Yum! Brands
Annual Report 2021

Plain-text annual report

Unlocking Opportunity for YUM! BRANDS 2021 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 Special Items Diluted Earnings Per Common Share (a) Diluted Earnings Per Common Share before Special Items (a) Net Cash Provided by Operating Activities (a) See our 2021 Form 10-K for further discussion of Special Items. 2021 $ 2,106 2,900 1,578 $ 6,584 $ 2,139 $ 1,575 $ 5.21 .75 $ 4.46 $ 1,706 2020 $ 1,810 2,510 1,332 $ 5,652 $ 1,503 $ 904 $ 2.94 (0.68) $ 3.62 $ 1,305 % B/(W) change 16 16 18 16 42 74 77 NM 23 31 ABOUT THE PAPER USED FOR THIS REPORT The inks used in the printing of this report contain an average of 25% - 35% vegetable oils from plant derivatives, a renewable resource. They replace petroleum based inks as an effort to also reduce volatile organic compounds (VOCs). The cover and first page of this report were printed using FSC-certified paper made with 10% post-consumer waste. investors.yum.com/annualreport David Gibbs, Chief Executive Officer Yum! Brands, Inc. UNLOCKING OPPORTUNITY FOR GROWTH & GOOD Dear Fellow Stakeholders: At Yum!, we have a clear vision for building the world’s most loved, trusted and fastest growing restaurant brands. It begins with our franchisees and restaurant team members who bring our vision to life, one meal at a time. As the world’s largest restaurant company, our unified global system of more than 53,000 restaurants in over 155 countries serves millions of customers each day, provides opportunities for our team members and supports the communities in which we operate. Before looking back at last year’s accomplishments, I want to acknowledge that while we see a bright future ahead for our global business in 2022 and beyond, our hearts are with the people impacted by the crisis currently playing out in Ukraine. We hope for peace to be restored in the region, and we are taking action to help ensure the safety of our people, support humanitarian causes in the region and suspend key components of our operations in Russia. Reflecting on 2021, I am incredibly proud of the collective accomplishments of our Yum! teams, franchise partners and restaurant team members around the world. We maximized the structural advantages of our diversified global portfolio by leveraging our unmatched global scale, sophisticated supply chains, marketing and consumer insights expertise, and our growing digital and technology capabilities to fuel growth and deliver strong results. Our 2021 results show that our portfolio of iconic brands, run by the very best in the business and guided by our Recipe for Growth & Good, can thrive and win in any environment. We’re entering 2022 in an enviable position that’s underpinned by the resiliency of our highly-franchised business model and our relevant, easy and distinctive brands. 2021 Highlights: We remain committed to advancing our Recipe for Growth. During 2021, we opened nearly 4,200 restaurants in over 110 countries, resulting in 3,057 net-new units and signaling that our development engine is diversified and stronger than ever. This accelerated restaurant development is a testament to the health of our business. Our digital sales reached new heights hitting $22 billion in 2021, an increase of approximately 25% year over year and demonstrating a more permanent shift to these channels. We galvanized our digital and technology strategy and advanced the development of our ecosystem with both internal investments and the closing of the Kvantum, Tictuk and Dragontail acquisitions. Our investments in digital and technology that enable Easy Experiences, Easy Operations and Easy Insights are proving to both support and accelerate our growth. We also continued to make progress on our Recipe for Good in 2021, focused on our three priority pillars: People, Food and Planet. During the year, we invested in Yum!’s social purpose, unlocking opportunities for our people and communities through initiatives like the launch of the Yum! Center for Global Franchise Excellence at the University of Louisville, a first-of-its-kind business program offering multiple levels of online education that emphasize the possibilities of franchising as a pathway to entrepreneurship for underrepresented people of color and women. We continue to introduce relevant and distinctive plant-based offerings through our partnership with Beyond Meat. In addition, we announced science-based targets to reduce greenhouse gas emissions nearly 50% by 2030 and pledged to achieve net-zero emissions by 2050. To bring these accomplishments to life, let me share specific highlights from each of our brands: KFC is “Always Original.” KFC expanded its presence across the globe with unprecedented new restaurant openings, coupled with accelerated digital capabilities including increasing the number of restaurants offering delivery by more than 20% since 2020. KFC successfully launched its chicken sandwich platform in the U.S. to match its globally successful sandwich offerings in multiple international markets. Taco Bell is truly a Category of One for Everyone, believing everyone deserves the right to Live Más. The brand spent 2021 advancing its digital capabilities and growing the Taco Bell Rewards loyalty program while also welcoming its morning customers back with the national relaunch of the breakfast daypart. Additionally, Taco Bell reached a significant development milestone in its international business as Spain became its first international market to surpass 100 units. Pizza Hut is committed to ensuring every customer has a Hot, Fast and Reliable experience, as it continues to shift to digital ordering and off-premises channels. The brand remains focused on providing customers with easy experiences and convenient offerings. Pizza Hut’s intelligent coaching app, HutBot, is deployed in over 6,000 stores worldwide, enabling easy operations for team members, while Dragontail allows the brand to streamline food preparation and optimize its delivery routes, ensuring the customer receives the freshest product with each order. The Habit Burger Grill is the spirit of Santa Barbara, California, and its commitment to quality is at the heart of everything it does. In 2021, the Habit prioritized its restaurant team member experience, simplifying its operations, revitalizing its core menu items and driving customer awareness through new access options and digital engagements. Our Recipe for Growth’s four growth drivers are our foundation to build sustainable, long-term results. Outlined below, they drive higher same-store sales and net-new unit growth and serve as our guiding principles across all business decisions. Unrivaled Culture & Talent Leveraging our people-first culture to fuel brand performance and franchisee success Bold Restaurant Development Driving market and franchise unit expansion with strong economics Unmatched Operating Capability Recruiting and equipping the best restaurant operators in the world to deliver great customer experiences Relevant, Easy & Distinctive Brands Innovating and elevating iconic restaurant brands that people trust and champion Our Recipe for Good continues to reflect our priorities for social responsibility, risk management and sustainable stewardship of our People, Food and Planet. People: We Unlock Opportunity We’re investing in Yum!’s social purpose to unlock opportunities for our people and communities with a special focus on championing equity, inclusion and belonging, education and skills, and entrepreneurship across all aspects of our brands and franchise business. Food: We Serve Food People Trust We have an unwavering commitment to serve food that people trust. That means going above and beyond when it comes to food safety, listening and responding to customers’ evolving preferences, and improving the nutritional value of our menu items. Planet: We Grow Sustainably We remain committed to growing sustainably and using our scale to minimize our environmental impact with a focus on reducing carbon emissions, plastic waste and land use across our restaurants and supply chain. In closing, our record unit development during 2021 marked the strongest growth year in Yum!’s history. We’re entering 2022, which marks Yum!’s 25th anniversary, stronger than ever, guided by our Recipe for Growth & Good strategies. I’m excited for the year ahead as we continue our efforts to remain among the world’s most loved, trusted and fastest growing restaurant brands while delivering lasting value for our stakeholders. Thank you to our shareholders, customers and Yum! family for your continued support. David Gibbs, CEO YUM! Brands, Inc. 1441 Gardiner Lane Louisville, Kentucky 40213 April 8, 2022 Dear Fellow Shareholders: On behalf of your Board of Directors, we are pleased to invite you to attend the 2022 Annual Meeting of Shareholders of YUM! Brands, Inc. The Annual Meeting will be held Thursday, May 19, 2022, at 9:00 a.m., central time, in the YUM! Brands Center of Restaurant Excellence at 7100 Corporate Drive in Plano, Texas. We intend to hold our annual meeting in person. However, we continue to monitor the situation regarding COVID-19 closely, taking into account guidance from the Centers for Disease Control and Prevention and the World Health Organization. The health and well-being of our various stakeholders is our top priority. Accordingly, we are planning for the possibility that the annual meeting may be required to be postponed or held solely by webcast in the event we or governmental officials determine that it is not advisable to hold an in-person meeting. In the event the annual meeting is postponed or held solely by webcast, we will announce that fact as promptly as practicable, and details on how to participate will be issued by press release, posted on the Investor Relations section of our website and filed with the U.S. Securities and Exchange Commission as additional proxy material. 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 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. If you plan to attend the meeting in person, please bring your notice, admission ticket from your proxy card or proof of your ownership of YUM common stock as of March 14, 2022, as well as valid picture identification. Whether or not you plan to attend, we encourage you to consider the matters presented in the proxy statement and vote as soon as possible. P r o x y S t a t e m e n t Sincerely, David Gibbs Chief Executive Officer Important Notice Regarding the Availability of Proxy Materials for the Shareholders Meeting to Be Held on May 19, 2022—this notice and the proxy statement are available at https://investors.yum.com/governance/ governance-documents. The Annual Report on Form 10-K is available at https://investors.yum.com/ financial-information/annual-reports/. YUM! Brands, Inc. 1441 Gardiner Lane Louisville, Kentucky 40213 Notice of Annual Meeting of Shareholders Thursday, May 19, 2022 9:00 a.m. YUM! Brands Center of Restaurant Excellence, 7100 Corporate Drive, Plano, Texas 75024. ITEMS OF BUSINESS: (1) (2) (3) (4) To elect twelve (12) directors to serve until the 2023 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, 2022. To consider and hold an advisory vote on executive compensation. 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 14, 2022. ANNUAL REPORT: A copy of our 2021 Annual Report on Form 10-K is included with this proxy statement. WEBSITE: P r o x y S t a t e m e n t You may also read the Company’s Annual Report and this Notice and proxy statement on our website at https://investors.yum.com/financial-information/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 8, 2022. By Order of the Board of Directors Scott A. Catlett Chief Legal & Franchise Officer & 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 8, 2022, 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 Director Biographies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Director Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . MATTERS REQUIRING SHAREHOLDER ACTION ITEM 1 Election of Directors (Item 1 on the Proxy Card) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ITEM 2 Ratification of Independent Auditors (Item 2 on the Proxy Card) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ITEM 3 Advisory Vote on Executive Compensation (Item 3 on the Proxy Card) t n e m e t a t S y x o r P STOCK OWNERSHIP INFORMATION DELINQUENT SECTION 16(a) REPORTS EXECUTIVE COMPENSATION Compensation Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Summary Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . All Other Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Grants of Plan-Based Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outstanding Equity Awards at Year-End . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Option Exercises and Stock Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pension Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Nonqualified Deferred Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Potential Payments Upon Termination or Change in Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CEO Pay Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EQUITY COMPENSATION PLAN INFORMATION AUDIT COMMITTEE REPORT ADDITIONAL INFORMATION 1 1 7 12 18 28 28 29 30 32 34 34 34 54 55 56 58 59 60 62 65 67 69 71 74 YUM! Brands, Inc. 1441 Gardiner Lane Louisville, Kentucky 40213 PROXY STATEMENT For Annual Meeting of Shareholders To Be Held On May 19, 2022 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. (Central Time), on Thursday, May 19, 2022, at the YUM! Brands Center of Restaurant Excellence at 7100 Corporate Drive in Plano, Texas. We intend to hold our annual meeting in person. However, we continue to monitor the situation regarding COVID-19 closely, taking into account guidance from the Centers for Disease Control and Prevention and the World Health Organization. The health and well-being of our various stakeholders is our top priority. Accordingly, we are planning for the possibility that the annual meeting may be required to be postponed or held solely by webcast in the event we or governmental officials determine that it is not advisable to hold an in-person meeting. In the event the annual meeting is postponed or held solely by webcast, we will announce that fact as promptly as practicable, and details on how to participate will be issued by press release, posted on the Investor Relations section of our website and filed with the U.S. Securities and Exchange Commission as additional proxy material. 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. P r o x y S t a t e m e n t QUESTIONS AND ANSWERS ABOUT THE MEETING AND VOTING What is the purpose of the Annual Meeting? At our Annual Meeting, shareholders will vote on several important Company matters. In addition, our management will report on the Company’s performance over the last fiscal year and, following the meeting, respond to questions from shareholders. Why am I receiving these materials? The Board has made these materials available to you over the internet, or has delivered printed versions of these materials to you by mail, in connection with the Board’s solicitation of proxies for use at the 2022 Annual Meeting of Shareholders (the “Annual Meeting”). The Annual Meeting is scheduled to be held on Thursday, May 19, 2022 at 9:00 a.m. Central Time, at 7100 Corporate Drive, Plano, Texas. This solicitation is for proxies for use at the Annual Meeting or at any reconvened meeting after an adjournment or postponement of the Annual Meeting. YUM! BRANDS, INC. - 2022 Proxy Statement 1 QUESTIONS AND ANSWERS ABOUT THE MEETING AND VOTING 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 8, 2022, we mailed to our shareholders a Notice containing instructions on how to access this proxy statement and our Annual Report and vote online. If you received a Notice by mail you will not receive a printed copy of the proxy materials in the mail unless you request a copy. The Notice instructs you on how to access and review all of the important information contained in the proxy statement and Annual Report. The Notice also instructs you on how you may submit your proxy over the Internet. If you received a Notice by mail and would like to receive a printed copy of our proxy materials, you should follow the instructions for requesting such materials contained on the Notice. We encourage you to take advantage of the availability of the proxy materials on the Internet in order to help lower the costs of delivery and reduce the Company’s environmental impact. Who may attend the Annual Meeting? t n e m e t a t S y x o r P The Annual Meeting is open to all shareholders of record as of close of business on March 14, 2022, or their duly appointed proxies. What do I need to bring to attend the Annual Meeting In-Person? You will need 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 in person, 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 in order to vote at If you do not bring your admission ticket, you will need proof of ownership to be admitted to the Annual Meeting. A recent brokerage statement or letter from a bank or broker is an example of proof of ownership. If you arrive at the the meeting. 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 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. sound or Please note that cellular and smart phones/devices, video recording computers, cameras, equipment, and other similar devices, large bags, briefcases and packages will not be allowed in the meeting room. Seating is limited and admission is on a first-come, first-served basis. Seating may be further limited if necessary to comply with applicable COVID-19 safety guidelines. 2 YUM! BRANDS, INC. - 2022 Proxy Statement QUESTIONS AND ANSWERS ABOUT THE MEETING AND VOTING May shareholders ask questions? the Company will answer Yes. Representatives of 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 Who may vote? question and no repetitive or follow-up questions will be permitted. Questions will be answered as time allows. You may vote if you owned YUM common stock as of the close of business on the record date, March 14, 2022. Each share of YUM common stock is entitled to one vote. As of March 14, 2022, YUM had 288.2 million shares of common stock outstanding. What am I voting on? You will be voting on the following three (3) items of business at the Annual Meeting: (cid:129) The election of twelve (12) directors to serve until the next Annual Meeting of Shareholders and until their respective successors are duly elected and qualified; (cid:129) The ratification of the selection of KPMG LLP as our the fiscal year ending independent auditors for December 31, 2022; and (cid:129) An advisory vote on executive compensation. We will also consider other business that properly comes before the meeting. P r o x y S t a t e m e n t How does the Board of Directors recommend that I vote? Our Board of Directors recommends that you vote your shares: (cid:129) FOR the ratification of the selection of KPMG LLP as our independent auditors; and (cid:129) FOR each of the nominees named in this proxy (cid:129) FOR the proposal regarding an advisory vote on statement for election to the Board; executive compensation. 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 (ComputerShare 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. YUM! BRANDS, INC. - 2022 Proxy Statement 3 QUESTIONS AND ANSWERS ABOUT THE MEETING AND VOTING t n e m e t a t S y x o r P Proxies submitted through the Internet or by telephone as described above must be received by 11:59 p.m., Eastern Time, on May 18, 2022. Proxies submitted by mail must be received prior to the meeting. Directions submitted by 401(k) Plan participants must be received by 12:00 p.m., Eastern Time, on May 17, 2022. 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 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. Can I change my mind after I vote? 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 Time, on May 18, 2022. (www.proxyvote.com). Votes 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. 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 Time, on May 18, 2022; (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? 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 twelve (12) nominees for director named in this proxy statement (Item 1); 4 YUM! BRANDS, INC. - 2022 Proxy Statement (cid:129) FOR the ratification of the selection of KPMG LLP as our independent auditors for the fiscal year 2022 (Item 2); and (cid:129) FOR the proposal regarding an advisory vote on executive compensation (Item 3). QUESTIONS AND ANSWERS ABOUT THE MEETING AND VOTING What does it mean if I receive more than one proxy card? It means that you have multiple accounts with brokers and/or our transfer agent. Please vote all of these shares. We recommend that you contact your broker to consolidate as many and/or our transfer agent the same name and accounts as possible under 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 2022 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.” 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 14, 2022, must be present 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. P r o x y S t a t e m e n t 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, 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 “AGAINST” votes. Abstentions will be number of counted as present but not voted. Abstentions and broker non-votes will not affect the outcome of the vote on directors. Full details of the Company’s majority voting policy are set out in our Corporate Governance Principles at https://investors.yum.com/ governance/governance-documents/ and at page 21 under “What other significant Board practices does the Company have? — Majority Voting Policy.” YUM! BRANDS, INC. - 2022 Proxy Statement 5 QUESTIONS AND ANSWERS ABOUT THE MEETING AND VOTING How many votes are needed to approve the other proposals? in person or In order to be approved, the other proposals must receive the “FOR” vote of a majority of the shares, present represented by proxy, and entitled to vote at the Annual Meeting. For each of these items, you may vote “FOR”, “AGAINST” or “ABSTAIN.” Abstentions will be counted as shares present and entitled to vote at the Annual Meeting. Accordingly, abstentions will have the same effect as a vote “AGAINST” the proposals. Broker non-votes will not be counted as shares present and entitled to vote with respect to the particular matter on which the broker has not voted. Thus, broker non-votes will not affect the outcome of any of these proposals. When will the Company announce the voting results? The Company will announce the voting results of the Annual Meeting on a Current Report on Form 8-K filed within four business days of the Annual Meeting. What if other matters are presented for consideration at the Annual Meeting? 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. t n e m e t a t S y x o r P 6 YUM! BRANDS, INC. - 2022 Proxy Statement GOVERNANCE OF THE COMPANY The business and affairs of YUM are managed under the direction of the Board of Directors. The Board believes that good corporate governance is a critical factor in achieving business success and in fulfilling the Board’s responsibilities to shareholders. The Board believes that its practices align management and shareholder interests. The corporate governance section of the Company website makes available the Company’s corporate governance materials, including the Corporate Governance Principles (the “Governance Principles”), the Company’s Articles of Incorporation and Bylaws, the charters for each Board committee, the Company’s Global 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, please visit, https://investors.yum.com/governance/governance-documents/. CORPORATE GOVERNANCE Governance Highlights SHAREHOLDER RIGHTS COMPENSATION 12 Director Nominees Annual Election of Directors 11 Independent Nominees Majority Voting of Directors Proxy Access Shareholder Communication Process for communicating with Board Active Shareholder Engagement Program Directors with experience, qualification and skills across a wide range of public and private companies Board access to Senior Management and Independent Advisors Independent Non-Executive Chairperson Independent Board Committees Executive Sessions of Independent Directors at every regular Board and Committee meeting Risk Oversight by Board and its Committees Annual Board and Committee Self-Evaluations All Directors Attended at least 75% of Meetings Held YUM’s Global Code of Conduct Political Contributions and U.S. Government Advocacy Policy Audit Committee Complaint Procedures Policy regarding Accounting Matters No Hedging or Pledging of Company Stock P r o x y S t a t e m e n t Independent Management Planning and Development Committee Independent Compensation Consultant Executive Compensation is Highly Performance Based to Align with Shareholder Interests and Promote Company Business Strategy At Risk Pay Tied to Performance Strong Stock Ownership Guidelines No Employment Agreements or Guaranteed Bonuses Compensation Recovery Policy (Clawback) applies to Equity and Bonus Awards Double trigger vesting upon Change in Control No excise tax gross up YUM! BRANDS, INC. - 2022 Proxy Statement 7 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 12 directors whose terms expire at this Annual Meeting. Our directors are elected annually. The average director tenure is 6 years, with our longest- and shortest-tenured directors having served for 16 years (Mr. Nelson) and for 2 years (Mr. Barr and Mmes. Hobart and Young-Scrivner), respectively. As discussed in more detail later in this section, the Board has determined that 11 of the 12 individuals standing for election are independent under the rules of the New York Stock Exchange (“NYSE”). The director tenure of the 12 individuals standing for election is reflected in the following chart: 6 Directors 4 Directors 2 Directors t n e m e t a t S y x o r P How often did the Board meet in 2021? The Board of Directors met 6 times during 2021. Each of the directors who served in 2021 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 Directors’ policy is that all directors should attend the Annual Meeting and all persons then serving as directors attended the 2021 Annual Meeting. How does the Board select nominees for the Board? candidates and Governance Committee The Nominating considers Board membership for 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 8 YUM! BRANDS, INC. - 2022 Proxy Statement to the Board and management. and are selected based upon contributions they can make The Committee’s assessment of a proposed candidate will include a review of the person’s judgment, experience, 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. While the Board does not have a specific policy the Committee believes that its nominees should reflect a diversity of experience, gender, race, ethnicity and age. The Committee also considers such other relevant factors as it deems appropriate, including the the balance of current composition of management and independent directors, the need for Audit Committee expertise and the evaluations of other prospective nominees, if any. regarding director diversity, the Board, In connection with this evaluation, it is expected that the Nominating and Governance each member of Committee will interview the prospective nominee before the prospective nominee is presented to the full Board for 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. consideration. After GOVERNANCE OF THE COMPANY The Company’s strategic vision is grounded in our “Recipe for Growth and Good.” Our Recipe for Growth 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) Growing Unrivaled Culture and Talent to leverage our culture and people capability to fuel brand performance and franchise success; (cid:129) Developing Unmatched Operating Capability, by recruiting and equipping the best restaurant operators in the world to deliver great customer experiences; (cid:129) Building Relevant, Easy and Distinctive Brands, by innovating and elevating iconic restaurant brands people trust and champion; and (cid:129) Achieving Bold Restaurant Development by driving expansion with strong and franchise market economics and value. We look for director candidates who 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 considered to ensure that they align with the Company’s goals. P r o x y S t a t e m e n t YUM! BRANDS, INC. - 2022 Proxy Statement 9 GOVERNANCE OF THE COMPANY 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: Yum!’s Recipe for Growth Relevant Skills our Board Collectively Possesses Growing Unrivaled Culture and Talent, by leveraging our culture and people capability to fuel brand performance and franchise success Talent Development. Experience building the knowledge, skills, and abilities of employees and helping them develop and achieve their potential within an organization. Leadership Experience. Experience as executive officer level business leader who demonstrates strong abilities to motivate and manage others and to effectively manage organizations. Developing Unmatched Operating Capability, by recruiting and equipping the best restaurant operators in the world to deliver great customer experiences Industry/Operations. Experience and understanding of operational and strategic issues facing large restaurant or consumer service driven companies. Building Relevant, Easy and Distinctive Brands, by innovating and elevating iconic restaurant brands people trust and champion Achieving Bold Restaurant Development, by driving market and franchise expansion with strong economics Marketing/Brand Management. Experience marketing and managing well-known brands or the types of products and experiences we sell. Technology or Digital. Experience in leadership and understanding of technology, digital platforms and new media, data security, and data analytics. Global Experience. Experience at multinational companies or in international markets, which provides useful business and cultural perspectives. Finance. Experience in public company management and financial stewardship. Our “Recipe for Good” provides a roadmap for socially responsible and sustainable stewardship of people, food and planet. This allows us to elevate the importance of people and continue building an equitable and inclusive culture that, in turn, helps us better serve our customers and communities where we operate. Guided by this Recipe, we will strive to unlock potential in people and communities, grow sustainably and continue to serve delicious food that people trust. In 2020 we announced our Unlocking Opportunity Initiative, which focuses on equity and inclusion, education, and entrepreneurship and is supported by a $100 million investment over five years (beginning in 2020). t n e m e t a t S y x o r P 10 YUM! BRANDS, INC. - 2022 Proxy Statement 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. s e v l A r r a B r o n n o C l l e n r o C i r e m o D s b b G i r i e W - k c i d d a r G t r a b o H n o s l e N a l a k S k c o t S r e n v i r c S - g n u o Y Experience/Background Leadership Experience Global Experience Finance Industry/Operations Marketing/Brand management Talent Development Technology or Digital 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 75. P r o x y S t a t e m e n t YUM! BRANDS, INC. - 2022 Proxy Statement 11 GOVERNANCE OF THE COMPANY Director Biographies Background 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 Assurant, Inc. and Synchrony Financial. Mr. Alves has previously served as a Director of Ariel Investments, LLC and International Game Technology PLC. Specific Qualifications, Experience, Skills and Expertise: (cid:129) Operating, finance and management experience, including as Chief Sales Officer of a wireless and wireline communications company (cid:129) Global sales experience (cid:129) Public company directorship and committee experience Background Keith Barr is the Chief Executive Officer of InterContinental Hotels Group plc (IHG), a predominately franchised, global organization that includes brands such as InterContinental Hotels & Resorts, Holiday Inn Family and Crowne Plaza Hotels & Resorts. He has served in this role since July 2017. He served as Chief Commercial Officer of IHG from 2013 to July 2017 and prior to that, as Chief Executive Officer of IHG’s Greater China business. Prior to this position, Mr. Barr served IHG in a number of senior positions in IHG’s Americas and Asia, Middle East and Africa (AMEA) regions. Specific Qualifications, Experience, Skills and Expertise: (cid:129) Operating and management experience, including as Chief Executive Officer of a franchised, global company (cid:129) Expertise in strategic planning, branding and corporate leadership Paget L. Alves Age 67 Director since 2016 Independent Committees: (cid:129) Audit, Chair Favorite YUM! Brands Food: Chicken Chalupas Keith Barr Age 51 Director since 2020 Independent Committees: (cid:129) Management Planning and Development Favorite YUM! Brands Food: 7 Layer Burrito t n e m e t a t S y x o r P 12 YUM! BRANDS, INC. - 2022 Proxy Statement GOVERNANCE OF THE COMPANY Background 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: (cid:129) Operating and management experience, including as Chairman and CEO of a Fortune 500 company (cid:129) Expertise in marketing, human resources, talent development, public company executive compensation, planning and operational and financial processes (cid:129) Public company directorship and committee experience Background Brian C. Cornell joined the Yum! Brands Board in 2015 and has served as Non-Executive Chairman since November 2018. Mr. Cornell is Chairperson 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. Specific Qualifications, Experience, Skills and Expertise: (cid:129) Operating and management experience, including as Chairman and Chief Executive Officer of a merchandise retailer (cid:129) Expertise in strategic planning, retail business, branding and corporate leadership (cid:129) Public company directorship experience and committee experience P r o x y S t a t e m e n t Christopher M. Connor Age 66 Director since 2017 Independent Committees: (cid:129) Management Planning and Development, Chair Favorite YUM! Brands Food: Chicken Pot Pie Brian C. Cornell Age 63 Director since 2015 Independent, Non-Executive Chairman Committees: (cid:129) Management Planning and Development (cid:129) Nominating and Governance Favorite YUM! Brands Food: Classic Bean Burrito YUM! BRANDS, INC. - 2022 Proxy Statement 13 GOVERNANCE OF THE COMPANY Background 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. Specific Qualifications, Experience, Skills and Expertise: (cid:129) Operating and management experience as Chief Executive Officer (cid:129) Expertise in strategic planning, finance, global commerce and corporate leadership (cid:129) Public company directorship and committee experience Tanya L. Domier Age 56 Director since 2018 Independent Committees: (cid:129) Audit Favorite YUM! Brands Food: Thin Veggie Lover’s Pizza t n e m e t a t S y x o r P David W. Gibbs Age 59 Director since 2019 Favorite YUM! Brands Food: Background David W. Gibbs is the current Chief Executive Officer of YUM. He has served in that position since January 2020. Prior to that, he served as President and Chief Operating Officer from August 2019 to December 2019, as President, Chief Operating Officer and Chief Financial Officer from January 2019 to August 2019 and as President and Chief Financial Officer from May 2016 to December 2018. Previously, Mr. Gibbs served as the Chief Executive Officer of the Company’s Pizza Hut Division from January 2015 until April 2016 and was its President from January 2014 through December 2014. Mr. Gibbs served as a director of Sally Beauty Holdings from March 2016 until January 2020. Mr. Gibbs has served as a director of Under Armour since September 2021. Specific Qualifications, Experience, Skills and Expertise: (cid:129) Operational and global management experience, including as Chief Executive Officer, Chief Operating Officer and Chief Financial Officer of the Company (cid:129) Expertise in finance, strategic planning, global branding, franchising and corporate leadership Award Winning Charburger (cid:129) Public company directorship and committee experience 14 YUM! BRANDS, INC. - 2022 Proxy Statement GOVERNANCE OF THE COMPANY Background 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 has served as a director of Booking Holdings, Inc. since June 2018. Specific Qualifications, Experience, Skills and Expertise: (cid:129) Management experience, pharmaceutical company including as Executive Vice President of human resources for a (cid:129) Expertise in global human resources, corporate governance and public company compensation (cid:129) Public company directorship and committee experience Background Lauren R. Hobart is President and Chief Executive Officer of DICK’S Sporting Goods. She previously served as President of DICK’S Sporting Goods, beginning in 2017. Prior to this role, Ms. Hobart was Senior Vice President and Chief Marketing Officer of DICK’S Sporting Goods. Prior to joining DICK’S Sporting Goods, Ms. Hobart spent 14 years at PepsiCo in various roles. Ms. Hobart currently serves on the board of directors of DICK’S Sporting Goods and previously served on the board of directors of Sonic Corp. from 2014 to 2018. Specific Qualifications, Experience, Skills and Expertise: (cid:129) Operating, marketing and management experience, including as President of a merchandise retailer P r o x y S t a t e m e n t (cid:129) Expertise in technology, finance, strategic planning and marketing (cid:129) Public company directorship experience Mirian M. Graddick-Weir Age 67 Director since 2012 Independent Committees: (cid:129) Management Planning and Development (cid:129) Nominating and Governance, Chair Favorite YUM! Brands Food: Hot Wings Lauren R. Hobart Age 53 Director since 2020 Independent Committees: (cid:129) Audit Favorite YUM! Brands Food: Chicken Quesadilla YUM! BRANDS, INC. - 2022 Proxy Statement 15 GOVERNANCE OF THE COMPANY Background 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 a director of Atrium Health and has served as a director for the Federal Reserve Bank of Richmond. His term with the Federal Reserve Bank of Richmond expired on December 31, 2020. Specific Qualifications, Experience, Skills and Expertise: (cid:129) Operational and management experience, including as President and Chief Executive Officer of a building products manufacturer (cid:129) Senior government experience as Assistant to the Secretary of the United States Defense Department and as a White House Fellow (cid:129) Expertise in finance, strategic planning, business development and retail business (cid:129) Public company directorship and committee experience Background P. Justin Skala is the Chief Executive Officer of BMI Group, the largest manufacturer of flat and pitched roofing and waterproofing solutions throughout Europe. He has served in that role since September 1, 2019. Prior to joining BMI Group, Mr. Skala served as Executive Vice President, Chief Growth and Strategy Officer for the Colgate-Palmolive Company, from July 2018 until July 2019. 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: (cid:129) Global operating and management experience, including as Chief Executive Officer at a large international manufacturer and as President of major divisions of a consumer products company (cid:129) Expertise in branding, marketing, finance, sales, strategic planning and international business development Thomas C. Nelson Age 59 Director since 2006 Independent Committees: (cid:129) Management Planning and Development (cid:129) Nominating and Governance Favorite YUM! Brands Food: Pepperoni Lover’s Pizza t n e m e t a t S y x o r P P. Justin Skala Age 62 Director since 2016 Independent Committees: (cid:129) Audit Favorite YUM! Brands Food: KFC Bucket of Original Recipe Chicken 16 YUM! BRANDS, INC. - 2022 Proxy Statement GOVERNANCE OF THE COMPANY Background Elane B. Stock has served as the Chief Executive Officer of ServiceMaster Brands, LLC since 2020. Prior to this role, Ms. 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 Reckitt Benckiser PLC. Specific Qualifications, Experience, Skills and Expertise: (cid:129) Global operating and management experience, including as group president of a consumer products company (cid:129) Expertise in branding, marketing, finance, sales, strategic planning and international business development Elane B. Stock Age 57 Director since 2014 Independent Committees: (cid:129) Audit Favorite YUM! Brands Food: (cid:129) Public company directorship experience and committee experience KFC Bucket of Original Recipe Chicken Annie Young-Scrivner Age 53 Director since 2020 Independent Committees: (cid:129) Audit Favorite YUM! Brands Food: Pan Pepperoni Pizza with Crushed Red Pepper Background Annie Young-Scrivner has served as the Chief Executive Officer of Wella Company, the parent of beauty brands, including Clairol and OPI, since 2020. Prior to this role, Ms. Young-Scrivner was Chief Executive Officer of Godiva Chocolatier, Inc., a manufacturer of Belgian chocolates. Prior to joining Godiva in August 2017, Ms. Young-Scrivner was Executive Vice President, Global Digital & Loyalty Development with Starbucks Corporation from 2015 until her departure in April 2017. At Starbucks, Ms. Young-Scrivner also served as President, Teavana & Executive Vice President of Global Tea from 2014 to 2015, Global Chief Marketing Officer & President of Tazo Tea from 2009 to to joining Starbucks, 2012, and President of Starbucks Canada from 2012 to 2014. Prior Ms. Young-Scrivner held senior leadership positions at PepsiCo, in sales, marketing and general management, including her role as Region President of PepsiCo Foods Greater China from 2006 to 2008. She has been a director of Tiffany & Co. since 2018, and has previously served as a director of Macy’s, Inc. Inc. Specific Qualifications, Experience, Skills and Expertise: (cid:129) Operating and management experience, including as Chief Executive Officer of consumer goods company (cid:129) Public company directorship and committee experience P r o x y S t a t e m e n t If elected, we expect that all of the aforementioned nominees will serve as directors and hold office until the 2023 Annual Meeting of Shareholders and until their respective successors have been elected and qualified. YUM! BRANDS, INC. - 2022 Proxy Statement 17 GOVERNANCE OF THE COMPANY Director Compensation How are directors compensated? Employee Directors. Employee directors do not receive additional compensation for serving on the Board of Directors. Non-Employee Directors Annual Compensation. The annual compensation for each non-employee Director is summarized in the table below. For 2021, each non-employee Director received an annual stock grant retainer with a fair market value of $260,000. 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 t n e m e t a t S y x o r P the Board (Mr. Cornell Chairperson of the Board and Committee Chairperson In recognition of their added duties, the Retainers. Chairperson of in 2021) receives an additional $170,000 stock retainer annually and the Chairs of the Audit Committee (Mr. Alves in 2021), Management Planning and Development Committee (Mr. Connor in 2021) and the Nominating and Governance Committee (Ms. Graddick-Weir in 2021) each receive an additional $25,000, $20,000 and $20,000 annual stock retainer, respectively. These committee chairperson retainers were paid in February of 2021. 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 executive team. Under this program, the YUM! Brands Foundation will 18 YUM! BRANDS, INC. - 2022 Proxy Statement match up to $10,000 a year in contributions by the director to a charitable institution approved by the YUM! Brands Foundation. At the Foundation may match contributions exceeding $10,000. its discretion, director Insurance. We also pay the premiums on directors’ and officers’ liability and business travel accident insurance policies. The annual cost of this coverage was approximately $2 million. This is not included in the tables below as it is not considered compensation to the directors. In setting director compensation, the Company considers the significant amount of time that directors expend in fulfilling their duties to the Company as well as the skill level required by the Company of members of the Board. The Board reviews each element of director compensation at least every two years. In November 2021, 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 50. Data for this review was prepared for the Committee by its consultant, Meridian Compensation independent Partners LLC. This data revealed that the Company’s total director compensation was at market median measured against this benchmark, that the retainer paid to our Non-Executive Chairperson is slightly above market median and that the retainers paid to the Committee, Management Planning and Development Committee and Nominating and Governance Committee were generally consistent with market practice, although the Audit Committee chair retainer was approximately $2,500 below market median. Based on this data, the Committee recommended no changes to our director compensation program. Chairpersons Audit the of GOVERNANCE OF THE COMPANY Fees Earned or Paid in Cash ($) (b) — — — — — — — — — — — Stock Awards ($)(1) (c) 282,917 260,000 280,000 430,000 260,000 280,000 238,333 262,083 260,000 260,000 260,000 Option/SAR Awards ($)(2) (d) All Other Compensation ($)(3) (e) — — — — — — — — — — — 10,000 10,000 — — — — — — — — 10,000 Total ($) (f) 292,917 270,000 280,000 430,000 260,000 280,000 238,333 262,083 260,000 260,000 270,000 Name (a) Alves, Paget Barr, Keith Connor, Christopher Cornell, Brian Domier, Tanya Graddick-Weir, Mirian Hobart, Lauren Nelson, Thomas Skala, Justin Stock, Elane Young-Scrivner, Annie (1) Amounts in column (c) represent the grant date fair value for annual stock retainer awards, Committee Chairperson retainer awards, Non-Executive Chairperson awards granted to directors in 2021. Retainer awards are pro-rated for partial years of service. (2) At December 31, 2021, the aggregate number of stock appreciation rights (“SARs”) awards outstanding for each non-employee director was: Name Alves, Paget Barr, Keith Connor, Christopher Cornell, Brian Domier, Tanya Hobart, Lauren Graddick-Weir, Mirian Nelson, Thomas Skala, Justin Stock, Elane Young-Scrivner, Annie P r o x y S t a t e m e n t SARs — — 6,491 — — 18,964 18,964 4,646 10,003 — (3) Amounts in this column represent charitable matching gifts. What are the Company’s policies and procedures with respect to related person transactions? 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 related person had or will have a material interest and that exceed $100,000 are subject to the Nominating and Governance Committee’s review. Any member of the Company. and the Nominating and Governance Committee who is a related person with respect to a transaction under review may not participate in the deliberation or vote respecting approval or ratification of the transaction. Related persons are directors, director nominees, executive officers, holders of 5% or more of our voting stock and their immediate family members. Immediate family members are spouses, parents, stepparents, children, daughters-in-law, sons-in-law and any person, other than a tenant or stepchildren, siblings, YUM! BRANDS, INC. - 2022 Proxy Statement 19 GOVERNANCE OF THE COMPANY 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 the transaction. The related person transaction policies and procedures provide be that transactions deemed certain are to officers, 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 of $1 million or 2% of that other company’s total revenues and the related person is not an executive officer of that other company. compensation, Does the Company require stock ownership by directors? by stock owned common The Board believes that the number of shares of the Company’s each is a personal decision; non-management director 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 his or her retainer or the exercise of stock appreciation rights and the ownership guideline will be adjusted to reflect the sale to pay taxes. How much YUM stock do the directors own? Stock ownership information for each director is shown in the table on page 33. t n e m e t a t S y x o r P 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 51. The Company has maintained an ownership culture among its executive and senior managers since its formation. Substantially all executive officers and in members of senior management hold stock well excess of the guidelines. 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 2023 Annual Meeting of Shareholders must be received by us no earlier than November 9, 2022, and no later than December 9, 2022. Director nominations to be brought before the 2023 Annual Meeting of Shareholders. Director nominations that a shareholder intends to present at the 2023 Annual Meeting of Shareholders, other than through the proxy access procedures described above, must have been received no later than February 18, 2023. These nominations must be submitted by a shareholder in accordance with the requirements specified in YUM’s bylaws. 20 YUM! BRANDS, INC. - 2022 Proxy Statement GOVERNANCE OF THE COMPANY Where to send director nominations for the 2023 Shareholders. Annual Meeting Director nominations brought by shareholders must be delivered to YUM’s Corporate Secretary by mail at of YUM! Brands, Inc., 1441 Gardiner Lane, Louisville, Kentucky 40213 and received by YUM’s Corporate Secretary by the dates set forth above. What is the Board’s leadership structure? In November 2018, Brian C. Cornell assumed the position of Non-Executive Chairperson of the Board. Applying our Corporate Governance Principles, the Board determined that based on Mr. Cornell’s independence, it would not appoint a Lead Director when Mr. Cornell became Non-Executive Chairperson. 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. The Company’s Governance Principles provide that the as Chief Executive Officer Chairperson of the Board. These Principles also provide for an independent Lead Director when the CEO is serving as Chairperson. During 2021, our CEO did not (“CEO”) may serve serve as Chairperson. Our Board believes that Board independence and oversight of management are effectively maintained through a strong independent Chairperson 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 Chairperson, 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 performing the duties that would otherwise be performed by a Lead Director, as described below. As CEO, Mr. Gibbs is responsible for leading the Company’s strategies, organization design, people development and culture, and for providing the day-to-day leadership over operations. To ensure effective independent oversight, the Board has adopted a number of governance practices discussed below. P r o x y S t a t e m e n t What are the Company’s governance policies and ethical guidelines? (cid:129) Board Committee Charters. The Audit, Management Planning and Development, and Nominating and Governance Committees of the YUM Board of Directors operate pursuant to written charters. These charters were approved by the Board of Directors and reflect certain best practices in corporate governance. These charters comply with the requirements of the NYSE. Each charter is available on the Company’s website https://investors.yum.com/governance/ committee-composition-and-charters/. at (cid:129) Governance Principles. The Board of Directors has documented its corporate governance guidelines in the YUM! Brands, Inc. Corporate Governance Principles. These guidelines are available on the Company’s website at https://investors.yum.com/ governance/governance-documents/. (cid:129) Ethical Guidelines. YUM’s Global 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 https://investors.yum.com/ governance/governance-documents/. 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. at YUM! BRANDS, INC. - 2022 Proxy Statement 21 GOVERNANCE OF THE COMPANY 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 presided over by the Lead Director or our Non-Executive Chairperson, as applicable. Our independent directors meet in executive session at least once per year. (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 Chairperson. The Board currently does not have a Lead Director, and the duties of the Lead Director are fulfilled by Mr. Cornell as Non-Executive Chairperson. 