included in this report are only
made as of
this report and we disclaim any
obligation to publicly update any forward-looking statement to
reflect subsequent events or circumstances. You should
filings with the Securities and Exchange
consult our
Commission (including the information set
forth under the
captions “Risk Factors” and “Forward-Looking Statements” in
our most recently filed Annual Report on Form 10-K and
for additional detail about
Quarterly Report on Form 10-Q)
factors that could affect our financial and other results.

the date of

Trademarks and Brands. We use “Yum! Brands” and the Yum!
logo as our
trademarks. Product names and services
appearing in this report are trademarks of Yum! Brands, Inc. or
its subsidiaries. This report also may refer to brand names,
trademarks, service marks and trade names of other
companies and organizations, and these brand names,
trademarks, service marks and trade names are the property
of their respective owners.

Market and Industry Data. Unless we indicate otherwise, we
base the information concerning our industry contained in this
report on our general knowledge of and expectations
concerning the industry. Our market position and market share
is based on our estimates using data from various industry
sources and assumptions that we believe to be reasonable
based on our knowledge of
the industry. We have not
independently verified the data obtained from these sources
and cannot
accuracy or
completeness.

the data’s

you of

assure

Non-GAAP Measures. This report includes certain non-GAAP
financial measures. Reconciliation of these non-GAAP financial
measures to the most directly comparable GAAP measures are
included on our website at http://www.investors.yum.com
Investors are urged to consider carefully the comparable GAAP
measures and reconciliations.

Shareholder Information

Inquiries Regarding Your YUM Holdings

REGISTERED SHAREHOLDERS (those who hold YUM shares in
their own names) should address communications concerning
statements,
lost certificates and other
administrative matters to:

changes,

address

Computershare, Inc.
462 South 4th Street, Suite 1600
Louisville, KY 40202
Phone: (888) 439-4986
International: 1+ (781) 575-3100
www.computershare.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
Computershare, Inc. (“Computershare”): www.computershare.com

(cid:129) Access account balance and other general account information

(cid:129) Change an account’s mailing address

(cid:129) View a detailed list of holdings represented by certificates and

the identifying certificate numbers

(cid:129) Request a certificate for shares held at Computershare

(cid:129) Replace a lost or stolen certificate

(cid:129) Retrieve a duplicate Form 1099-B, Form 1099-DIV

(cid:129) Purchase shares of YUM through the Company’s Direct Stock

Purchase Plan

(cid:129) Sell shares held at Computershare

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 Computershare at (888) 439-4986.

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.

LONG TERM INCENTIVE PLAN (LTIP) PARTICIPANTS
(employees with rights
to LTIP and YUMBUCKS stock
appreciation rights grants) should address all questions regarding
their accounts, outstanding stock appreciation rights grants or
shares received through stock appreciation right exercises to:

Merrill Lynch
Equity Award Services
1400 American Blvd.
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.

Shareholder Services

DIRECT STOCK PURCHASE PLAN

INDEPENDENT AUDITORS

A prospectus and a brochure explaining this convenient plan are
available from our transfer agent:

Computershare, Inc.
462 South 4th Street, Suite 1600
Louisville, KY 40202
Phone: (888) 439-4986
International: 1+ (781) 575-3100

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:

KPMG, LLC
400 West Market Street, Suite 2600
Louisville, Kentucky 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.

Mr. Keith Siegner
Vice President, Investor Relations,
Corporate Strategy & Treasurer
Yum! Brands, Inc.
1900 Colonel Sanders Lane
Louisville, KY 40213
Phone: (888) 298-6986

Franchise Inquiries

ONLINE FRANCHISE INFORMATION

Information about potential franchise opportunities is available at
www.yum.com/wps/portal/yumbrands/Yumbrands/company/
our-brands/franchising-and-real-estate

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.

SENIOR OFFICERS

Greg Creed 61
Chief Executive Officer,
Yum! Brands, Inc.

Scott A. Catlett 43
General Counsel and Corporate Secretary,
Yum! Brands, Inc.

David W. Gibbs 56
President and Chief Financial Officer, and Chief
Operating Officer,
Yum! Brands, Inc.

David E. Russell 49
Senior Vice President, Finance and Corporate
Controller,
Yum! Brands, Inc.

Keith Siegner 44
Vice President, Investor Relations, Corporate
Strategy and Treasurer,
Yum! Brands, Inc.

Tracy Skeans 46
Chief Transformation and People Officer,
Yum! Brands, Inc.

BOARD OF DIRECTORS

Greg Creed 61
Chief Executive Officer,
Yum! Brands, Inc.

Paget L. Alves 64
Former Chief Sales Officer,
Sprint Corporation

Michael J. Cavanagh 53
Senior Executive Vice President and Chief Financial Officer,
Comcast Corporation

Christopher M. Connor 63
Former Chairman and Chief Executive Officer,
Sherwin-Williams Company

Brian C. Cornell 60
Chairman and Chief Executive Officer,
Target Corporation

Tanya L. Domier 53
Chief Executive Officer,
Advantage Solutions, Inc.

Mirian M. Graddick-Weir 64
Retired Executive Vice President Human Resources,
Merck & Co., Inc.

Thomas C. Nelson 56
Chairman, Chief Executive Officer and President,
National Gypsum Company

P. Justin Skala 59
Executive Vice Presdient, Chief Growth &
Strategy Officer,
Colgate-Palmolive Company

Elane B. Stock 54
Former Group President,
Kimberly-Clark International

Robert D. Walter 73
Founder and Retired Chairman/CEO,
Cardinal Health, Inc.