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 Chairperson. The Lead Director position is structured so that one is empowered with independent Board member 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 Chairperson is not present, and advising the Chairperson and CEO of any decisions reached or suggestions made at any executive session, (b) Approving in advance agendas and schedules for is Board meetings and the information that provided to directors, (c) If requested by major shareholders, being available for consultations and direct communication, (d) Serving as a liaison between the Chairperson and the independent directors, and t n e m e t a t S y x o r P (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 to the meeting. review prior (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, the Chairperson of the Board or the Chairperson of the Nominating and Governance Committee conduct personal interviews with each member of the Board, the results of which are summarized and discussed in an executive the Audit, Management session. Planning and Development and Nominating and Governance Committees also each conduct similar annual self-evaluations. In addition, (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.” The Company’s Governance Principles further provide that any incumbent director who does not receive a majority of “for” votes will promptly tender to the Board his or her resignation from the Board. The resignation will specify that it is effective upon the Board’s acceptance of the resignation. The 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 22 YUM! BRANDS, INC. - 2022 Proxy Statement What access do the Board and Board committees have to management and to outside advisors? GOVERNANCE OF THE COMPANY (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 the results, plans and present 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 candidates. and 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? The Board maintains overall responsibility for overseeing the Company’s risk management, including succession planning, food safety and digital/information security. 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 in engages The Audit Committee substantive discussions of enterprise risk management and its regular committee meetings held processes at during the year. At receives functional risk review reports covering significant areas these of functional areas, as well as receiving reports from the Internal Chief Legal Officer and the Vice President, reports Internal Audit Audit. Our Vice President, risk from the employees responsible for these meetings, it directly to the Chairperson of the Audit Committee and (“CFO”). The Audit our Chief Financial Officer Committee also receives reports at each regular meeting regarding legal and regulatory risks from management and meets in separate 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 addition, our Management Planning and 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. P r o x y S t a t e m e n t What is the Board’s role in information security? Information security and privacy has been and remains of the utmost importance to the Company in light of the value we place on maintaining the trust and confidence of our consumers, employees and other stakeholders. Accordingly, our Chief Information Security Officer and Chief Digital and Technology Officer advise the Audit Committee (at least four times per year) and the full Board of Directors regularly on our program for managing information security risks, including data privacy and data protection risks. We internally follow the NIST Cybersecurity Framework to assess the maturity of our cybersecurity programs. Additionally, we have in place a formal privacy group combining resources from our information security and legal teams. Other aspects of our comprehensive information security program include: (cid:129) Information security and privacy modules included in our mandatory onboarding and annual compliance training for restaurant support center employees, as targeted specialized training for any well as employees that routinely have access to personal data; (cid:129) Regular testing, both by internal and external resources, of our information security defenses; YUM! BRANDS, INC. - 2022 Proxy Statement 23 GOVERNANCE OF THE COMPANY (cid:129) Periodic phishing drills with all restaurant support center employees; (cid:129) Global security and privacy policies; and In addition, the Company maintains an information security risk insurance policy that provides coverage for data security breaches. (cid:129) Table-top exercises with senior leaders covering third-party data security ransomware and other threats. 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 the Chief the operational Committee. At level, and Public Affairs Officer is Communications responsible for overseeing the global reputation of YUM and is responsible for shaping the Citizenship and Sustainability Strategy, as approved by the Board, with the Chief Sustainability Officer and Vice President of Government Relations. Has the Company conducted a risk assessment of its compensation policies and practices? t n e m e t a t S y x o r P As stated in the Compensation Discussion and Analysis at page 34, the philosophy of our compensation programs is to reward performance by designing pay team and individual programs performance, and shareholder return; emphasize long- term incentives; drive ownership mentality; and require executives to personally invest in Company stock. incorporate that In early 2022, 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 risks facing the Company in the conduct of its 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; 24 YUM! BRANDS, INC. - 2022 Proxy Statement (cid:129) Long-term Company performance is emphasized. The majority of the top-level employees is associated with the long-term performance of the Company; incentive compensation for (cid:129) Strong stock ownership guidelines in place for approximately 165 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; (cid:129) Compensation performance measures in our annual incentive plans are transparent and tied to multiple measurable factors, none of which exceed a 50% weighting; measures to both are shareholders and drivers of returns; apparent (cid:129) The performance which determines employee the Audit closely monitored by rewards Committee and the full Board; and is (cid:129) The Company has a recoupment (clawback) policy. GOVERNANCE OF THE COMPANY 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 can be found on the Company’s website (https://investors.yum.com/ governance/governance-documents/). 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. 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 David Gibbs, who is not considered independent because of his employment by the Company. In determining that the other directors did not have a the Board material determined that Messrs. Alves, Barr, Connor, Nelson, relationship with the Company, Skala and Mmes. Domier, Graddick-Weir, Hobart, Stock and Young-Scrivner had no other relationship with the Company other than their relationship as a director. The Board did note as discussed in the next paragraph that Target Corporation, which employs Mr. Cornell, has a business relationship with the Company; however, as noted below, the Board determined that this relationship was not material to Mr. Cornell or Target Corporation, and therefore determined that Mr. Cornell was independent. is the Chairman and Chief Executive Brian C. Cornell Officer of Target Corporation. During 2021, the Company received approximately $6 million in license fees from Target Corporation in the normal course of business. Divisions of the Company paid Target Corporation approximately $1 million in rebates in 2021. 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 2% the of Target Corporation’s revenues. Furthermore, licensing relationship between the Company and Target Corporation was initially entered into before joined the Board or became employed by Mr. Cornell Target Corporation. P r o x y S t a t e m e n t How do shareholders communicate with the Board? and other parties interested Shareholders in communicating directly with individual directors, the non-management directors as a group or the entire Board may do so by writing to the Nominating and Governance Committee, c/o Corporate Secretary, YUM! Brands, Inc., 1441 Gardiner Lane, Louisville, Kentucky 40213. The Nominating and Governance Committee of the Board has approved a process for handling letters received by the Company and addressed to individual directors, non-management that members of process, the Company reviews all such correspondence and regularly forwards to a designated individual member of the Nominating and Governance Committee copies of all such correspondence (although we do not forward commercial correspondence and correspondence duplicative in nature; however, we will retain duplicate correspondence and all duplicate correspondence will be available for directors’ review upon their request) the Corporate Secretary of the Board. Under the Board or of of any director the Nominating such from shareholders and a summary of all such correspondence. The designated 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 accounting, internal controls or auditing matters are immediately brought to the attention of the Company’s Audit Committee Chair and to the internal audit department accordance with procedures established by the Audit Committee with below). respect Correspondence to Management Planning and Development Committee matters are referred to the Chair of the Management Planning and Development Committee. from shareholders such matters (described handled relating relating and to in YUM! BRANDS, INC. - 2022 Proxy Statement 25 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 respect to accounting, internal accounting controls or auditing matters, may, in a confidential or anonymous manner, communicate that concern to our Chief Legal Officer, Scott A. Catlett. If any person believes that he or she should communicate with our Audit Committee Chair, Paget Alves, he or she may do so by writing him at c/o YUM! Brands, Inc., 1441 Gardiner Lane, Louisville, the conduct of KY 40213. In addition, a person who has such a concern about the Company or any of our employees may discuss that concern on a confidential or anonymous basis by contacting The Network at 1 (844) 418-4423. The Network is our designated external contact for these issues and is authorized to contact the appropriate members of management and/or the Board of Directors with respect to all concerns it receives. The full text of our Policy on Reporting of Concerns Regarding Accounting and Other Matters is available on our website at https://investors.yum.com/ governance/governance-documents/. What are the Committees of the Board? The Board of Directors has standing Audit, Management Planning and Development and Nominating and Governance Committees. t n e m e t a t S y x o r P Name of Committee and Members Audit: Paget L. Alves, Chair Tanya L. Domier Lauren Hobart P. Justin Skala Elane B. Stock Annie Young-Scrivner Number of Meetings in Fiscal 2021 9 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 Global 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 23 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. Alves, 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. Alves 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. 26 YUM! BRANDS, INC. - 2022 Proxy Statement GOVERNANCE OF THE COMPANY Name of Committee and Members Management Planning and Development: Christopher M. Connor, Chair Keith Barr Brian C. Cornell Mirian M. Graddick-Weir Thomas C. Nelson Functions of the Committee (cid:129) Oversees the Company’s executive compensation plans and programs and associated risks 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 2021 5 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. Name of Committee and Members Nominating and Governance: Mirian M. Graddick-Weir, Chair Brian C. Cornell Thomas C. Nelson 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 2021 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. P r o x y S t a t e m e n t YUM! BRANDS, INC. - 2022 Proxy Statement 27 MATTERS REQUIRING SHAREHOLDER ACTION ITEM 1 Election of Directors (Item 1 on the Proxy Card) Who are this year’s nominees? There are twelve (12) nominees recommended by the Nominating and Governance Committee of the Board of Directors for election this year to hold office until the 2023 Annual Meeting and until their respective successors are elected and qualified. Their biographies are provided above at pages 12 to 17. 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. t n e m e t a t S y x o r P What if a nominee is unwilling or unable to serve? That is not expected to occur. If it does, proxies may be voted for a substitute nominated by the Board of Directors. What vote is required to elect directors? A nominee will be elected as a director if the number of “FOR” votes exceeds the number of “AGAINST” votes with respect to his or her election. Our policy regarding the election of directors can be found in our Governance Principles at https:// investors.yum.com/governance/governance-documents/ and at page 22 under “What other significant Board practices does the Company have? — Majority Voting Policy.” 28 YUM! BRANDS, INC. - 2022 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 2022. The Audit Committee of the Board of Directors has selected KPMG to audit our consolidated financial statements. During fiscal 2021, 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 attend 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 2021 and 2020? The following table presents fees for professional services rendered by KPMG for the audit of the Company’s annual financial statements for 2021 and 2020, and fees billed for audit-related services, tax services and all other services rendered by KPMG for 2021 and 2020. P r o x y S t a t e m e n t Audit fees(1) Audit-related fees(2) Tax fees(3) All other fees TOTAL FEES 2021 2020 $6,466,000 $5,597,000 $ 541,000 $ 529,000 $ 707,000 $ 511,000 0 0 $ $ $7,714,000 $6,637,000 (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, and statutory audits. (2) Audit-related fees include fees associated with audits of financial statements and certain employee benefit plans, agreed upon procedures, other attestations, and services rendered in connection with the Company’s securities offerings including comfort letters and consents. (3) Tax fees consist principally of fees for international tax compliance, tax audit assistance, value added tax services, and other tax advisory services. YUM! BRANDS, INC. - 2022 Proxy Statement 29 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 delegate pre-approval its independent members and has currently delegated pre-approval authority up to certain amounts to its Chair. to one of authority 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 the Audit Committee a 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 promptly the pre-approval policy the Audit Committee. The complete policy is available on the Company’s website at https://investors.yum.com/ governance/committee-composition-and-charters/. non-compliance with to the Chair of report any t n e m e t a t S y x o r P 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 Our performance-based executive compensation program is designed to attract, reward and retain the talented leaders necessary for our Company to succeed in the highly competitive market for talent, while maximizing shareholder returns. This approach has made our management team a key driver in the Company’s strong performance over both the long- and short-term. We believe that our compensation program has attracted and retained strong leaders and our closely is shareholders. aligned with interests the of 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 34, 30 YUM! BRANDS, INC. - 2022 Proxy Statement which discusses in detail how our compensation policies and procedures operate and are designed to meet and how our Management Planning and Development Committee makes compensation decisions under our programs. compensation goals 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 concerns in their continuing evaluation of the Company’s compensation program. Unless the Board of Directors modifies its policy on the frequency the next advisory vote on of the 2023 executive compensation will be held at Annual Meeting of Shareholders. this advisory vote, What is the recommendation of the Board of Directors? The Board of Directors recommends that you vote FOR approval of this proposal. P r o x y S t a t e m e n t YUM! BRANDS, INC. - 2022 Proxy Statement 31 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, 2021 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 T. Rowe Price Associates, Inc. 100 E. Pratt Street, Baltimore, MD 21202 Blackrock Inc. 55 East 52nd Street New York, NY 10055 The Vanguard Group 100 Vanguard Blvd. Malvern, PA 19355 Magellan Asset Management Limited 19 Martin Place Sydney, NSW, 2000, Australia Number of Shares Beneficially Owned Percent of Class 34,105,072(1) 11.6% 24,554,583(2) 8.4% 22,770,049(3) 7.77% 15,431,704(4) 5.26% t n e m e t a t S y x o r P (1) The filing indicates sole voting power for 10,805,859 shares, shared voting power for 0 shares, sole dispositive power for 34,105,072 shares and shared dispositive power for 0 shares. (2) The filing indicates sole voting power for 16,304,205 shares, shared voting power for 0 shares, sole dispositive power for 24,554,583 shares and shared dispositive power for 0 shares. (3) The filing indicates sole voting power for 0 shares, shared voting power for 465,798 shares, sole dispositive power of 21,580,878 shares and shared dispositive power for 1,189,171 shares. (4) The filing indicates sole voting power for 10,359,192 shares, shared voting power for 0 shares, sole dispositive power for 15,431,704 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, 2021 by (cid:129) each of our directors, (cid:129) each of the executive officers named in the Summary Compensation Table on page 54, and (cid:129) all directors and relevant executive officers as a group. the following Unless we note otherwise, each of 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 five concerning beneficial ownership by holders of percent or more of YUM’s common stock. 32 YUM! BRANDS, INC. - 2022 Proxy Statement stock from the appreciation The table shows the number of shares of common stock and common stock equivalents beneficially owned as of December 31, 2021. Included are shares that could have been acquired within 60 days of December 31, 2021 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, STOCK OWNERSHIP INFORMATION Number of Shares Beneficially Owned(1) 6,309 — — 452 4,957 1,233 — 17,396 8,753 4,019 2,042 85,059 6,198 13,329 8,034 46,574 Beneficial Ownership Options/ SARs Exercisable within 60 Days(2) — — — 2,076 — 6,022 — 6,022 1,491 3.154 — 299,504 10,410 66,221 7,901 125,751 Deferral Plans Stock Units(3) — — — — — — — — — — — 29,880 — 12,827 — 10,143 Total Beneficial Ownership 6,309 — — 2,528 4,957 7,255 — 23,418 10,244 7,173 2,042 414,443 16,608 92,377 15,935 182,468 Additional Underlying Stock Units(4) 8,462 4,648 13,215 24,012 8,135 32,481 2,548 70,502 8,330 18,404 2,636 69,826 4,391 6,188 7,318 240 Total 14,771 4,648 13,215 26,540 13,092 39,736 2,548 93,920 18,574 25,577 4,678 484,269 20,999 98,565 23,253 182,708 222,302 647,576 58,824 928,702 325,454 1,254,156 Name Paget Alves Keith Barr Christopher Connor Brian C. Cornell Tanya Domier(5) Mirian M. Graddick-Weir Lauren Hobart Thomas C. Nelson Justin Skala Elane B. Stock Annie Young-Scrivner David Gibbs(5) Christopher Turner Tracy Skeans Mark King Anthony Lowings(5) All Directors and Executive Officers as a Group (19 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, 2,734 (cid:129) Mr. Lowings, 1,214 (cid:129) all relevant executive officers as a group, 5,008 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 Ms. Domier, these shares are held in a trust. For Mr. Gibbs and Mr. Lowings, 65,893 and 3,750 of these shares are held in trusts, respectively. P r o x y S t a t e m e n t YUM! BRANDS, INC. - 2022 Proxy Statement 33 DELINQUENT SECTION 16(a) REPORTS 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 2021, except that one late Form 4 filed on behalf Mr. Skala reported one transaction (the distribution of shares from the Directors Deferred Compensation Plan), due to an administrative error. EXECUTIVE COMPENSATION Compensation Discussion and Analysis t n e m e t a t S y x o r P 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35 A. YUM 2021 Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 B. Named Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 C. Compensation Philosophy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 D. Compensation Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 E. Relationship between Company Pay and Performance for the CEO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 II. Elements of Executive Compensation Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40 A. Base Salary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 B. Annual Performance-Based Cash Bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 C. Long-Term Equity Performance-Based Incentives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 III. 2021 Named Executive Officer Total Direct Compensation and Performance Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43 IV. Retirement and Other Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47 V. How Compensation Decisions Are Made . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48 VI. Compensation Policies and Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51 34 YUM! BRANDS, INC. - 2022 Proxy Statement I. Executive Summary same-store A. YUM 2021 Performance The company’s 2021 performance was incredibly strong, resulting in system sales growth of 13%, underpinned by 10% same-store sales growth and 6% four global Brands net unit growth. Each of our contributed to the strength we saw in 2021 with positive net-new unit sales development. This diversified strength illustrates the health of our global system, driven by iconic Brands, strong unit economics and the unmatched operating capability of our capable, committed, and well- capitalized franchise partners, who are experiencing strong unit economics and profit growth. In 2021, we opened 4,180 gross units, marking the strongest development year in Yum!’s history and setting an industry record for unit development, demonstrating that our development engine is reignited. and investments and the closing of Additionally, the Company reached new heights in digital, leading to over $22 billion in digital sales, an year-over-year. We approximately 25% increase galvanized our digital and technology strategy and accelerated the development of our ecosystem with both internal the Kvantum, Tictuk and Dragontail acquisitions. Now more than ever, we’ve leaned into the structural advantages of our diversified global portfolio by leveraging our unmatched global scale, sophisticated supply chains, marketing and consumer insights expertise, and our growing digital and technology capabilities to fuel growth and deliver consistently strong results. As we move into 2022, which marks the 25th anniversary of Yum, we are confident that we will continue to build the world’s most loved and trusted our brands while delivering lasting value for EXECUTIVE COMPENSATION stakeholders. To accomplish these goals, we will continue to rely on and elevate Our Recipe for Growth and Good. Under our Recipe for Growth, we will focus on our four key growth drivers which continue to guide our long- term strategy and form the basis of the Company’s strategic plans to accelerate same-store sales growth and net-new restaurant development around the world. The Company remains focused on building the world’s most loved, trusted and fastest growing restaurant brands by: (cid:129) growing Unrivaled Culture and Talent to leverage our to fuel brand culture performance and franchise success; and people capability (cid:129) developing Unmatched Operating Capability by recruiting and equipping the best restaurant operators in the world to deliver great customer experiences; (cid:129) building Relevant, Easy and Distinctive Brands by innovating and elevating iconic restaurant brands people trust and champion; and (cid:129) achieving Bold Restaurant Development by driving expansion with strong and franchise market economics. food and planet, By leveraging our Recipe for Good — our roadmap for socially responsible and sustainable stewardship of people, internally and across our supply chain and franchise system — we will elevate the importance of people and continue building an equitable and inclusive culture that, in turn, helps us better serve our customers and communities where in our business we operate. We remain confident model and in the strength of our iconic brands as we look to accelerate growth in 2022. P r o x y S t a t e m e n t Gross New Builds 4,180 The most in Yum!’s history Digital Sales $22 billion approximately 25% increase over prior year System Sales Growth 13% Same Store Sales Growth 10% GAAP Operating Profit Growth 42% Core Operating Profit Growth 18% (1) See pages 29, 33 and 35 in Item 7 of YUM’s Form 10-K for the fiscal year ended on December 31, 2021 for a discussion of Core Operating Profit in 2021. System Sales Growth excludes impact of foreign currency translation. YUM! BRANDS, INC. - 2022 Proxy Statement 35 EXECUTIVE COMPENSATION B. Named Executive Officers The Company’s NEOs for 2021 are as follows: Name David W. Gibbs Chris Turner Tracy L. Skeans Mark King Tony Lowings1 Title Chief Executive Officer Chief Financial Officer Chief Operating Officer and Chief People Officer Chief Executive Officer of Taco Bell Division Retired Chief Executive Officer of KFC Division (1) Effective January 1, 2022, Mr. Lowings retired from the position of Chief Executive Officer of the KFC Division. 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: year. YUM’s after year Base Salary ✓ t n e m e t a t S y x o r P 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 ✓ ✓ ✓ ✓ ✓ ✓ D. Compensation Overview 2021 Compensation Highlights (cid:129) In January of 2021, the Committee made the following decisions and took the following actions: (cid:129) The Committee set our CEO target for total direct compensation (base salary, annual cash bonus and annual long-term incentive award value at grant date) at a level around the 50th percentile of our Executive Peer Group (defined at page 50) for the CEO role; 36 YUM! BRANDS, INC. - 2022 Proxy Statement (cid:129) The Committee set the equity mix for our NEOs’ long-term incentive awards at 50% stock 50% (“SARs”) annual appreciation rights performance share units (“PSUs”); and and target (cid:129) The Committee certified that our 2018 PSU awards under our Performance Share Plan paid out at 84% of in 2021 based on the Company’s Total Shareholder Return (“TSR”) at the 67th percentile compared to the S&P 500 Consumer Discretionary Index and Earnings Per Share (“EPS”) growth of 5%, for the 2018- 2020 performance cycle (see discussion of PSUs at page 42). (cid:129) Say on Pay. At our May 2021 Annual Meeting of Shareholders, shareholders approved our “Say on Pay” proposal executive compensation program, with 83% of votes cast in favor of the proposal. support of our in (cid:129) Shareholder Outreach. We continued management our shareholder outreach program to better understand investors’ opinions on our compensation our practices and respond to their questions. Committee and from compensation, sustainability, investor relations and in be legal engagement efforts during 2021 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 48). continued members involved directly team to (cid:129) Change in PSU Metrics. Because the continuing pandemic-influenced operating environment makes it difficult to set long-term targets which incorporate operating metrics or the previously used EPS metric, our annual PSU grants made in 2021 will be earned based completely on how the Company’s TSR performs relative to the S&P 500 Consumer Discretionary Index. this determined The Committee change was consistent with the Company’s overall business strategy and realities of the current marketplace. Given that pandemic-related uncertainties are lessening, the Committee has determined to reintroduce operating metrics into the PSU design beginning in 2022. (cid:129) Accelerating Profitable Growth PSU Award. In January, the Committee approved a one-time Accelerating Profitable Growth PSU award for approximately 500 of the Company’s leaders, which is intended to generate shareholder value by accelerating growth by aggressively restarting the Company’s development engine and motivating leaders to deliver breakthrough development, without losing focus on the other growth drivers of EXECUTIVE COMPENSATION the Company’s business. These PSU awards are designed to pay out only if bold net-new unit development targets are met. Further details of the Accelerating Profitable Growth PSU award are set forth beginning at page 43. 2022 Changes to Compensation Program Shareholders, (cid:129) Long Term Incentive Equity Mix for 2022. As following the Company’s 2021 mentioned above, Annual Meeting significant of shareholder engagement was undertaken by the Company in order to receive feedback on, among other things, the Company’s equity mix for annual long-term incentive awards. In response to this shareholder feedback, and in alignment with our business strategy and compensation philosophy, the Committee has determined that beginning in 2022, the annual long-term incentive award mix for the Company’s executive officers will be split as follows: 25% SARs, 25% Restricted Stock Units (“RSUs”) and 50% PSUs. (cid:129) Change In response in PSU Metrics. to shareholder feedback, and consistent with the Company’s overall business strategy, beginning in 2022, annual PSU grants made to our executive officers will be earned based on 50% System Sales Growth and 50% Core Operating Profit Growth, with a positive or negative modifier based on the Company’s TSR performance relative to the S&P 500 Consumer Discretionary Index. (cid:129) Updated Executive the Company’s Peer Group. In August 2021, the Committee approved a revised peer group to be used for NEO pay determinations beginning in 2022. The changes to the Executive Peer Group were made to better align the size of the peer group companies with YUM, and to include companies in relevant industry sectors. Many of the included companies have a global reach, franchised operations, multiple brands and a significant digital presence. YUM! BRANDS, INC. - 2022 Proxy Statement 37 P r o x y S t a t e m e n t EXECUTIVE COMPENSATION E. Relationship between Company Pay and Performance for the CEO To focus on both the short-term and long-term success of the Company, approximately 90% of our CEO’s annual target compensation is “at-risk” pay, with the compensation paid based on Company If short-term and long-term financial and results. operational then target goals are not achieved, If performance-related compensation will decrease. target goals are exceeded, then performance-related increase. As demonstrated below, compensation will our target annual pay mix for our CEO emphasizes our commitment to “at-risk” pay in order to tie pay to performance. The discussion in this section is limited to Mr. Gibbs, our CEO for 2021. Our other NEOs’ target a substantially similar set of considerations, which are discussed in Section III, 2021 Named Executive Officer Total Performance Summary, found at pages 43 to 47 of this CD&A. Direct Compensation compensation subject annual and to is t n e m e t a t S y x o r P Base 9% Annual Bonus 15 % Long-Term Equity Incentive 76% At Risk 91% In 2021, Mr. Gibbs’ the most dramatic and difficult part of 2021, the pandemic had been successfully weathered due to his total direct leadership. compensation was set around the 50th percentile of our Executive Peer Group. For 2021, 76% of our CEO’s target pay was in the form of long-term equity incentive compensation. target 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 taking into account Company performance, the CEO’s performance, time in role, other job-related factors and the range of market practices of our Peer Group. The Committee was highly satisfied with Company results and the exemplary leadership of Mr. Gibbs, as by early 38 YUM! BRANDS, INC. - 2022 Proxy Statement Core Operating Profit Growth1 System Sales Growth2 Total Shareholder Return3 ($MM) $18 $16 $14 $12 $10 $8 $6 $4 $2 $0 EXECUTIVE COMPENSATION P r o x y S t a t e m e n t Base Bonus Stock SARs PSUs APG PSU Target Total Direct Compensation (1) A measure of results of operations for the purpose of evaluating performance against targets set under our YUM Leaders’ Bonus Program included Core Operating Profit Growth excluding the impact of a 53rd week in 2019. See pages 29, 33 and 35 in Item 7 of YUM’s Form 10-K for the fiscal year ended on December 31, 2021 for a discussion of Core Operating Profit in 2021. (2) System sales growth excludes the impact of foreign currency translation and, for 2020 and 2019, the impact of a 53rd week in 2019. (3) Total shareholder return is calculated as the change in YUM share price from the beginning of the respective year until the year-end, adjusted for dividends paid. (4) Greg Creed was the Company’s Chief Executive Officer until December 31, 2019. YUM! BRANDS, INC. - 2022 Proxy Statement 39 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 Objective Attract and retain high-caliber talent and provide a fixed level of cash compensation Annual Performance-Based Cash Bonuses Motivate high performance and reward short-term Company, team and individual performance Form Cash Cash Long-Term Equity Performance-Based Incentives Align the interests of executives with shareholders and emphasize long-term results SARs & PSUs Retirement and Additional Benefits Provide for long-term retirement income and basic health and welfare coverage 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. t n e m e t a t S y x o r P B. Annual Performance-Based Cash Bonuses Our performance-based annual bonus program, the YUM Leaders’ Bonus Program, is a cash-based plan. The principal purpose of the YUM Leaders’ Bonus Program is to motivate and reward 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 The Committee carefully established final team performance measures, targets and weights in May 2021, following an extensive review of these items in in March, after January and a preliminary approval receiving from management. The team performance targets were also reviewed by the Committee to ensure that the strategic goals objectives. the Company’s overall recommendations support input and The performance targets were developed through the Company’s annual financial planning process, which takes into account KFC, Pizza Hut, Taco Bell and The Habit (each, a “Division”) growth strategies, historical performance, and the expected future operating environment for each Division. 40 YUM! BRANDS, INC. - 2022 Proxy Statement specific for each the Company team When setting targets performance measure, takes into account overall business goals and structures targets of desired designed to motivate performance consistent with our growth commitment to shareholders. achievement the impact 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 for all measures that must be met in order for any bonus to be paid, absent the use of discretion by the Committee in extraordinary circumstances. EXECUTIVE COMPENSATION 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 the 2021 target-setting process, Company’s underlying business performance. As part of the Committee decided that KFC, Pizza Hut, Taco Bell and/or YUM Operating Profit growth performance for 2021 annual incentive 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 10-K at page 29) and foreign currency translation. Detailed Breakdown of 2021 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 unit development. Accordingly, the Committee approved these performance measures for the Company’s annual incentive plan and these measures were included at both the corporate and divisional levels. For Divisions, the team performances were weighted 75% on Division operating measures and 25% on YUM team performance. NEO Measures Min Target Max Actual Earned Award as % of Target Weighting Final Team Performance Team Performance Gibbs Skeans Turner Core Operating Profit Growth1 $1,868MM $1,957MM $2,045MM $2,094MM System Same-Store Sales Growth 3.25% 8.5% 10.5% 10.1% System Net New Units 1,470 1,850 2,525 3,057 FINAL YUM TEAM FACTOR Lowings Core Operating Profit Growth1 $1,039MM $1,115MM $1,144MM $1,185MM System Same-Store Sales Growth 5.25% 11.25% 13.25% 11.2% System Net New Units 990 1,325 1,525 1,928 Total Weighted Team Performance — KFC (75%) Total Weighted Team Performance — YUM (25%) FINAL KFC TEAM FACTOR King Core Operating Profit Growth1 $721MM $742MM $754MM $757MM 0.75% 4.75% 6.75% 10.5% 225 300 360 364 System Same-Store Sales Growth System Net New Units Total Weighted Team Performance — TB (75%) Total Weighted Team Performance — YUM (25%) FINAL TACO BELL TEAM FACTOR 200 179 200 200 99 200 200 200 200 50% 25% 25% 50% 25% 25% 50% 25% 25% P r o x y S t a t e m e n t 100 45 50 195 100 25 50 175 195 180 100 50 50 200 195 199 (1) See pages 29, 33 and 35 in Item 7 of YUM’s Form 10-K for the fiscal year ended on December 31, 2021 for a discussion of Core Operating Profit in 2021. YUM! BRANDS, INC. - 2022 Proxy Statement 41 EXECUTIVE COMPENSATION Individual Performance its the Committee based upon Each NEO’s individual performance factor is determined subjective by determination of the NEO’s individual performance for the year, including consideration of specific objective individual performance goals set at the beginning of the the year. Performance categories considered by Committee include the NEO’s performance in: Fostering Unrivaled Culture and Talent; Driving Bold Restaurant Development and Returns; Building Relevant, Easy and Distinctive Brands; Developing Unmatched Operating Capability; Implementation of our Recipe for Good – focusing on People, Food and Planet; and Delivering on Shareholder Promises. The Committee’s determinations with respect to the individual performance of our NEOs is set forth below from pages 43 to 47. t n e m e t a t S y x o r P 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 equity vehicles that motivate and balance the tradeoffs between short-term and long- term performance. Performance-based long-term equity compensation also serves as a retention tool. Our NEOs are awarded long-term incentives annually based on the Committee’s subjective assessment of the following items for each NEO (without assigning weight to any particular item): (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 2021, 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. TSR Percentile Ranking Payout as % of Target 42 YUM! BRANDS, INC. - 2022 Proxy Statement At the beginning of 2021, the Committee determined a target grant value for each NEO (based on time in role, performance and market practice) and the split of that value between SARs and PSU grants. For each NEO, the target grant value was split 50% SARs and 50% PSUs. For each NEO, the breakdown between SARs award values and PSU award values can be found under the Summary Compensation Table, page 54 at columns e and f. Stock Appreciation Rights Awards The Committee believes that SARs reward long-term value-creation generated from sustained results. They are, therefore, strongly linked to and based on, the In 2021, we performance of Yum common stock. 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 Pursuant to the Performance Share Plan under our Long Term Incentive Plan (“LTIP”), we granted our NEOs PSU awards in 2021. These PSU awards are earned based on the Company’s 3-year average TSR relative to the companies in the S&P 500 Consumer Discretionary Index. Using TSR in the annual PSU awards supports the Company’s pay-for-performance philosophy while diversifying performance criteria by using measures not used in the annual bonus plan and reward with the creation of aligning our NEOs’ shareholder value. The target, threshold and maximum number of shares that may be paid under these awards for each NEO are described at page 56. The Committee may, from time-to-time, grant PSU awards to eligible employees to incentivize various strategic initiatives, consistent with the terms of the LTIP. For the performance period covering 2021 – 2023, each NEO will earn a percentage of his or her target PSU award, with 100% of the payout based on the achieved TSR percentile ranking against the S&P 500 Consumer Discretionary Index. Indicative payouts as a percentage of target are as set forth in the table below: Threshold Target Maximum <30% 0% 30% 35% 50% 100% 75% 200% during accrue equivalents will Dividend 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 (“EID”) Program. Income Deferral Executive Accelerating Profitable Growth Award – A One-Time Performance-Based Award to Drive Bold Net-New Unit Development In January 2021, the Committee approved the Accelerating Profitable Growth award, an incremental specifically designed to rapidly one-time grant accelerate growth through net-new unit development and to foster retention of a broad-based group of approximately 500 Company leaders, including the NEOs. The Committee viewed a rapid, but well- considered, expansion in net-new unit development as essential for the Company in accelerating its growth in furtherance of its strategic model as we move beyond the pandemic. When designing the award, the Committee intended that the award would address vital strategic objectives including, but not limited to, the following: (cid:129) Shareholder value – Generating shareholder value by accelerating growth and aggressively restarting the Company’s development engine – designed to maintain strong alignment with, and support from, the Company’s shareholders, who the Committee intends will ultimately benefit the Company is if successful in meeting the bold unit development targets set forth in the award; (cid:129) Breakthrough Growth – Incentivizing a broad group of Company leaders to ensure the delivery of breakthrough development, without losing their focus on the Company’s other growth drivers; (cid:129) Retention – Retaining our leaders at varying levels within the Company in an economically challenging EXECUTIVE COMPENSATION environment of competition for our unrivaled talent; and face and the in increased (cid:129) Simplicity and Clarity – Creating an award that is simple for employees to understand and likely to allow them to coalesce around a unified goal. The performance metrics of the Accelerating Profitable Growth Award are reflective of the key emphasis the Company has placed on unit development, as described above. These PSUs may be earned based on the Company’s performance against the following objective and subject to the following terms: (a) Performance/Reward Performance requirements and corresponding incentive opportunities under the plan are as follows: Structure. Structure Net-New Units Threshold Target Maximum 3,800 4,500 5,200 Incentive as % of Target 75% 100% 125% (b) Notably, the number of net-new units necessary to satisfy threshold performance under this award is approximately equal to the Company’s highest historical two-year net-new unit development performance, the threshold development excluding acquisitions. target is not reached, the award will not pay out. If (c) Performance Period. The performance period over which the award may be earned is January 1, 2021 to the December 31, 2022 (if performance against net-new unit target is below threshold for the period of January 1, 2021 through December 31, 2022 and the World Health Organization has declared a global pandemic which remains in effect after December 31, 2021, become January 1, 2022 to December 31, 2023, excluding any net-new units developed during 2021). period would performance the recipients of this award must remain Generally, employed with the Company through December 31, 2023 to vest in this award. Pro rata vesting is available in the event an award recipient’s employment is to that date by reason of death, terminated prior disability, retirement, or involuntary termination by the Company due to a job elimination or without cause. P r o x y S t a t e m e n t III. 2021 Named Executive Officer Total Direct Compensation and Performance Summary Below is a summary of each of our NEOs’ total direct compensation – which generally includes base salary, annual cash bonus, and long-term incentive awards – and an overview of their 2021 performance relative to our annual and long-term incentive performance goals. The process the Committee used to determine each officer’s 2021 compensation is described more fully in “How Compensation Decisions Are Made” beginning on page 48. YUM! BRANDS, INC. - 2022 Proxy Statement 43 t n e m e t a t S y x o r P EXECUTIVE COMPENSATION CEO Compensation David Gibbs Chief Executive Officer 2021 Performance Summary Our Board, under the leadership of the Committee Chair, approved Mr. Gibbs’ goals as our Chief Executive Officer at the beginning of the year and conducted a mid-year and year-end evaluation of his performance. These evaluations included a review of his leadership pertaining to the achievement of his goals which included business results, leadership in the development and implementation of Company strategies, and development of Company culture and talent. In addition, the Committee noted Mr. Gibbs’ continued leadership during the global pandemic. The Committee determined that Mr. Gibbs’ overall performance for 2021 merited an individual factor of 140. This individual factor was combined with YUM’s awarded team factor of 195 (discussed at page 41) resulting in a significantly above target annual cash bonus. This determination was based on the Committee’s subjective assessment of Mr. Gibbs’ performance against his previously set goals which included the following items (without assigning a weight to any particular item): (cid:129) Driving Bold Restaurant Development and Returns. The Company opened 3,057 net-new units year of resulting in the strongest in 2021, development growth in Yum!’s history and a restaurant industry record; (cid:129) Delivering on Shareholder Promises – strong system sales growth. Company system sales growth increased 13% over the prior year, supported by 10% same-store sales growth and 6% net unit growth, evidencing the health of our global system; (cid:129) Developing Unmatched Operating Capability – including leading our continued pandemic response. This required: avoiding disruptions in supply chain as a result of the global pandemic; mitigating significant store-closure risks in various markets; supporting employees and communities in response to the pandemic; (cid:129) Building Relevant, Easy and Distinctive Brands – by driving increased digital sales. Lead the Company to record setting digital sales of $22 Billion, an approximate 25% increase over the prior year, by leveraging significant investments in technologies and new functions focused on analytics and innovation; 44 YUM! BRANDS, INC. - 2022 Proxy Statement the through development (cid:129) Driving our Recipe for Good – including fostering the Company’s Unlocking Opportunity Initiative supporting equity and inclusion and social justice. Accomplished of governance and brand strategies, the establishment of the Yum! Center for Global Franchise Excellence with the University of Louisville and a joint M.B.A. Accelerator Program between Howard University and the University of Louisville, as well as the launching of social impact programs in the U.S. and in various international markets. Achieved meaningful progress towards commitment to eliminate non-recyclable or non-recoverable from customer-facing packaging by 2025 and continued innovations and expansion of plant-based offerings. plastics leadership. (cid:129) Fostering Unrivaled Culture and Talent – by developing the recruitment of Aaron Powell as CEO of the Pizza Hut Division and the promotion of Sabir Sami as CEO of the KFC Division, as well as fostering a customer- focused employee culture. Evidenced by 2021 Committee Decisions In January, Mr. Gibbs’ compensation was adjusted as follows: (cid:129) Base salary remained at $1,200,000; (cid:129) Annual cash bonus target percentage was increased to 165% of base salary; (cid:129) Grant value of annual long-term incentive equity awards was increased to $10,000,000; (cid:129) These adjustments were his performance in successfully leading the Company through a very challenging economic climate and to better align with market compensation norms. to recognize These decisions regarding the components of the Company’s ongoing executive compensation program positioned Mr. Gibbs’ total target direct compensation at around the 50th percentile of the Company’s Executive Peer Group (defined at page 50). The Committee also approved a special one-time performance-based Accelerating Profitable Growth award for Mr. Gibbs, intended to drive bold new unit development, with a grant value of $5,000,000. The design and purpose of this special award is described in detail above at page 43. The graphics below illustrate Mr. Gibbs’ direct compensation: EXECUTIVE COMPENSATION 5% Base 22% Accelerating Profitable Growth PSU 24% Bonus 26% PSUs 23% SARs 95% Performance-based compensation Total: $22,542,023 $5,000,040 Accelerating Profitable Growth PSU $5,936,580 PSUs $5,000,003 SARs $5,405,400 Annual Bonus T o t a l A n n u a l C o m p e n s a t i o n Fixed $1,200,000 Salary y t i u q E m r e T - g n o L l a t o T n o i t a s n e p m o C e v i t n e c n I h s a C l a u n n A l a t o T n o i t a s n e p m o C Other NEO 2021 Total Direct Compensation Chris Turner Chief Financial Officer 2021 Performance Summary 2021 Committee Decisions P r o x y S t a t e m e n t in the resulted opening that Mr. determined The Committee Turner’s performance merited a 140 individual performance factor. The Committee recognized Mr. Turner’s leadership in driving an increase in Company system sales growth of 13%, supported by 10% same-store sales growth and 6% net unit growth. He was also recognized for leading the Company’s development of initiative, which approximately 3,057 net-new units, resulting in the strongest year of development growth in Yum!’s history and a restaurant record. The Committee also noted Mr. Turner’s leadership in Developing Unmatched Operating Capability, in part by completing several significant strategic technology enhance to acquisitions capabilities experience, in end-to-end customer operations, data and analytics strategy. Mr. Turner’s individual factor was combined with an awarded team factor of 195 (discussed at page 41) to calculate his annual cash bonus. significantly designed industry In January, Mr. Turner’s compensation was adjusted as follows: (cid:129) Base salary remained at $850,000; (cid:129) Annual cash bonus target was increased to 110% of base salary; (cid:129) Grant value of annual long-term incentive equity awards was increased to $2,250,000; (cid:129) These to recognize adjustments were his performance in successfully leading the Company through a very challenging economic climate and to better align with market compensation norms and internal peer equity. These adjustments positioned Mr. Turner’s 2021 total direct compensation at the median percentile of the Company’s Executive Peer Group (defined at page 50) for his position. The Committee also approved a special one-time performance-based Accelerating Profitable Growth award for Mr. Turner, intended to drive bold new unit development, with a grant value of $2,250,000. The design and purpose of this special award is described in detail above at page 43. YUM! BRANDS, INC. - 2022 Proxy Statement 45 EXECUTIVE COMPENSATION Tracy L. Skeans Chief Operating Officer and Chief People Officer 2021 Performance Summary 2021 Committee Decisions determined The Committee that Ms. Skeans’ performance merited a 140 individual performance factor. The Committee recognized Ms. Skeans for providing strategic leadership in the Company’s efforts to open 4,180 gross units in 2021 (including 3,057 in net-new units), resulting in the strongest year of development growth in Yum!’s history and a restaurant industry record. In addition, the Committee recognized Ms. Skeans for her leadership in driving the Company to a system sales growth increase of 13%, including 10% same-store sales growth and 6% net unit growth. The committee also commended Ms. Skeans for Fostering Unrivaled Culture and Talent by hiring and developing leaders, achieving best ever employee engagement results in a pandemic environment; and building a culture which promotes diversity and inclusion and our Recipe for Good through key internal the Unlocking and external Opportunity Initiative and the Women’s Foodservice Forum. Ms. Skeans’ factor was combined individual with a team factor of 195 (discussed at page 41) to calculate her annual cash bonus. such as initiatives, t n e m e t a t S y x o r P In January, Ms. Skeans’ compensation was adjusted as follows: (cid:129) Base salary was increased to $850,000; (cid:129) Annual cash bonus target increased to 110% of base salary; (cid:129) Grant value of annual long-term incentive equity awards was increased to $2,500,000; (cid:129) These adjustments were to recognize her performance in successfully leading the Company through a very challenging economic climate and to better align with market compensation norms and internal peer equity. These decisions positioned Ms. Skeans’ total direct the compensation at Company’s Executive Peer Group (defined at page 50) for her position. the median percentile of The Committee also approved a special one-time performance-based Accelerating Profitable Growth award for Ms. Skeans, intended to drive bold new unit development, with a grant value of $2,500,000. The design and purpose of this special award is described in detail above at page 43. Mark King Chief Executive Officer, Taco Bell Division 2021 Performance Summary 2021 Committee Decisions that Mr. The Committee The Committee King’s determined performance merited a 140 individual performance recognized Mr. King’s factor. leadership in driving net-new unit development. In addition, the Committee recognized Mr. King’s performance in Building Relevant, Easy and Distinctive Brands – by driving increased digital sales, which lead to over 10% in same-store sales growth at Taco Bell (with increased digital sales making up over 20% of overall sales). Mr. King was also recognized for Driving our Recipe for Good, through Taco Bell reaching its goal to award $21 million in Live Mas Scholarships by the end of 2021. Mr. King’s individual factor was combined with a team factor of 199 (discussed at page 41) to calculate his annual cash bonus. In January, Mr. King’s compensation was adjusted as follows: (cid:129) Base salary remained at $925,000; (cid:129) Annual cash bonus target increased to 110% of base salary; (cid:129) Grant value of annual long-term incentive equity awards was set at $1,750,000; (cid:129) These to recognize adjustments were his performance in successfully leading the Company through a very challenging economic climate and to align with market compensation norms and reflecting his years of internal peer equity, experience as a senior executive. 46 YUM! BRANDS, INC. - 2022 Proxy Statement Mr. King’s 2021 total direct compensation was around the Executive Peer Group the 75th percentile of (defined at page 50) for his position. EXECUTIVE COMPENSATION The Committee also approved a special one-time performance-based Accelerating Profitable Growth award for Mr King, intended to drive bold new unit development, with a grant value of $1,750,000. The design and purpose of this special award is described in detail above at page 43. Tony Lowings Retired Chief Executive Officer, KFC Division 2021 Performance Summary The Committee determined that Mr. Lowings’ performance merited a 140 individual performance factor. The Committee recognized Mr. Lowings’ leadership in Driving Bold Restaurant Development and Returns, noting that KFC delivered over 1,900 net-new units. In addition, the Committee recognized Mr. Lowings’ performance in delivering above target same-store sales growth and advancements in food safety compliance. Mr. Lowings’ individual factor was combined with a team factor of 180 (discussed at page 41) to calculate his annual cash bonus. 2021 Committee Decisions In January, Mr. Lowings’ compensation was adjusted as follows: (cid:129) Base salary remained at $750,000; (cid:129) Annual cash bonus target percentage increased to 110% of base salary; IV. Retirement and Other Benefits Retirement Benefits We offer several benefits. types of competitive retirement 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 and Ms. Skeans are active participants in the Retirement Plan. 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 executive following the executive’s separation of employment from the Company. For 2021, Messrs. Turner and King were eligible for the LRP. Under the (cid:129) Grant value of annual long-term incentive equity awards was increased to $2,000,000; (cid:129) These to recognize adjustments were his performance in successfully leading the Company through a very challenging economic climate and to better align with market compensation norms and internal peer equity. These decisions positioned Mr. Lowings’ total direct the compensation at Executive Peer Group (defined at page 50) for his position. the median percentile of The Committee also approved a special one-time performance-based Accelerating Profitable Growth award for Mr Lowings, intended to drive bold new unit development, with a grant value of $2,000,000. The design and purpose of this special award is described in detail above at page 43. P r o x y S t a t e m e n t LRP, Messrs. Turner and King received an annual allocation to their accounts equal to 4% of base salary and target bonus and will receive an annual earnings credit that is equivalent to the Moody’s Aa Corporate Bond Yield Average for maturities 20 years and above (currently 2.91%) 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, unsecured that 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. Mr. Lowings is the only NEO who participates in the TCN. Prior to 2021, under this plan, Mr. Lowings received an annual contribution equal to 15% of base salary and target bonus and YUM! BRANDS, INC. - 2022 Proxy Statement 47 EXECUTIVE COMPENSATION an annual earnings credit of 5%. Beginning in 2021, he only received the 5% annual earnings credit (as he now participates in a superannuation plan in his home country of Australia. Benefits payable under these plans are described in more detail beginning on page 60 Medical, Dental, Life Insurance and Disability Coverage We also provide other benefits such as medical, dental, life insurance and disability coverage to each NEO through benefit plans, which are also provided to all eligible U.S.-based salaried employees. Eligible employees can purchase additional life, dependent life Perquisites The Company provides very limited number of perquisites to our NEOs. 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 security program established by the Board of Directors. Our program provides that any costs for the CEO’s personal aircraft use of above $300,000 will be reimbursed to the Company in accordance with the requirements of the Federal Aviation Administration regulations. We do not the provide tax gross-ups on the personal use of executive 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. the pandemic in 2020, charter or approved commercial aircraft. For 2021, the incremental cost of Mr. Gibbs personal use of charter or commercial aircraft was $225,498. Following the the Committee onset of travel on authorized the CEO to approve personal in Company-provided aircraft by the other NEOs, recognition of their safety and the importance of availability throughout the pandemic. In 2021, the NEO personal resulted in incremental costs of $49,020 for Ms. Skeans and $78,672 for Mr. King. travel V. How Compensation Decisions Are Made Shareholder Outreach, Engagement and 2021 Vote on NEO Compensation t n e m e t a t S y x o r P in of favor At our 2021 Annual Meeting of Shareholders, 83% of votes cast on our annual advisory vote on NEO compensation were our NEOs’ compensation program, as disclosed in our 2021 proxy statement. During 2021, 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; and (cid:129) Presenting shareholder feedback to the Committee. annual engagement Our allow many shareholders the opportunity to provide feedback. The Committee carefully considers shareholder and advisor factors discussed in this feedback, among other efforts 48 YUM! BRANDS, INC. - 2022 Proxy Statement feedback, in making its compensation decisions. CD&A, including the 2021 voting Shareholder results on NEO compensation, has influenced and reinforced a number of compensation design changes over the years, including: (cid:129) Continued benchmarking of CEO compensation at near market median; (cid:129) Moved to two performance metrics under our annual PSU awards (TSR and EPS); and (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. (cid:129) Beginning in 2022, changing our equity mix for NEOs to 50% PSUs, 25% SARs and 25% RSUs, to better align with business objectives, shareholder preferences and market practice. 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 or her financial and strategic objectives, qualitative factors and the Company’s overall performance. The Committee considers the target total direct compensation of each NEO and retains discretion to make decisions that are reflective of overall business performance and each executive’s strategic contributions to the business. In making its compensation decisions, the Committee typically follows the annual process described below, but adds additional meetings when necessary in order to address important business considerations, such as the pandemic. COMMITTEE ANNUAL COMPENSATION PROCESS P r o x y S t a t e m e n t 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 to advise it on certain compensation (“Meridian”), 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; (cid:129) it is to inform the Committee of relevant trends and regulatory developments; (cid:129) it is to provide compensation comparisons based on information that is derived from comparable businesses of a similar size to the Company for the NEOs; and Company unrelated to executive compensation; (cid:129) Meridian has no business or personal relationship with any member of the Committee or management; and (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. - 2022 Proxy Statement 49 EXECUTIVE COMPENSATION Comparator Compensation Data Our Committee uses an evaluation of how our NEO total target direct compensation levels compare to those of similarly situated executives at companies that comprise our Executive Peer Group (defined below) as one of the factors in setting executive compensation. The Executive Peer Group is made up of retail, hospitality, food, nondurable consumer goods service eatery companies, and quick specialty 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 many cases global reach. Executive Peer Group The Committee periodically reviews the peer group to ensure it reflects desired comparisons and appropriate size range. In August 2019, the Committee approved the peer group to be used for NEO pay determinations beginning in 2020 (the “Executive Peer Group”). The updates to the Executive Peer Group were made to better align the size of the peer group companies with YUM and include companies in relevant industry sectors. Many of these companies have a global reach and multiple brands. The Executive Peer Group used for 2021 pay determinations for all NEOs is comprised of the following companies: Chipotle Mexican Grill, Inc. Gap, Inc. Keurig Dr Pepper McDonald’s Corporation Starbucks Corporation Colgate-Palmolive Company General Mills, Inc. Kimberly-Clark Corp. Mondelez Int’l., Inc. V.F. Corp. Darden Restaurants, Inc. Hertz Global Holdings, Inc. L Brands, Inc. Ralph Lauren Corporation Wyndham Worldwide, Inc. t n e m e t a t S y x o r P Domino’s Pizza, Inc. Hilton Worldwide Holdings Lululemon Athletica Estée Lauder Cos, Inc. Kellogg Company Marriott Int’l., Inc. Restaurant Brands International Inc. The Sherwin-Williams Company At the time the benchmarking analysis was prepared in November 2020, the Executive Peer Group’s median revenues were $11.3 billion, while YUM annual estimated at equivalent $14.3 billion (calculated as described below). revenues were annual be size responsibilities include managing franchise For companies with significant and global complex. can operations, measuring Management responsibilities encompass more than just the revenues and operations directly owned and operated by the company and include responsibilities for managing relationships with franchisees and developing and implementing global growth strategies. Specific and implementing product introductions, and product specifications and supply, management of vendors, and marketing, implementations, risk including setting and monitoring food management, safety the Company’s trademarks and other intellectual property, new unit development, and customer satisfaction and overall operations improvements across the entire franchise system. As a result of accelerating growth in recent the Company’s leadership now oversees years, approximate 290 brand-country combinations and standards, protection of innovations collections, technological payment approximately 1,500 franchisees. To appropriately reflect this complexity in calibrating the size of our organization and underlying operating divisions during the 2020 benchmarking process, our philosophy was to add 25% of franchisee and licensee sales to the GAAP-reported Company to establish an appropriate revenue benchmark. The reason for this approach was twofold: sales (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. Peer groups of other globally prominent companies similarly include companies where the median revenue scope of those peers are materially above the reported corporate revenue. This likely reflects the same assessments of complexity and reach and accordingly appropriate company size profiles. We believe this approach is measured and reasoned in its approach to calibrating market compensation opportunities without using organizations unduly larger than the Company. competitive 50 YUM! BRANDS, INC. - 2022 Proxy Statement EXECUTIVE COMPENSATION Competitive Positioning and Setting Compensation At the beginning of 2021, 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. In making compensation decisions, the Committee considers market data for comparable 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 P r o x y S t a t e m e n t 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 ✗ ✗ ✗ ✗ ✗ ✗ ✗ 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 165 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 2021, all NEOs subject to guidelines met or exceeded their ownership guidelines. YUM! BRANDS, INC. - 2022 Proxy Statement 51 EXECUTIVE COMPENSATION NEO Gibbs Turner(3) Skeans King(3) Lowings Ownership Guidelines Shares Owned(1) Value of Shares(2) Multiple of Salary 7x base salary 3x base salary 2x base salary 3x base salary 3x base salary 357,348 9,708 45,832 10,666 162,635 $49,621,343 $ 1,348,053 $ 6,364,232 $ 1,481,081 $22,583,496 41.4 1.6 7.5 1.6 30.1 (1) Calculated as of December 31, 2021 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 $138.86 as of December 31, 2021. (3) Messrs. Turner and King both joined the Company in 2019 and have up to five years to reach the target levels of ownership set forth in our Ownership Guidelines. t n e m e t a t S y x o r P Payments upon Termination of Employment The Company does not have agreements with its executives concerning payments upon termination of employment except in the case of a change in control of the Company. The Committee believes these are appropriate agreements for retaining NEOs and other executive officers to preserve shareholder value in case of a potential change in control. The Committee periodically reviews these agreements and other aspects of the Company’s change-in-control program. The Company’s change-in-control agreements, in general, entitle 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 65. 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 any potential excise tax imposed on executives. If any excise tax is due, the Company will not make a gross-up payment, but instead will reduce payments to an executive if the reduction will provide the NEO the best net after-tax result. If full payment to YUM’s Equity Award Granting Practices Historically, we have made annual SARs grants 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 ordinarily make grants at the same time 52 YUM! BRANDS, INC. - 2022 Proxy Statement a NEO will result in the best net after-tax result, the full the NEO will be solely amount will be paid, but responsible for any potential excise tax payment. Also, the Company has implemented “double trigger” vesting for to which outstanding awards will fully and immediately vest only if the executive is employed on the date of a change in control of the Company and is involuntarily terminated (other than by the Company for cause) on or within two years following the change in control. awards, pursuant equity retirement, the Company provides In case of retirement benefits described above, life insurance benefits (to employees eligible under the Retirement Plan), the continued ability to exercise vested SARs and to vest in SARs granted at least one year prior to retirement, and the ability to vest in performance share awards on a pro-rata basis. 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 (most recently in 2020) for competitiveness. The Committee believes the benefits provided in case of a change in control are interests and are appropriate, support shareholder consistent with the policy of attracting and retaining highly qualified employees. of elements compensation other are annual determined so that we can consider all elements of compensation in making the grants. We do not backdate or make grants retroactively. In addition, we do not time such grants in coordination with our possession or release of material, non-public or other information. All equity awards are granted under our shareholder approved LTIP. EXECUTIVE COMPENSATION 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 in recognition of (subject superlative performance and extraordinary impact on business results. These awards are currently made as RSUs which vest after three years. Historically, CEO Awards were made using SARs. to Committee approval) Management recommends the awards be made 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 grant is less than $500,000 in economic value annually. In the case of these grants, the Committee sets all the terms of each award, except the actual number of SARs/RSUs, 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 executive officers (including the NEOs) to return compensation paid or may cancel any award or bonuses not yet vested or earned if the executive officers engaged in misconduct or violation of Company policy that resulted in significant financial or reputational harm or violation of Company policy, or Hedging and Pledging of Company Stock Under our Code of Conduct, no employee or director is permitted to engage in securities transactions that would allow them either to insulate themselves from, or profit from, a decline in the Company stock price. Similarly, no employee or director may enter into hedging transactions in the Company’s stock. Such incentive compensation. Under inaccurate metrics in the contributed to the use of calculation of this policy, when the Board determines that recovery of the Company could compensation is appropriate, 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. P r o x y S t a t e m e n t 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. Management Planning and Development Committee Report The Management and 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 Keith Barr Brian C. Cornell Mirian M. Graddick-Weir Thomas C. Nelson YUM! BRANDS, INC. - 2022 Proxy Statement 53 EXECUTIVE COMPENSATION The following tables provide information on the compensation of the Named Executive Officers (“NEOs”) for our 2021 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 2021 fiscal year, determined in accordance with SEC rules. Summary Compensation Table Name and Principal Position (a) Year (b) Salary ($)(1) (c) Bonus ($)(2) (d) Stock Awards ($)(3) (e) Option/ SAR Awards ($)(4) (f) Non-Equity Incentive Plan Compensation ($)(5) (g) David W. Gibbs Chief Executive Officer of YUM Chris Turner Chief Financial Officer of YUM Tracy L. Skeans Chief Operating Officer and Chief People Officer of YUM Mark King Chief Executive Officer of Taco Bell Division Tony Lowings Retired Chief Executive Officer of KFC Division t n e m e t a t S y x o r P 2021 1,200,000 2020 2019 2021 2020 2019 303,077 1,404,000 984,615 850,000 848,077 283,846 714,000 500,000 — 10,936,620 5,000,003 4,646,430 3,500,016 — 7,393,577 2,225,003 — 3,585,851 1,125,013 1,075,610 1,000,015 — 1,500,009 2021 2020 2019 834,615 749,731 708,846 — 3,984,248 1,250,017 800,001 1,000,017 1,761,429 1,075,731 567,000 — 2021 2020 2019 2021 2020 2019 925,000 500,000 921,154 1,134,550 500,000 370,385 2,789,040 806,652 2,500,015 875,005 750,011 — 915,995 753,846 699,789 — 3,187,332 1,000,009 800,001 1,750,030 860,421 806,874 562,500 — 5,405,400 — 2,399,800 2,552,550 — 463,021 2,552,550 — 1,165,057 2,834,755 271,950 591,189 2,186,047 — 1,464,120 Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(6) (h) 4,789,314 4,517,703 3,988,755 716 404 — 815,000 1,852,419 1,433,369 788 466 — 25,857 23,908 11,975 All Other Compensation ($)(7) (i) Total ($) 247,322 27,578,659 260,225 14,631,451 151,402 17,143,152 124,727 8,238,857 167,796 3,805,902 54,290 2,801,166 61,304 9,497,735 5,772,976 42,396 5,434,549 51,529 173,483 8,098,071 134,567 4,019,350 33,021 3,994,610 73,771 7,389,011 3,579,591 4,995,478 578,915 262,690 (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. For Mr. Lowings, because he is located in Australia and paid via local payroll, his notional salary is AUD $1,050,000 (equal to USD 750k), but his flexible salary is AUD $1,235,000. Flexible salary is an employee’s notional salary plus any cashed-out superannuation plan amounts (20% of notional salary less $25,000 capped superannuation contribution which is not cashed-out). This cashed-out component is added to Mr. Lowings’ notional salary, resulting in a flexible salary amount of AUD $1,235,000. (2) Amounts in this column for 2021 represent a retention payment paid to Mark King in accordance with his sign-on agreement in 2019. (3) For Messrs. Gibbs, Turner, King and Lowings and for Ms. Skeans, amounts shown in this column represent the grant date fair values for performance share units (PSUs) granted in 2021, 2020 and 2019. Further information regarding the 2021 awards is included in the “Grants of Plan-Based Awards” and “Outstanding Equity Awards at Year-End” tables later in this proxy statement. For 2021, these amounts include both the annual PSU grants and the Accelerating Profitable Growth PSU (“APG”) grant, as described in detail on page 43 of the CD&A. 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 2021 annual PSUs is 200% of target (125% of target for the APG grant). For 2021, Mr. Gibbs’ annual PSU maximum value at grant date fair value would be $11,873,160 and his APG maximum value at grant date fair value would be $6,250,050; Mr. Turner’s’ annual PSU maximum value at grant date fair value would be $2,671,614 and his APG maximum value at grant date fair value would be $2,812,555; Ms. Skeans’ annual PSU maximum value at grant date fair value would be $2,968,352 and her APG maximum value at grant date fair value would be $3,125,090; Mr. King’s’ annual PSU maximum value at grant date fair value would be $2,077,896 and his APG maximum value at grant date fair value would be $2,187,614; and Mr. Lowings’ annual PSU maximum value at grant date fair value would be $2,374,632 and his APG maximum value at grant date fair value would be $2,500,020. (4) The amounts shown in this column represent the grant date fair values of the stock appreciation rights (SARs) awarded in 2021, 2020 and 2019, 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, 2021. See the Grants of Plan-Based Awards table for details. 54 YUM! BRANDS, INC. - 2022 Proxy Statement EXECUTIVE COMPENSATION (5) Amounts in this column reflect the annual incentive awards earned for the 2021, 2020 and 2019 fiscal year performance periods, which were awarded by our Management Planning and Development Committee (“Committee”) in January 2022, January 2021 and January 2020, respectively, under the Yum Leaders’ Bonus Program, which is described further in our CD&A beginning at page 40 under the heading “Annual Performance-Based Cash Bonuses”. (6) Amounts in this column represent for Mr. Gibbs and Ms. Skeans the amounts of aggregate change in actuarial present values of their accrued benefits under all actuarial pension plans (using interest rate and mortality assumptions consistent with those used in the Company’s financial statements). For Mr. Gibbs and Ms. Skeans, the actuarial present value of their benefits under the pension plan increased $105,811 and $65,429, respectively, during the 2021 fiscal year. In addition, for Mr. Gibbs and Ms. Skeans, the actuarial present value of their benefits under the Yum! Brands Pension Equalization Plan (“PEP”) increased $4,683,503 and $749,571 respectively, during the 2021 fiscal year. For Mr. Lowings, amounts in this column represent the above market earnings as established pursuant to SEC rules which have accrued to his account under the Third Country National Plan (“TCN”) which is described in more detail beginning at page 62 under the heading “Nonqualified Deferred Compensation”. For Messrs. Turner and King, amounts in this column represent the above market earnings as established pursuant to SEC rules which have accrued to his account under the Leadership Retirement Plan (“LRP”) which is described in more detail beginning at page 62 under the heading “Nonqualified Deferred Compensation”. Messrs. Turner and King were hired after September 30, 2001, and are ineligible for the Company’s actuarial pension plans. Mr. Lowings worked outside of the United States prior to September 30, 2001 and is ineligible for the Company’s actuarial pension plans. See the Pension Benefits Table at page 60 for a detailed discussion of the Company’s pension benefits. (7) Amounts in this column are explained in the All Other Compensation Table and footnotes to that table, which follows. All Other Compensation Table The following table contains a breakdown of Compensation in the Summary Compensation Table above for 2021. the compensation and benefits included under All Other Name (a) Gibbs Turner Skeans King Lowings Perquisites and other personal benefits ($)(1) (b) 225,498 25,313 49,020 78,672 48,825 Tax Reimbursements ($) (c) Insurance premiums ($)(2) (d) LRP/TCN Contributions ($)(3) (e) Other ($) (f) — — — — — 18,692 5,247 4,529 16,734 — — 3,132 5,367 — 7,755 377 5,519 88,800 77,700 19,427 Total ($) (g) 247,322 124,727 61,304 173,483 73,771 P r o x y S t a t e m e n t (1) For Messrs. Gibbs and King and Ms. Skeans, amount in this column also includes personal use of charter and commercial aircraft. 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. Gibbs ($225,498), Ms. Skeans ($49,020) and Mr. King ($78,672) and a charitable matching gift on behalf of Mr. Turner ($25,000) and an employee recognition gift ($313). Ms. Skeans’ and Mr. King’s personal use of charter aircraft was approved by Mr. Gibbs and was necessitated by travel safety considerations brought on by the onset of the COVID-19 pandemic. For Mr. Lowings these amounts include expenses incurred on account of his relocation to his home country ($48,825). (2) These amounts reflect the income each executive was deemed to receive from IRS tables related to Company-provided life insurance in excess of $50,000. The Company provides every salaried employee with life insurance coverage up to one times the employee’s base salary plus target bonus. (3) For Messrs. Turner and King, this column represents the Company’s annual allocations to the LRP, an unfunded, unsecured account based retirement plan. For Mr. Turner, this column also includes a Company 401(k) matching contribution. For Mr. Lowings, this column represents the Company’s annual allocation to the superannuation retirement plan in Australia, his home country. YUM! BRANDS, INC. - 2022 Proxy Statement 55 EXECUTIVE COMPENSATION Grants of Plan-Based Awards The following table provides information on SARs, RSUs, PSUs and other equity awards granted in 2021 to each of the Company’s NEOs. The full grant date fair value of these awards is shown in the Summary Compensation Table at page 54. Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1) Estimated Future Payouts Under Equity Incentive Plan Awards(2) Grant Date (b) Threshold ($) (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) 0 1,980,000 5,940,000 0 935,000 2,805,000 0 935,000 2,805,000 0 1,017,500 3,052,500 0 867,479 2,602,437 2/8/2021 2/8/2021 2/8/2021 2/8/2021 2/8/2021 2/8/2021 2/8/2021 2/8/2021 2/8/2021 2/8/2021 2/8/2021 2/8/2021 2/8/2021 2/8/2021 2/8/2021 2/8/2021 2/8/2021 2/8/2021 2/8/2021 2/8/2021 — 48,375 — 48,375 96,750 60,469 10,885 21,769 21,770 27,211 — 12,094 — 24,188 24,188 30,235 8,466 16,932 16,932 21,165 9,675 — 19,350 19,350 24,188 235,073 52,892 58,769 41,138 47,015 103.36 5,000,003 103.36 5,936,580 103.36 5,000,040 103.36 1,125,013 103.36 1,335,807 103.36 2,250,044 103.36 1,250,017 103.36 1,484,176 103.36 2,500,072 103.36 875,005 103.36 1,038,948 103.36 1,750,092 103.36 1,000,009 103.36 1,187,316 103.36 2,000,016 Name (a) Gibbs Turner Skeans King Lowings t n e m e t a t S y x o r P (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 2021. The actual amount of annual incentive compensation awards earned are shown in column (g) of the Summary Compensation Table on page 54. The performance measurements, performance targets, and target bonus percentages are described in the CD&A beginning on page 34 under the discussion of annual incentive compensation. (2) Reflects grants of PSU awards subject to performance-based vesting conditions in 2021. The annual PSU awards granted February 8, 2021 vest on December 31, 2023 and PSU award payouts are weighted 100% on the Company’s achievement of specified relative total shareholder return (“TSR”) rankings against the S&P 500 Consumer Discretionary Index during the performance period ending on December 31, 2023. With respect to the 100% 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 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. The terms of the annual 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. The Accelerating Profitable Growth PSU awards (described in detail on page 43) will pay out at the close of the vesting period (December 31, 2023) if specified net-new unit targets are met by year-end 2022. 56 YUM! BRANDS, INC. - 2022 Proxy Statement EXECUTIVE COMPENSATION (3) Amounts in this column reflect the number of SARs granted to executives during the Company’s 2021 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 8, 2021. These SAR grants become exercisable in equal installments on the first, second, third and fourth anniversaries 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 or 65 with 5 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 SARs (generally 10 years from the grant date). Unvested SARs of executives who die will immediately vest and may be 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 2021 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. The fair values of PSU awards without market-based conditions are based on the closing price of our Common Stock on the date of grant. The fair values of PSU awards with market-based conditions have been valued based on the outcome of a Monte Carlo simulation. For SARs, fair value of $21.27 was calculated using the Black-Scholes method on the grant date. For additional information regarding valuation assumptions of SARs, see the discussion of stock awards and option awards contained at Note 16 to the Consolidated Financial Statements in Item 8 of YUM’s Form 10-K for the fiscal year ended December 31, 2021. P r o x y S t a t e m e n t YUM! BRANDS, INC. - 2022 Proxy Statement 57 EXECUTIVE COMPENSATION Outstanding Equity Awards at Year-End The following table shows the number of shares covered by exercisable and unexercisable SARs, and unvested RSUs and PSUs held by the Company’s NEOs on December 31, 2021. Option/SAR Awards(1) Stock Awards t n e m e t a t S y x o r P Name (a) Gibbs Turner Skeans King Lowings Number of Securities Underlying Unexercised Options/ SARs (#) Exercisable (c) 2,227 40,718 33,932 61,968 77,878 31,838 77,465 62,881 55,989 47,400 — 40,783 33,986 61,988 77,956 31,871 Grant Date (b) 2/8/2012* 2/5/2014* 2/5/2014* 2/6/2015* 2/5/2016* 5/20/2016* 2/10/2017* 2/12/2018* 2/11/2019* 2/10/2020* 2/8/2021* 2/5/2014** 2/5/2014** 2/6/2015** 2/5/2016** 5/20/2016** Number of Securities Option/ Underlying Option/ SAR Unexercised SAR Exercise Options/ Expiration Price SARs (#) Date ($) Unexercisable (f) (d) (e) 2/8/2022 — $ 45.88 2/5/2024 — $ 50.22 2/5/2024 — $ 50.22 2/6/2025 — $ 52.64 — $ 49.66 2/5/2026 — $ 56.67 5/20/2026 — $ 68.00 2/10/2027 $ 78.07 2/12/2028 20,961(i) 55,989(ii) $ 93.26 2/11/2029 142,200(iii) $102.87 2/10/2030 2/8/2031 235,073(iv) $103.36 2/5/2024 — $ 21.30 2/5/2024 — $ 21.30 2/6/2025 — $ 22.32 — $ 21.06 2/5/2026 — $ 24.03 5/20/2026 2/10/2020* 2/8/2021* 2/10/2017* 2/12/2018* 2/12/2018* 2/11/2019* 2/10/2020* 2/8/2021* 2/5/2016** 2/5/2016** 2/10/2020* 2/8/2021* 2/6/2013* 2/5/2014* 2/5/2014* 2/6/2015* 2/6/2015* 2/5/2016* 2/10/2017* 2/12/2018* 2/11/2019* 2/11/2019* 2/10/2020* 2/8/2021* 13,543 — 22,552 18,675 — 22,347 10,834 — 5,701 10,144 10,157 — 15,978 19,329 19,329 19,264 19,264 34,288 30,884 18,149 18,873 — 10,834 — 40,629(iii) $102.87 2/10/2030 2/8/2031 52,892(iv) $103.36 7,985(i) — $ 68.00 2/10/2027 $ 78.07 2/12/2028 51,106(v) $ 78.07 2/12/2028 24,069(ii) $ 93.26 2/11/2029 32,503(iii) $102.87 2/10/2030 2/8/2031 58,769(iv) $103.36 2/5/2026 — $ 21.06 2/5/2026 — $ 21.06 30,472(iii) $102.87 2/10/2030 2/8/2031 41,138(iv) $103.36 2/6/2023 — $ 44.81 2/5/2024 — $ 50.22 2/5/2024 — $ 50.22 2/6/2025 — $ 52.64 2/6/2025 — $ 52.64 — $ 49.66 2/5/2026 — $ 68.00 2/10/2027 $ 78.07 2/12/2028 18,873(ii) $ 93.26 2/11/2029 50,328(vi) $ 93.26 2/11/2029 32,503(iii) $102.87 2/10/2030 2/8/2031 47,015(iv) $103.36 6,050(i) Equity incentive plan awards: Number of unearned shares, units or other rights that have not vested(4) (i) Equity incentive plan awards: market or payout value of unearned shares, units or other rights that have not vested (j) Number of Shares or Units of Stock That Have Not Vested (#)(2) (g) Market Value of Shares or Units of Stock That Have Not Vested ($)(3) (h) 56,494 7,844,749 130,774 18,159,278 4,391 609,751 42,376 5,884,331 5,041 700,011 44,059 6,118,033 7,318 1,016,204 32,689 4,539,195 36,802 5,110,326 58 YUM! BRANDS, INC. - 2022 Proxy Statement EXECUTIVE COMPENSATION YUM Awards YUM China Awards * ** (1) The actual vesting dates for unexercisable awards are as follows: (i) Remainder of unexercisable award will vest on February 12, 2022. (ii) One-half of the unexercisable award will vest on each of February 11, 2022 and 2023. (iii) One-third of the unexercisable award will vest on each of February 10, 2022, 2023 and 2024. (iv) One-fourth of the unexercisable award will vest on each of February 8, 2022, 2023, 2024 and 2025. (v) Unexercisable award will vest on February 12, 2022 (vi) Unexercisable award will vest on February 11, 2023. (2) For Messrs. Turner and King this column represents sign-on RSU award grants that vest one-third each year over 3 years. For Mr. Gibbs, it represents an RSU grant he received in connection with his promotion to Chief Operating Officer that is subject to five-year cliff vesting. For Ms. Skeans it represents a CEO Award RSU grant that is subject to four-year cliff vesting. (3) The market value of the YUM awards are calculated by multiplying the number of shares covered by the award by $138.86, the closing price of YUM stock on the NYSE on December 31, 2021. (4) The awards reflected in this column are unvested performance-based PSU awards with three-year performance periods that are scheduled to vest on December 31, 2022 and 2023 if the performance targets are met. In accordance with SEC rules, the PSU awards are reported at their target payout value. Option Exercises and Stock Vested The table below shows the number of shares of YUM and Yum China common stock acquired during 2021 upon exercise of stock option and SAR awards and vesting of stock awards in the form of RSUs and PSUs, each including accumulated dividends and before payment of applicable withholding taxes and broker commissions. Name (a) Gibbs Turner Skeans King Lowings Option/SAR Awards Stock Awards Number of Shares Acquired on Exercise (#) (b) 132,225 — 51,747 — 13,293 Value Realized on Exercise ($) (c) 11,865,703 — 5,849,074 — 1,677,958 Number of Shares Acquired on Vesting (#)(1) (d) 22,123 4,357 9,943 7,261 7,458 Value realized on Vesting ($) (e) 3,072,000 580,378 1,380,685 967,204 1,035,622 (1) For each of Mr. Gibbs, Ms. Skeans and Mr. Lowings, this amount includes PSUs that vested on December 31, 2021 with respect to the 2019-2021 performance period and were paid out in 2022. For Messrs. Turner and King, this amount includes the vested portion of their sign-on RSU grants. P r o x y S t a t e m e n t YUM! BRANDS, INC. - 2022 Proxy Statement 59 t n e m e t a t S y x o r P EXECUTIVE COMPENSATION Pension Benefits The table below shows the present value of accumulated benefits payable to each of the NEOs, including the number of years of service credited to each NEO, under the YUM! Brands Retirement Plan (“Retirement Plan”), and the YUM! Brands Pension Equalization Plan (“PEP”) determined using interest rate and mortality rate assumptions consistent with those used in the Company’s financial statements. Name (a) Gibbs Skeans Turner(i) King(i) Lowings(i) Plan Name (b) Qualified Retirement Plan PEP Qualified Retirement Plan PEP — — — Number of Years of Credited Service (#) (c) 33 Present Value of Accumulated Benefit ($) (d) 1,943,716 Payments During Last Fiscal Year ($) (e) — 33 21 21 — — — 19,649,084 916,761 5,080,998 — — — — — — — — — (i) Messrs. Turner and King were hired after September 30, 2001, and are ineligible for the Company’s actuarial pension plans. Mr. Lowings worked outside of the United States prior to September 30, 2001, and is ineligible for the Company’s actuarial pension plans. As discussed at page 54, Mr. Lowings participates in an Australian superannuation plan (for 2021 only, prior to 2021 he participated in the TCN and maintains an account balance in that plan), and Messrs. Turner and King participate 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 to the participant’s final average earnings (subject limits under Internal Revenue Code Section 401(a)(17)) and service under the plan. Upon termination of employment, a participant’s monthly normal retirement benefit from the plan is equal to A. B. C. 3% of Final Average Earnings times Projected Service up to 10 years of service, plus 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 60 YUM! BRANDS, INC. - 2022 Proxy Statement the result of which is multiplied by a fraction, the numerator of which is actual service as of date of termination, and the denominator of which is the participant’s Projected Service. Projected Service is the service that the participant would have earned if he had remained employed with the Company until his normal retirement age (generally age 65). 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. Final Average Earnings A participant’s “Final Average Earnings” is determined based on his or her highest five consecutive years of pensionable earnings. Pensionable earnings is the sum of the participant’s base pay and annual incentive including amounts compensation from the Company, 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. EXECUTIVE COMPENSATION Vesting Early Retirement Eligibility and Reductions A participant receives a year of vesting service for each year of employment with the Company. A participant is 0% vested until he or she 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. A participant is eligible for early retirement upon reaching age 55 with 10 years of vesting service. A participant who has met the requirements for early retirement and who elects to begin receiving payments from the plan prior to age 62 will receive a reduction of 1/12 of 4% for each month benefits begin before age 62. Benefits are unreduced at age 62. Normal Retirement Eligibility A participant is eligible for normal retirement following the later of age 65 and 5 years of vesting service. 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, 2021 and received a lump sum payment. Earliest Retirement Date Estimated Lump Sum from a Qualified Plan(1) Estimated Lump Sum from a Non- Qualified Plan(2) January 1, 2021 $ 2,143,881 $ 21,667,499 $ Total Estimated Lump Sums 23,811,380 February 1, 2028 $ 1,868,407 $ 9,218,787 $ 11,087,194 Name David W. Gibbs Tracy L. Skeans (1) The Retirement Plan (2) PEP 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, 2022. 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, it assumptions for lump sums required by Internal Revenue Code Section 417(e)(3). P r o x y S t a t e m e n t (2) PEP The PEP is an unfunded, non-qualified plan that complements the Retirement Plan by providing benefits that federal tax law bars providing under the Retirement Plan. Benefits are generally determined and payable under the same terms and conditions as the Retirement Plan (except as noted below) without regard to federal tax limitations on amounts of includible compensation and maximum benefits. Benefits paid are reduced by the value of benefits payable under the Retirement Plan. Participants who earned at least $75,000 during calendar year 1989 are the eligible to receive benefits calculated under Retirement Plan’s pre-1989 formula, if this calculation results in a larger benefit from the PEP. This formula is similar the Retirement Plan except that part C of the formula is calculated as follows: to the formula described above under 12/3% 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, YUM! BRANDS, INC. - 2022 Proxy Statement 61 EXECUTIVE COMPENSATION 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 the participant’s life only annuity. equivalent of 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 the present value of accumulated For all plans, is benefits (determined as of December 31, 2021) calculated assuming that each participant is eligible to receive an unreduced benefit payable in the form of a single lump sum at age 62. This is consistent with the accounting in methodologies calculations. In addition, the economic assumptions for retirement mortality, and discount rate are also consistent with those used in financial accounting calculations at each measurement date. the lump sum interest rate, post financial used Nonqualified Deferred Compensation t n e m e t a t S y x o r P 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 plans. 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. deferred, each unsecured EID Program the EID Program. under Deferred Investments Amounts deferred under the EID Program may be following phantom investment invested in alternatives (12-month investment returns, as of December 31, 2021, are shown in parentheses): the (cid:129) YUM! Stock Fund (30.05%*) (cid:129) YUM! Matching Stock Fund (30.05%*) (cid:129) S&P 500 Index Fund (28.60%) (cid:129) Bond Market Index Fund (-1.69%) (cid:129) Stable Value Fund (1.30%) is, that investments; All of the phantom investment alternatives offered under the EID Program are designed to match the they performance of actual 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 like-named funds to track the investment return of 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. the Participants may between transfer funds 62 YUM! BRANDS, INC. - 2022 Proxy Statement 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 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 2021). incentive award, Beginning with their 2009 annual those who are eligible for annual PSU awards are no longer eligible to participate in the Matching Stock Fund. 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 * Assumes dividends are reinvested. 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 immediately and YUM! Matching Stock Fund vest RSUs 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 at a time that begins at or after the executive’s 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 In general, Section 409A requires that: installments for up to 20 years. the Internal Revenue Code. (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. EXECUTIVE COMPENSATION LRP LRP Account Returns. The LRP provides an annual earnings credit to each participant’s account based on the value of participant’s account at the end of each year. Under the LRP, Messrs. King and Turner will receive an annual earnings credit equal to the Moody’s Aa Corporate Bond Yield Average for maturities 20 years and above (currently 2.91%) of their account balances. The Company’s contribution (“Employer Credit”) for 2021 was equal to 4% of salary plus target bonus for Messrs. Turner and King. Distributions under LRP. Under the LRP, participants who became eligible to participate in the plan before January 1, 2019 and are age 55 or older are entitled to a lump sum distribution of their account balance in the quarter following their separation of employment. Alternatively, these participants may elect to be paid in 5 or 10-year installments following the attainment of age 55. If these participants are under age 55 with a vested LRP benefit that, combined with any other deferred compensation benefits covered under Code Section 409A exceeds $19,500, they will not receive a distribution until the calendar quarter that follows the participant’s 55th birthday. Participants who become eligible to participate in LRP after January 1, 2019 (including Messrs. Turner and King) will receive a lump sum from following employment. distribution separation 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, Mr. Lowings receives an annual earnings credit equal to 5%. For Mr. Lowings, the Employer Credit for 2021 was 0%, because he instead participated in the Australian superannuation retirement plan. Distributions under TCN. Under the TCN, participants age 55 or older with a balance of $19,500 or more, are entitled to a lump sum distribution of their account balance in the quarter following their separation of employment. Participants under age 55 who separate employment with the Company will receive interest annually and their account balance will be distributed in the quarter following their 55th birthday. YUM! BRANDS, INC. - 2022 Proxy Statement 63 P r o x y S t a t e m e n t EXECUTIVE COMPENSATION Name (a) Gibbs Turner Skeans King Lowings Executive Contributions in Last FY ($)(1) (b) — Registrant Contributions in Last FY ($)(2) (c) — — — — — — — — — — — — — — — 71,400 71,400 — — — 77,700 77,700 — — — Aggregate Earnings in Last FY ($)(3) (d) 996,029 996,029 — 2,637 2,637 127,587 127,587 — 2,903 2,903 66,192 47,531 113,723 Aggregate Withdrawals/ Distributions ($)(4) (e) — — — — — — — — — — — — — Aggregate Balance at Last FYE ($)(5) (f) 4,779,899 4,779,899 — 158,288 158,288 592,719 592,719 — 173,354 173,354 326,774 998,160 1,324,934 Plan Name EID Total EID LRP Total EID Total EID LRP Total EID TCN 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 6 of the Summary Compensation Table for more detail. t n e m e t a t S y x o r P (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 Messrs. Lowings, King and Turner, of their earnings reflected in this column, $25,857, $788 and $716, respectively, were deemed above market earnings accruing to their accounts under the TCN or LRP. For above market earnings on nonqualified deferred compensation, see the “Change in Pension Value and Nonqualified Deferred Compensation Earnings” column of the Summary Compensation Table. (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 2021. Gibbs Turner Lowings King Skeans — — — — — (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 2021 and prior years. Gibbs Turner Skeans King Lowings — $163,920 — $182,955 $490,929 64 YUM! BRANDS, INC. - 2022 Proxy Statement Potential Payments Upon Termination or Change in Control EXECUTIVE COMPENSATION 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, 2021, 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 the employees, distributions Company’s 401(k) Plan, retiree medical benefits, disability benefits and accrued vacation pay. under such as 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 SAR Awards. If one or more NEOs terminated than retirement, employment death, disability or following a change in control as of December 31, 2021, they could exercise the SARs that were exercisable on that date as shown at the Outstanding Equity Awards at Year-End table on page 58, 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, 2021, exercisable SARs would remain exercisable through the term of the award and unvested shares would continue to vest if the award was granted at least one year before retirement and vesting would be accelerated for all SARs granted in 2019, 2020 or 2021 in the event of death. Except in the case of a change in control or death, no SARs become exercisable on an accelerated basis. In the case of an involuntary termination of employment as of December 31, 2021, each NEO would receive the following: Mr. Gibbs $17,290,187, Mr. Turner $3,339,904, Ms. Skeans $8,689,499, Mr. King $2,557,086 and Mr. Lowings $6,362,161. Executive Income Deferral Program. As described in the NEOs more detail beginning at page 62, participate in the EID Program, which permits the incentive compensation. deferral of salary and annual The last column of the Nonqualified Deferred Compensation Table on page 64 includes each NEO’s aggregate balance at December 31, 2021. 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 their retirement after age 65, beneficiaries are entitled to their entire account balance as shown in the last column of the Nonqualified Deferred Compensation table on page 64. they or case of an involuntary In the termination of employment as of December 31, 2021, each NEO would receive the following: Mr. Gibbs $4,779,899, Mr. Turner $0, Ms. Skeans $592,719, Mr. King $0 and Mr. Lowings $326,774. As discussed at page 65, these amounts reflect base salary or bonuses previously deferred by the executive and appreciation on these deferred amounts (see page 62 for discussion of investment alternatives available under the EID). Thus, these EID account balances represent deferred base salary or bonuses (earned in prior years) and appreciation of their accounts based primarily on the performance of the Company’s stock. P r o x y S t a t e m e n t the Leadership Retirement Plan. Under LRP, participants who became eligible to participate in the plan before January 1, 2019 and are age 55 or older are entitled to a lump sum distribution of their account balance in the quarter following their separation of these participants may employment. Alternatively, elect to be paid in 5- or 10-year installments following If these participants are the attainment of age 55. under age 55 with a vested LRP benefit that, combined with any other deferred compensation benefits covered under Code Section 409A exceeds $19,500, they will not receive a distribution until the calendar quarter that follows the participant’s 55th to birthday. Participants who become participate in LRP after January 1, 2019 (including Messrs. Turner and King) will receive a lump sum distribution following separation from employment to be paid in 5 or 10-year unless they elect installments after attaining age 54. In case of termination of employment as of December 31, 2021, Mr. Turner would have received $158,288 and Mr. King would have received $173,354. eligible YUM! BRANDS, INC. - 2022 Proxy Statement 65 EXECUTIVE COMPENSATION Third Country National Plan. Under the TCN, 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, 2021, Mr. Lowings would have received $998,160. 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 the NEO had retired or died or been forfeited. involuntarily terminated following a change in control, as of December 31, 2021, 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, 2021, Messrs. Gibbs, Turner, King and Lowings and Ms. Skeans would have been entitled to $7,819,161, $2,469,936, $1,895,109, $2,112,440 and $2,453,930, respectively, assuming target performance. If any of Pension Benefits. The Pension Benefits Table on page 60 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, 2021. The table on page 61 provides the present value of the lump sum benefit payable to each NEO when they attain eligibility for Early Retirement (i.e., age 55 with 10 years of service) under the plans. t n e m e t a t S y x o r P see insurance plans life the NEOs, the Life Insurance Benefits. For a description of that provide supplemental coverage the All Other to Compensation Table on page 55. If the NEOs had died on December 31, 2021, the survivors of Messrs. Gibbs, Turner, King and Lowings and Ms. Skeans would have received Company-paid life insurance of $2,050,000, and $1,323,000, this arrangement. Executives and all other salaried employees can life insurance benefits up to a purchase additional maximum combined company paid and additional life insurance of $3.5 million. This additional benefit is not $1,500,000, respectively, under $1,500,000, $0 66 YUM! BRANDS, INC. - 2022 Proxy Statement paid or subsidized by the Company and, therefore, is not shown here. Change in Control. Change in control severance agreements are in effect between YUM and certain key executives (including Messrs. Gibbs, Turner, King and Lowings and Ms. Skeans). These agreements are general obligations of YUM, and provide, generally, that if, within two years subsequent to a change in control of YUM, the employment of the executive is terminated (other than for cause, or for other limited reasons specified in the change in control severance agreements) or 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: (cid:129) a annual incentive proportionate assuming achievement of target performance goals under the bonus plan or, if higher, assuming continued 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 34 for more detail. The change in control severance agreements have a three-year term and are automatically renewable each January 1 for another three-year term. An executive whose employment is not terminated within two years of a change in control will not be entitled to receive any severance payments under the change in control 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 its acquired directly 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 change the Company or any subsidiary of the Company other than (a) a merger where the Company’s directors control the immediately before constitute a majority of the resulting organization, or (b) a merger effected to implement a recapitalization of the Company in which no person is or becomes the beneficial owner of securities of the Company representing 20% or more of the combined voting power of the Company’s then-outstanding securities. 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 following a change in control the executive is employed on the date of the change in control of the Company and is involuntarily terminated (other than by the Company for cause) on or within two years following the change in control. See Company’s CD&A on page 34 for more detail; if EXECUTIVE COMPENSATION (cid:129) RSUs under the Company’s EID Program or otherwise held by the executive will automatically vest; and (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 the entire performance had been achieved for period, subject to a pro rata reduction to reflect the portion of the performance period after the change in control. All PSUs awarded for performance periods that began before the year in which the change in control occurs will be paid out assuming performance achieved for the performance period was at the greater of target level 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 period after the change in control. In all cases, 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 34 for more detail. If a change in control and each NEO’s involuntary termination had occurred as of December 31, 2021, 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 CEO Pay Ratio Gibbs $ 6,360,000 Turner $ 3,570,000 Skeans $ 3,570,000 King $ 3,885,000 Lowings $ 3,312,192 5,405,400 2,552,550 2,552,550 2,834,755 2,186,047 17,290,187 3,339,904 8,689,499 2,557,086 6,362,161 7,844,749 609,751 700,011 1,016,204 — 7,819,161 2,469,936 2,453,930 1,895,109 2,112,440 25,000 25,000 25,000 25,000 25,000 44,744,497 12,567,141 17,990,991 12,213,154 13,997,840 Each year the Company and our franchisees around the world create thousands of restaurant jobs, which are part-time, entry-level opportunities to grow careers at our KFC, Pizza Hut, Taco Bell and The Habit Burger Grill brands. As evidence of the opportunities these positions create, approximately 80% of our Company- owned Restaurant General Managers (“RGMs”) located in the U.S. have been promoted from other positions in our restaurants and such RGMs often earn competitive pay greater than the average American household income. In the United States, approximately 90% of our Company-owned restaurant employees are part-time and at least 50% have been employed by the Company for less than a year. 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. Gibbs, our Chief Executive Officer (our “CEO”). YUM! BRANDS, INC. - 2022 Proxy Statement 67 P r o x y S t a t e m e n t After calculating employee compensation, our median employee was identified as a part-time KFC restaurant employee in the United States (for which we have substituted a similarly situated employee, a part-time Taco Bell employee in the United States, as described above). After identifying the median employee, we calculated total annual compensation in accordance with the requirements of the Summary Compensation Table. the total compensation of our CEO, as For 2021, reported in the Summary Compensation Table at page 54, was $ 27,578,659. The total compensation of our median employee was estimated to be $13,082. As a result, we estimate that our CEO to median employee pay ratio is 2,108:1. This pay ratio is a reasonable estimate calculated in a manner consistent with SEC rules based on our payroll and employment records and the methodology described above. The SEC rules for identifying the median compensated employee and calculating the total pay ratio based on that employee’s annual 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, and estimates assumptions in calculating their own pay ratios. exclusions, EXECUTIVE COMPENSATION for our annual meeting The employee that was used for purposes of calculating the ratio below was similarly situated to the employee (the “2020 median employee”) that was identified as the median employee for purposes of the CEO pay ratio disclosure included in the proxy statement of 2021 stockholders (the “2020 Pay Ratio Disclosure”) because there has been no change in our employee population or employee compensation arrangements since the 2020 median employee was identified that we believe would significantly impact our pay ratio disclosure. However, because the 2020 median employee is no longer an employee, as permitted by SEC rules, we substituted another employee, whose total compensation was substantially similar to the 2020 median employee’s total compensation based on the compensation measure used to select the median employee for purposes of the 2021 Pay Ratio Disclosure, as the median employee for purposes of this disclosure. t n e m e t a t S y x o r P To identify the 2020 median employee, we used the salary December 2020 base wages or base information for all employees who were employed by us on December 31, 2020, excluding our CEO. We included all full-time and part-time employees and annualized the employees’ base salary or base wages to reflect their compensation for 2020. We believe the use of base wages or base salary for all employees is a consistently applied compensation measure. As of December 31, 2020, our global workforce used for determining the pay ratio was approximately 38,000 employees (23,000 in the U.S. and 15,000 internationally). 68 YUM! BRANDS, INC. - 2022 Proxy Statement EQUITY COMPENSATION PLAN INFORMATION The following table summarizes, as of December 31, 2021, 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) 7,669,611(1) 80.24(2) 23,908,068(3) 76,377(4) 7,745,988(1) 52.39(2) 79.96(2) — 23,908,068(3) Includes 2,327,774 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 11,954,034 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? The LTIP provides for the issuance of up to 92,600,000 shares of stock as non-qualified stock options, restricted incentive stock options, SARs, stock, restricted stock units, performance shares or performance units. Only our employees and directors are eligible to receive awards under the LTIP. The purpose of the LTIP is to motivate participants to 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 closing price of our stock on the date of the grant, 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. What are the key features of the RGM Plan? P r o x y S t a t e m e n t 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. - 2022 Proxy Statement 69 EQUITY COMPENSATION PLAN INFORMATION the RGM Plan was (i) managers (“RGMs”) the opportunity to become to give restaurant general 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. the Plan provides incentives to Area Coaches, Franchise Business Leaders and other supervisory field operation positions that support RGMs and have profit and loss In addition, 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 Officer of the Company. The Board of Directors approved the RGM Plan on January 20, 1998. t n e m e t a t S y x o r P 70 YUM! BRANDS, INC. - 2022 Proxy Statement AUDIT COMMITTEE REPORT Who serves on the Audit Committee of the Board of Directors? The members of the Audit Committee (for purposes of this report, the “Committee”) are Paget L. Alves, Tanya L. Domier, Lauren R. Hobart, P. Justin Skala, Elane B. Stock and Annie Young-Scrivner. Mr. Alves serves as chair of the Committee. 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. Alves, 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. Alves has accounting and related financial the management expertise within the meaning of 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 12, 2021. least The charter is reviewed by management at and any recommended changes are annually, presented to the Audit Committee for review and approval. The charter is available on our Web site at http://investors.yum.com/committee-composition-and- charters. What are the responsibilities of the Audit Committee? P r o x y S t a t e m e n t 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 the Committee auditors since 1997. Each year, the partner. qualifications performance, and evaluates independence of the independent auditors. The Committee is also involved in the selection of the lead audit 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. evaluating In The Committee met 9 times during 2021. 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 In addition to the of only Committee members. scheduled meetings, senior management confers with the Committee or its Chair from time to time, as senior in management deems advisable or appropriate, that arise connection with issues or concerns throughout the year. YUM! BRANDS, INC. - 2022 Proxy Statement 71 AUDIT COMMITTEE REPORT is responsible for reporting process, the Company’s Management financial including its system of internal control over financial reporting, and for the preparation of 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 the principles and for auditing the effectiveness of Company’s internal control over 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 financial that independent representations relied, without internal control over financial reporting. It is not the Committee’s duty or responsibility to conduct audits or accounting reviews or procedures. The Committee verification, on has management’s the financial statements have been prepared with integrity and objectivity and in conformity with accounting principles the generally accepted in the U.S. and that Company’s internal control over financial reporting is effective. The Committee has also relied, without the independent independent auditors included in their report regarding the Company’s financial statements and effectiveness of internal control over financial reporting. verification, on the opinion of What matters have members of the Audit Committee discussed with management and the independent auditors? non-audit received from KPMG LLP required by applicable requirements of the PCAOB regarding KPMG LLP’s communications with the Committee concerning also considered independence. The Committee 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 provided auditors internal this process, and disclosure In addition, the Committee reviewed key initiatives and programs aimed at strengthening the effectiveness of control the Company’s structure. As part of the Committee continued to monitor the scope and adequacy of the Company’s reviewing to implement staffing levels recommended improvements in internal procedures and controls. The Committee also reviews and compliance matters with discusses the management, and, as necessary or advisable, Company’s independent auditors. auditing program, and steps internal taken legal and t n e m e t a t S y x o r P and been reviews reviewed prepared both management As part of its oversight of the Company’s financial statements, the Committee reviews and discusses the Company’s with independent auditors all annual and quarterly financial statements prior to their issuance. With respect to reporting period, management each 2021 fiscal financial advised the Committee that each set of statements in had accordance with accounting principles generally accepted in the U.S., and reviewed significant accounting and disclosure issues with the Committee. These the independent auditors of matters required to be discussed pursuant to Public Company Accounting Oversight Board (“PCAOB”) Auditing Standard No. 1301 (Communication with Audit Committees), including the quality (not merely the acceptability) of the accounting the reasonableness of significant judgments, the clarity of disclosures in the financial statements and disclosures related to critical accounting practices. The Committee has also discussed with KPMG LLP matters relating to its independence, including a review of audit and non-audit fees and the written disclosures and letter discussions with Company’s principles, included 72 YUM! BRANDS, INC. - 2022 Proxy Statement Has the Audit Committee made a recommendation regarding the audited financial statements for fiscal 2021? AUDIT COMMITTEE REPORT on the Committee’s Based discussions with management and the independent auditors and the Committee’s of the independent management and the report of 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, 2021 for filing with the SEC. it Who prepared this report? This report has been furnished by the members of the Audit Committee: Paget L. Alves, Chairperson Tanya L. Domier Lauren R. Hobart P. Justin Skala Elane B. Stock Annie Young-Scrivner P r o x y S t a t e m e n t YUM! BRANDS, INC. - 2022 Proxy Statement 73 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 the Company. 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? t n e m e t a t S y x o r P 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 receiving copies through the mail. We are offering this service to to provide shareholders with added convenience, reduce our environmental impact and to reduce Annual Report printing and mailing costs. instead of 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, log in and click on Shareholder Account Access, 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 at Agent’s our 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 you may call, write or e-mail proxy materials, Computershare, Inc. Transfer website I share an address with another shareholder and we received only one paper copy of the proxy materials. How may I obtain an additional copy of the proxy materials? The Company has adopted a procedure called “householding” which has been approved by the SEC. The Company and some brokers household proxy materials, delivering a single Notice and, if applicable, this proxy statement and Annual Report, to multiple shareholders sharing an address unless contrary instructions have been received from the affected shareholders or they participate in electronic delivery of proxy materials. Shareholders who participate in householding will continue to access and receive separate proxy cards. This process will help reduce our printing and postage fees, as well as save natural resources. If at any time you no longer wish to participate in householding and would prefer to receive a separate proxy statement, or if you are receiving multiple copies of the proxy statement and wish to receive only one, please notify your broker if your shares are held in a brokerage account or us if you hold registered shares. You can notify us by sending a written request Investor to YUM! Brands, 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., 74 YUM! BRANDS, INC. - 2022 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 2023 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 9, 2022. 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 to introduce an item of election as directors or 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 receive the notice of your our bylaws. We must intention to introduce a nomination or to propose an item of business at our 2023 Annual Meeting no later than the date specified in our bylaws. If the 2023 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 2023 Annual Meeting is held within 30 days of the anniversary of this Annual Meeting, we must intention to introduce a receive notice of your nomination or other item of business at that meeting by February 18, 2023. In addition, our bylaws provide for proxy access for director nominations by shareholders (as described at page 20). 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, and nominee(s) satisfy the requirements in YUM’s bylaws. Notice of proxy access director nominees must be received no earlier than November 9, 2022, and no later than December 9, 2022. shareholder(s) provided that the The Board is not aware of any matters that are expected to come before the 2022 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 chairperson of the Annual Meeting may refuse to to allow the transaction of any business, or acknowledge the nomination of any person, not made in compliance with the foregoing procedures. Bylaw Provisions. You may contact YUM’s Corporate Secretary at the address mentioned above for a copy of regarding the requirements for making shareholder proposals and nominating director candidates the relevant bylaw provisions P r o x y S t a t e m e n t YUM! BRANDS, INC. - 2022 Proxy Statement 75 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 for the fiscal year ended December 31, 2021 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 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 13-3951308 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 1441 Gardiner Lane, Louisville, Kentucky (Address of principal executive offices) 40213 (Zip Code) (502) 874-8300 Registrant’s telephone number, including area code: SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Trading Symbol(s) Title of Each Class Name of Each Exchange on Which Registered New York Stock Exchange Common Stock, no par value YUM 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) 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. 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. (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, 2021, computed by reference to the closing price of the registrant’s Common Stock on the New York Stock Exchange Composite Tape on such date was approximately $34.0 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 15, 2022, was 288,980,982 shares. DOCUMENTS INCORPORATED BY REFERENCE Portions of the definitive proxy statement furnished to shareholders of the registrant in connection with the annual meeting of shareholders to be held on May 19, 2022, are incorporated by reference into Part III. 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 [Reserved] 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 Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 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 ITEM 9C PART III ITEM 10 ITEM 11 ITEM 12 ITEM 13 ITEM 14 PART IV ITEM 15 Exhibits and Financial Statement Schedules 2 2 6 18 18 19 19 20 20 21 22 42 43 85 85 85 85 86 86 86 86 86 86 87 87 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 forward-looking 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, estimates, assumptions, projections and/or forward-looking statements include (i) the risks and uncertainties described in the Risk Factors included in Part I, Item 1A of this Form 10-K and (ii) the factors described in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Part II, Item 7 of this Form 10-K. 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. - 2021 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 https://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 this Form 10-K, the terms “restaurants,” “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 53,000 restaurants in 157 countries and territories primarily operating under the four concepts of KFC, Taco Bell, Pizza Hut and The Habit Burger Grill (the “Concepts”). The Company’s KFC, Taco Bell and Pizza Hut brands are global leaders of the chicken, Mexican-style food and pizza categories, respectively. The Habit Burger Grill, a concept we acquired in March 2020, is a fast-casual restaurant concept specializing in made-to-order chargrilled burgers, sandwiches and more. At December 31, 2021, 98% of our Concepts’ units are operated by independent franchisees or licensees under the terms of franchise or license 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. The following is a summary of our Concepts’ operations and a brief description of each Concept as of and for the year ended December 31, 2021: K - 0 1 m r o F KFC Division Taco Bell Division Pizza Hut Division Habit Burger Grill Division YUM Number of Units % of Units International Number of Countries and Territories % Franchised System Sales(a) (in Millions) 26,934 7,791 18,381 318 53,424 85% 10% 64% 3% 67% 149 32 111 3 157 99% 94% 99% 13% 98% $31,365 13,280 12,955 588 $58,188 (a) Constitutes sales of all restaurants, both Company-owned and franchised. See further discussion of this performance metric within Part II, Item 7 of this Form 10-K. KFC (cid:129) KFC was founded in Corbin, Kentucky, by Colonel Harland D. Sanders, an early developer of the quick service food business and franchise concept. The Colonel a pioneer of 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 products such as sandwiches, chicken strips, chicken-on-the-bone and other chicken products marketed under a variety of names. the restaurant 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 2 YUM! BRANDS, INC. - 2021 Form 10-K sold. Taco Bell specializes in Mexican-style food products, including various types of tacos, burritos, quesadillas, salads, nachos and other related items. Pizza Hut (cid:129) The first Pizza Hut restaurant was opened in 1958 in Wichita, Kansas, and within a year, the first franchise unit was opened. is the largest restaurant chain in the world Today, Pizza Hut specializing in the sale of ready-to-eat pizza products. Pizza Hut operates in the delivery, carryout and casual dining segments around the world. Habit Burger Grill (cid:129) The first Habit Burger Grill restaurant opened in 1969 in Santa Barbara, California. The Habit Burger Grill restaurant concept is built around a distinctive and diverse menu that includes chargrilled burgers and sandwiches made-to-order over an open flame and topped with fresh ingredients. Business Strategy Through our Recipe for Growth and Good we intend to unlock the growth potential of our Concepts and YUM, drive increased collaboration across our Concepts and geographies and consistently deliver better customer experiences, improved unit economics and higher rates of growth. Key enablers include accelerated use of technology and better leverage of our systemwide scale. Our Recipe for Growth is based on four key drivers: (cid:129) Unrivaled Culture and Talent: Leverage our culture and people capability to fuel brand performance and franchise success (cid:129) Unmatched Operating Capability: Recruit and equip the best restaurant operators in the world to deliver great customer experiences (cid:129) Relevant, Easy and Distinctive Brands: Innovate and elevate iconic restaurant brands people trust and champion (cid:129) Bold Restaurant Development: Drive market and franchise expansion with strong economics and value Our global citizenship and sustainability strategy, called the Recipe for Good, reflects our priorities for socially responsible growth, risk management and sustainable stewardship of our people, food and planet. Information about Operating Segments As of December 31, 2021, YUM consists of segments: four operating (cid:129) The KFC Division which includes our worldwide operations of the KFC concept (cid:129) The Taco Bell Division which includes our worldwide operations of the Taco Bell concept (cid:129) The Pizza Hut Division which includes our worldwide operations of the Pizza Hut concept (cid:129) The Habit Burger Grill Division which includes our worldwide operations of the Habit Burger Grill 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. The Company has franchise relationships that are particularly important to our business, such as our relationships with Yum China (defined below), and our strategic alliance with Food Delivery Brands Group, S.A. (previously named Telepizza Group S.A.), who is the master franchisee of Pizza Hut in Latin America (excluding Brazil) as well as portions of Europe and our relationships with certain other large franchisees. PART I ITEM 1. Business. franchise term, by reinvesting in the business. franchisees with whom we have franchise contracts. The Company utilizes both store-level franchise and master franchise programs to grow our businesses. Of our over 52,000 franchised units at December 31, 2021, approximately 30% operate under our master franchise programs, including nearly 10,800 units in mainland China. franchise units operate under store-level The remainder of our franchise agreements. Under both types of franchise programs, franchisees supply capital by purchasing or leasing the land, building, equipment, signs, seating, inventories and supplies and, over the longer In certain historical the Company may have retained refranchising transactions ownership of land and building and continues to lease them to the franchisee. Store-level 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 in the event the franchise agreement is transferred to another franchisee. Franchisees also pay monthly continuing fees based on a percentage of their restaurants’ sales (typically between 4% to 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 franchisees to operate restaurants as well as allow master 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. agreements typically On October 31, 2016, we completed the spin-off of our China business into an independent, publicly-traded company under the name of Yum China Holdings, Inc. (“Yum China”). As our largest master franchisee, Yum China, pays the Company a continuing fee of 3% on system sales of our Concepts in mainland China. The use by Yum China of certain of our material trademarks and service marks is governed by a master license agreement between Yum Restaurants Consulting (Shanghai) Company Limited (“YCCL”), a wholly-owned indirect subsidiary of Yum China, and YUM, through YRI China Franchising LLC, a subsidiary of YUM. The Company seeks to maintain strong and open relationships with our franchisees and their representatives. To this end, the Company invests a significant amount of time working with the franchisee community and their representative organizations on key aspects of the operational improvements and standards. equipment, products, business, including 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 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, carryout food and/or have the Concepts’ food delivered either through store-level or third-party delivery services. In addition, Taco Bell and KFC offer a drive-thru option in many stores. Pizza Hut and Habit Burger Grill offer a drive-thru option on a much more limited basis. F o r m 1 0 - K The Company has successfully increased franchise restaurant ownership in recent years, and currently has approximately 1,500 Restaurant management structure varies by Concept and unit is led by a restaurant general size. Generally, each restaurant YUM! BRANDS, INC. - 2021 Form 10-K 3 PART I ITEM 1. Business. and local facility product standards preparation procedures, including food safety and quality, 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. including CHAMPS performance measures, are RGMs’ efforts, monitored by Area Coaches, where sufficient scale allows. Area Coaches typically work with approximately six to twelve restaurants. accounting and K - 0 1 m r o F Our restaurant operations and results were significantly impacted by a novel strain of coronavirus, COVID-19, beginning in 2020 and continuing into 2021. As COVID-19 spread throughout the U.S. and the rest of the world, governmental authorities implemented measures to reduce the spread of COVID-19. These measures include restrictions on travel outside the home and have other limitations on business and other activities as well as encouraging social distancing. As a result of COVID-19, we and our franchisees have experienced significant store closures and instances of reduced store-level operations, including reduced operating hours and dining- room closures. We and our franchisees have also experienced interruptions of food and other supplies as well as labor shortages that have impacted restaurant operations. The impact on our sales in each of our markets has been dependent on the timing, severity and duration of the outbreak, measures implemented by government authorities to reduce the spread of COVID-19, as well as our reliance on dine-in sales in the market. In response, we accelerated our deployment of digital and technology initiatives to enhance the customer experience and our off-premise capabilities. This included increasing our focus on driving digital sales where customers utilize ordering interaction that is primarily facilitated by automated technology. For our restaurants that prominently feature drive-thru, carryout and delivery options, COVID-19 has in many cases contributed to an increase in sales during 2020 and 2021. In 2021, our system restaurants generated digital sales of $22 billion, which represented an approximate 25% increase over 2020. Additionally, the number of restaurants that now offer delivery increased to over 45,000 restaurants, which represents over 85% of our global system, more than a 25% increase over 2020. Supply and Distribution the Concepts are substantial The Company and franchisees of 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 done in practice. The Company does not typically experience significant continuous shortages of supplies, and alternative sources for most of these supplies are generally available. In the U.S., the Company, along with the representatives of the Company’s KFC, Taco Bell and Pizza Hut franchisee groups, are members of Restaurant Supply Chain Solutions, LLC (“RSCS”), a third party which is responsible for purchasing certain restaurant products and equipment. Additionally, The Habit Burger Grill entered 4 YUM! BRANDS, INC. - 2021 Form 10-K into a purchasing agreement with RSCS effective July 31, 2020. 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 our 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 restaurants. 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. Our international franchisees generally select and manage their own third-party suppliers and distributors, subject to our internal standards. All suppliers and distributors are expected to provide products and/or services that comply with all applicable laws, rules and regulations in the state and/or country in which they operate as well as comply with our internal standards. 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 restaurants, 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 have the right to control the advertising activities of certain advertising cooperatives, typically in markets where we have Company-owned restaurants, 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 our Kentucky Fried Chicken®, KFC®, Taco Bell®, Pizza Hut® and The Habit® marks, have significant value and importance to our business. The Company’s policy is to material pursue registration of important marks whenever feasible and to oppose vigorously any infringement of our 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 our marks can generally last indefinitely. The Company also has certain patents on restaurant equipment which, while valuable, are not currently considered material to our business. Working Capital is included in Information about MD&A in Part II, Item 7 and the Consolidated Statements of Cash Flows in Part II, Item 8. the Company’s working capital Seasonal Operations The Company does not consider its operations to be seasonal to any material degree. restaurants but may differ among jurisdictions. The restaurants to tariffs and regulations on outside the U.S. are also subject imported commodities and equipment, laws regulating foreign investment and anti-bribery and anti-corruption laws. PART I ITEM 1. Business. 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 has also increased from and been enabled by delivery aggregators and other food delivery services in recent years, particularly in urbanized areas, which trend has accelerated following the onset of the COVID-19 pandemic. Our Concepts also face competition as a result of convergence in grocery, convenience, deli and restaurant services, including the offering by the grocery industry of convenient meals, including pizzas and entrees with side dishes. 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 purchasing food industry, each of our Concepts power. Within the retail competes with international, national and regional chains as well as locally-owned establishments, 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. disposable products; retailers and and Environmental Matters local The Company is not aware of any federal, state or regulations that will materially affect our environmental laws or earnings or competitive position, or in material capital expenditures. However, the Company cannot predict the effect on legislation or our operations due to possible future environmental regulations. During 2021, there were no material capital expenditures for environmental control facilities and no such material expenditures are anticipated. result 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 our business, including laws and regulations concerning labor and employment, health, information security, privacy, marketing, food labeling, competition, public accommodation, 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’ restaurants outside the U.S. are subject to national and local laws and regulations which have similarities to those affecting U.S. See Item 1A “Risk Factors” of this Form 10-K for a discussion of risks relating to federal, state, local and international regulation of our business. Human Capital Management Overview the Company and its subsidiaries As of December 31, 2021, employed approximately 36,000 persons, including approximately 23,000 employees in the U.S. and approximately 13,000 employees outside the U.S. Approximately 90% and 85% of our U.S. and international employees, respectively, work in restaurants while the remainder work in our In the U.S., approximately 90% of our Company-owned restaurant employees are part-time and approximately 50% have been employed by the Company for less than a year. Some of our International employees are subject to labor council relationships whose terms vary due to the diverse countries in which the Company operates. restaurant-support centers. In addition to the persons employed by the Company and its subsidiaries, our approximately 52,000 franchise restaurants around the world are responsible for the employment of over an estimated 1 million people who work in and support those restaurants. Each year YUM and our franchisees around the world create thousands of restaurant jobs, which are part-time, entry-level opportunities to grow careers at our KFC, Taco Bell, Pizza Hut and The Habit Burger Grill brands. As evidence of the opportunities these positions create, approximately 80% of our Company-owned Restaurant General Managers (“RGMs”) located in the U.S. have been promoted from restaurants and such RGMs often earn other positions in our competitive pay greater than the average American household income. Human capital management considerations are integral to our Recipe for Growth and Good strategy, the drivers of which include leveraging our culture and people capability to fuel brand performance and franchise success, as well as recruiting and equipping the best restaurant operators in the world to deliver great customer experiences. Our investment in people includes creating a culture of engagement that attracts, retains and grows the best people and creates high performance in our restaurants. We are also highly focused on building an inclusive culture among our employees, franchisees, suppliers and partners to reflect the diversity of our customers and communities. Our commitments and progress towards executing this strategy are reflected below. Culture & Talent We believe that our culture and talent provide us with a competitive advantage with respect to the performance of our business. Our areas of focus in this regard include the following: (cid:129) Measuring YUM employee engagement regularly. For example, every other year we conduct a global employee engagement survey of all employees working in our restaurant support centers. The most recent survey conducted was in 2021 and reflected an engagement level among our employees significantly exceeding the average engagement levels of benchmarked companies. (cid:129) Providing YUM employees with training and development that builds world-class leaders and drives business results. We promote these efforts through initiatives such as our leadership development program (Heartstyles), our unconscious bias program YUM! BRANDS, INC. - 2021 Form 10-K 5 F o r m 1 0 - K PART I ITEM 1A. Risk Factors. (Inclusive Leadership) and training programs with respect to our compliance polices, including our Code of Conduct. Our Heartstyles program is also available to our franchisees so that their employees may benefit as well. (cid:129) Enabling a culture that fuels results and cross-brand collaboration on operational execution, people capability and customer experience initiatives throughout our system. (cid:129) Assessing progress towards lowering turnover and increasing retention rates, particularly at the restaurant-employee level. Equity, Inclusion & Belonging In connection with our focus on equity, inclusion and belonging, our areas of focus include the following: (cid:129) Continually building upon ongoing inclusion efforts to help ensure our workplaces are environments where all people can be successful. (cid:129) Significantly increasing the number of women in our senior leadership globally, with a goal of achieving gender parity by 2030. leadership roles were In 2020, approximately 45% of our global held by women and approximately 55% of our global above- restaurant workforce were women. (cid:129) Increasing representation of Black and Latinx U.S. associates among our executive and management ranks, franchisees and the next 10 years to match the combined suppliers over demographics of those groups within the U.S. We intend to further this goal through an increased focus on coaching capability, sponsorship programs and customized individual development plans. Moreover, we have joined We Are All Human’s Hispanic Promise, a national pledge to hire, promote, retain and celebrate Hispanics in the workplace. We also plan to enhance our relationship with the Consortium for Graduate Studies in Management, which brings outstanding underrepresented talent of color and companies like YUM together to fill critical organizational roles. (cid:129) Continuing to roll out Inclusive Leadership training and anti-racism training across our system. We intend to expand our Inclusive Leadership training to employees and franchisees around the world and have started development of an online module of this training program to help provide even greater access. Available Information The Company makes available, through the Investor Relations section of its internet website at https://www.yum.com, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after electronically filing such material with the Securities at https://www.sec.gov. Commission Exchange (“SEC”) and ITEM 1A. Risk Factors. factors that could cause our actual You should carefully review the risks described below as they identify results to differ important materially from our forward-looking statements, expectations and historical trends. Any of the following risk factors, either by itself or together with other risk factors, could materially adversely affect our business, results of operations, cash flows and/or financial condition. K - 0 1 m r o F Risks Related to COVID-19, Food Safety and Catastrophic Events The novel coronavirus (COVID-19) global pandemic has had, and may continue to have, an adverse effect on our business and results of operations. Developments related to COVID-19, which was declared a global pandemic by the World Health Organization in March 2020, have adversely impacted, and may continue to adversely impact our business and results of operations. The impacts of COVID-19 have included the loss of revenues due to store closures, reduced store- level operations, full or partial dining room closures and other restrictions on our business and operations. During 2021, the overall adverse impact of COVID-19 on our operations was less significant 6 YUM! BRANDS, INC. - 2021 Form 10-K Our Corporate Governance Principles and our Code of Conduct are also located within the Investor Relations section of the Company’s website. The references to the Company’s website address in this Form 10-K do not constitute incorporation by reference of the information contained on the website and should not be considered part of this Form 10-K. 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. than in 2020, but we continued to see negative impacts as of the end of 2021 due to COVID-19 outbreaks and resulting government restrictions limiting mobility in certain parts of the world, primarily in Asia. Conversely, for our restaurants that prominently feature drive-thru, carryout and delivery options, the pandemic has in many cases contributed to an increase in sales since the onset of the pandemic. If the impact of the pandemic continues to recede and the restaurant industry in general returns to more normal operations, the benefits to sales experienced by certain of our restaurants, including our Pizza Hut delivery restaurants, could wane and our results could be negatively impacted. We and our franchisees have made operational changes intended to safeguard employees and customers in response to COVID-19, which have included increased cleaning and sanitization, installation of counter screens and the purchase of personal protective equipment. These operational changes have increased and may continue to increase restaurant operating costs and impact restaurant-level margins and return on invested capital. Our and our franchisees’ restaurants have also experienced, and may continue to experience, interruptions of food and other supplies as well as labor shortages. In addition, the COVID-19 pandemic has required and may continue to require us to implement certain precautionary measures, such as in relation to vaccinations, testing and face coverings, which could adversely impact our operations, employee retention and satisfaction, and the willingness of customers to visit our restaurants. Our success is heavily reliant on our Concepts’ franchisees, and the COVID-19 pandemic has caused and may continue to cause financial distress for certain franchisees, particularly those located in areas most significantly impacted by the COVID-19 pandemic. As a result of this distress, certain of our franchisees have been unable to, or in the future may be unable to, meet their financial obligations to us as they come due, including the payment of royalties, rent, or other amounts due to the Company. Additionally, certain of our franchisees have been unable to, or in the future may be unable to make payments to landlords, distributors and key suppliers, as well as payments to service any debt they may have outstanding. Franchisee financial distress has also led to, and may continue to lead to, permanent store closures and delayed or reduced new franchisee development, which may further harm our results and liquidity. We are unable to fully predict the impact that COVID-19 will have on our and our franchisees’ operations going forward due to various uncertainties, including the severity and duration of the pandemic, the timing, availability acceptance and effectiveness of medical treatments and vaccines, the spread of potentially more contagious and/or virulent forms of COVID-19, including variants that may be more resistant to currently available vaccines and treatments, the extent to which COVID-19 may cause customers to continue to be reluctant to return to in-restaurant dining or otherwise change their consumption patterns (including after the COVID-19 pandemic has ended), actions that may be taken by governmental authorities, and the extent to which ongoing governmental restrictions in certain regions will be lifted, and the ongoing impact of the pandemic on economic conditions in the U.S. and globally. Moreover, if conditions related to the COVID-19 pandemic result in significant disruptions to capital and financial markets, or negatively impact our credit ratings, our cost of borrowing, our ability to access capital on favorable terms and our overall liquidity and capital structure could be adversely impacted. Food safety and food- or beverage- borne illness concerns may have an adverse effect on our business. Food-borne illnesses, such as E. coli, Listeria, Salmonella, Cyclospora and Trichinosis, and food safety issues, such as food tampering, contamination (including with respect to allergens) and adulteration or food- or beverage-borne illness, occur or may occur within our system from time to time. Furthermore, due to the COVID-19 pandemic, there are now stricter health regulations and guidelines and increased public concern over food safety standards and controls. Any report or publicity linking us or one of our Concepts’ restaurants, or linking our competitors or the retail food industry generally, to instances of food- or beverage-borne illness or food safety issues, could adversely affect us and possibly lead to product investigations or actions, and damages. Moreover, the reliance of our Concepts’ restaurants on third-party food suppliers and distributors and increasing reliance on food delivery aggregators increases the risk that food- or beverage-borne illness incidents and food safety issues could be caused by factors outside of our direct control. If a customer of one of our Concepts’ restaurants becomes ill from food or beverage-borne illnesses or as a result of food safety issues, restaurants in our system may be temporarily closed, which could disrupt our operations and materially and adversely affect our business. In addition, instances or allegations of food or beverage- litigation, governmental liability claims, PART I ITEM 1A. Risk Factors. borne illness or food safety issues, real or perceived, involving our restaurants, restaurants of competitors, or our suppliers or distributors (regardless of whether we use or have used those suppliers or distributors), or otherwise involving the types of food served at our restaurants, could result in negative publicity that could adversely affect either our or our Concepts’ franchisees’ revenues and profits. The occurrence of food or beverage-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. Our business may be adversely affected by catastrophic or unforeseen events, such as future health epidemics or pandemics, natural disasters, and events that lead to avoidance of public places or restrictions on public gatherings. Our business could be materially and adversely impacted by various future occurrences (which may be beyond our control), including future health epidemics or pandemics, natural disasters, geopolitical events, terrorism, political, instability, boycotts, social or civil unrest, workplace violence, or other events that lead to avoidance of public places or restrictions on public gatherings such as in our and our Concepts’ restaurants. For example, the outbreak of a widespread future health epidemic or pandemic, including an outbreak arising from various strains of avian flu or swine flu, such as H1N1, particularly if located in regions from which we derive a significant amount of revenue or profit could materially and adversely affect our business. financial or social In addition, our operations could be disrupted if any of our employees or employees of our business partners were suspected of having the avian flu or swine flu, or other illnesses such as hepatitis 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. Prior outbreaks of avian flu have resulted in confirmed human cases and it is possible that outbreaks could reach pandemic levels. Public concern over avian flu 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, which would adversely affect us as the result of the fact that poultry is a menu offering for our Concepts’ restaurants. 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. F o r m 1 0 - K 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 affect the ability to adequately staff 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 adversely affect our business and operating results. YUM! BRANDS, INC. - 2021 Form 10-K 7 PART I ITEM 1A. Risk Factors. Risks Related to our Business Strategy and reliance upon Franchisees Our operating results and growth strategies are closely tied to the success of our Concepts’ franchisees. The vast majority (98%) of our restaurants are operated by our Concepts’ franchisees. Our refranchising efforts have increased our dependence on the financial success and cooperation of our Concepts’ franchisees. In addition, our long-term growth depends on maintaining the pace of our net system unit growth rate through our franchisees. We also rely on master franchisees, who Concepts’ have rights to license to sub-franchisees the right to develop and operate restaurants, to achieve our expectations for new unit development. If our Concepts’ franchisees and master franchisees do not meet our expectations for new unit development, we may not achieve our desired growth. We have limited control over how our Concepts’ franchisees’ businesses are run, and their inability to operate successfully could adversely affect our operating results through decreased fees paid to us for royalties, advertising funds contributions, and other discrete services we may provide to our Concept’s franchisees (e.g. management of e-commerce platforms). Our control is further limited in markets where we utilize master franchise arrangements, which require us to rely on our master franchisees to monitor and enforce sub-franchisee compliance with our operating standards. If our Concepts’ franchisees fail to adequately capitalize their businesses or incur too much debt, if their operating expenses or commodity prices increase or if economic or sales trends deteriorate such that they are unable to operate profitably or repay existing debt, it could result in their financial distress, including insolvency or bankruptcy, or the inability to meet development targets or obligations. If a significant franchisee of one of our Concepts becomes, or a significant number of our Concepts’ franchisees in the aggregate become, financially distressed (which has occurred with certain of our franchisees as the result of the COVID-19 pandemic), our operating results could be impacted through reduced or delayed fee payments that cause us to record bad debt expense, reduced advertising fund contributions, and reduced new unit development. lease including restaurant agreements, In addition, we are secondarily liable on certain of our Concepts’ franchisees’ 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’ In addition, the failure of our Concepts’ franchisees to attract and retain quality personnel or adequately engage in succession planning may adversely affect their restaurant operations and the development of new restaurants, which in turn could hurt our business. franchisees default on such lease agreements. Our success also depends on the willingness and ability of our Concepts’ franchisees to implement marketing programs and major initiatives such as restaurant remodels or equipment or technology upgrades, which may such require financial franchisees. 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. investment by Additionally, the failure of our Concepts’ franchisees to focus on key elements of restaurant operations, such as compliance with our operating standards addressing quality, service and cleanliness (even 8 YUM! BRANDS, INC. - 2021 Form 10-K K - 0 1 m r o F if such failures do not rise to the level of breaching the related franchise documents), may be attributed by guests to our Concepts’ entire brand and could have a negative impact on our business. Moreover, 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 (including with respect to additional sanitation in connection with the COVID-19 protocols and guidelines pandemic), control or maintain product consistency, or through the participation in improper or objectionable business practices. in quality engage We have franchise relationships that are particularly important to our business, such as our relationship with Yum China. In connection with the spin-off of our China business in 2016 into an independent publicly-traded company (the “Separation” or “Yum China spin-off”), we entered into a Master License Agreement pursuant to which Yum China is the exclusive licensee of the KFC, Taco Bell and Pizza Hut Concepts and their related marks and other intellectual property rights for restaurant services in mainland China. Following the Separation, Yum China became, and continues to be, our largest franchisee. Our financial results are significantly affected by Yum China’s results as we are entitled to receive a 3% sales-based royalty on all Yum China system sales related to these Concepts. franchise In addition to Yum China, we have other significant relationships on which our success is dependent, including our strategic alliance with Food Delivery Brands Group, S.A. (previously (“Telepizza”)), which is the master named Telepizza Group S.A. franchisee of Pizza Hut in Latin America (excluding Brazil) and portions of Europe, and our relationship with certain other large franchisees. Any failure to realize the expected benefits of such franchise relationships may adversely impact our business and operating results. We may not achieve our target development goals, including as the result of the COVID-19 pandemic, and new restaurants may not be profitable. Our growth strategy depends on our and our Concepts’ franchisees’ ability to increase the number of restaurants around the world. The successful development of new units depends in large part on the ability of our Concepts’ franchisees to open new restaurants and to operate these restaurants profitably. Effectively managing growth can be challenging, particularly as we expand into new markets internationally, and we cannot guarantee that we, or our Concepts’ franchisees, including Yum China, will be able to achieve our expansion goals or that new restaurants will be operated profitably, consistent with results of existing restaurants or consistent with our or our franchisees’ expectations. Other risks that could impact our ability to increase the number of our restaurants include prevailing economic conditions and trade or economic policies or sanctions, our ability to attract new franchisees, construction and development costs of new restaurants, and our, or our Concepts’ franchisees’, ability to obtain suitable restaurant locations, negotiate acceptable lease or purchase terms for the locations, access capital on favorable terms, obtain required permits and approvals in a timely manner, hire and train qualified management teams and restaurant crews, and meet construction schedules. Expansion into 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 the perceived return on invested develop new restaurants, or if is not sufficiently attractive, the expected growth of our capital 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. We may not realize the anticipated benefits from past or potential future acquisitions, investments or other strategic transactions. From time to time we evaluate and may complete mergers, acquisitions, divestitures, joint ventures, strategic partnerships, minority investments (which may include minority investments in third parties, such as franchisees or master franchisees) and other including our acquisition of Dragontail strategic transactions, Systems Limited completed in September 2021, and our acquisition of The Habit Restaurants, Inc. completed in March 2020. Past and potential future strategic transactions may involve various inherent risks, including, without limitation: (cid:129) expenses, delays or difficulties in integrating acquired companies, joint venture operations, strategic partnerships or investments into our organization, including the failure to realize expected synergies and/or the inability to retain key personnel; (cid:129) diversion of management’s attention from other initiatives and/or day-to-day operations to effectively execute our growth strategy; (cid:129) inability to generate sufficient revenue, profit, and cash flow from joint ventures, strategic partnerships or acquired companies, investments; (cid:129) the possibility that we have acquired substantial contingent or unanticipated liabilities in connection with acquisitions or other strategic transactions; and (cid:129) the possibility that investments we have made may decline significantly in value, which could lead to the potential impairment of the carrying value of goodwill associated with acquired businesses. Past and potential future strategic transactions may not ultimately create value for us and may harm our reputation and materially adversely affect our business, financial condition and results of operations. In addition, we account for certain investments, including our investment in Devyani International Limited (“Devyani”), on a mark-to-market basis and, as a result, changes in the fair value of these investments impact our reported results. Changes in market prices for equity securities are unpredictable, and our investment in Devyani has caused, and could continue to cause, fluctuations in our results of operations. PART I ITEM 1A. Risk Factors. financial and social Risks Related to Operating a Global Business We have significant exposure to the Chinese market through our largest franchisee, Yum China, which subjects us to risks that could negatively affect our business. A significant portion of our total business, particularly with respect to our KFC Concept, is conducted in mainland China through our largest franchisee, Yum China. Yum China’s business is exposed to risks in mainland China, which include, among others, potential instability, changes in economic political, conditions (including consumer spending, unemployment levels and wage and commodity inflation), consumer preferences, the regulatory environment (including uncertainties with respect to the interpretation and enforcement of Chinese laws, rules and regulations), food safety related matters (including compliance with food safety regulations and ability to ensure product quality and safety), and the effect of the COVID-19 pandemic and related restrictions in China. Any significant or prolonged deterioration in U.S.–China relations, including as the result of current U.S.–China tensions, could adversely affect our Concepts in mainland China. Chinese law regulates Yum China’s business conducted within mainland China. Our royalty income from the Yum China business is therefore subject to numerous uncertainties based on Chinese laws, regulations and policies, as they may change from time to time. If Yum China’s business is harmed or development of our Concepts’ restaurants is slowed in mainland China due to any of these factors, it could negatively impact the 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 property or contract rights in mainland China, if Yum China is unable the Master License or unwilling to satisfy its obligations under is otherwise Agreement, or terminated, it could result in an interruption in the operation of our brands that have been exclusively licensed to Yum China for use in mainland China. 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 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, include political, financial or social instability or conditions, geopolitical events, corruption, anti-American sentiment, social and ethnic unrest, military conflicts and terrorism, as well as changes in economic conditions (including consumer spending, unemployment levels and wage and commodity inflation), the regulatory environment (including the risks of operating in developing or emerging markets in which there are uncertainties regarding the interpretation and YUM! BRANDS, INC. - 2021 Form 10-K 9 F o r m 1 0 - K PART I ITEM 1A. Risk Factors. such enforceability of legal requirements and the enforceability of contract rights and intellectual property rights), income and non-income based tax rates and laws. Additional risks include the impact of import restrictions or controls, sanctions, foreign exchange control regimes (including restrictions on currency conversion), health guidelines and safety protocols related to the COVID-19 pandemic, labor costs and conditions, compliance with 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, consumer preferences and the laws and policies that in countries where our Concepts’ govern foreign investment restaurants are operated. For example, we have been subject to a regulatory enforcement action in India alleging violation of foreign exchange laws for failure to satisfy conditions of certain operating approvals, and store build as minimum investment requirements as well as limitations on the remittance of fees outside of the country (see Note 20). In addition, escalating tensions between Russia and Ukraine and any potential military incursion of Russia into Ukraine could adversely impact macroeconomic conditions, give rise to regional instability and result in heightened economic sanctions from the U.S. and the international community in a manner that adversely affects us and our Concepts’ restaurants located in Russia and Eastern Europe, including to the extent that any such sanctions restrict our ability in this region to conduct business with certain suppliers or vendors, and/or to utilize the banking system and repatriate cash. 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 similar laws or regulations could result in the assessment of damages, the imposition of penalties, suspension of business licenses, or a cessation of operations at our or our franchisees’ businesses, as well as damage to our and our Concepts’ brands’ images and reputations. 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. Any significant fluctuation in the value of currencies of countries in which we or our franchisees operate, and in particular RMB in China, could materially impact the U.S. dollar value of royalty payments made to us, which could result in lower revenues. In addition, fluctuations in the value of currencies in which we or our franchisees operate could lead to increased costs and lower profitability to us or our franchisees and/or cause us or our franchisees to increase prices to customers, which could negatively impact sales in these markets and harm our financial condition and operating results. There can be no assurance as to the future effect of any such changes on our results of operations, financial condition the governments in certain countries or cash flows. where our Concepts operate, including China, restrict the conversion of local currency into foreign currencies and, in certain cases, the remittance of currency out of the country. Restrictions on the conversion of RMB to U.S. dollars or further restrictions on the remittance of currency out of China could result in delays in the remittance of Yum China’s royalty, which could impact our liquidity. In addition, K - 0 1 m r o F 10 YUM! BRANDS, INC. - 2021 Form 10-K Risks Related to Technology, Data Privacy and Intellectual Property Any cybersecurity incident, including the failure to protect the integrity and security of personal information of our customers and employees, or the introduction of malware or ransomware, could materially affect our business and result in substantial costs, litigation, reputational harm and a loss of consumer confidence. financial and other We receive and maintain certain personal, information about our and vendors franchisees. In addition, our vendors and/or franchisees receive and maintain certain personal, financial and other information about our vendors, employees and customers. The use and handling, including security, of this information is regulated by evolving and increasingly demanding laws and regulations in various jurisdictions, as well as by certain third-party contracts and industry standards. customers, employees, We have experienced cyber-attacks and security breaches from time to time. The number and frequency of these cyber-attacks and/or security breaches varies but could be exacerbated by an increase in the use of our digital commerce platforms. Furthermore, the significant increase in remote working as the result of the COVID-19 pandemic, which may continue following the pandemic, could increase the risks of cyber incidents and the improper dissemination of personal or confidential information. If our security and information systems or those of businesses with which we interact are compromised as a result of data corruption or loss, a cyber-attack or franchisees or a network security incident, or if our employees, vendors fail to comply with applicable laws and regulations or fail to industry standards and this information is obtained by meet unauthorized persons or used inappropriately, in liabilities and penalties, damage our brands and reputation, cause interruption of normal business performance, cause us to incur substantial costs, result in a loss of consumer confidence and sales and disrupt our supply chain, business and plans. Additionally, such events could result in the release to the public of confidential information about our operations and could subject us to litigation and government enforcement actions, the losses associated with which may not be covered by insurance. Moreover, any significant cybersecurity events could require us to devote significant management resources to address the problems created by such events, important business strategies and initiatives, and cause us to incur additional expenditures, which could be material, including to investigate such events, remedy cybersecurity problems, recover lost data, prevent future compromises and adapt systems and practices in response to such events. There is no assurance that any remedial actions will meaningfully limit future attempts to breach our information technology systems. interfere with the pursuit of other the success of it could result Further, the standards for systems currently used for transmission and approval of electronic payment transactions, and the technology utilized in electronic payment transactions, all of which can put electronic payment data at risk, are determined and controlled by the payment card industry, not by us. If we or our franchisees fail to adequately control fraudulent credit card and debit card transactions to comply with the Payment Card Industry Data Security or Standards, we or our franchisees may face civil liability, diminished public perception of our security measures, fines and assessments from the card brands, and significantly higher credit card and debit card related costs, any of which could adversely affect our business, financial condition and results of operations. The failure to maintain satisfactory compliance with data privacy and data protection legal requirements may adversely affect our business and subject us to penalties. 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, we are subject to numerous global laws including the General Data Protection Regulation (“GDPR”) applicable to the processing of personal data in the European Union, which was adopted by the European Union effective May 2018 and requires companies to meet new requirements regarding the handling of personal data and is subject to changing requirements, each of which could increase Company and franchisee resources necessary to comply. In addition, the State of California enacted the California Consumer Privacy Act (the “CCPA”), which became effective January 2020, requiring companies that process information on California things, provide new disclosures and residents to, among other options to consumers about data collection, use and sharing practices. Further, to revision and amendments, including significant modifications made by the California Privacy Rights Act (“CPRA”), under which the majority of requirements will take effect January 1, 2023. The updates and modifications to the CCPA, as well as requirements under the GDPR, and other newly enacted and evolving legal requirements, may require us and our franchisees to modify our data processing practices and policies and to incur substantial costs and expenses to comply. Moreover, each of the GDPR and the CCPA confer a private right-of-action to certain individuals and associations, and the CPRA will fund the creation of a regulatory body enforcing its provisions. the CCPA has been subject In addition, several other states have introduced data privacy legislation which may impose varying standards and requirements on our data collection, use and processing activities. The Federal Trade Commission and many state attorneys general are also interpreting federal and state consumer protection laws to impose standards for the collection, use, dissemination and security of data. The Federal Trade Commission will also pursue privacy as a dedicated enforcement priority, with specialized attorneys seeking violation of US privacy laws including unfair or deceptive practices relating to privacy policies, consumer data collection and processing consent, and digital advertising practices. Furthermore, various other international jurisdictions, where our Concepts have operations, have significantly strengthened their data privacy laws, rules and regulations. New cross-border data transfer requirements will require us to incur costs and expenses in order to comply and may impact the transfer of personal data throughout our organization and to third parties. The increasingly restrictive and evolving regulatory environment at the international, federal and state level related to data privacy and data protection may require significant effort and cost, require changes to our business practices and impact our ability to obtain and use data used to provide a personalized experience for customers of our Concepts’ restaurants. In addition, failure to comply with applicable requirements may subject us and our franchisees to fines, sanctions, governmental liability, as well as reputational harm. investigation, lawsuits and other potential PART I ITEM 1A. Risk Factors. Unreliable or inefficient restaurant or consumer-facing technology or the failure to successfully implement technology initiatives in the future could adversely impact operating results and the overall consumer experience. We and our Concepts’ franchisees rely heavily on information technology systems in the conduct of our business, some of which are managed, hosted, provided and/or used by third parties, including, for example, point-of-sale processing in our restaurants, management of our supply chain, and various other processes and procedures. These systems are subject to damage, interruption or failure due to theft, fire, power outages, telecommunications failure, security breaches, malicious cyber-attacks computer including the introduction of malware or ransomware or other disruptive behavior by hackers, or other catastrophic events. Certain inefficient, and technology systems may also be unreliable or technology vendors may limit or terminate product support and maintenance, which could impact the reliability of critical systems’ operations. information technology systems are damaged or fail to function properly, we may incur substantial costs to repair or replace them, and may experience loss of critical data and interruptions or delays in our ability to manage inventories or process transactions, which could result in lost sales, customer or employee dissatisfaction, or negative publicity that could adversely impact our reputation, results of operations and financial condition. If our or our Concepts’ franchisees’ viruses, the restaurant operations and improve 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. Our continued growth will be dependent on our initiatives to implement proprietary and third-party technology solutions and gather and leverage data to enhance customer experience. It may be difficult to recruit and retain qualified individuals for these efforts due to intense competition for qualified technology systems’ developers necessary to innovate, develop and implement new technologies for our growth initiatives, including increasing our digital relationship with customers. Our strategic digital and technology initiatives may not be implemented in a timely manner or may not achieve the desired results. Even if we effectively implement and manage our technology initiatives, there is no guarantee that this in sales growth or margin improvement. Additionally, will developing and implementing the evolving technology demands of the consumer may place a significant financial burden on us and our franchisees may have Concepts’ franchisees, and our Concepts’ differing views on investment priorities. Moreover, our failure to to technological in new technology or adapt adequately invest advancements and industry trends, particularly with respect to digital commerce capabilities, could result in a loss of customers and related market share. If our Concepts’ digital commerce 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 commerce platforms, which could negatively impact our business. result We cannot predict the impact that alternative methods of delivery, including autonomous vehicle delivery, or changes in consumer behavior facilitated by these alternative methods of delivery will have on our business. Advances in alternative methods of delivery, including advances in digital ordering technology, or certain changes in consumer behavior driven by these or other technologies and methods of delivery could have a negative effect on our business and technology and consumer offerings market position. Moreover, YUM! BRANDS, INC. - 2021 Form 10-K 11 F o r m 1 0 - K PART I ITEM 1A. Risk Factors. that new or enhanced continue to develop, and we expect technologies and consumer offerings will be available in the future. We may pursue certain of those technologies and consumer offerings if we believe they offer a sustainable customer proposition and can be successfully integrated into our business model. However, we cannot predict consumer acceptance of these delivery channels or their impact on our business. There are risks associated with our increasing dependence on digital commerce platforms to maintain and grow sales. Customers are increasingly using e-commerce websites and apps, both domestically and internationally, such as kfc.com, tacobell.com, pizzahut.com, habitburger.com, KFC, Taco Bell, Pizza Hut and The Habit Burger Grill apps, and apps owned by third-party delivery aggregators and third-party mobile payment processors, to order the COVID-19 and pay for our Concepts’ products. Moreover, pandemic has resulted in an increase in the use of store-level or third-party delivery services by our Concepts. Many restaurants in each of our Concepts now offer consumers the ability to have the Concept’s food delivered through third-party delivery services. As a result, our Concepts and our Concepts’ franchisees are increasingly reliant on digital ordering and payment as a sales channel and our business could be negatively impacted if we are unable to successfully implement, execute or maintain our consumer-facing digital initiatives, such as curbside pick-up and mobile carryout. If the third-party aggregators that we utilize for delivery, including their marketplace and delivery as a service, cease or curtail operations, fail to maintain sufficient labor force to satisfy demand, materially change fees, access or visibility to our products or give greater priority or promotions on their platforms to our competitors, our business may be negatively impacted. These digital ordering and payment platforms also could be damaged or interrupted by power loss, technological failures, user errors, cyber-attacks, other forms of sabotage, inclement weather or natural disasters. The digital ordering platforms relied upon by our Concepts have experienced interruptions and could experience further interruptions, which could limit or delay customers’ ability to order through such platforms or make customers less inclined to return to such platforms. The rapid acceleration in growth of digital sales has placed additional stress on those platforms that are more reliant upon legacy technology, such as certain platforms used by Pizza Hut, which may result in more frequent and potentially more severe interruptions. Moreover, our reliance on multiple digital commerce platforms to support our global footprint, multiple Concepts and highly franchised business model could increase our vulnerability to cyber-attacks and/or security breaches and could necessitate additional expenditures as we endeavor to consolidate and standardize such platforms. largest Yum China, our franchisee, utilizes third-party mobile payment apps such as Alipay and WeChat Pay as a means through which to generate sales and process payments. Should customers become unable to access mobile payment apps in China, should the relationship between Yum China and one or more third-party mobile payment processors become interrupted, or should Yum China’s ability to use WeChat Pay, Alipay or other third-party mobile payment apps in its operations be restricted, its business could be materially and adversely affected, which could have a negative impact on the royalty paid to us. K - 0 1 m r o F 12 YUM! BRANDS, INC. - 2021 Form 10-K Our inability or failure to recognize, respond to and effectively manage the increased 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 accessibility of information dissemination and given users the ability to more effectively organize collective actions such as boycotts and other brand-damaging behaviors. Many social media platforms immediately publish 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 of the information’s accuracy. The damage may be immediate without affording us an opportunity for redress or correction. resources. In addition, 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. Social media is also increasingly used to compel companies to express public positions on issues and topics not related to their core business, which could prove directly controversial or divisive to consumers and result in lost sales or a misallocation of laws and regulations, including Federal Trade Commission enforcement, are rapidly evolving to govern social media platforms and communications. A failure of us, our employees, our franchisees or third parties acting at our direction to abide by applicable laws and regulations in the use of social media could adversely impact our Concepts’ brands, our reputation and our business, or subject us or our franchisees to fines or other penalties. 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. Failure to protect our trademarks or other intellectual property could harm our Concepts’ brands and overall business. We regard our registered trademarks (e.g., Yum®, KFC®, Taco Bell®, Pizza Hut® and The Habit®) and unregistered trademarks, and other trademarks related to our restaurant businesses, as having significant value and being important to our marketing efforts. Our trademarks, many of which are registered in the U.S. and foreign jurisdictions, create brand awareness and help build goodwill among our customers. We rely on a combination of legal protections provided by trademark registrations, contracts, copyrights, patents and common law rights, such as unfair competition, passing off and trade secret laws to infringement. protect our intellectual property from potential However, from time to time we become aware of other persons or companies using names and marks that are identical or confusingly similar to our brands’ names and marks. Although our policy is to oppose infringements and other unauthorized uses of marks similar or identical to our brands’ marks, certain or unknown unauthorized uses or other misappropriation of our trademarks could diminish the value of our Concepts’ brands and adversely affect our business and goodwill. In addition, effective intellectual property protection may not be available in every country in which our Concepts have, or may in the future open or franchise, a restaurant and the laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the U.S. There can be no assurance that the steps we have taken to protect our intellectual property or the legal protections that may be available will be adequate or that our franchisees will maintain the quality of the goods and services offered under our brands’ trademarks or always act in accordance with guidelines we set for maintaining our brands’ intellectual property rights and defending or enforcing our trademarks and other intellectual property could result in the expenditure of significant resources or result in significant harm to our business, reputation, financial condition and results of operations. recipes, or Our brands may also be targets of infringement claims that could interfere with the use of certain names or trademarks and/or the proprietary know-how, trade secrets used in our business. Defending against such claims is costly, and as a result of defending such claims, 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 which could negatively affect our business, financial condition, and results of operations. reputation, Risks Related to Our Supply Chain and Employment Shortages or interruptions in the availability and delivery of food, equipment and other supplies may increase costs or reduce revenues. The products sold or used by our Concepts and their franchisees are sourced from a wide variety of domestic and international suppliers although certain products and equipment have limited suppliers, which increases our reliance on those suppliers. We, along with our Concepts’ franchisees, are also dependent upon third parties to make frequent deliveries of food products, equipment and supplies that meet our specifications at competitive prices. Shortages or interruptions in the supply of food items, equipment and other supplies to our Concepts’ restaurants have happened from time to time and could reduce sales, harm our Concepts’ reputations and delay the planned openings of new restaurants by us and our Concepts’ franchisees. We are experiencing and have experienced certain supply chain disruptions resulting from, among other things, capacity, transportation, staffing, operational and COVID-19 related challenges, which have and may continue to adversely affect our business and results of operations. Future shortages or disruptions could be caused by the factors noted above as well as factors such as natural disasters, health epidemics and pandemics (including the COVID-19 pandemic), social unrest, the impacts of climate change, inaccurate forecasting of customer demand, problems in production or distribution, restrictions on imports or exports including due to trade disputes or restrictions, the inability of vendors to obtain credit, instability in the countries in which the suppliers and political instability of suppliers and distributors are located, the financial PART I ITEM 1A. Risk Factors. distributors, suppliers’ or distributors’ failure to meet our standards or requirements, transitioning to new suppliers or distributors, product quality issues or recalls, inflation, food safety warnings or advisories, the cancellation of supply or distribution agreements or an inability to renew such arrangements or to find replacements on commercially reasonable terms. In addition, in the U.S., the Company and the Company’s KFC, Taco Bell and Pizza Hut franchisee groups are members of Restaurant Supply Chain Solutions, LLC (“RSCS”), which is a third party responsible for purchasing certain restaurant products and equipment. The Habit Burger Grill entered into a purchasing agreement with RSCS in 2020. McLane Foodservice, Inc. (“McLane”) serves as the largest distributor for the Company’s KFC, Taco Bell and Pizza Hut Concepts in the U.S. Any failure or inability of our significant suppliers or distributors, including RSCS or McLane to meet their respective service requirements, could result in shortages or interruptions in the availability of food and other supplies. The loss of key personnel, labor shortages or difficulty finding qualified employees could slow our growth, harm our business and reduce our profitability. Much of our future success depends on the continued availability and service of senior management personnel. The loss of any of our executive officers or other key senior management personnel could harm our business. In addition, our 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 for qualified managers and other crew members. The market employees in the retail food industry is very competitive. Our and our franchisees are experiencing and may continue to Concepts’ experience a shortage of labor for positions in our restaurants, including due to the current competitive labor market and concerns around COVID-19. Inability to recruit and retain a sufficient number of qualified individuals may result in reduced operating hours or service levels, delay our planned use, development or deployment of technology or impact the planned openings of new restaurants by us and our Concepts’ franchisees which could have a material adverse impact on the operation of our Concepts’ existing restaurants. In addition, strikes, work slowdown or other labor unrest 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 and our franchisees’ results of operations. An increase in the costs of employee wages, benefits and insurance liability, property and (including workers’ compensation, general health) as well as other operating costs such as rent and energy costs could adversely affect our and our franchisees’ operating results. In particular, labor shortages and the current competitive labor market have increased competition for qualified employees, YUM! BRANDS, INC. - 2021 Form 10-K 13 F o r m 1 0 - K PART I ITEM 1A. Risk Factors. to pay higher wages to attract or which has compelled, and may continue to compel, us and our franchisees, retain qualified employees (including franchisee management, restaurant managers and other crew members). Such increases in costs may result from general economic or competitive conditions or from government imposition of higher minimum wages at the federal, state or local level, including in connection with the increases in state minimum wages that have recently been enacted by various states and (if ultimately enacted) the potential increase in the federal minimum wage in the U.S. proposed by the current presidential administration. Moreover, there may be a long-term trend toward higher wages in developing markets. Any increase in such operating expenses could adversely affect our and our Concepts’ franchisees’ profit margins. large quantities of (including potatoes 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 raw materials such as proteins sources of (including poultry, pork, beef and seafood), cheese, oil, flour and vegetables and lettuce). Raw materials 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 and climate conditions, energy costs or natural events or disasters that affect expected harvests of such raw materials, taxes and tariffs (including as a result of trade disputes), labor shortages, transportation issues, fuel costs, food safety concerns, product recalls, governmental regulation and other factors, all of which are beyond our control and in many instances are unpredictable. We have recently experienced and may continue to experience, an increase in the price of various raw materials purchased by us as well as increased volatility in such prices, which have and may continue to adversely affect our results of operations. We cannot assure 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. industry demand, inflationary conditions, K - 0 1 m r o F 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 and return on invested capital may be adversely impacted, which could impact our ability to meet our new unit development targets. Risks Related to our Concepts’ Brands and Reputation Our success depends substantially on our corporate reputation and on the value and perception of our brands. Our success depends in large part upon our ability and our Concepts’ franchisees’ ability to maintain and enhance our corporate reputation and the value and perception of our brands. Brand value is based in part on consumer perceptions on a variety of subjective qualities. Those perceptions are affected by a variety of factors, including the nutritional content and preparation of our food, the food safety, and our business practices, ingredients we use, 14 YUM! BRANDS, INC. - 2021 Form 10-K and social evolve and may environmental relative to available alternatives. in which we source to the manner including with respect commodities sustainability and considerations. Consumer acceptance of our offerings is subject to change for a variety of reasons, and some changes can occur rapidly. For example, nutritional, health and other scientific studies have constantly and conclusions, which contradictory implications, drive popular opinion, litigation and regulation (including initiatives intended to drive consumer behavior) in ways that may affect perceptions of our Concepts’ brands generally or the restaurant industry globally has been subject to scrutiny and claims the menus and practices of restaurant chains have led to that customer health issues, such as weight gain and other adverse effects. 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. Moreover, this scrutiny could lead to an increase in the regulation of the content or marketing of our products, including legislation or regulation seeking to tax and/or regulate high-fat foods, foods with high sugar and salt content, or foods otherwise deemed to be “unhealthy,” which could in turn increase costs of compliance and remediation to us and our franchisees. In addition, reduce brand value investigations. For example, In addition, business or other incidents, whether isolated or recurring, and whether originating from us, our Concepts’ restaurants, franchisees, competitors, governments, suppliers or distributors, can significantly and consumer perception, particularly if the incidents receive considerable publicity or result in litigation or the reputation of 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 or by claims or perceptions that we, founders of our Concepts, our Concepts’ franchisees or other business partners have acted or are acting in an unethical, illegal, racially-biased or socially irresponsible manner or are not fostering an inclusive and diverse environment, to the service and treatment of customers at our Concepts’ restaurants, and our or our franchisees’ treatment of employees, regardless of whether such claims or perceptions are true. Our corporate reputation could also suffer from negative publicity or consumer sentiment regarding Company action or brand imagery, misconduct by any of our or our franchisees’ employees, or a real or perceived failure of corporate governance. Any such developments could cause a decline directly or indirectly in consumer confidence in, or the perception of, our Concepts’ brands and/or our products and reduce consumer demand for our products, which would likely result in lower revenues and profits. including with respect We cannot guarantee that franchisees or other third parties with licenses to use our intellectual property will not take actions that may harm the value of our intellectual property. Franchisee use of our Concepts’ trademarks are governed through franchise agreements and we monitor use of our trademarks by both franchisees and third parties, but 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. Moreover, unauthorized third parties, including our Concepts’ current and former franchisees, may use our intellectual property to trade on the goodwill of our Concepts’ brands, resulting in consumer confusion or brand dilution. Our ability to reach consumers and drive results is heavily influenced by brand marketing and advertising and our ability to adapt to evolving consumer preferences, including developing and launching new and innovative products and offerings. Our marketing and advertising programs may not be as successful, or may not be as successful as our competitors, and thus, may adversely affect our business and the strength of our brand. public authorities, and U.S. foreign social We may be adversely affected by climate change and other social and environmental sustainability matters, including if we are unable to meet goals and commitments that we establish in relation to such matters. There has been an increased focus, including from investors, the and and general governmental and nongovernmental environmental on sustainability matters, to climate change, including with respect greenhouse gases, packaging and waste, human rights, sustainable supply chain practices, animal health and welfare, deforestation and land, energy and water use. As the result of this heightened focus, including from governmental and nongovernmental authorities, and our commitment to social and environmental sustainability matters, we may provide expanded disclosure, establish or expand goals, commitments or targets, and take actions to meet such goals, commitments and targets. Our ability to meet such goals, commitments and targets is subject to risks and uncertainties, many of which are outside of our control. If we are not effective, or are not perceived to be effective, in addressing social and environmental sustainability matters or meeting such goals, commitments and targets, consumer trust in our brands may suffer. Moreover, these matters and our efforts to address them could expose us to market, operational, reputational and execution costs or risks. We could also be affected by the physical effects of climate change, and other environmental issues, to the extent such issues adversely affect the general economy, adversely impact our supply chain or food and other supplies needed for our increase the costs of operations. In addition, future U.S. and international legislative and regulatory efforts to combat climate change or other environmental considerations could result in increased regulation, and additional taxes and other expenses, in a manner that adversely affects our business. Risks Related to Government Regulation and Litigation We may be subject to litigation that could adversely affect us by increasing our expenses, diverting management attention or subjecting us to significant monetary damages and other remedies. tax, foreign exchange, We are regularly involved in legal proceedings, which include regulatory claims or disputes by claimants such as franchisees, suppliers, employees, customers, governments and others related to franchise, contractual or operational, employment issues. These claims or disputes may relate to personal injury, franchisees’ employment, real estate related, environmental, tort, intellectual property, breach of contract, data privacy, securities, derivative and other litigation matters. See the discussion of legal proceedings in Note 20 to the Consolidated Financial Statements included in Item 8 of this Form 10-K. Plaintiffs often seek recovery of very large or indeterminate amounts, and lawsuits are subject to inherent uncertainties (some of which are beyond the Company’s control). Unfavorable rulings or developments may also occur in cases we are not involved in. Moreover, regardless of whether any PART I ITEM 1A. Risk Factors. such lawsuits have merit, or whether we are ultimately held liable or settle, such litigation may be expensive to defend, may divert resources and management attention away from our operations, and may negatively impact our results of operations. 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. Changes in, or noncompliance with, governmental regulations may adversely affect our business operations, growth prospects or financial condition. The Company, and our Concepts and their franchisees, are subject to numerous laws and regulations around the world. These laws and regulations 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 laws that provide protection to individuals with disabilities in the context of employment, public accommodations and other areas. (cid:129) The U.S. Fair Labor Standards Act as well as a variety of similar laws, which govern matters such as minimum wages, and overtime, and the U.S. Family and Medical Leave Act as well as a variety of similar laws which provide protected leave rights to employees. (cid:129) Employment laws related to workplace health and safety, non-discrimination, non-harassment, whistleblower protections, and other terms and conditions of employment. (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”, building and zoning, 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 and California’s CCPA and CPRA), 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, including the U.S. Foreign Corrupt Practices Act and the UK Bribery Act. (cid:129) Environmental laws and regulations, including with respect to climate change and greenhouse gas emissions. (cid:129) Federal and state immigration laws and regulations in the U.S. YUM! BRANDS, INC. - 2021 Form 10-K 15 F o r m 1 0 - K PART I ITEM 1A. Risk Factors. (cid:129) Regulations, health guidelines and safety protocols related to the COVID-19 pandemic. In addition, if any governmental authority were to adopt and implement a broader standard for determining when two or more otherwise unrelated employers may be found to be a joint employer of the same employees under laws such as the National Labor Relations Act in a manner that is applied generally to franchise relationships (which broader standards in the past have been adopted by U.S. governmental agencies such as the National Labor Relations Board), this 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, regarding employees of totally separate, independent employers, most notably our Concepts’ franchisees. Further, a California law enacted in 2019 to be used when adopted an employment classification test determining employee or independent contractor status which establishes a high threshold to obtain independent contractor status. Moreover, other labor related laws enacted at the federal, state or local level could increase our and our franchisees’ labor costs and decrease profitability or could cause employees of our franchisees to be deemed employees of our Concepts. required licenses, Any failure or alleged failure to comply with applicable laws or regulations or related standards or guidelines could adversely affect our reputation, international expansion efforts, growth prospects and financial results or result in, among other things, litigation, revocation of governmental investigations or proceedings, administrative enforcement actions, liability. Publicity relating to any such fines and civil and criminal noncompliance could also harm our Concepts’ reputations and In addition, the compliance costs adversely affect our revenues. associated with complying with new or existing legal requirements could be substantial. investigations, internal K - 0 1 m r o F Tax matters, including changes in tax rates or laws, disagreements with taxing authorities, imposition of new taxes and our restructurings 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. 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 in significant payments greater than the amounts accrued. If the Internal Revenue Service (“IRS”) or another taxing authority disagrees with our tax positions, we could face additional tax liabilities, including interest and penalties, which could be material. In addition, public perception that we are not paying a sufficient amount of taxes could damage our Concepts’ reputations, which could harm our profitability. For example, as disclosed in Note 20, as a result of an audit by the IRS for fiscal years 2013 through 2015, on October 13, 2021, we received a Notice of Proposed Adjustment from the IRS for the 2014 fiscal year relating to a series of reorganizations we undertook during in connection with the business realignment of our that year corporate and management reporting structure along brand lines. While we disagree with the position of the IRS and intend to contest it vigorously, an unfavorable resolution of this matter could have a material, adverse impact on our Consolidated Financial Statements in future periods. judgment which may be incorrect and may result 16 YUM! BRANDS, INC. - 2021 Form 10-K In addition, changes in laws, regulation or interpretation of existing laws and regulations in the U.S. and other jurisdictions where we are subject to taxation, including potential changes in U.S. tax laws supported by the current U.S. presidential administration, could increase our taxes and have an adverse effect on our results of operations and financial condition. For example, in January 2022, the U.S. Treasury published new regulations impacting foreign tax credit utilization beginning in the Company’s 2022 tax year. These regulations make foreign taxes paid to certain countries no longer creditable in the U.S. While our determination of which foreign taxes that will no longer be creditable is not yet complete, we anticipate that these regulations are likely to result in additional tax due in the U.S. in future years. See Note 21 for further discussion. Moreover, if significant jurisdictions in which we or our Concepts operate enact tax legislation, modify tax treaties and/or increase audit scrutiny based on the Action on Base Erosion and Profit Shifting guidance of the Organisation for Economic Co-operation and Development, it could increase our taxes and have a material adverse impact on our results of operations and financial position. In addition, we have in the past and may in the future adapt our entity and operating structure in response to and in compliance with changes in tax laws, regulations, or interpretation of existing laws and regulations. Such tax costs restructurings could result associated with restructuring transactions or operations of the structure. in material incremental Risks Related to the Yum China Spin-Off The Yum China spin-off and certain related transactions could result in substantial U.S. tax liability. We received opinions of outside counsel substantially to the effect income tax purposes, the Yum China spin-off that, for U.S. federal 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 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. The Yum China spin-off may be subject to China indirect transfer tax. the Chinese State Tax Administration (“STA”) In February 2015, issued the Bulletin on Several Issues of Enterprise Income Tax on Income Arising from Indirect Transfers of Property by Non-resident Enterprises (“Bulletin 7”). Pursuant to Bulletin 7, an “indirect transfer” of Chinese taxable assets, including equity interests in a China resident enterprise (“Chinese interests”), by a non-resident enterprise, may be recharacterized and treated as a direct transfer of Chinese if such arrangement does not have reasonable taxable assets, commercial purpose and the transferor has avoided payment of Chinese enterprise income tax. Using general anti-tax avoidance provisions, the STA may treat an indirect transfer as a direct transfer of Chinese interests if the transfer has avoided Chinese tax by way of an arrangement without reasonable commercial purpose. As a result, gains derived from such indirect transfer may be subject to Chinese enterprise income tax, and the transferee or other person who is obligated to pay for the transfer would be obligated to withhold the applicable taxes, currently at a rate of up to 10% of the capital gain in the case of an indirect transfer of equity interests in a China resident enterprise. We evaluated the potential applicability of Bulletin 7 in connection with the Separation in the form of a tax free restructuring and continue to believe it is more likely than not that Bulletin 7 does not apply and that the restructuring had reasonable commercial purpose. 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. Risks Related to Consumer Discretionary Spending and Macroeconomic Conditions Our business may be adversely impacted by changes in consumer discretionary spending and economic conditions in the U.S. and international markets. As a restaurant company dependent upon consumer discretionary spending, we (and our franchisees) are sensitive to changes in or uncertainty regarding macroeconomic conditions in the U.S. and in other regions of the world where our Concepts and Concepts’ franchisees operate. Some of the factors that impact discretionary consumer spending include unemployment and underemployment rates, fluctuations in the level of disposable income, the price of gasoline, other inflationary pressures, stock market performance and changes in the level of consumer confidence. These and other macroeconomic factors could have an adverse effect on our or our franchisees’ sales, profitability or development plans, which could harm our financial condition and operating results. In this regard, we and our franchisees have been adversely impacted by, and may continue to be adversely impacted by, ongoing macroeconomic challenges in the U.S. and other regions of the world where our PART I ITEM 1A. Risk Factors. Concepts and Concepts’ franchisees operate arising in connection with the COVID-19 pandemic, including recent labor, commodity and other inflationary pressures, supply chain disruptions, and impacts arising from governmental restrictions implemented in certain regions to mitigate negative macroeconomic conditions or other adverse developments with respect to our businesses may result in future asset impairment charges, such as the goodwill impairment charge we incurred with respect to The Habit Burger Grill reporting unit in the first quarter of 2020. pandemic. addition, against the In service, Risks Related to Competition The retail food industry is highly competitive. Our Concepts’ restaurants compete with international, national and regional restaurant chains as well as locally-owned restaurants, and the 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 promotional initiatives (including the frequent use by our competitors of price discounting, such as through value meal menu options, coupons and other methods), customer reputation, restaurant location, attractiveness and maintenance of properties, management and hourly personnel and qualified franchisees. if we are unable to successfully respond to changing Moreover, if our marketing efforts and/or consumer or dietary preferences, launch of new products are unsuccessful, or if our Concepts’ restaurants are unable to compete successfully with other retail food franchisees’ outlets in new and existing markets, our and our businesses could be adversely affected. In addition, the COVID-19 pandemic has also resulted in a disruption of consumer routines, the implementation of employer “work-from-home” policies, reduced business and recreational travel and changes in consumer behavior, and it is difficult to fully assess the impacts of such developments on us or our Concepts, or the extent to which any such consumer patterns may continue after the COVID-19 pandemic has ended. We also face growing competition as a result of convergence in grocery, convenience, deli and restaurant services, including the offering by including pizzas and the grocery industry of convenient meals, entrees with side dishes. Competition from delivery aggregators and other food delivery services has increased in recent years, particularly in urbanized areas, and this trend, which has accelerated following the onset of the COVID-19 pandemic, is expected to continue to increase. Finally, not all of our competitors may seek to establish environmental or sustainability goals at a comparable level to ours, which could result in lower supply chain or operating costs for our competitors. Increased competition could have an adverse effect on our business or development plans. F o r m 1 0 - K YUM! BRANDS, INC. - 2021 Form 10-K 17 PART I Risks Related to Our Indebtedness 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, 2021, our total outstanding short-term borrowings and long-term debt was approximately $11.3 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, including developments arising from the COVID-19 pandemic; (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, replacement or modification of certain reference rates, including as the result of the upcoming discontinuance of 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 as the result of the terms of our indebtedness, which, if not complied with, could result in an event of default, which in turn, if not cured or waived, could result in the acceleration of the applicable debt, and may result in the acceleration of any other debt to which a cross- acceleration or cross-default provision applies; and (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. If our business does not generate sufficient cash flow from operations or if future debt or equity financings are not available to us on acceptable terms in amounts sufficient to pay our indebtedness or to fund other liquidity needs, our financial condition 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 2021 fiscal year and that remain unresolved. K - 0 1 m r o F ITEM 2. Properties. As of year end 2021, the Company’s Concepts owned land, building or both for 325 restaurants worldwide in connection with the operation of our 1,051 Company-owned restaurants. These restaurants are further detailed as follows: Company-owned restaurants in the U.S. with leases are generally leased for initial terms of 10 to 20 years and generally have 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 70 restaurants. (cid:129) The Taco Bell Division owned land, building or both for 253 restaurants. (cid:129) The Pizza Hut Division owned land, building or both for 2 restaurants. The Company currently also owns land, building or both related to approximately 500 franchise restaurants that it leases to franchisees and leases land, building or both related to approximately 300 franchise restaurants that it subleases to franchisees, principally in the U.S., United Kingdom, Australia and Germany. 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 Division 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 KFC. The Habit Burger Grill Division leases its corporate headquarters in Irvine, California. Additional information about the Company’s properties is included in the Consolidated Financial Statements in Part II, Item 8. The Company believes that its properties are generally in good operating condition and are suitable for the purposes for which they are being used. 18 YUM! BRANDS, INC. - 2021 Form 10-K ITEM 3. Legal Proceedings. PART I 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, related to employees, operational, franchise, contractual or employment issues as well as claims that the Company has infringed customers, governments tax, foreign exchange, and others 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 appear in Note 20, Contingencies, to the Consolidated Financial Statements included in Part II, Item 8, which is incorporated by reference into this item. ITEM 4. Mine Safety Disclosures. Not applicable. Executive Officers of the Registrant. The executive officers of the Company as of February 22, 2022, and their ages and current positions as of that date are as follows: David Gibbs, 58, is Chief Executive Officer of YUM a position he has held since January 2020. Prior to that, he served as President and Chief Operating Officer from August 2019 to December 2019, as President, Chief Financial Officer and Chief Operating Officer from January 2019 to August 2019 and as President and Chief Financial Officer from May 2016 to December 2018. 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, 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. (“YRI”) Inc. Scott Catlett, 45, is Chief Legal and Franchise Officer and Corporate Secretary of YUM. He has served in this position since July 2020. Prior to that, he served as General Counsel and Corporate Secretary of YUM from July 2018 to June 2020 and he served as Vice President and Deputy General Counsel of YUM from November 2015 to June 2018. From September 2007 to October 2015 Mr. Catlett held various YUM positions including Vice President & Associate General Counsel. Mark King, 62, is Chief Executive Officer of Taco Bell Division, a position he has held since August 2019. Before joining YUM, Mr. King served as President, adidas Group North America from June 2014 to June 2018 and as Chief Executive Officer of TaylorMade-adidas Golf from 2003 to 2014. Aaron Powell, 50, is Chief Executive Officer of Pizza Hut Division, a position he has held since September 2021. Before joining YUM, Mr. Powell served in various positions at Kimberly-Clark from September 2007 to August 2021. Prior to joining Kimberly-Clark, he served in various positions at Bain & Company and Proctor & Gamble. David Russell, 52, 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 in the YUM served in various positions at the Vice President level Finance Department, including Controller-Designate from November 2010 to February 2011 and Vice President, Assistant Controller from January 2008 to December 2010. Sabir Sami, 54, is Chief Executive Officer of KFC Division, a position he has held since January 2022. From January 2020 to December 2021 he served in a dual role as KFC Division Chief Operating Officer and Managing Director of KFC Asia. Prior to this, from April 2013 to December 2019, he was Managing Director for the KFC Middle East, North Africa, Pakistan and Turkey markets. Before joining YUM in 2009, Mr. Sami served in various leadership roles at Procter & Gamble, the Coca-Cola Company and Reckitt Benckiser. Tracy Skeans, 49, is Chief Operating Officer and Chief People Officer of YUM. She has served as Chief Operating Officer since January 2021 and Chief People Officer since January 2016. She also served as Chief Transformation Officer from November 2016 to December 2020. 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. Christopher Turner, 47, is Chief Financial Officer of YUM, a position he has held since August 2019. Before joining YUM, he served as Senior Vice President and General Manager in PepsiCo’s retail and e-commerce businesses with Walmart in the U.S. and more than 25 countries and across PepsiCo’s brands from December 2017 to July 2019. Prior to leading PepsiCo’s Walmart business, he served in various positions including Senior Vice President of Transformation for PepsiCo’s Frito-Lay North America business from July 2017 to December 2017 and Senior Vice President of Strategy for Frito-Lay from February 2016 to June 2017. Prior to joining PepsiCo, he was a partner in the Dallas office of McKinsey & Company, a strategic management consulting firm. Executive officers are elected by and serve at the discretion of the Board of Directors. F o r m 1 0 - K YUM! BRANDS, INC. - 2021 Form 10-K 19 PART II ITEM 5. Market for the Registrant’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information and Dividend Policy The Company’s Common Stock trades under the symbol YUM and is listed on the New York Stock Exchange (“NYSE”). As of February 15, 2022, there were 37,439 registered holders of record of the Company’s Common Stock. In 2021, the Company declared and paid four cash dividends of $0.50 per share. In February 2022, the Board of Directors declared a dividend of $0.57 per share to be distributed March 11, 2022 to shareholders of record at the close of business on February 18, 2022. Future decisions to pay cash dividends continue to be at the discretion of the Board of Directors and will be dependent on our operating performance, financial condition, capital expenditure requirements and other factors that the Board of Directors considers relevant. Issuer Purchases of Equity Securities The following table provides information as of December 31, 2021, with respect to shares of Common Stock repurchased by the Company during the quarter then ended. K - 0 1 m r o F Fiscal Periods 10/1/21 – 10/31/21 11/1/21 – 11/30/21 12/1/21 – 12/31/21 Total Total number of shares purchased (thousands) 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) 1,303 2,177 2,153 5,633 $ 124.89 $ 126.00 $ 131.22 $ 127.74 1,303 2,177 2,153 5,633 $ 1,507 $ 1,233 $ $ 950 950 In May 2021, our Board of Directors authorized share repurchases from July 1, 2021 through December 31, 2022 of up to $2 billion (excluding applicable transaction fees) of our outstanding Common Stock. As of December 31, 2021, we have remaining capacity to repurchase up to $950 million of Common Stock under this authorization. 20 YUM! BRANDS, INC. - 2021 Form 10-K PART II 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 30, 2016 to December 31, 2021. The graph assumes that the value of the investment in our Common Stock and each index was $100 at December 30, 2016, and that all cash dividends were reinvested. In $ 300.00 250.00 200.00 150.00 100.00 50.00 2016 YUM 2017 2018 2019 2020 2021 S&P 500 S&P 500 Consumer Discretionary YUM S&P 500 S&P Consumer Discretionary Source of total return data: Bloomberg 12/30/2016 12/29/2017 12/31/2018 12/31/2019 12/30/2020 12/31/2021 $ 100 $ 100 $ 100 $ 131 $ 122 $ 123 $ 150 $ 116 $ 124 $ 167 $ 153 $ 159 $ 184 $ 181 $ 211 $ 239 $ 233 $ 263 ITEM 6. [Reserved] F o r m 1 0 - K YUM! BRANDS, INC. - 2021 Form 10-K 21 PART II ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Introduction and Overview The following Management’s Discussion and Analysis (“MD&A”), should be read in conjunction with the Consolidated Financial Statements (“Financial Statements”) 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. Percentages may not recompute due to rounding. Yum! Brands, Inc. and its subsidiaries (collectively referred to herein as the “Company”, “YUM”, “we”, “us” or “our”) franchise or operate a system of over 53,000 restaurants in 157 countries and territories, primarily under the concepts of KFC, Taco Bell, Pizza Hut and The Habit Burger Grill (collectively, the “Concepts”). The Company’s KFC, leaders of the chicken, Taco Bell and Pizza Hut brands are global Mexican-style and pizza food categories, respectively. The Habit Burger Grill, a concept we acquired in March 2020, is a fast-casual restaurant concept specializing in made-to-order chargrilled burgers, sandwiches and more. Of the over 53,000 restaurants, 98% are operated by franchisees. As of December 31, 2021, YUM consists of four operating segments: (cid:129) The KFC Division which includes our worldwide operations of the KFC concept (cid:129) The Taco Bell Division which includes our worldwide operations of the Taco Bell concept (cid:129) The Pizza Hut Division which includes our worldwide operations of the Pizza Hut concept (cid:129) The Habit Burger Grill Division which includes our worldwide operations of the Habit Burger Grill concept Through our Recipe for Growth and Good we intend to unlock the growth potential of our Concepts and YUM, drive increased collaboration across our Concepts and geographies and consistently deliver better customer experiences, improved unit economics and higher rates of growth. Key enablers include accelerated use of technology and better leverage of our systemwide scale. Our Recipe for Growth is based on four key drivers: (cid:129) Unrivaled Culture and Talent: Leverage our culture and people capability to fuel brand performance and franchise success (cid:129) Unmatched Operating Capability: Recruit and equip the best restaurant operators in the world to deliver great customer experiences (cid:129) Relevant, Easy and Distinctive Brands: Innovate and elevate iconic restaurant brands people trust and champion (cid:129) Bold Restaurant Development: Drive market and franchise expansion with strong economics and value Our global citizenship and sustainability strategy, called the Recipe for Good, reflects our priorities for socially responsible growth, risk management and sustainable stewardship of our people, food and planet. 22 YUM! BRANDS, INC. - 2021 Form 10-K K - 0 1 m r o F We intend to drive long-term growth and shareholder returns primarily through consistent same-store sales growth and new unit development across all of our Concepts. We intend to support this growth and development through a capital and operating structure that: (cid:129) Targets a capital structure of ~5.0x Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) consolidated net leverage; (cid:129) Invests capital in a manner consistent with an asset light, franchisor model; (cid:129) Allocates G&A in an efficient manner that provides leverage to operating profit growth while at the same time opportunistically investing in strategic growth initiatives; and (cid:129) Pays a competitive dividend and returns excess cash to shareholders through share repurchases. in understanding our We intend for this MD&A to provide the reader with information that including will assist performance metrics that management uses to assess the Company’s performance. Throughout this MD&A, we commonly discuss the following performance metrics: results of operations, (cid:129) Same-store sales growth is the estimated percentage change in system sales of all restaurants that have been open and in the YUM system for one year or more (except as noted below), including those temporarily closed. From time-to-time restaurants may be temporarily closed due to remodeling or image enhancement, rebuilding, natural disasters, health epidemic or pandemic, landlord disputes or other issues. Throughout 2020 and 2021 we have had a significant number of restaurants that were temporarily closed including restaurants closed due to government and landlord restrictions as a result of COVID-19. The system sales of restaurants we deem temporarily closed remain in our base for purposes of determining same-store sales growth and the restaurants remain in our unit count (see below). We believe same- store sales growth is useful to investors because our results are heavily dependent on the results of our Concepts’ existing store base. Additionally, same-store sales growth is reflective of the strength of our Brands, the effectiveness of our operational and advertising initiatives and local economic and consumer trends. In 2021 and 2020, when calculating respective same-store sales growth we also included in our prior year base the sales of stores that were added as a result of our acquisition of The Habit Restaurants, Inc. on March 18, 2020, and that were open for one year or more. In 2019, when calculating same-store sales growth we also included in our prior year base the sales of stores that were added as a result of the Food Delivery Brands Group, S.A. (previously named Telepizza Group S.A. (“Telepizza”)) strategic alliance in December 2018 and that were open for one year or more. See additional discussion of the acquisition of The Habit Restaurants, Inc. and Telepizza strategic alliance within this MD&A. PART II ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. (cid:129) Gross unit openings reflects new openings by us and our franchisees. Net new unit growth reflects gross unit openings offset by permanent store closures, by us and our franchisees. To determine whether a restaurant meets the definition of a unit we consider factors such as whether the restaurant has operations that are ongoing and independent from another YUM unit, serves the primary product of one of our Concepts, operates under a separate franchise agreement (if operated by a franchisee) and has substantial and sustainable sales. We believe gross unit openings and net new unit growth are useful to investors because we depend on new units for a significant portion of our growth. Additionally, gross unit openings and net new unit growth are generally reflective of the economic returns to us and our franchisees from opening and operating our Concept restaurants. (cid:129) System sales, System sales excluding the impacts of the results of all foreign currency translation (“FX”), and System sales excluding FX and the impact of the 53rd week in 2019 for our U.S. subsidiaries and certain international subsidiaries that operate on a weekly period calendar. System sales reflect restaurants regardless of ownership, including Company-owned and franchise restaurants. Sales at franchise restaurants typically generate ongoing franchise and license fees for the Company at a rate of 3% to 6% of sales. Increasingly, customers are paying a fee to a third party to deliver or facilitate the ordering of our Concepts’ products. We also include in System sales any portion of the amount customers pay these third parties for which the third party is obligated to pay us a license fee as a percentage of such amount. Franchise restaurant sales and fees paid by customers to third parties to deliver or facilitate the ordering of our Concepts’ products are not included in Company sales on the Consolidated Statements of Income; however, any resulting franchise and license fees we receive are included in the Company’s revenues. We believe System sales growth is useful to investors as a significant indicator of the overall strength of our business as it incorporates our primary revenue drivers, Company and franchise same-store sales as well as net unit growth. 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) Diluted Earnings Per Share excluding Special Items (as defined below); (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 2019. Core Operating Profit excludes Special Items and FX and we use Core Operating Profit for the purposes of evaluating performance internally; (cid:129) Company restaurant profit and Company restaurant margin as a percentage of sales (as defined below). These non-GAAP measurements are not intended to replace the results in accordance with GAAP. presentation of our these the presentation of Rather, 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 operations due to their size and/or nature. Our chief operating decision maker does not consider the impact of Special Items when assessing segment performance. Company restaurant profit is defined as Company sales less Company restaurant expenses, both of which appear on the face of Income. Company restaurant our Consolidated Statements of expenses include those expenses incurred directly by our Company- owned restaurants in generating Company sales, including cost of food and paper, cost of restaurant-level labor, rent, depreciation and amortization of restaurant-level assets and advertising expenses incurred by and on behalf of that Company restaurant. Company restaurant margin as a percentage of sales (“Company restaurant margin %”) is defined as Company restaurant profit divided by Company sales. We use Company restaurant profit for the purposes of internally evaluating the performance of our Company-owned restaurants and we believe Company restaurant profit provides useful information to investors as to the profitability of our Company-owned restaurants. In calculating Company restaurant profit, the Company excludes revenues and expenses directly associated with our franchise operations as well as non-restaurant-level costs included in General and administrative expenses, some of which may support Company-owned restaurant operations. The Company also excludes impairment and closures expenses, which restaurant-level asset have historically not been significant, from the determination of Company restaurant profit as such expenses are not believed to be indicative of ongoing operations. Company restaurant profit and Company restaurant margin % as presented may not be comparable to other similarly titled measures of other companies in the industry. Certain performance metrics and non-GAAP measurements are presented excluding the impact of FX. These amounts are derived by translating current year results at prior year average exchange rates. We believe the elimination of the FX impact provides better year-to-year comparability without the distortion of foreign currency fluctuations. For 2019 we provided Core Operating Profit excluding the impact of the 53rd week and System sales excluding FX and the impact of the 53rd week to further enhance the comparability given the 53rd week that was part of our fiscal calendar in 2019. F o r m 1 0 - K YUM! BRANDS, INC. - 2021 Form 10-K 23 PART II ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Results of Operations Summary All comparisons within this summary are versus the same period a year ago and unless otherwise stated include the impact of a 53rd week in 2019. For discussion of our results of operations for 2020 compared to 2019, refer to the Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Part II, Item 7 of our Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on February 22, 2021. For 2021, GAAP diluted EPS increased 77% to $5.21 per share, and diluted EPS, excluding Special Items, increased 23% to $4.46 per share. 2021 financial highlights: KFC Division Taco Bell Division Pizza Hut Division Worldwide Additionally: System Sales, ex FX Same-Store Sales % Change Net New Units GAAP Operating Profit Core Operating Profit +16 +13 +6 +13 +11 +11 +7 +10 +8 +5 +4 +6 +33 +9 +16 +42 +29 +9 +13 +18 (cid:129) During the year, 4,180 gross units were opened contributing to the addition of 3,057 net new units (cid:129) During the year, we repurchased 13 million shares totaling $1,580 million at an average price of $121.70. (cid:129) Foreign currency translation favorably impacted Divisional Operating Profit for the year by $54 million. Worldwide GAAP Results Company sales Franchise and property revenues Franchise contributions for advertising and other services K - 0 1 m r o F Total revenues Company restaurant expenses G&A expenses Franchise and property expenses Franchise advertising and other services expense Refranchising (gain) loss Other (income) expense Total costs and expenses, net Operating Profit Investment (income) expense, net Other pension (income) expense Interest expense, net Income before income taxes Income tax provision Net Income Diluted EPS(a) Effective tax rate (a) See Note 4 for the number of shares used in this calculation. 24 YUM! BRANDS, INC. - 2021 Form 10-K 2021 Amount 2020 % B/(W) 2019 2021 2020 $ 2,106 $ 1,810 $ 1,546 2,900 1,578 6,584 2,510 1,332 5,652 2,660 1,391 5,597 $ 1,725 $ 1,506 $ 1,235 1,060 117 1,576 (35) 2 4,445 2,139 (86) 7 544 1,674 99 $ 1,575 $ 5.21 $ $ 1,064 145 1,314 (34) 154 4,149 1,503 (74) 14 543 1,020 116 904 2.94 917 180 1,368 (37) 4 3,667 1,930 67 4 486 1,373 79 $ 1,294 $ 4.14 16 16 18 16 (15) — 18 (20) 2 NM (7) 42 16 48 — 64 15 74 77 17 (6) (4) 1 (22) (16) 20 4 (9) NM (13) (22) 211 (235) (12) (26) (48) (30) (29) 5.9% 11.4% 5.7% 5.5 ppts. (5.7) ppts. PART II ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Performance Metrics Unit Count Franchise Company-owned Total Same-Store Sales Growth (Decline) % System Sales Growth (Decline) %, reported System Sales Growth (Decline) %, excluding FX System Sales Growth (Decline) %, excluding FX and 53rd week 2021 52,373 1,051 53,424 2020 49,255 1,098 50,353 2019 49,257 913 50,170 % Increase (Decrease) 2021 2020 6 (4) 6 — 20 — 2021 2020 2019 10 16 13 N/A (6) (4) (4) (3) 3 7 9 8 F o r m 1 0 - K YUM! BRANDS, INC. - 2021 Form 10-K 25 PART II ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Our system sales breakdown by Company and franchise sales was as follows: Consolidated Company sales(a) Franchise sales System sales Foreign Currency Impact on System sales(b) System sales, excluding FX Impact of 53rd week 2021 Year 2020 2019 $ 2,106 $ 1,810 $ 1,546 56,082 58,188 1,277 56,911 N/A 48,549 50,359 (199) 51,038 52,584 N/A 50,558 52,584 N/A 454 System sales, excluding FX and 53rd Week $ 56,911 $ 50,558 $ 52,130 KFC Division Company sales(a) Franchise sales System sales Foreign Currency Impact on System sales(b) System sales, excluding FX Impact of 53rd week $ 596 $ 506 $ 571 30,769 31,365 1,000 30,365 N/A 25,783 26,289 (192) 27,329 27,900 N/A 26,481 27,900 N/A 167 System sales, excluding FX and 53rd Week $ 30,365 $ 26,481 $ 27,733 Taco Bell Division Company sales(a) Franchise sales System sales Foreign Currency Impact on System sales(b) System sales, excluding FX Impact of 53rd week $ 944 $ 882 $ 921 12,336 13,280 17 10,863 11,745 (2) 10,863 11,784 N/A 13,263 11,747 11,784 N/A N/A 184 System sales, excluding FX and 53rd Week $ 13,263 $ 11,747 $ 11,600 Pizza Hut Division Company sales(a) Franchise sales System sales K - 0 1 m r o F Foreign Currency Impact on System sales(b) System sales, excluding FX Impact of 53rd week System sales, excluding FX and 53rd Week Habit Burger Grill Division(c) Company sales(a) Franchise sales System sales Foreign Currency Impact on System sales(b) System sales, excluding FX $ 46 $ 76 $ 54 12,909 12,955 260 11,879 11,955 (5) 12,846 12,900 N/A 12,695 11,960 12,900 N/A N/A 103 $ 12,695 $ 11,960 $ 12,797 $ 520 $ 68 588 — $ 588 $ 346 24 370 — 370 N/A N/A N/A N/A N/A (a) Company sales represents sales from our Company-operated stores as presented on our Consolidated Statements of Income. (b) The foreign currency impact on System sales is presented in relation only to the immediately preceding year presented. When determining applicable System sales growth percentages, the System sales excluding FX for the current year should be compared to the prior year System sales prior to adjustment for the prior year FX impact. (c) System sales for the Habit Burger Grill Division is shown since our March 18, 2020 acquisition date. 26 YUM! BRANDS, INC. - 2021 Form 10-K PART II ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Non-GAAP Items Non-GAAP Items, along with the reconciliation to the most comparable GAAP financial measure, are presented below. Core Operating Profit Growth % Core Operating Profit Growth %, excluding 53rd week Diluted EPS Growth %, excluding Special Items Effective Tax Rate excluding Special Items Company restaurant profit Company restaurant margin % Detail of Special Items Refranchising gain (loss)(a) Costs associated with acquisition and integration of Habit Burger Grill (See Note 3) Impairment of Habit Burger Grill goodwill (See Note 3) Unlocking Opportunity Initiative contribution (See Note 5) COVID-19 relief contribution (See Note 5) Charges associated with resource optimization (See Note 5) Costs associated with Pizza Hut U.S. Transformation Agreement(b) Other Special Items Income (Expense)(c) Special Items Income (Expense) – Operating Profit Charges associated with resource optimization – Other pension (expense) income (See Note 5) Interest expense, net(c) (d) Special Items Income (Expense) before Income Taxes Tax Benefit (Expense) on Special Items(e) Tax Benefit – Intra-entity transfer of intellectual property (see Note 5) Special Items Income (Expense), net of tax Average diluted shares outstanding Special Items diluted EPS 2021 2020 2019 18 N/A 23 (8) (7) 2 12 11 12 21.4% 15.9% 19.8% 2021 2020 2019 $ 381 $ 304 $ 311 18.1% 16.8% 20.1% Year 2021 2020 2019 $ 3 (4) — — — (9) — 1 (9) 1 (34) (42) 17 251 $ $ 8 (9) (144) (50) (25) (36) (5) (6) (267) (2) (34) (303) 65 28 12 (1) — — — — (13) (9) (11) — (2) (13) (30) 226 $ 226 $ (210) $ 183 302 307 313 $ 0.75 $ (0.68) $ 0.59 F o r m 1 0 - K (a) Due to their size and volatility we have reflected as Special Items those refranchising gains and losses that were recorded in connection with our previously announced plans to have at least 98% franchise restaurant ownership by the end of 2018. As such, refranchising gains and losses recorded during 2021, 2020 and 2019 as Special Items are directly associated with restaurants that were refranchised prior to the end of 2018. During the years ended December 31, 2021, 2020 and 2019, we recorded net refranchising gains of $3 million, $8 million and $12 million, respectively, that have been reflected as Special Items. Additionally, during the years ended December 31, 2021, 2020 and 2019, we recorded net refranchising gains of $32 million, $26 million, and $25 million, respectively, that have not been reflected as Special Items. These gains relate to refranchising of restaurants in 2021, 2020 and 2019 that were not part of our aforementioned plans to achieve 98% franchise ownership and that we believe are now more indicative of our expected ongoing refranchising activity. (b) In May 2017, we reached an agreement with our Pizza Hut U.S. franchisees that improved brand marketing alignment, accelerated enhancements in operations and technology and that included a permanent commitment to incremental advertising as well as digital and technology contributions by franchisees. In connection with this agreement, we recognized charges of $5 million and $13 million in the years ended December 31, 2020 and 2019, respectively, related to operating investments required as part of this agreement. The majority of these costs were recorded within Franchise and property expenses. Based on their nature and the significance in related spending in 2017, these charges have been reflected as Special Items. (c) During the second quarter of 2019, we recorded charges of $8 million and $2 million to Other (income) expense and Interest expense, net, respectively, related to cash payments in excess of our recorded liability to settle contingent consideration associated with our 2013 acquisition of the KFC Turkey and Pizza Hut Turkey businesses. Consistent with prior adjustments to the recorded contingent consideration we have reflected this as a Special Item. YUM! BRANDS, INC. - 2021 Form 10-K 27 PART II ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. (d) On June 1, 2021, certain subsidiaries of the Company redeemed $1,050 million aggregate principal amount of 5.25% Subsidiary Senior Unsecured Notes due in 2026 (the “2026 Notes”). The redemption amount was equal to 102.625% of the $1,050 million aggregate principal amount redeemed, reflecting a $28 million “call premium”. We recognized the call premium and the write-off of $6 million of unamortized debt issuance costs associated with the 2026 Notes within Interest expense, net. On September 9, 2020, KFC Holding Co., Pizza Hut Holdings, LLC and Taco Bell of America, LLC, each of which a wholly-owned subsidiary of the Company, issued a notice of redemption for $1,050 million aggregate principal amount of 5.00% Subsidiary Senior Unsecured Notes due in 2024 (the “2024 Notes”). The redemption amount included a $26 million call premium plus accrued and unpaid interest to the date of redemption of October 9, 2020. We recorded the call premium, $6 million of unamortized debt issuance costs associated with the 2024 Notes and $2 million of accrued and unpaid interest associated with the period of time from prepayment of the 2024 Notes with the Trustee on September 25, 2020, to their redemption date within Interest expense, net. We reflected the call premiums and charges associated with the redemptions as Special Items due to their collective size and the fact that the amounts are not indicative of our ongoing interest expense. (e) Tax (Expense) Benefit on Special Items was determined based upon the impact of the nature, as well as the jurisdiction of the respective individual components within Special Items. During the year ended December 31, 2021, we recorded as a Special Item an $8 million tax benefit related to prior refranchisings for which the associated pre-tax gain or loss was recorded as Special. Further, in the fourth quarter of 2019, we increased our Income tax provision by $34 million to record a reserve against the tax recorded on a prior year divestiture, the effects of which were previously recorded as a Special Item. K - 0 1 m r o F 28 YUM! BRANDS, INC. - 2021 Form 10-K 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 2021 2020 2019 Year Consolidated GAAP Operating Profit Special Items Income (Expense) – Operating Profit Foreign Currency Impact on Divisional Operating Profit(a) 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(a) 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(a) Core Operating Profit Impact of 53rd Week Core Operating Profit, excluding 53rd Week Pizza Hut Division GAAP Operating Profit Foreign Currency Impact on Divisional Operating Profit(a) Core Operating Profit Impact of 53rd Week Core Operating Profit, excluding 53rd Week Habit Burger Grill Division GAAP Operating Profit Foreign Currency Impact on Divisional Operating Profit(a) Core Operating Profit Reconciliation of Diluted EPS to Diluted EPS excluding Special Items Diluted EPS Special Items Diluted EPS Diluted EPS excluding Special Items Reconciliation of GAAP Effective Tax Rate to Effective Tax Rate, excluding Special Items $ 2,139 $ 1,503 $ 1,930 (9) 54 2,094 N/A (267) (9) 1,779 N/A (11) N/A 1,941 24 $ 2,094 $ 1,779 $ 1,917 $ 1,230 $ 922 $ 1,052 45 1,185 N/A $ 1,185 $ 758 1 757 N/A 757 387 8 379 N/A 379 2 — 2 5.21 0.75 4.46 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ N/A 1,052 8 $ 1,044 $ $ $ 683 N/A 683 13 670 369 N/A 369 3 $ 366 (9) 931 N/A 931 696 — 696 N/A 696 335 — 335 N/A 335 (22) — (22) F o r m 1 0 - K N/A N/A N/A 4.14 0.59 3.55 2.94 (0.68) 3.62 $ $ GAAP Effective Tax Rate Impact on Tax Rate as a result of Special Items Effective Tax Rate excluding Special Items 5.9% (15.5)% 21.4% 11.4% (4.5)% 15.9% 5.7% (14.1)% 19.8% (a) 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 GAAP Operating Profit adjusted only for any prior year Special Items Income (Expense). YUM! BRANDS, INC. - 2021 Form 10-K 29 PART II ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Reconciliation of GAAP Operating Profit to Company Restaurant Profit KFC Division Taco Bell Division Pizza Hut Division 2021 Habit Burger Grill Division Corporate and Unallocated Consolidated GAAP Operating Profit (Loss) $ 1,230 $ 758 $ 387 $ Less: Franchise and property revenues 1,557 Franchise contributions for advertising and other services Add: General and administrative expenses Franchise and property expenses Franchise advertising and other services expense Refranchising (gain) loss Other (income) expense Company restaurant profit Company sales 640 377 74 627 — (5) 106 596 $ $ $ $ 742 552 174 33 553 — 1 225 944 597 385 201 11 395 — (9) 3 46 $ $ Company restaurant margin % 17.7% 23.9% 6.8% $ $ 2 4 1 48 — 1 — 1 47 520 9.0% $ (238) $ 2,139 — — 260 (1) — (35) 14 $ — $ — N/A $ $ 2,900 1,578 1,060 117 1,576 (35) 2 381 2,106 18.1% KFC Division Taco Bell Division Pizza Hut Division 2020 Habit Burger Grill Division Corporate and Unallocated Consolidated GAAP Operating Profit (Loss) $ 922 $ 696 $ 335 $ (22) $ (428) $ 1,503 Less: Franchise and property revenues 1,295 Franchise contributions for advertising and other services Add: General and administrative expenses Franchise and property expenses Franchise advertising and other services expense K - 0 1 m r o F Refranchising (gain) loss Other (income) expense Company restaurant profit Company sales Company restaurant margin % 471 346 91 465 — 9 67 506 13.2% $ $ 662 487 158 33 484 — 3 225 882 552 374 215 17 365 — (3) 3 76 $ $ 25.5% 5.1% $ $ 1 — 33 — — — (1) 9 346 2.6% $ $ — — 312 4 — (34) 146 $ — $ — N/A $ $ 2,510 1,332 1,064 145 1,314 (34) 154 304 1,810 16.8% 30 YUM! BRANDS, INC. - 2021 Form 10-K PART II ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. KFC Division Taco Bell Division Pizza Hut Division Corporate and Unallocated Consolidated 2019 GAAP Operating Profit (Loss) $ 1,052 $ 683 $ 369 $ (174) $ 1,930 Less: Franchise and property revenues Franchise contributions for advertising and other services Add: General and administrative expenses Franchise and property expenses Franchise advertising and other services expense Refranchising (gain) loss Other (income) expense Company restaurant profit Company sales Company restaurant margin % 1,390 530 346 89 520 — — 87 571 15.3% $ $ 673 485 181 38 481 — (4) 221 921 597 376 202 39 367 — (1) 3 54 $ $ 24.0% 4.2% $ $ — — 188 14 — (37) 9 $ — $ — N/A $ $ 2,660 1,391 917 180 1,368 (37) 4 311 1,546 20.1% Items Impacting Reported Results and/or Reasonably Likely to Impact Future Results The following items impacted reported results in 2021 and/or 2020 and/or are reasonably likely to impact future results. See also the Detail of Special Items section of this M&DA for other items similarly impacting results. COVID-19 In late 2019, a novel strain of coronavirus, COVID-19, was first detected and in March 2020, the World Health Organization declared COVID-19 a global pandemic. Throughout 2020 and 2021, COVID-19 spread throughout the U.S. and the rest of the world and governmental authorities have implemented measures to reduce the spread of COVID-19. These measures include restrictions on travel outside the home and other limitations on business and other activities as well as encouraging social distancing. As a result of COVID-19, we and our franchisees have experienced significant store closures and instances of reduced store-level operations, including reduced operating hours and dining-room closures. The impact on our sales in each of our markets has been dependent on the timing, severity and duration of the outbreak, measures implemented by government authorities to reduce the spread of COVID-19, as well as our reliance on dine-in sales in the market. Our results were significantly impacted by the impacts of COVID-19 in the year ended December 31, 2020, as evidenced by our worldwide same-store sales decline of 6%. Overall, our sales declines were primarily driven by temporary store closures, which peaked in early April 2020 at about 11,000 restaurants and ended 2020 at about 830 restaurants. In addition to the loss of sales due to restaurants being temporarily closed, we also lost sales due to dining room closures or other limitations on access. Beginning in 2020 and continuing throughout 2021 we were able to mitigate the loss of sales due to temporary unit closures, dining room closures or other limitations on access through the strength of our off-premise channels, aided by increasing consumer access to our brands via digital channels. As a result, each of our Concepts recorded positive same-store sales growth for the year, contributing to our worldwide same- store sales increase of 10% in 2021 which was driven by strong performance in developed markets such as North America and the United Kingdom. As we ended the year, COVID-19 outbreaks and resulting government restrictions limiting mobility continued to impact sales in a few key markets, primarily in Asia. We also saw strong gross unit openings of 4,180 units for the year ended December 31, 2021, which we believe is primarily a result of improving unit-level economics, our franchisees’ financial strength and commitment to our Concepts, the inherent competitive advantages of the Quick Service Restaurant sector throughout the COVID-19 pandemic, our Concepts’ off-premise and digital capabilities, as well as selective use of development incentives with certain franchisees. F o r m 1 0 - K The COVID-19 situation is ongoing, and its dynamic nature makes it difficult to forecast any impacts on the Company’s 2022 results. The ultimate pace of our recovery will largely depend on the continuation of current sales trends, although we expect continuing adverse impacts from COVID-19 in certain parts of the world. In addition, for our restaurants that prominently feature drive-thru, carryout and delivery options, COVID-19 has in many cases contributed to an increase in sales during 2021 and 2020. If the impact of COVID-19 recedes, in-person dining restrictions are lifted or lessened and the restaurant industry in general returns to more normal operations, the benefits to sales experienced by certain of our restaurants, including our Pizza Hut delivery restaurants, could wane and our results could be negatively impacted. Franchise Bad Debt Expense We experienced significant quarterly fluctuations in franchise bad debt expense in 2021 and 2020 due in large part to the uncertainties associated with COVID-19. During the year ended December 31, 2021, we recognized net bad debt recoveries of $8 million related to short- term accounts receivable due from our franchisees for royalties, rent and other services we provide, which were primarily reflected within Franchise and property expenses. These net bad debt recoveries of $8 million compared to $13 million of net bad debt expense recognized in the year ended December 31, 2020, and thus positively impacted Operating Profit growth by $21 million year-over-year. YUM! BRANDS, INC. - 2021 Form 10-K 31 PART II ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Investment in Devyani In 2020, we received an approximate 5% minority interest in Devyani International Limited (“Devyani”), an entity that operates KFC and Pizza Hut franchised units in India. The minority interest was received in lieu of cash proceeds upon the refranchising of approximately 60 KFC restaurants in India. At the time of the refranchisings, the fair value of this minority interest was estimated to be approximately $31 million. On August 16, 2021, Devyani executed an initial public offering and subsequently the fair value of this investment became readily determinable. As a result, concurrent with the initial public offering we began recording changes in fair value in Investment (income) expense, net in our Consolidated Statements of Income and recognized pre-tax investment income of $87 million, in the year ended December 31, 2021. Investment in Grubhub, Inc. (“Grubhub”) In April of 2018 we purchased 2.8 million shares of Grubhub common stock for $200 million. In the quarter ended September 30, 2020, we sold our entire investment in Grubhub and received proceeds of $206 million. While we held our investment in Grubhub common stock we recognized changes in the fair value in our investment in our Consolidated Statements of Income. For the years ended December 31, 2020 and 2019, we recognized pre-tax investment income of $69 million and pre-tax investment expense of $77 million, respectively, related to changes in fair value of our investment in Grubhub common stock. Extra Week in 2019 Fiscal 2019 included a 53rd week for all of our U.S. and certain international subsidiaries that operate on a period calendar. See Note 2 for additional details related to our fiscal calendar. The following table summarizes the estimated impact of the 53rd week on Revenues and Operating Profit for the year ended December 31, 2019. The 53rd week in 2019 favorably impacted Diluted EPS by $0.05 per share. Revenues Company sales Franchise and property revenues Franchise contributions for advertising and other services Total revenues Operating Profit Franchise and property revenues Franchise contributions for advertising and other services Restaurant profit Franchise and property expenses Franchise advertising and other services expenses G&A expenses Operating Profit K - 0 1 m r o F KFC Division Taco Bell Division Pizza Hut Division Total $ $ $ $ 8 9 5 22 9 5 1 — (5) (2) 8 $ $ $ $ 15 10 8 33 10 8 5 — (8) (2) 13 $ $ $ $ 1 5 5 11 $ $ 5 5 — (1) (5) (1) $ 3 $ 24 24 18 66 24 18 6 (1) (18) (5) 24 32 YUM! BRANDS, INC. - 2021 Form 10-K PART II ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. KFC Division The KFC Division has 26,934 units, 85% of which are located outside the U.S. Additionally, 99% of the KFC Division units were operated by franchisees as of the end of 2021. % B/(W) 2021 % B/(W) 2020 2021 2020 2019 Reported Ex FX Reported Ex FX 19 11 18 20 36 23 58 16 N/A 12 17 30 18 48 (6) (9) (11) (7) (11) (9) (24) (5) N/A (9) (6) (10) (8) (24) Ex FX and 53rd Week in 2019 (5) N/A (8) (5) (9) (7) (22) System Sales $ 31,365 $ 26,289 $ 27,900 Same-Store Sales Growth % Company sales $ 596 $ 506 $ 571 Franchise and property revenues 1,557 1,295 1,390 Franchise contributions for advertising and other services Total revenues Company restaurant profit Company restaurant margin % G&A expenses $ $ $ 640 471 530 2,793 $ 2,272 $ 2,491 106 $ 67 $ 87 17.7% 13.2% 15.3% 4.5ppts. 4.3 ppts. (2.1) ppts. (2.4) ppts. (2.4) ppts. Franchise and property expenses 74 91 377 $ 346 $ 346 89 Franchise advertising and other services expense 627 465 520 Operating Profit $ 1,230 $ 922 $ 1,052 Unit Count Franchise Company-owned Total (9) 18 (35) 33 (7) 20 (29) 29 — (2) 11 (12) (1) (2) 9 (12) (1) (3) 8 (11) 2021 26,643 291 26,934 2020 24,710 290 25,000 2019 23,759 345 24,104 % Increase (Decrease) 2021 2020 8 — 8 4 (16) 4 Company sales and Company restaurant margin % In 2021, the increase in Company sales, excluding the impacts of foreign currency translation, was driven by company same-store sales growth of 17%, partially offset by refranchising. In 2021, the increase in Company restaurant margin percentage was driven by company same-store sales growth, partially offset by higher restaurant operating costs. F o r m 1 0 - K Franchise and property revenues In 2021, the increase in Franchise and property revenues, excluding the impacts of foreign currency translation, was driven by franchise same- store sales growth of 11% and unit growth. G&A In 2021, the increase in G&A, excluding the impact of foreign currency translation, was driven by higher expenses related to our annual incentive compensation program and higher professional fees, partially offset by lower share-based compensation. Operating Profit In 2021, the increase in Operating Profit, excluding the impacts of foreign currency translation, was driven by same-store sales growth, unit growth, and current year net bad debt recoveries lapping prior year net bad debt expense for past due franchise receivables, partially offset by higher G&A. YUM! BRANDS, INC. - 2021 Form 10-K 33 PART II ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Taco Bell Division The Taco Bell Division has 7,791 units, 90% 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 2021. % B/(W) 2021 % B/(W) 2020 2021 2020 2019 Reported Ex FX Reported Ex FX System Sales $13,280 $11,745 $11,784 Same-Store Sales Growth % Company sales $ 944 $ 882 $ Franchise and property revenues 742 662 921 673 Franchise contributions for advertising and other services 552 487 485 Total revenues $ 2,238 $ 2,031 $ 2,079 Company restaurant profit $ 225 $ 225 $ 221 13 11 7 12 14 10 — 13 N/A 7 12 14 10 — — (1) (4) (2) — (2) 2 — N/A (4) (2) — (2) 2 Ex FX and 53rd Week in 2019 1 N/A (3) — 2 (1) 4 Company restaurant margin % 23.9% 25.5% 24.0% (1.6) ppts. (1.6) ppts. 1.5 ppts. 1.5 ppts. 1.6 ppts. G&A expenses $ 174 $ 158 $ 181 Franchise and property expenses 33 33 38 Franchise advertising and other services expense 553 484 481 Operating Profit $ 758 $ 696 $ 683 (11) (3) (14) 9 (10) (3) (14) 9 13 16 (1) 2 13 15 (1) 2 12 15 (2) 4 Unit Count Franchise Company-owned Total 2021 7,329 462 7,791 2020 6,952 475 7,427 2019 6,895 468 7,363 % Increase (Decrease) 2021 2020 5 (3) 5 1 1 1 Company sales and Company restaurant margin % K - 0 1 m r o F In 2021, the increase in Company sales was driven by same-store sales growth of 7% and unit growth partially offset by refranchising. In 2021, the decrease in Company restaurant margin percentage was driven by higher restaurant operating costs, principally labor and commodities, partially offset by same-store sales growth. Franchise and property revenues In 2021, the increase in Franchise and property revenues was driven by franchise same-store sales growth of 11% and unit growth. G&A In 2021, the increase in G&A, excluding the impacts of foreign currency translation, was driven by higher expenses related to our annual incentive compensation programs, higher professional fees and higher charitable contributions, partially offset by lower headcount and lower share-based compensation. Operating Profit In 2021, the increase in Operating Profit was driven by same-store sales growth and unit growth, partially offset by higher restaurant operating costs and higher G&A costs. Pizza Hut Division The Pizza Hut Division has 18,381 units, 64% of which are located outside the U.S. Over 99% of the Pizza Hut Division units were operated by franchisees as of the end of 2021. The Pizza Hut Division uses multiple distribution channels including delivery, dine-in and express (e.g. airports) and includes units operating under both the Pizza Hut and Telepizza brands. 34 YUM! BRANDS, INC. - 2021 Form 10-K PART II ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. On December 30, 2018, the Company consummated a strategic alliance with Food Delivery Brands Group, S.A. (previously named Telepizza Group S.A. (“Telepizza”)), to be the master franchisee of Pizza Hut in Latin America and portions of Europe, which added approximately 1,300 Telepizza units to our Pizza Hut Division unit count on December 30, 2018. The addition of the Telepizza units positively impacted 2019 Pizza Hut Division system sales growth, excluding the impacts of foreign currency and 53rd week, by 5 percentage points. The impact to Operating Profit for the year ended December 31, 2019, as a result of the strategic alliance was not significant. % B/(W) 2021 % B/(W) 2020 2021 2020 2019 Reported Ex FX Reported Ex FX System Sales $ 12,955 $ 11,955 $ 12,900 Same-Store Sales Growth (Decline) % Company sales $ 46 $ 76 $ Franchise and property revenues 597 552 54 597 Franchise contributions for advertising and other services Total revenues Company restaurant profit $ $ 385 374 376 1,028 $ 1,002 $ 1,027 8 7 (40) 8 3 3 6 N/A (42) 6 2 1 3 $ 3 $ 3 (19) (24) (7) (6) 42 (8) (1) (2) 72 (7) N/A 41 (8) (1) (2) 67 Ex FX and 53rd Week in 2019 (6) N/A 42 (7) 1 (1) 69 Company restaurant margin % 6.8% 5.1% 4.2% 1.7 ppts. 1.5 ppts. 0.9 ppts. 0.7 ppts. 0.8 ppts. G&A expenses $ 201 $ 215 $ Franchise and property expenses 11 17 Franchise advertising and other services expense 395 365 Operating Profit $ 387 $ 335 $ 202 39 367 369 6 37 (8) 16 7 38 (7) 13 (7) 56 — (9) (7) 56 — (9) (8) 54 (1) (8) Unit Count Franchise Company-owned Total Company sales 2021 18,359 22 2020 17,559 80 18,381 17,639 2019 18,603 100 18,703 % Increase (Decrease) 2021 2020 5 (73) 4 (6) (20) (6) F o r m 1 0 - K In 2021, the decrease in Company sales, excluding the impacts of foreign currency translation, was driven by the refranchising of stores in the United Kingdom, partially offset by company same-store sales growth of 7%. Franchise and property revenues In 2021, the increase in Franchise and property revenues, excluding the impacts of foreign currency translation, was driven by franchise same- store sales growth of 7%. G&A In 2021, the decrease in G&A, excluding the impacts of foreign currency translation, was driven by lower headcount and lower share-based compensation, partially offset by higher expenses related to our annual incentive compensation programs. Operating Profit In 2021, the increase in Operating Profit, excluding the impacts of foreign currency translation, was driven by same-store sales growth, lower G&A and current year net bad debt recoveries lapping prior year net bad debt expense for past due franchise receivables, partially offset by higher Franchise advertising and other services expense primarily related to digital and technology expenses. YUM! BRANDS, INC. - 2021 Form 10-K 35 PART II ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Habit Burger Grill Division The Habit Burger Grill Division has 318 units, the vast majority of which are in the U.S. The Company owned 90% of the Habit Burger Grill units in the U.S. as of December 31, 2021. System Sales Same-Store Sales Growth % Total revenues Operating Profit (Loss) Unit Count Franchise Company-owned Total Corporate & Unallocated 2021 2020 Reported Ex FX % B/(W) 2021 $ 588 $ 370 $ 525 $ 2 $ 347 $ (22) 2021 2020 42 276 318 34 253 287 59 16 51 111 59 N/A 51 111 % Increase (Decrease) 2021 24 9 11 % B/(W) (Expense)/Income 2021 2020 2019 2021 2020 Corporate and unallocated G&A $ (260) $ (312) $ (188) Unallocated Franchise and property expenses Unallocated Refranchising gain (loss) (See Note 5) Unallocated Other income (expense) Investment income (expense), net (See Note 5) Other pension income (expense) (See Note 15) Interest expense, net Income tax provision (See Note 18) Effective tax rate (See Note 18) Corporate and unallocated G&A K - 0 1 m r o F 1 35 (14) 86 (7) (544) (99) 5.9% (4) 34 (146) 74 (14) (543) (116) 11.4% (14) 37 (9) (67) (4) (486) (79) 5.7% 17 115 2 NM 16 48 — 15 (66) 68 (9) NM 211 (235) (12) (48) 5.5 ppts. (5.7) ppts. In 2021, the decrease in Corporate and unallocated G&A expenses was driven by lapping higher prior year cost for charitable contributions including $50 million related to our “Unlocking Opportunity Initiative” and $25 million related to COVID-19 relief (see Note 5). The decrease was also driven by lapping prior year costs associated with a voluntary early retirement programs offered to our U.S. based employees and a worldwide severance program (see Note 5), offset by higher current year expenses related to our annual incentive compensation programs and increased headcount supporting our technology initiatives. Unallocated Other income (expense) Unallocated Other income (expense) for the year ended December 31, 2020, includes a charge of $144 million related to the impairment of Habit Burger Grill goodwill (see Note 3). Interest expense, net The increase in Interest expense, net for 2021 was primarily driven by increased outstanding borrowings offset by a lower weighted average- interest rate. 36 YUM! BRANDS, INC. - 2021 Form 10-K PART II ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Consolidated Cash Flows Net cash provided by operating activities was $1,706 million in 2021 versus $1,305 million in 2020. The increase was largely Items, the driven by an increase in Operating profit before Special lapping of charitable contributions reflected as Special Items and an increase in upfront fees received, partially offset by the timing of accounts receivable collections and higher advertising spending. Net cash used in investing activities was $173 million in 2021 versus $335 million in 2020. The change was primarily driven by the lapping of our prior year acquisition of The Habit Restaurants, Inc., higher refranchising proceeds in the current year and the current year sale of certain mutual fund investments, partially offset by the lapping of prior year proceeds from the sale of our investment in Grubhub, Inc. common stock, the current year acquisition of Dragontail Systems Limited and higher current year capital spending. Net cash used in financing activities was $1,767 million in 2021 versus $738 million in 2020. The change was primarily driven by higher share repurchases, partially offset by higher net borrowings. Liquidity and Capital Resources We have historically generated substantial cash flows from our extensive franchise operations, which require a limited YUM investment, and from the operations of our Company-owned stores. Our annual operating cash flows have been in excess of $1.3 billion in each of the past three years and we expect that to continue to be the case in 2022. It is our intent to use these operating cash flows to continue to invest in growing our business and pay a competitive dividend, with any remaining excess then returned to shareholders through share repurchases. To the extent operating cash flows plus other sources of cash do not cover our anticipated cash needs, we maintain a $1.25 billion Revolving Facility under our Credit Agreement (see Note 11) that was undrawn as of December 31, 2021. We believe that our ongoing cash from operations, cash on hand, which was approximately $500 million at December 31, 2021, and availability under our Revolving Facility will be sufficient to fund our cash requirements over the next twelve months. Our material cash requirements include the following contractual and other obligations. Debt Obligations and Interest Payments As of December 31, 2021, approximately 93%, including the impact of interest rate swaps, of our $11.3 billion of total debt outstanding, excluding finance leases and debt issuance costs and discounts, is fixed with an effective overall interest rate of approximately 4.2%. We currently target a capital structure which reflects consolidated leverage, net of available cash, of ~5.0x 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)/Ba2 (Moody’s) with a balance sheet consistent with highly-levered peer restaurant franchise companies. The following table summarizes the future maturities of our outstanding long-term debt, excluding finance leases and debt issuance costs and discounts, as of December 31, 2021. 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2037 2043 Total Securitization Notes $ 39 $ 39 $ 39 $ 39 $ 944 $ 875 $ 582 $ 565 $ 7 $ 682 Credit Agreement 29 34 48 53 662 15 1,398 Subsidiary Senior Unsecured Notes YUM Senior Unsecured Notes 750 325 600 800 1,050 $ 1,100 $ 325 $ 275 4,475 Total $ 68 $ 398 $ 87 $ 692 $ 1,606 $ 1,640 $ 1,980 $ 565 $ 807 $ 1,732 $ 1,100 $ 325 $ 275 $ 11,275 Interest payments on the outstanding long-term debt in the table above total $3,384 million, with $464 million due within the next twelve months on the outstanding amounts on a nominal basis. The estimated interest payments related to the variable rate portion of our debt are based on current LIBOR interest rates. Operating and Finance Leases Payments required under our operating and finance leases total $1,252 million, of which $141 million is payable within the next 12 months. These amounts are on a nominal basis and include payments related to lease renewal options we are reasonably certain See Note 11 for details on the Securitization Notes, the Credit Agreement, Subsidiary Senior Unsecured Notes and YUM Senior Unsecured Notes. to exercise. These leases relate primarily to approximately 700 Company-owned restaurants and approximately 300 leased restaurants for which we sublease land, building or both to our franchisees. See Note 12. YUM! BRANDS, INC. - 2021 Form 10-K 37 F o r m 1 0 - K $ 3,811 2,239 750 PART II ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Capital Expenditures We remain committed to maintaining our asset franchisor model that includes at least a 98% franchise mix. Our allocation strategy for capital expenditures includes: light, (cid:129) Run-rate capital expenditures consisting of company restaurant repairs, maintenance and remodels, support of our digital and technology initiatives and project-specific capital expenditures, (cid:129) Targeted new company unit development to spur additional growth that is largely funded through refranchising a comparable number of existing company units, and (cid:129) Strategic that shareholders and franchisees. investments create incremental value for that new store investments will exceed In 2022, we expect refranchising proceeds by $50 to $100 million, primarily driven by our strategy to accelerate growth of the Habit Burger Grill equity estate. in net capital expenditures of approximately This will $250 million, reflecting up to $350 million of gross capital expenditures and $100 million of refranchising proceeds. result Purchase Obligations Our purchase obligations include agreements to purchase goods or services that are enforceable and legally binding on us and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. We have excluded agreements that are cancellable without penalty. Our purchase obligations relate primarily to marketing, information technology and supply agreements. We have purchase obligations of approximately $420 million at December 31, 2021, with approximately $240 million due within the next 12 months. In addition to our contractual and other obligations, we seek to pay a competitive dividend and return excess cash to shareholders through share repurchases. As discussed in Note 20, we are also subject to claims and contingencies related to certain tax and legal matters that may require future cash outlays. K - 0 1 m r o F Dividends and Share Repurchases In February 2022, our Board of Directors declared a dividend of $0.57 per share of Common Stock, a 14% increase from the quarterly dividend of $.50 per share of Common Stock paid in 2021. This quarterly dividend will be distributed March 11, 2022 to shareholders of record at the close of business on February 18, 2022, and will total approximately $165 million. In May 2021, our Board of Directors authorized share repurchases from July 1, 2021 through December 31, 2022 of up to $2 billion (excluding applicable transaction fees) of our outstanding Common Stock. As of December 31, 2021, we have remaining capacity to repurchase up to $950 million of Common Stock under this authorization. This authorization does not obligate the Company to acquire any specific number of shares. along brand lines. The Contingencies As discussed in Note 20, as a result of an audit by the Internal for fiscal years 2013 through 2015, on Revenue Service (“IRS”) October 13, 2021, we received a Notice of Proposed Adjustment (“NPA”) from the IRS for the 2014 fiscal year relating to a series of reorganizations we undertook during that year in connection with the business realignment of our corporate and management reporting structure these reorganizations involved taxable distributions of approximately $6.0 billion. We expect to receive the final Revenue Agent’s Report (“RAR”) including the IRS’s calculation of the tax assessment in early 2022. The amount of additional tax that may be asserted by the IRS in the RAR cannot be quantified at this time; however, based on the NPA, the amount of additional tax to be proposed is expected to be material. We disagree with the IRS’s position as asserted in the NPA and intend to contest it vigorously by filing a protest disputing on multiple grounds any proposed taxes and proceeding to the IRS Office of Appeals. IRS asserts that Also, as discussed in Note 20, on January 29, 2020, we received an order from the Special Director of the Directorate of Enforcement in India imposing a penalty on Yum! Restaurants India Private Limited of approximately Indian Rupee 11 billion, or approximately $150 million, primarily relating to alleged violations of operating conditions imposed in 1993 and 1994. We have been advised by external counsel that the order is flawed and have filed a writ petition with the Delhi High Court, which granted an interim stay of the penalty order on March 5, 2020. The stay order remains in effect, and the next hearing is scheduled for March 4, 2022. We deny liability and intend to continue vigorously defending this matter. We do not consider the risk of any significant loss arising from this order to be probable. See the Lease Guarantees section of Note 20 for discussion of our off-balance sheet arrangements. New Accounting Pronouncements Not Yet Adopted In March 2020, the Financial Accounting Standards Board issued guidance related to reference rate reform. The pronouncement provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from LIBOR and other interbank offered rates to alternative reference rates. The guidance was effective upon issuance and generally can be applied to applicable contract modifications through December 31, 2022. We are currently evaluating the impact of the transition from LIBOR to alternative reference rates, including the impact on our interest rate swaps. As of December 30, 2021, our interest rate swaps which expire in March 2025, had notional amounts of $1.5 billion. These interest rate swaps are designated cash flow hedges. We do not anticipate the impact of adopting this standard will be material to our Financial Statements. 38 YUM! BRANDS, INC. - 2021 Form 10-K PART II ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 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 financial operations condition. Changes in the estimates and judgments could significantly affect our results of operations and financial condition and cash flows in future years. A description of what we consider to be our most significant critical accounting policies follows. annual results or or of Impairment or Disposal of Long-Lived Assets We review long-lived assets of restaurants we intend to continue operating as Company restaurants (primarily PP&E, right-of-use operating lease assets and allocated intangible assets subject to amortization) annually for impairment, or whenever events or changes in circumstances indicate that the carrying amount of a restaurant may not be recoverable. We 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 results at comparable the unit and actual restaurant assets that are deemed to not be restaurants. For 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. In each of the years ended December 31, 2021 and 2019 our primary indicator of potential impairment for our restaurant assets was two consecutive years of operating losses. For the year ended December 31, 2020, as a result of the impacts of the COVID-19 pandemic this indicator was expanded to include restaurants that were open less than two years with cumulative operating losses for the last year or cumulative operating losses since the store open date if open less than one year. We perform an impairment evaluation at a restaurant group level when it is more likely than not that we will refranchise restaurants as a group. Expected net sales proceeds are generally based on actual 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 the proceeds ultimately received. The accurate estimations of 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 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 returns for historical commensurate with the risks and uncertainty inherent forecasted cash flows. refranchising market transactions and is in the We evaluate indefinite-lived intangible assets for impairment on an annual basis as of the beginning of our fourth quarter or more often if an event occurs or circumstances change that indicates impairment might exist. Fair value is an estimate of the price a willing buyer would pay for the intangible asset and is generally estimated by discounting the expected future after-tax cash flows associated with the intangible asset. Our most significant indefinite-lived intangible asset is our Habit Burger Grill brand asset with a book value of $96 million at December 31, 2021. As of our fourth quarter 2021 impairment testing date, the Habit Burger Grill’s forecasted annual results have improved from those used in determining the brand asset fair value as part of the prior year impairment test. As such, the fair values of all of our indefinite-lived intangible assets at December 31, 2021, were in excess of their respective carrying values and no impairment was recorded. Impairment of Goodwill We evaluate goodwill for impairment on an annual basis as of the beginning of our fourth quarter or more often if an event occurs or circumstances change that indicates impairment might exist. Goodwill is evaluated for impairment by determining whether the fair value of our reporting units exceed their carrying values. Our reporting units are our business units (which are aligned based on geography) in our KFC, Taco Bell, Pizza Hut and Habit Burger Grill Divisions. Fair value is the price a willing buyer would pay for the reporting unit, and is generally estimated using discounted expected future after-tax cash flows from franchise royalties and Company- owned restaurant operations, if any. Future cash flow estimates and the discount rate are the key assumptions when estimating the fair value of a reporting unit. Future cash flows are based on growth expectations relative to recent historical performance and incorporate sales growth (from net new units or same-store sales growth) and margin improvement (for those reporting units which include Company-owned restaurant operations) assumptions that we believe a third-party buyer would 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 believe the discount rate is commensurate with the risks and uncertainty inherent in the forecasted cash flows. factor testing date, with all but The fair values of all our reporting units with goodwill balances were in excess of their respective carrying values as of our fourth quarter 2021 goodwill the Habit Burger Grill reporting unit having fair values that were substantially in excess of their respective carrying values as of the 2021 goodwill testing date. As it relates to our Habit Burger Grill reporting unit, assumptions for unit growth and same-store sales growth utilized in the fourth quarter 2021 annual impairment test improved as compared to the prior year impairment test, due in large part to the continued recovery from the impacts of COVID-19. As such, the fair value of the reporting unit increased versus prior year. F o r m 1 0 - K YUM! BRANDS, INC. - 2021 Form 10-K 39 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 K - 0 1 m r o F During 2021, refranchising activity completed by the Company was limited and the write-off of goodwill associated with these transactions was approximately $3 million. Pension Plans Certain of our employees are covered under defined benefit pension plans. Our two most significant plans are in the U.S. and combined had a projected benefit obligation (“PBO”) of $1,069 million and a fair value of plan assets of $1,010 million at December 31, 2021. that consists of a hypothetical portfolio of 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 3.00% at December 31, 2021. The primary basis for this discount rate determination is a model ten or more instruments rated Aa or higher by Moody’s or corporate debt Standard & Poor’s (“S&P”) with cash flows that mirror our expected benefit payment cash flows under the plans. We exclude from the model those corporate debt instruments flagged by Moody’s or S&P for a potential downgrade (if the potential downgrade would result in a rating below Aa by both Moody’s and S&P) and bonds with yields that were two standard deviations or more above the mean. In considering possible bond portfolios, the model allows the bond cash flows for a particular year to exceed the expected benefit payment cash flows for that year. Such excesses are assumed to be reinvested at appropriate one-year forward rates and used to meet the benefit payment cash flows in a future year. The weighted- average yield of this hypothetical portfolio was used to arrive at an rate. We also ensure that changes in the appropriate discount 40 YUM! BRANDS, INC. - 2021 Form 10-K 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 $65 million at our measurement date. Conversely, a 50 basis-point decrease in this rate would have increased our U.S. plans’ PBOs by discount approximately $72 million at our measurement date. The net periodic benefit cost we will record in 2022 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 for our U.S. plans to decrease approximately $8 million in 2022. A 50 basis-point change in our discount rate assumption at our 2021 measurement date would impact our 2022 U.S. net periodic benefit cost by approximately $6 million. 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 for purposes of determining 2022 pension U.S. plan assets, expense, at December 31, 2021, was 5.40%, 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 2022 U.S. net periodic benefit cost by approximately $9 million. Additionally, every 100 basis point variation in actual return on plan assets versus our expected return of 5.40% will impact our unrecognized pre-tax actuarial net loss by approximately $9 million. A decrease in discount rates over time has largely contributed to an unrecognized pre-tax actuarial net loss of $33 million included in Accumulated other comprehensive income for these U.S. plans at December 31, 2021. We will recognize approximately $11 million of such loss in net periodic benefit cost in 2022 versus $14 million recognized in 2021. Income Taxes At December 31, 2021, we had valuation allowances of $462 million to reduce our $1,541 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 profitable U.S. federal, state and foreign jurisdictions and net 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, carryforward periods, restrictions on usage and prudent and feasible tax planning strategies. The estimation of future taxable income in these jurisdictions and our resulting ability to utilize deferred tax assets can including our significantly change based on future events, determinations as to feasibility of certain tax planning strategies and refranchising plans. Thus, recorded valuation allowances may be subject to material future changes. As a matter of course, we are regularly audited by federal, state and foreign tax authorities. We recognize the benefit of positions taken or expected to be taken in our tax returns in our Income tax provision when it is more likely than not that the position would be sustained upon examination by these tax authorities. A recognized tax position is then measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon settlement. At December 31, 2021, we had $116 million of unrecognized tax benefits, $75 million the effective tax rate if recognized. We of which would impact PART II ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. evaluate unrecognized tax benefits, including interest thereon, on a quarterly basis to ensure that they have been appropriately adjusted for events, including audit settlements, which may impact our ultimate payment for such exposures. Repatriation of earnings generated after December 31, 2017, will generally be eligible for the 100% dividends received deduction or considered a distribution of previously taxed income and, therefore, exempt from U.S. federal tax. Undistributed foreign earnings may still be subject to certain state and foreign income and withholding taxes upon repatriation. Subject to limited exceptions, we do not intend to indefinitely reinvest our unremitted earnings outside the U.S. Thus, we have provided taxes, including any U.S. federal and state income, foreign income, or foreign withholding taxes on the majority of our unremitted earnings. In jurisdictions where we do intend to indefinitely reinvest our unremitted earnings, we would be required to accrue and pay applicable income taxes (if any) and foreign withholding taxes the funds were repatriated in taxable transactions. We believe any such taxes would be immaterial. if F o r m 1 0 - K YUM! BRANDS, INC. - 2021 Form 10-K 41 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 and commodity prices. In the normal course of business and in accordance with our policies, we manage these risks through a variety of strategies, which may include the use of financial and commodity derivative instruments to hedge our underlying exposures. Our policies prohibit the use of derivative instruments for trading purposes, and we have processes in place to monitor and control their use. Interest Rate Risk risk exposure to changes in interest rates, We have a market principally in the U.S. Our outstanding total debt, excluding finance leases and debt issuance costs and discounts, of $11.3 billion includes 80% fixed-rate debt and 20% 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, 2021, result in a fixed interest rate on $1.5 billion of our variable-rate debt. As a result, approximately 93% of our $11.3 billion of outstanding debt at December 31, 2021, is effectively fixed-rate debt. See Note 11 for details on our outstanding debt and Note 13 for details related to interest rate swaps. At December 31, 2021, a hypothetical 100 basis-point increase in short-term interest rates would result, over the following twelve- month period after consideration of the aforementioned interest rate swaps, in an increase of approximately $7 million in Interest expense, Foreign Currency Exchange Rate Risk Changes in foreign currency exchange rates impact the translation of our reported foreign currency denominated earnings, cash flows and net investments in foreign operations and the fair value of our foreign currency denominated financial instruments. Historically, we have chosen not to hedge foreign currency risks related to our foreign currency denominated earnings and cash flows through the use of 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 In addition, we attempt instruments. K - 0 1 m r o F net within our Consolidated Statement 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 that debt and exclude any impact from interest income related to cash and cash equivalents. The fair value of our cumulative fixed-rate debt of $9.5 billion as of December 31, 2021, would decrease approximately $565 million as increase. At a result of the same hypothetical 100 basis-point December 31, 2021, a hypothetical 100 basis-point increase in short-term interest rates would decrease the liability associated with the fair value of our interest rate swaps by approximately $46 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. maturity dates of these contracts match those of the underlying receivables or payables such that our foreign currency exchange risk related to these instruments is minimized. The Company’s foreign currency net asset exposure (defined as foreign currency assets less foreign currency liabilities) totaled approximately $1.1 billion as of December 31, 2021. 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, 2021, Operating Profit would have decreased approximately $145 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. Commodity Price Risk We are subject to volatility in food costs at our Company-operated restaurants 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 the National Stock Exchange of YUM holds approximately 53 million shares of Devyani International Limited (“Devyani”) common stock (See Note 5). As of December 31, 2021, India Limited composite closing sales price of Devyani was Indian Rupee 165.05. A hypothetical 10% decline in the price of these shares would result in a $12 million decrease in the fair value of these investments, which would be reflected as a charge in Investment (income) expense, net within our Consolidated Statements of Income. The effects of changes in market prices for equity securities are unpredictable, which could cause significant fluctuations in our quarterly and annual results. 42 YUM! BRANDS, INC. - 2021 Form 10-K 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’ Deficit Notes to Consolidated Financial Statements Financial Statement Schedules Page Reference 44 46 47 48 49 50 51 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. F o r m 1 0 - K YUM! BRANDS, INC. - 2021 Form 10-K 43 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 for each of Inc. and subsidiaries We have audited the accompanying consolidated balance sheets of (the Company) as of Yum! Brands, December 31, 2021 and 2020, the related consolidated statements income, comprehensive income, cash flows and shareholders’ of the years in the three-year period ended deficit December 31, 2021, and the related notes (collectively, the consolidated financial statements). We also have audited the of Company’s December 31, 2021, 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 K - 0 1 m r o F 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, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three- year period ended December 31, 2021, 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, 2021 based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. in all material 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 the accompanying 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 the Securities and Exchange applicable rules and regulations of 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 the audits 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. to obtain reasonable assurance about whether the consolidated financial statements included Our audits of performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or 44 YUM! BRANDS, INC. - 2021 Form 10-K 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 statements. Our audit of financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. 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 (1) pertain to the includes those policies and procedures that 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. 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. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. PART II ITEM 8. Financial Statements and Supplementary Data. Evaluation of unrecognized tax benefits As discussed in Note 18 to the consolidated financial statements, the Company has recorded unrecognized tax benefits, excluding associated interest, of $116 million. Tax laws are complex and often subject to different interpretations by taxpayers and the respective taxing authorities. We identified the evaluation of the Company’s unrecognized tax benefits as a critical audit matter. Subjective and complex auditor judgment was required to evaluate tax law and regulations, court rulings and audit settlements in the related taxing jurisdictions to determine the population of significant uncertain tax positions identified by the Company arising from tax planning strategies. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s process for identification of uncertain tax positions. This included controls related to (1) identifying tax planning strategies that create significant uncertain tax positions, (2) evaluating interpretations of tax laws and court rulings, and (3) assessing which tax positions may not be sustained upon examination by a taxing authority. We involved tax professionals with specialized skills and knowledge who assisted in: (cid:129) Obtaining an understanding of the Company’s tax planning strategies; (cid:129) Identifying tax positions created by tax planning strategies and comparing the results to the Company’s identification of uncertain tax positions; (cid:129) Evaluating the Company’s interpretation of tax laws and court rulings by developing an independent assessment; and (cid:129) Performing an independent assessment to identify tax positions that may not be sustained upon examination by the respective taxing authority and comparing the results to the Company’s assessment. /s/ KPMG LLP We have served as the Company’s auditor since 1997. Louisville, Kentucky February 22, 2022 F o r m 1 0 - K YUM! BRANDS, INC. - 2021 Form 10-K 45 PART II ITEM 8. Financial Statements and Supplementary Data. Consolidated Statements of Income Yum! Brands, Inc. and Subsidiaries Fiscal years ended December 31, 2021, 2020 and 2019 (in millions, except per share data) 2021 2020 2019 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 before income taxes Income tax provision Net Income Basic Earnings Per Common Share Diluted Earnings Per Common Share Dividends Declared Per Common Share K - 0 1 m r o F See accompanying Notes to Consolidated Financial Statements. $ 2,106 $ 1,810 $ 1,546 2,900 1,578 6,584 1,725 1,060 117 1,576 (35) 2 4,445 2,139 (86) 7 544 1,674 99 $ 1,575 $ $ $ 5.30 5.21 2.00 $ $ $ $ 2,510 1,332 5,652 1,506 1,064 145 1,314 (34) 154 4,149 1,503 (74) 14 543 1,020 116 904 2.99 2.94 1.88 2,660 1,391 5,597 1,235 917 180 1,368 (37) 4 3,667 1,930 67 4 486 1,373 79 $ 1,294 $ $ $ 4.23 4.14 1.68 46 YUM! BRANDS, INC. - 2021 Form 10-K PART II ITEM 8. Financial Statements and Supplementary Data. Consolidated Statements of Comprehensive Income Yum! Brands, Inc. and Subsidiaries Fiscal years ended December 31, 2021, 2020 and 2019 (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. 2021 2020 2019 $ 1,575 $ 904 $ 1,294 (24) — (24) — (24) 65 16 81 (19) 62 34 28 62 (14) 48 86 39 — 39 — 39 (8) 18 10 (2) 8 (99) 6 (93) 23 (70) (23) 28 — 28 (4) 24 (39) 10 (29) 7 (22) (51) (25) (76) 20 (56) (54) $ 1,661 $ 881 $ 1,240 F o r m 1 0 - K YUM! BRANDS, INC. - 2021 Form 10-K 47 PART II ITEM 8. Financial Statements and Supplementary Data. Consolidated Statements of Cash Flows Yum! Brands, Inc. and Subsidiaries Fiscal years ended December 31, 2021, 2020 and 2019 (in millions) Cash Flows – Operating Activities Net Income Depreciation and amortization Impairment and closure expense Refranchising (gain) loss Investment (income) expense, net 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 Cash Flows – Investing Activities Capital spending Acquisition of The Habit Restaurants, Inc., net of cash acquired Proceeds from sale of investment in Grubhub, Inc. common stock K - 0 1 m r o F Proceeds from refranchising of restaurants Other, net Net Cash Used in Investing Activities Cash Flows – Financing Activities Proceeds from long-term debt Repayments of long-term debt Revolving credit facilities, three months or less, net Short-term borrowings, by original maturity More than three months – proceeds More than three months – payments Three months or less, net Repurchase shares of Common Stock Dividends paid on Common Stock Debt issuance costs Other, net Net Cash Used in Financing Activities Effect of Exchange Rate on Cash and Cash Equivalents Net Increase (Decrease) in Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents – Beginning of Year 2021 2020 2019 $ 1,294 $ 1,575 $ 164 19 (35) (86) (200) 75 (46) (33) 122 (41) 192 904 146 172 (34) (74) (65) 97 62 8 128 (110) 71 1,706 1,305 (230) — — 85 (28) (173) (160) (408) 206 19 8 (335) 4,150 1,650 (3,657) (1,517) — — — — (1,591) (592) (37) (40) (1,767) (19) (253) 1,024 — 95 (100) — (239) (566) (20) (41) (738) 24 256 768 112 5 (37) 67 (232) 59 (56) (8) (36) 23 124 1,315 (196) — — 110 (2) (88) 800 (331) — 130 (126) — (815) (511) (10) (75) (938) 5 294 474 768 Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents – End of Year $ 771 $ 1,024 $ See accompanying Notes to Consolidated Financial Statements. 48 YUM! BRANDS, INC. - 2021 Form 10-K PART II ITEM 8. Financial Statements and Supplementary Data. Consolidated Balance Sheets Yum! Brands, Inc. and Subsidiaries December 31, 2021 and 2020 (in millions) ASSETS Current Assets Cash and cash equivalents Accounts and notes receivable, net Prepaid expenses and other current assets 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 Total Current Liabilities Long-term debt Other liabilities and deferred credits Total Liabilities Shareholders’ Deficit Common Stock, no par value, 750 shares authorized; 289 shares and 300 shares issued in 2021 and 2020, respectively Accumulated deficit Accumulated other comprehensive loss Total Shareholders’ Deficit Total Liabilities and Shareholders’ Deficit See accompanying Notes to Consolidated Financial Statements. 2021 2020 $ 486 596 450 1,532 1,207 657 359 1,487 724 $ 730 534 425 1,689 1,235 597 343 1,435 553 $ 5,966 $ 5,852 $ 1,334 $ 1,189 13 68 1,415 11,178 1,746 14,339 33 453 1,675 10,272 1,796 13,743 — (8,048) (325) — (7,480) (411) (8,373) (7,891) $ 5,966 $ 5,852 F o r m 1 0 - K YUM! BRANDS, INC. - 2021 Form 10-K 49 PART II ITEM 8. Financial Statements and Supplementary Data. Consolidated Statements of Shareholders’ Deficit Yum! Brands, Inc. and Subsidiaries Fiscal years ended December 31, 2021, 2020 and 2019 (in millions) Balance at December 31, 2018 Net Income Translation adjustments and gains (losses) from intra-entity transactions of a long- term investment nature (net of tax impact of $4 million) Pension and post-retirement benefit plans (net of tax impact of $7 million) Net loss on derivative instruments (net of tax impact of $20 million) Comprehensive Income Dividends declared Repurchase of shares of Common Stock Employee share-based award exercises Share-based compensation events Adoption of accounting standards Balance at December 31, 2019 Net Income Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature Pension and post-retirement benefit plans (net of tax impact of $2 million) Net loss on derivative instruments (net of tax impact of $23 million) Comprehensive Income Dividends declared Repurchase of shares of Common Stock Employee share-based award exercises Share-based compensation events Adoption of accounting standards Balance at December 31, 2020 Net Income Translation adjustments and gains (losses) from intra-entity transactions of a long- term investment nature Pension and post-retirement benefit plans (net of tax impact of $19 million) Net gain on derivative instruments (net of tax impact of $14 million) Comprehensive Income Dividends declared Repurchase of shares of Common Stock Employee share-based award exercises Share-based compensation events Balance at December 31, 2021 See accompanying Notes to Consolidated Financial Statements. K - 0 1 m r o F Issued Common Stock Shares Amount Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total Shareholders’ Deficit 306 $ — $ (7,592) $ (334) $ (7,926) 1,294 (514) (796) (18) (2) 24 (22) (56) 1,294 24 (22) (56) 1,240 (514) (810) (75) 71 (2) (8) 2 (14) (57) 71 300 $ — $ (7,628) $ (388) $ (8,016) 904 (569) (179) (8) 39 8 (70) 904 39 8 (70) 881 (569) (250) (41) 112 (8) (2) 2 (71) (41) 112 300 $ — $ (7,480) $ (411) $ (7,891) 1,575 (594) (1,549) (24) 62 48 1,575 (24) 62 48 1,661 (594) (1,580) (50) 81 (13) 2 (31) (50) 81 289 $ — $ (8,048) $ (325) $ (8,373) 50 YUM! BRANDS, INC. - 2021 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”) franchise or operate a system of over 53,000 restaurants in 157 countries and territories primarily under the concepts of KFC, Taco Bell, Pizza Hut and The Habit Burger Grill (collectively, the “Concepts”). The Company’s KFC, Taco Bell and Pizza Hut brands are global leaders of the chicken, Mexican-style and pizza food categories. The Habit Burger Grill, a is a fast-casual restaurant concept we acquired in March 2020, concept burgers, in made-to-order sandwiches and more. At December 31, 2021, 98% of our restaurants were owned and operated by franchisees. specializing chargrilled Through our widely-recognized Concepts, we develop, operate or franchise a system of both traditional and non-traditional restaurants. The terms “franchise” or “franchisee” within these Consolidated Financial Statements are meant to describe third parties that operate units under either franchise or license agreements. Our traditional restaurants feature dine-in, carryout and, in some instances, drive- thru service. Non-traditional units include express units which have a more limited menu and operate in non-traditional locations like malls, service gasoline airports, subways, stations, convenience stores, stadiums, amusement parks and colleges, where a full-scale traditional outlet would not be practical or efficient. As of December 31, 2021, over 45,000 of our restaurants are also currently offering delivery. We also operate or franchise multibrand units, where two or more of our Concepts are operated in a single unit. stations, train As of December 31, 2021, YUM consisted of segments: four operating (cid:129) The KFC Division which includes our worldwide operations of the KFC concept (cid:129) The Taco Bell Division which includes our worldwide operations of the Taco Bell concept (cid:129) The Pizza Hut Division which includes our worldwide operations of the Pizza Hut concept (cid:129) The Habit Burger Grill Division which includes our worldwide operations of the Habit Burger Grill concept NOTE 2 – Summary of Significant Accounting Policies Our preparation of the accompanying Consolidated Financial Statements in conformity with Generally Accepted Accounting Principles in the United States of America (“GAAP”) requires us to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Principles of Consolidation and Basis of Preparation. Intercompany accounts and transactions have been eliminated in consolidation. We consolidate entities in which we have a controlling interest, the usual condition of which is ownership of a financial majority voting interest. We also consider for consolidation an entity, in which we have certain interests, where the controlling financial interest may be achieved through arrangements that do not involve voting interests. Such an entity, known as a variable interest entity (“VIE”), is required to be consolidated by its primary beneficiary. The primary beneficiary is the entity that possesses the power to direct the activities of the VIE that most significantly impact its economic performance and has the obligation to absorb losses or the right to receive benefits from the VIE that are significant to it. Our most significant variable interests are in certain entities that operate restaurants under our Concepts’ franchise arrangements. We do not typically provide significant financial support such as loans or guarantees to our franchisees. Thus, our most significant variable interests in franchisees result from real estate lease arrangements to which we are a party. At the end of 2021, YUM has future lease payments due from certain franchisees, on a nominal basis, of approximately $1 billion, and we are secondarily liable on certain other lease agreements that have been assigned to certain franchisees. See the Lease Guarantees section in Note 20. As our F o r m 1 0 - K franchise 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. in an entity, Devyani for a minority interest We do not have an equity interest in any of our franchisee businesses except International Limited (“Devyani”), that owns our KFC India and Pizza Hut India master franchisee rights, a minority interest in an entity that owns our KFC Brazil and Pizza Hut Brazil master franchisee rights and a minority interest in an entity that operates Taco Bell franchised units in India. These minority interests do not give us the ability to significantly influence these entities. We account for our investment in Devyani and the entity that owns our KFC Brazil and Pizza Hut Brazil master franchisee rights as equity securities. When the fair value of these equity securities is readily determinable we record changes in fair value in Investment (income) expense, net. When the fair value of these equity securities is not readily determinable we apply the measurement alternative in accordance with Accounting Standards Codification (“ASC”) Topic 321 and, when applicable, record fair value changes from observable prices as well as impairment in Investment (income) expense, net. We account for our investment in the entity in India as an available-for-sale debt security. This available-for-sale debt security is carried at fair value with unrealized gains and losses, net of tax, included as a component of Other comprehensive income (loss), on the Consolidated Statements of Comprehensive Income. that operates Taco Bell units 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 YUM! BRANDS, INC. - 2021 Form 10-K 51 PART II ITEM 8. Financial Statements and Supplementary Data. reputation of the Company and our Concepts. 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. YUM’s fiscal year begins on January 1 and ends December 31 of each year, with each quarter comprised of three months. The majority of our U.S. subsidiaries and certain international subsidiaries operate on a weekly periodic calendar where the first three quarters of each fiscal year consists of 12 weeks and the fourth quarter consists of 16 weeks in fiscal years with 52 weeks and 17 weeks in fiscal years with 53 weeks. Our Habit Burger Grill subsidiaries operate on a weekly periodic calendar where each quarter consists of 13 weeks, except in fiscal years with 53 weeks remaining when the fourth quarter consists of 14 weeks. Our international subsidiaries operate on a monthly calendar similar to that on which YUM operates. Fiscal year 2019 included 53 weeks for our U.S. businesses and for our international subsidiaries that reported on a period calendar. The 53rd week added $66 million to Total revenues, $24 million to Operating Profit and $17 million to Net Income in our 2019 Consolidated Statement of Income. Our next fiscal year scheduled to include a 53rd week for our period calendar reporters is 2024. 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 Income and expense accounts for our currency of that entity. 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, 2021, net cumulative translation adjustment losses of $206 million are recorded in Accumulated other comprehensive income (“AOCI”) in the Consolidated Balance Sheet. 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, 2021. These reclassifications had no effect on previously reported Net Income. for prior periods Revenue Recognition. Below is a discussion of how our revenues are earned, our accounting policies pertaining to revenue recognition under ASC Topic 606, Revenue from Contracts with Customers (“Topic 606”) and other required disclosures. 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. Company Sales 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. K - 0 1 m r o F 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 sets 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 the Continuing consideration we agreements. Continuing fees are typically billed and paid monthly and are usually franchise 4%-6% for store-level substantial majority of franchise franchise agreements. Master the under our represent receive 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 sub-franchised by our master franchisees as a continuing fee is restaurants typically less than the percentage we receive for operating under a store-level franchise agreement. Based on the application of the sales-based royalty exception within Topic 606 continuing fees are recognized as the related restaurant sales occur. is transferred to another Upfront franchise fees are typically billed and paid when a new franchise or sub-franchise agreement becomes effective or when an existing agreement franchisee or sub-franchisee. We have determined that the services we provide in exchange for 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, upfront franchise fees are 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 52 YUM! BRANDS, INC. - 2021 Form 10-K PART II ITEM 8. Financial Statements and Supplementary Data. franchisee’s or sub-franchisee’s right to use and benefit from the intellectual property. Property Revenues from time-to-time we provide Additionally, consideration to franchisees in the form of cash (e.g. cash payments to offset new build costs) or other incentives (e.g. free or subsidized equipment) with the intent to drive new unit development or same-store sales growth that will result in higher future revenues for the Company. Such payments are capitalized and presented within Prepaid expense and other current assets or Other assets. These assets are being amortized as a reduction in Franchise and property revenues the period of expected cash flows from the franchise over agreements to which the payment relates. Franchise Contributions for Advertising and Other Services Advertising Cooperatives 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 commitment to pay for advertising services in advance of the related franchisee contributions. Additionally, we have determined the advertising services provided to franchisees are highly interrelated with the franchise right and to these consolidated therefore not distinct. Franchisees remit restaurant sales as advertising cooperatives a percentage of consideration for providing the advertising services. As a result, revenues for advertising services are recognized when the related franchise restaurant sales occur based on the application of the sales-based royalty exception within Topic 606. Revenues for these services are typically billed and received on a monthly basis. Other Goods or 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 technology, supply chain and quality assurance services. The extent to which we provide such goods or services varies by brand, geographic region and, in some instances, franchisee. In instances where we rely on third parties to provide goods or services to franchisees at our direction, we have determined we act as a principal in these transactions. These revenues are recognized as the goods or services are transferred to the franchisee. Franchise Support Costs. Certain direct costs of our franchise operations are charged to Franchise and property expenses. These costs include provisions for estimated uncollectible upfront and continuing fees, rent or depreciation expense associated with restaurants we lease or sublease to franchisees, marketing funding on behalf of franchisees, amortization expense for franchise-related intangible assets, value added taxes on royalties and certain other direct incremental franchise support costs. The costs we incur to provide support services to our franchisees for which we do not receive a reimbursement are charged to General and administrative expenses (“G&A”) as incurred. Expenses related to the provisioning of goods or services for which we receive reimbursement for all or substantially all of the expense amount from a franchisee are recorded in Franchise advertising and other services expense (the associated revenue is recorded within Franchise contributions for advertising and other services as described above). The majority of these expenses relate to advertising and are incurred on behalf of franchisees by the advertising cooperatives we are required to consolidate. These expenses are accounted for as described in the Advertising Costs policy below. For such expenses that do not relate to advertising the expenses are recognized as incurred. 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. 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. Advertising Costs. To the extent we participate in advertising cooperatives, we, like our participating franchisees, are required to make contributions. Our contributions are based on a percentage of sales of our participating Company restaurants. These contributions as well as direct marketing costs we may incur outside of a cooperative related to Company restaurants are recorded within Company restaurant expenses. Advertising expense included in Company restaurant expenses totaled $84 million, $68 million and $73 million in 2021, 2020 and 2019, respectively. To the extent we consolidate advertising cooperatives, we incur advertising expense as a result of our obligation to spend franchisee contributions to those cooperatives (see above for our accounting for these contributions). Such advertising expense is recorded in Franchise advertising and other services expense and totaled $1,264 million, $1,079 million and $1,133 million in 2021, 2020 and the end of each fiscal year additional 2019, advertising costs are accrued to the extent advertising revenues exceed the related advertising expense to date, as we are obligated to expend such amounts on advertising. respectively. At From time to time, we may make the decision to incur discretionary advertising expenditures on behalf of franchised restaurants. Such amounts are recorded within Franchise and property expenses and totaled $11 million, $10 million and $10 million in 2021, 2020 and 2019, respectively. the advertising cooperatives we are required to To the extent consolidate are unable to collect amounts due from franchisees they incur bad debt expense. In 2021 and 2020 we recorded $6 million and $7 million in net respectively, and in 2019 we recorded $19 million in net provisions, within Franchise advertising and other services expense related to recoveries on and provisions for uncollectible franchisee receivables. To the extent our consolidated advertising cooperatives have a provision or recovery for bad debt expense, the cooperative’s advertising spend obligation is adjusted such that there is no net impact within our Financial Statements. recoveries, 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 the service period on a compensation cost straight-line basis, net of an assumed forfeiture rate, for awards that actually vest. Forfeiture rates are estimated at grant date based on historical experience and compensation cost is adjusted in 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 16 for further discussion of our share-based compensation plans. F o r m 1 0 - K YUM! BRANDS, INC. - 2021 Form 10-K 53 PART II ITEM 8. Financial Statements and Supplementary Data. 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 20 for further discussion of our legal proceedings. liability, automobile liability, product agreements to be entered into with the franchisee simultaneous with the refranchising are expected to contain terms, such as royalty rates or rental payments, not at prevailing market rates, we consider the off-market terms in our impairment evaluation. We recognize any such impairment charges in Refranchising (gain) loss. We recognize gains on restaurant refranchisings when the sale transaction closes and control of the restaurant operations have transferred to the franchisee. Impairment or Disposal of Long-Lived Assets. Long-lived assets, (“PP&E”) as well as including Property, plant and equipment impairment right-of-use operating lease assets are tested for 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 testing of 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, right-of-use operating lease assets and allocated intangible assets subject to amortization) that we intend to continue operating as Company restaurants annually for impairment, or whenever events or changes in circumstances indicate that the carrying amount of a restaurant may not be recoverable. We use two consecutive years of operating losses as our primary indicator of potential impairment for our annual impairment 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 the restaurant and its related assets, franchisee would pay for including any right-of-use assets, and is determined by discounting the estimated future after-tax cash flows of the restaurant, which include a deduction for royalties we would receive under a franchise agreement with terms substantially at market. The after-tax cash flows incorporate reasonable 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. Any right-of-use asset may alternatively be valued at the amount we could receive for such right-of-use asset from a third- party that is not a franchisee through a sublease if doing so would result in less overall impairment of the restaurant assets in total. 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 to the carrying value of 54 YUM! BRANDS, INC. - 2021 Form 10-K K - 0 1 m r o F When we decide to close a restaurant, it is reviewed for impairment, which includes an estimate of sublease income that could be reasonably obtained, if any, in relation to the right-of-use operating lease asset. Additionally, depreciable lives are adjusted based on the expected disposal date. Other costs incurred when closing a restaurant such as costs of disposing of the assets as well as other facility-related expenses from previously closed stores are generally expensed as incurred. 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. 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. Additionally, effective January 1, 2020, we adopted the Financial Accounting Standards Board’s Accounting Standards Update (“ASU”) No. 2016-13, Instruments – Credit Losses (“Topic 326”) which required Financial that we also recognize as a liability the expected credit losses over the life of such guarantees. As a result of the adoption of Topic 326, we recorded a cumulative adjustment to Accumulated deficit of $8 million to establish such expected credit loss liability for our outstanding guarantees. The majority of our guarantees are issued as a result of assigning our interest in obligations under operating leases as a condition to the refranchising of certain Company restaurants. We recognize a liability for 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. 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 with the taxing authorities. We evaluate these amounts on a quarterly basis to ensure that they have been appropriately adjusted for audit settlements and other events we believe may impact the outcome. Changes in judgment that result in subsequent recognition, derecognition or a change in measurement of a tax position taken in a prior annual period (including any related interest and penalties) are recognized as a discrete item in the interim period in which the change occurs. We recognize accrued interest and penalties related to unrecognized tax benefits as components of our Income tax provision. We do not record a 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 18 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 three months), including short-term, highly liquid debt securities. 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 agreements, including contributions due to advertising cooperatives we consolidate. These receivables from franchisees 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. Effective with the adoption of Topic 326 on January 1, 2020, our receivables are now stated net of expected credit to our net receivables as a result of adopting the standard was not significant. Expected credit losses for uncollectible franchisee receivable balances consider both current conditions and reasonable and supportable forecasts of future conditions. Current conditions we consider include pre-defined aging criteria as well as specified events that indicate we may not collect the balance due. Reasonable and losses. The impact PART II ITEM 8. Financial Statements and Supplementary Data. the ultimate recovery of supportable forecasts used in determining the probability of future collection consider publicly available data regarding default probability. While we use the best information available in making our determination, recorded receivables is dependent upon future economic events and other conditions that may be beyond our control. 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. We recorded $8 million of net bad debt recoveries in 2021 and $12 million and $24 million of net bad debt expense in 2020 and 2019, respectively, within Franchise and property expenses related to continuing fees, receivables from our franchisees. fees and rent initial Accounts and notes receivable as well as the Allowance for doubtful accounts, including balances attributable to our consolidated advertising cooperatives, as of December 31, 2021 and 2020, respectively, are as follows: 2021 2020 Accounts and notes receivable $ 632 $ 579 Allowance for doubtful accounts (36) (45) Accounts and notes receivable, net $ 596 $ 534 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. 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 $68 million (net of an allowance of less than $1 million) and $72 million (net of an allowance of less than $5 million) at December 31, 2021, and December 31, 2020, 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. income recorded on financing receivables has historically been insignificant. Interest depreciation Property, Plant and Equipment. PP&E is carried net of calculate accumulated and depreciation and amortization on a straight-line basis over the lives of the assets as follows: 5 to 25 years for estimated useful buildings and leasehold improvements and 3 to 20 years for machinery and amortization on assets that are held for sale. and equipment. We suspend depreciation amortization. We Leases and Leasehold Improvements. We adopted ASU No. 2016-02, Leases (“Topic 842”) as of the beginning of the year ended December 31, 2019, using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of 2019. The cumulative effect of this transition was recorded as an increase to Accumulated deficit of $2 million as of this date. We lease land, buildings or both for certain of our Company-operated restaurants and restaurant support centers worldwide. Rental expense for leased Company-operated restaurants is presented in our Consolidated Statements of Income within Company restaurant expenses and rental expense for restaurant support centers is presented within G&A. 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 finance or operating as well as the timing YUM! BRANDS, INC. - 2021 Form 10-K 55 F o r m 1 0 - K PART II ITEM 8. Financial Statements and Supplementary Data. 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 certain at the commencement of the lease. The primary is the economic detriment penalty to which we are subject associated with the existence of leasehold improvements that 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. We expense rent associated with leased land or buildings while a restaurant is being constructed whether rent is paid or we are subject to a rent holiday. Our leasing activity for other assets, including equipment, is not significant. Right-of-use assets and liabilities are recognized upon lease commencement for operating and finance leases based on the present value of lease payments over the lease term. Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Subsequent amortization of the right-of-use asset and accretion of the lease liability for an operating lease is recognized as a single lease cost, on a straight-line basis, over the lease term. For finance leases, the right-of-use asset is depreciated on a straight-line basis over the lesser of the useful life of the leased asset or lease term. Interest on each finance lease liability is determined as the amount that results in a constant periodic discount rate on the remaining balance of the liability. As most of our leases do not provide an implicit discount rate, we use our incremental secured borrowing rate based on the information available at commencement date, including the lease term and currency, in determining the present value of lease payments for both operating and finance leases. Leases with an initial term of 12 months or less are not recorded in the Consolidated Balance Sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. Right-of-use assets are assessed for impairment in accordance with our long-lived asset impairment policy, which is performed annually for restaurant-level assets or whenever events or changes in circumstances indicate that the carrying amount of a restaurant may not be recoverable. We reassess lease classification and remeasure right-of-use assets and lease liabilities when a lease is modified and that modification is not accounted for as a separate new lease or upon certain other events that require reassessment. The difference between operating lease rental expense recognized in our Consolidated Statements of Income and cash payments for operating leases is recognized within Other, net within Net Cash Provided by Operating Activities in our Consolidated Statements of Cash Flows. to use a restaurant as well as a license of In certain instances, we lease or sublease certain restaurants to franchisees. Our lessor and sublease portfolio primarily consists of to stores that have been leased to franchisees subsequent refranchising transactions. Our most significant leases with lease and non-lease components are leases with our franchisees that include both the right the intellectual property associated with our Concepts’ brands. For these leases, which are primarily classified as operating leases, we account for the lease and non-lease components separately. Revenues from rental agreements with franchisees are presented within Franchise and property revenues in our Consolidated Statements of Income and related expenses (e.g. depreciation and rent expense) are presented within Franchise and property expenses. Goodwill and Intangible Assets. From time-to-time, the Company acquires restaurants from one of our Concept’s franchisees or acquires another business. Goodwill from these acquisitions represents the excess of the cost of a business acquired over the net 56 YUM! BRANDS, INC. - 2021 Form 10-K K - 0 1 m r o F of the amounts assigned to assets acquired, including identifiable intangible assets and liabilities assumed. Goodwill is not amortized and has been assigned to reporting units for purposes of impairment testing. Our reporting units are our business units (which are aligned based on geography) in our KFC, Taco Bell, Pizza Hut and Habit Burger Grill Divisions. We evaluate goodwill for impairment on an annual basis or more often if an event occurs or circumstances change that indicate impairment might exist. We have selected the beginning of our fourth quarter as the date on which to perform our ongoing annual impairment test for goodwill. We may elect to perform a qualitative assessment for our reporting units to determine whether it is more likely than not that the fair value of the reporting unit is greater than its carrying value. If a qualitative assessment is not performed, or if as a result of a qualitative assessment it is not more likely than not that the fair value of a reporting unit exceeds its carrying value, then the reporting unit’s fair value is compared to its carrying value. Fair value is the price a willing buyer would pay for a reporting unit, and is generally estimated using discounted expected future after-tax cash flows from Company-owned restaurant operations, if any, and franchise royalties. The discount rate is our estimate of the required rate of return that a third-party buyer would expect to receive when purchasing a business from us that constitutes a reporting unit. We believe the discount rate is commensurate with the risks and uncertainty inherent in the forecasted cash flows. An impairment charge is recognized based on the excess of a reporting unit’s carrying amount over its fair value. the reporting unit to its acquisition, we include goodwill If we record goodwill upon acquisition of a restaurant(s) from a franchisee and such restaurant(s) is then sold within two years of acquisition, the goodwill associated with the acquired restaurant(s) is written off in its entirety. If the restaurant is refranchised two years or more subsequent 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 and includes the value of franchise agreements. Appropriate adjustments are made if a franchise agreement includes terms that are determined to not be at prevailing market rates. As such, the fair value of the reporting unit retained can include expected cash flows from future royalties from those restaurants currently being refranchised, future royalties from existing franchise businesses and company restaurant operations. As a result, the percentage of a reporting unit’s goodwill that will be written off in a refranchising transaction will be less than the percentage of the reporting unit’s Company-owned restaurants that are refranchised in that transaction and goodwill can be allocated to a reporting unit with only franchise restaurants. We evaluate the remaining useful life of an intangible asset that is not being amortized each reporting period to determine whether events and circumstances continue to support an indefinite useful life. If an is not being amortized is subsequently intangible asset determined to have a finite useful life, we amortize the intangible asset prospectively over its estimated remaining useful life. Intangible assets that are deemed to have a definite life are amortized on a straight-line basis to their residual value. that We evaluate our indefinite-lived intangible assets for impairment on an annual basis or more often if an event occurs or circumstances change that indicate impairments might exist. We perform our annual test for impairment of our indefinite-lived intangible assets at the beginning of our fourth quarter. We may elect to perform a qualitative assessment to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is greater than its carrying value. If a qualitative assessment is not performed, or if as a result of a qualitative assessment it is not more likely than not that the fair value of an indefinite-lived intangible asset exceeds its carrying value, then the asset’s fair value is compared to its carrying value. Fair value is an estimate of the price a willing buyer would pay for the intangible asset and is estimated by discounting the expected future after-tax cash flows associated with the intangible asset. Our definite-lived intangible assets that are not allocated to an individual restaurant are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of the intangible asset may not be recoverable. An intangible asset that is deemed not recoverable on an undiscounted basis is written down to its estimated fair value, which is our estimate of the price a willing buyer would pay for the intangible asset based on discounted expected future after-tax cash flows. For purposes of our impairment analysis, we update the cash flows that were initially used to value the definite-lived intangible asset to reflect our current estimates and assumptions over the asset’s future remaining life. 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 upon initial capitalization. Derivative Financial Instruments. We use derivative instruments primarily to hedge interest rate and foreign currency risks, and to reduce our exposure to market-driven charges in certain of the liabilities associated with employee compensation deferrals into our Executive Income Deferral (“EID”) Plan. 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, 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. 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 their exposed to risk that 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 the December 31, 2021 and December 31, 2020, all of counterparties to our rate swaps and foreign currency forwards had investment grade ratings according to the three major ratings agencies. To date, all counterparties have performed in accordance with their contractual obligations. interest 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 PART II ITEM 8. Financial Statements and Supplementary Data. 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 any period. Accordingly, $1,549 million, $179 million and $796 million in share repurchases in 2021, 2020 and 2019, respectively, were recorded as an addition to Accumulated deficit. Additionally, $18 million related to shares cancelled upon employee share-based award exercises in 2019 were recorded as an addition to Accumulated deficit. See Note 17 for additional information on our share repurchases. frequently balance zero end the of at is Pension and Post-retirement Medical Benefits. We measure and recognize the overfunded or underfunded status of our pension and post-retirement plans as an asset or liability in our Consolidated Balance Sheet as of our fiscal year end. The funded status represents the difference between the projected benefit obligations and the fair value of plan assets, which is calculated on a plan-by-plan basis. The projected benefit obligation and related funded status are determined using assumptions as of the end of each year. The projected benefit obligation is the present value of benefits earned to date by plan participants, including the effect of future salary increases, as applicable. The difference between the projected benefit obligations and the fair value of plan assets that has not previously been 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. 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. The market-related value of plan assets is the fair value of plan assets as of the beginning of each year adjusted for variances between actual returns and expected returns. We attribute such variances to the market-related value of plan assets evenly over five years. 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. F o r m 1 0 - K YUM! BRANDS, INC. - 2021 Form 10-K 57 PART II ITEM 8. Financial Statements and Supplementary Data. NOTE 3 – Acquisitions Habit Burger Grill Acquisition On March 18, 2020, we completed the acquisition of all of the issued and outstanding common shares of The Habit Restaurants, Inc. As of the date of acquisition, The Habit Restaurants, Inc. operated 245 company-owned and 31 franchised Habit Burger Grill restaurants across the U.S. and in China, offering a flavor-forward variety of made-to-order items chargrilled over an open flame. We expect Habit Burger Grill to benefit from the global scale and resources of YUM and that the acquisition will accelerate and diversify YUM’s growth. Total Current Assets Property, plant and equipment, net Habit Burger Grill brand (included in Intangible assets, net) Operating lease right-of-use assets (included in Other assets) Other assets Total Assets Total Current Liabilities Operating lease liabilities (included in Other liabilities and deferred credits) Total Liabilities Total identifiable net assets Goodwill Net consideration transferred K - 0 1 m r o F During the first quarter of 2020, the operations of substantially all Habit Burger Grill restaurants were impacted by COVID-19. As a result, we performed an interim impairment test of the Habit Burger Grill reporting unit goodwill as of March 31, 2020. This test of impairment included comparing the estimated fair value of the Habit Burger Grill reporting unit to its carrying value, including goodwill, as originally determined through our preliminary purchase price allocation. The fair value estimate of the Habit Burger Grill reporting unit was based on the estimated price a willing buyer would pay for the reporting unit and was determined using an income approach through a discounted cash flow analysis using unobservable inputs (Level 3). The most impactful of these inputs included future average unit volumes of Habit Burger Grill restaurants as well as restaurant unit counts. The fair value was determined based upon a probability- weighted average of three scenarios, which included assumed recovery of Habit Burger Grill average unit volumes to a pre— COVID-19 level over periods ranging from the beginning of 2021 to the end of 2022. Factors impacting restaurant unit counts were near- term unit closures as the result of COVID-19 as well as the pace of expected new unit development. Unit counts assumed were correlated with the expected recoveries in average unit volumes. Based upon this fair value estimate, we determined that the carrying value of our Habit Burger Grill reporting unit exceeded its fair value. As a result, during the first quarter of 2020 we recorded a goodwill impairment charge of $139 million to Other (income) expense and a corresponding income tax benefit of $32 million. As we continued to refine our preliminary purchase price allocation in the quarter ended September 30, 2020, the impairment charge was adjusted upward by $5 million, which resulted in a corresponding income tax benefit of $1 million. Subsequent to these 2020 goodwill impairment charges and the finalization during the quarter ended March 31, 2021, of the allocation of consideration to the net assets acquired (described above), the Habit Burger Grill reporting unit goodwill was $60 million. The pro forma impact on our results of operations if the acquisition 58 YUM! BRANDS, INC. - 2021 Form 10-K Total cash consideration paid in connection with the acquisition was $408 million, net of acquired cash of $20 million. The acquisition was accounted for as a business combination using the acquisition method of accounting. During the quarter ended March 31, 2021, we finalized our estimate of the fair value of the net assets acquired, which resulted in goodwill being reduced by $15 million compared to the initial fair value estimate recorded in the quarter ended March 31, 2020 ($2 million of this reduction was recorded in the quarter ended March 31, 2021). This final allocation of consideration to the net tangible and intangible assets acquired upon the March 18, 2020 acquisition is presented in the table below. $ 11 111 96 196 28 442 (68) (170) (238) 204 204 $ 408 had been completed as of the beginning of 2019 would not have been significant. Dragontail Systems Acquisition On September 7, 2021, we completed the acquisition of Dragontail Systems Limited (“Dragontail”). The Dragontail acquisition advances our digital capabilities and its AI-based integrated kitchen order management and delivery technologies are intended to strengthen store operations, enhance the customer experience and make it easier team members to run a restaurant. Total cash consideration paid in connection with the acquisition was $66 million, net of cash acquired of $3 million. This net consideration has been classified within Other, net cash flows from investing activities within our Consolidated Statements of Cash Flows. for The acquisition was accounted for as a business combination using the acquisition method of accounting. The primary assets recorded as a result of the preliminary purchase price allocation were goodwill of $57 million and amortizable intangible assets of $11 million. The amortizable intangible assets, which consist of software, have an estimated weighted average useful life of 7 years. The goodwill recorded resulted from synergies expected to be achieved through leveraging our scale and resources to enhance these technologies and deploy them globally to our brands and franchisees over time. Goodwill is non-deductible for tax purposes and has been allocated to our reporting units within the Pizza Hut Division operating segment that are expected to most benefit from the Dragontail acquisition. The purchase price allocation for Dragontail is preliminary and subject to completion of valuation analyses. recognized from the acquisition Dragontail The financial results of Dragontail have been included in our Consolidated Financial Statements since the date of the acquisition PART II ITEM 8. Financial Statements and Supplementary Data. the year ended but did not significantly impact our December 31, 2021. The pro forma impact on our results of operations if the acquisition had been completed as of the beginning results for of 2020 would not have been significant. The direct transaction costs associated with the acquisition were also not material and were expensed as incurred. NOTE 4 – Earnings Per Common Share (“EPS”) 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 Diluted EPS 2021 2020 2019 $ 1,575 $ 904 $ 1,294 297 5 302 302 5 307 $ $ 5.30 $ 2.99 5.21 $ 2.94 $ $ 306 7 313 4.23 4.14 Unexercised employee stock options and stock appreciation rights (in millions) excluded from the diluted EPS computation(a) 1.1 4.8 2.0 (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 5 – Items Affecting Comparability of Net Income and Cash Flows Refranchising (Gain) Loss The Refranchising (gain) loss by our Divisional reportable segments is refranchising presented below. Given the size and volatility of initiatives, our chief operating decision maker (“CODM”) does not consider the impact of Refranchising (gain) loss when assessing Divisional segment performance. As such, we do not allocate such gains and losses to our Divisional segments for performance reporting purposes. During the years ended December 31, 2021, 2020 and 2019, we refranchised 83, 97 and 25 restaurants, respectively. Additionally, during the years ended December 31, 2021, 2020 and 2019, we sold certain restaurant assets associated with existing franchise A summary of Refranchising (gain) loss is as follows: KFC Division Taco Bell Division Pizza Hut Division Habit Burger Grill Division Worldwide five years to fight the Yum! Brands, Unlocking Opportunity Initiative On June 24, 2020, Inc. Board of Directors approved the establishment of the Company’s new global “Unlocking Opportunity Initiative” including a $100 million investment over the next inequality by unlocking opportunities for employees, team members and communities. The Company contributed $50 million in the second quarter of 2020 to (a stand-alone, not-for-profit Yum! Brands Foundation, organization that is not consolidated in the Company’s results) as part of these efforts and investment. As a result of the size and specific nature of this contribution the associated General and administrative expense was not allocated to any of our segment operating results for performance reporting purposes. restaurant Inc. the sales of restaurants to the franchisee. We received $85 million, $19 million and $110 million in pre-tax cash refranchising proceeds in 2021, 2020 and 2019, respectively, as a result of these In 2020, we also received as restaurants and restaurant assets. refranchising proceeds minority interests in Devyani International Limited (“Devyani”), as discussed further below. At the time of the refranchisings, these minority interests had fair values estimated to be $31 million. In 2019, we also received as refranchising proceeds a minority interest in an entity that owns our KFC and Pizza Hut master franchisee rights in Brazil. At the time of refranchising, the fair value of this minority interest was estimated to be $6 million. F o r m 1 0 - K Refranchising (gain) loss 2021 $ (1) (29) 1 (6) 2020 $ (33) (2) 1 — 2019 $ (6) (31) — — $ (35) $ (34) $ (37) COVID-19 Relief During the year ended December 31, 2020, we recorded a charge of $25 million related to a contribution made to Yum! Brands Foundation, Inc. expected to fund past and anticipated payments for COVID-19 relief provided to restaurant-level employees within the YUM system diagnosed with COVID-19 or acting as the primary caregiver for someone diagnosed with COVID-19. As a result of the size and specific nature of this contribution the associated General and administrative expense was not allocated to any of our segment operating results for performance reporting purposes. YUM! BRANDS, INC. - 2021 Form 10-K 59 PART II ITEM 8. Financial Statements and Supplementary Data. Resource Optimization During the year ended December 31, 2021, we recorded charges of $7 million to General and administrative expenses and $2 million to Other (income) expense and we recorded a credit of $1 million to Other pension (income) expense related to a resource optimization program initiated in the third quarter of 2020. During the year ended December 31, 2020, we recorded charges of $36 million to General and administrative expenses and $2 million to Other pension (income) expense related to this resource optimization program. The charges incurred as a result of this program were primarily associated with a voluntary retirement program offered to our U.S. based employees and a worldwide severance program. This program is part of our efforts to optimize our resources, reallocating them toward critical areas of the business that will drive future growth. These critical areas include accelerating our digital, technology and innovation capabilities to deliver a modern, world- class team member and customer experience and improve unit economics. Due to their scope and size, these costs were not allocated to any of our segment operating results for performance reporting purposes. Investment in Devyani In 2020, we received an approximate 5% minority interest in Devyani, an entity that operates KFC and Pizza Hut franchised units in India. The minority interest was received in lieu of cash proceeds upon the refranchising of approximately 60 KFC restaurants in India. At the time of the refranchisings, the fair value of this minority interest was estimated to be approximately $31 million. On August 16, 2021, Devyani executed an initial public offering and subsequently the fair value of this investment became readily determinable. As a result, concurrent with the initial public offering we began recording changes in fair value in Investment (income) expense, net in our Consolidated Statements of Income and recognized pre-tax investment income of $87 million, in the year ended December 31, 2021 (see Note 14). Refinancing of Credit Agreement and Redemption of Subsidiary Senior Unsecured Notes On March 15, 2021, certain subsidiaries of the Company completed a refinancing of our Credit Agreement. As a result, fees expensed of $4 million as well as previously recorded unamortized debt issuance costs written off of $8 million were recognized within Interest expense, net. On April 23, 2021, certain subsidiaries of the Company issued a notice of redemption for June 1, 2021, for $1,050 million aggregate principal amount of 5.25% Subsidiary Senior Unsecured Notes due in 2026. The redemption amount was equal to 102.625% of the $1,050 million aggregate principal amount redeemed, reflecting a $28 million “call premium”. We recognized the call premium and the write-off of $6 million of unamortized debt issuance costs associated with the notes within Interest expense, net. On September 9, 2020, certain subsidiaries of the Company issued a notice of redemption for $1,050 million aggregate principal amount of 5.00% Subsidiary Senior Unsecured Notes due in 2024. The redemption amount included a $26 million call premium plus accrued and unpaid interest to the date of redemption of October 9, 2020. We recorded the call premium, $6 million of unamortized debt K - 0 1 m r o F 60 YUM! BRANDS, INC. - 2021 Form 10-K issuance costs associated with the notes and $2 million of accrued and unpaid interest associated with the period of time from prepayment of the notes with the trustee on September 25, 2020, to their redemption date within Interest expense, net. See Note 11 for further discussion of the Credit Agreement and Subsidiary Senior Unsecured Notes. Investment in Grubhub, Inc. (“Grubhub”) In April of 2018 we purchased 2.8 million shares of Grubhub common stock for $200 million. In the quarter ended September 30, 2020, we sold our entire investment in Grubhub and received proceeds of $206 million. While we held our investment in Grubhub common stock we recognized changes in the fair value in our investment in our Consolidated Statements of Income. For the years ended December 31, 2020 and 2019, we recognized pre-tax investment income of $69 million and pre-tax investment expense of $77 million, respectively. Income Tax Matters In December of 2019, we completed intra-entity transfers of certain intellectual property (“IP”) rights. As a result of the transfer of certain of these rights, largely to subsidiaries in the United Kingdom (“UK”), we received a step-up in tax basis to current fair value under applicable tax law. To the extent this step-up in tax basis was amortizable against future taxable income, we recognized a one-time deferred tax benefit of $226 million in the quarter ended December 31, 2019. Additionally, we recognized a related deferred tax benefit of $3 million in the year ended December 31, 2020. On July 22, 2020, the UK Finance Act 2020 was enacted resulting in an increase in the UK corporate tax rate from 17% to 19%. As a result, in the year ended December 31, 2020, we remeasured the related deferred tax assets originally recorded as described above and recognized an additional $25 million deferred tax benefit. On June 10, 2021, the UK Finance Act 2021 was enacted resulting in an increase in the UK corporate income tax rate from 19% to 25%. As a result, in the year ended December 31, 2021, we remeasured the related deferred tax assets originally recorded as described above and recognized an additional $64 million deferred tax benefit. In July 2021, we concentrated management responsibility for European (excluding the UK) KFC franchise development, support in Switzerland (the “KFC operations and management oversight Europe Reorganization”). Concurrent with in management responsibility, we have completed intra-entity transfers of certain KFC IP rights from subsidiaries in the UK to subsidiaries in Switzerland. With the transfers of these rights, we received a step-up in amortizable tax basis to current fair value under applicable Swiss tax law. As a result of this transfer, we recorded a net one-time deferred tax benefit of $152 million in the year ended December 31, 2021. change this In December 2021, we continued our KFC Europe Reorganization and completed intra-entity transfers of additional European KFC IP rights from subsidiaries in the U.S. to subsidiaries in Switzerland. With the transfers of these additional rights, we received a step-up in amortizable tax basis to current fair value under applicable Swiss tax law. As a result of this transfer, we recorded a net one-time deferred tax benefit of $35 million in the year ended December 31, 2021. See Note 18. PART II ITEM 8. Financial Statements and Supplementary Data. NOTE 6 – Revenue Recognition Disaggregation of Total Revenues The following tables disaggregate 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 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 KFC Division Taco Bell Division 2021 Pizza Hut Division Habit Burger Grill Division Total $ 65 $ 198 14 28 235 531 1,049 61 612 $ 944 661 44 545 — — 37 — 7 21 279 5 317 62 25 249 2 68 $ 520 $ 1,550 4 — 1 — — — — — 1,142 63 891 297 556 1,335 63 687 $ 2,793 $ 2,238 $ 1,028 $ 525 $ 6,584 KFC Division Taco Bell Division 2020 Pizza Hut Division Habit Burger Grill Division Total $ 60 $ 184 16 18 204 446 833 58 453 $ 882 593 44 483 — — 25 — 4 21 272 5 317 51 55 222 2 57 $ 346 $ 1,309 1 — — — — — — — 1,050 65 818 255 501 1,080 60 514 F o r m 1 0 - K $ 2,272 $ 2,031 $ 1,002 $ 347 $ 5,652 YUM! BRANDS, INC. - 2021 Form 10-K 61 PART II ITEM 8. Financial Statements and Supplementary Data. 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 2019 KFC Division Taco Bell Division Pizza Hut Division Total $ 74 $ 175 20 10 214 497 912 69 520 919 602 44 483 — 2 27 — 2 $ 21 $ 1,014 282 1,059 6 318 70 811 60 274 33 246 3 58 532 1,185 72 580 $ 2,491 $ 2,079 $ 1,027 $ 5,597 Contract Liabilities Our contract liabilities are comprised of unamortized upfront fees received from franchisees and are presented within Accounts payable and other current liabilities and Other liabilities and deferred credits on our Consolidated Balance Sheet. A summary of significant changes to the contract liability balance during 2021 and 2020 is presented below. Balance at December 31, 2019 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, 2020 K - 0 1 m r o F 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, 2021 Deferred Franchise Fees $ 441 (76) 53 (3) $ 415 (74) 87 (7) $ 421 (a) Includes impact of foreign currency translation, as well as, in 2021, the recognition of deferred franchise fees into Refranchising (gain) loss upon the modification of existing franchise agreements when entering into master franchise agreements. We expect to recognize contract liabilities as revenue over the remaining term of the associated franchise agreement as follows: Less than 1 year 1 - 2 years 2 - 3 years 3 - 4 years 4 - 5 years Thereafter Total $ 68 61 57 50 44 141 $ 421 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. 62 YUM! BRANDS, INC. - 2021 Form 10-K PART II ITEM 8. Financial Statements and Supplementary Data. NOTE 7 – Supplemental Cash Flow Data Cash Paid For: Interest(a) Income taxes Significant Non-Cash Investing and Financing Activities: Non-cash refranchising proceeds(b) Reconciliation of Cash and cash equivalents to Consolidated Statements of Cash Flows: 2021 2020 2019 $ 474 $ 480 $ 308 328 497 283 — 31 6 Cash and cash equivalents as presented in Consolidated Balance Sheets $ 486 $ 730 $ Restricted cash included in Prepaid expenses and other current assets(c) Restricted cash and restricted cash equivalents included in Other assets(d) 250 35 258 36 605 138 25 Cash, Cash Equivalents and Restricted Cash as presented in Consolidated Statements of Cash Flows $ 771 $ 1,024 $ 768 (a) Amounts exclude payments of $28 million in both 2021 and 2020 classified as Interest expense in our Consolidated Statements of Income which are (b) included in Repayments of long-term debt within financing activities in our Consolidated Statements of Cash Flows (see Note 11). In 2020 we received as refranchising consideration a minority interest in an entity (Devyani) that operates KFC and Pizza Hut franchised units in India (see Note 5) and in 2019 we received as refranchising consideration a minority interest in an entity that owns our KFC and Pizza Hut master franchisee rights in Brazil. (c) Restricted cash within Prepaid expenses and other current assets reflects the cash related to advertising cooperatives which we consolidate that can only be used to settle obligations of the respective cooperatives and cash held in reserve for Taco Bell Securitization interest payments (see Note 11). (d) Primarily trust accounts related to our self-insurance programs. NOTE 8 – Other (Income) Expense Foreign exchange net (gain) loss and other(a) Impairment and closure expense(b) Other (income) expense 2021 2020 2019 $ (14) $ (18) $ (1) 16 172 $ 2 $ 154 $ 5 4 (a) The year ended December 31, 2019, includes a charge of $8 million for the settlement of contingent consideration associated with our 2013 acquisition of the KFC Turkey and Pizza Hut Turkey businesses. (b) The year ended December 31, 2020, includes a charge of $144 million related to the impairment of Habit Burger Grill goodwill (see Note 3). The year ended December 31, 2020, also includes charges of $12 million related to the impairment of restaurant-level assets and charges of $11 million related to the write-off of software no longer being used. NOTE 9 – Supplemental Balance Sheet Information Prepaid Expenses and Other Current Assets Income tax receivable Restricted cash Assets held for sale(a) Other prepaid expenses and current assets Prepaid expenses and other current assets Property, Plant and Equipment Land Buildings and improvements Finance leases, primarily buildings Machinery, equipment and other Property, plant and equipment, gross Accumulated depreciation and amortization Property, plant and equipment, net 2021 2020 $ 50 $ 250 12 138 $ 450 $ 35 258 7 125 425 2021 2020 $ 412 $ 428 1,403 1,423 67 595 71 543 2,477 2,465 (1,270) (1,230) $ 1,207 $ 1,235 YUM! BRANDS, INC. - 2021 Form 10-K 63 F o r m 1 0 - K PART II ITEM 8. Financial Statements and Supplementary Data. Depreciation and amortization expense related to PP&E was $134 million, $132 million and $114 million in 2021, 2020 and 2019, respectively. Other Assets Operating lease right-of-use assets Franchise incentives Investment in Devyani International Limited Other Other assets Accounts Payable and Other Current Liabilities Accounts payable Accrued compensation and benefits Accrued advertising Operating lease liabilities Accrued interest Other current liabilities 2021 2020 $ 809 $ 164 118 396 851 163 31 390 $ 1,487 $ 1,435 2021 2020 $ 227 $ 292 229 88 78 420 215 225 196 97 73 383 Accounts payable and other current liabilities $ 1,334 $ 1,189 (a) Assets held for sale reflect 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. NOTE 10 – Goodwill and Intangible Assets The changes in the carrying amount of goodwill are as follows: KFC Taco Bell Pizza Hut Habit Burger Grill Worldwide Goodwill, net as of December 31, 2019(a) Disposals and other, net(b) Habit Burger Grill acquisition and impairment (See Note 3) Goodwill, net as of December 31, 2020(a) Acquisitions Disposals and other, net(b) Dragontail Systems acquisition (See Note 3) $ 233 2 — $ 235 $ $ — (3) — Goodwill, net as of December 31, 2021(a) $ 232 $ 98 — — 98 — — — 98 $ 199 $ — $ 530 3 — $ 202 — (2) 57 $ 257 — 62 62 10 (2) — 70 $ $ 5 62 $ 597 10 (7) 57 $ 657 (a) Goodwill, net includes $144 million of accumulated impairment loss recorded in the year ended December 31, 2020, related to our Habit Burger Grill segment and $17 million of accumulated impairment losses for each year presented related to our Pizza Hut segment. (b) Disposals and other, net includes the impact of foreign currency translation on existing balances and goodwill write-offs associated with K - 0 1 m r o F refranchising. Intangible assets, net for the years ended 2021 and 2020 are as follows: Definite-lived intangible assets Capitalized software costs Reacquired franchise rights Franchise contract rights Other Indefinite-lived intangible assets KFC trademark Habit Burger Grill brand asset 64 YUM! BRANDS, INC. - 2021 Form 10-K 2021 2020 Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization $ 409 $ (214) $ 335 $ (160) (33) (88) (36) $ (371) 41 100 53 603 31 96 127 $ $ $ (33) (85) (33) $ (311) 39 100 53 527 31 96 127 $ $ $ PART II ITEM 8. Financial Statements and Supplementary Data. Amortization expense for all definite-lived intangible assets was $76 million in 2021, $63 million in 2020 and $52 million in 2019. Amortization expense for definite-lived intangible assets is expected to approximate $82 million in 2022, $60 million in 2023, $46 million in 2024, $21 million in 2025 and $11 million in 2026. NOTE 11 – Short-term Borrowings and Long-term Debt 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 Finance lease obligations (See Note 12) Less debt issuance costs and discounts Less current maturities of long-term debt Long-term debt 2021 2020 $ $ $ 75 $ (7) 68 $ 3,811 $ 750 750 1,489 4,475 64 463 (10) 453 2,869 1,800 431 1,916 3,725 72 $ 11,339 $ 10,813 (86) (75) (78) (463) $ 11,178 $ 10,272 Securitization Notes Taco Bell Funding, LLC (the “Issuer”), a special purpose limited liability company and a direct, wholly-owned subsidiary of Taco Bell Corp. (“TBC”) through a series of securitization transactions has issued fixed rate senior secured notes collectively referred to as the “Securitization Notes”. The following table summarizes Securitization Notes outstanding at December 31, 2021: Issuance Date May 2016 November 2018 August 2021 August 2021 August 2021 Anticipated Repayment Date(a) Outstanding Principal (in millions) May 2026 November 2028 February 2027 February 2029 August 2031 $ 955 $ 606 $ 900 $ 600 $ 750 Interest Rate Stated 4.970% 4.940% 1.946% 2.294% 2.542% Effective(b) 5.14% 5.06% 2.11% 2.42% 2.64% F o r m 1 0 - K (a) The legal final maturity dates of the Securitization Notes issued in 2016, 2018 and 2021 are May 2046, November 2048 and August 2051, respectively. 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 Securitization Notes will occur and additional interest will accrue on the Securitization Notes. Includes the effects of the amortization of any discount and debt issuance costs. (b) the “Securitization Entities”) The Securitization Notes were issued in transactions pursuant to which certain of TBC’s domestic assets, consisting principally of 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 Issuer, to secure the Securitization 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 (“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. On August 19, 2021, the Issuer completed a refinancing transaction and issued $900 million of its Series 2021-1 1.946% Fixed Rate Senior Secured Notes, Class A-2-I (the “2021 Class A-2-I Notes”), $600 million of its Series 2021-1 2.294% Fixed Rate Senior Secured Notes, Class A-2-II (the “2021 Class A-2-II Notes”) and $750 million of its Series 2021-1 2.542% Fixed Rate Senior Secured Notes, Class A-2-III (the “2021 Class A-2-III Notes” and, together with the 2021 Class A-2-I Notes and the 2021 Class A-2-II Notes, the “2021 Class A-2 Notes”). The net proceeds from the issuance of the 2021 Class A-2 Notes were used to repay in full the 2016-1 Class A-2- II Notes of $480 million and 2018-1 Class A-2-I Notes of $804 million. The remaining net proceeds were distributed to TBC to pay certain transaction-related expenses, for general corporate purposes and to return capital to shareholders of the Company. YUM! BRANDS, INC. - 2021 Form 10-K 65 PART II ITEM 8. Financial Statements and Supplementary Data. Payments of interest and principal on the Securitization Notes are made from the continuing fees paid pursuant to the franchise and license agreements with all U.S. Taco Bell restaurants, 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 related indenture)) 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 are required. As of the most recent quarterly measurement date the consolidated leverage ratio for both the Company and its subsidiaries as well as the Issuer and its subsidiaries exceeded 5.0:1 and, as a result, amortization payments are required. fiscal quarters of either the preceding four for As a result of the issuance of the 2021 Class A-2 Notes, $19 million of fees were capitalized as debt issuance costs. The debt issuance costs are being amortized to Interest expense, net through the Anticipated Repayment Dates of the Securitization Notes utilizing the effective interest rate method. Previously recorded unamortized debt issuance costs written off totaling approximately $5 million were recognized within Interest expense, net due to the extinguishment of the 2016-1 Class A-2-II Notes and 2018-1 Class A-2-I 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 Securitization 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 related indenture) of at least 1.1:1, gross domestic sales for U.S. Taco Bell restaurants being below certain levels on certain measurement dates, a manager termination event, an event of 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, 2021, 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, 2021, the Company had restricted cash of $84 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 Company. During the most recent quarter ended December 31, 2021, the Securitization Entities maintained a debt service coverage ratio significantly in excess of the 1.75:1 requirement. K - 0 1 m r o F Term Loan Facilities, Revolving Facility and Subsidiary Senior Unsecured Notes KFC Holding Co., Pizza Hut Holdings, LLC, and TBA, each of which is a wholly-owned subsidiary of the Company, as co-borrowers (the “Borrowers”) have entered into a credit agreement providing for senior secured credit facilities and a $1.25 billion revolving facility (the Revolving Facility”). The senior secured credit facilities, which include a Term Loan A Facility and a Term Loan B Facility, and the Revolving Facility are collectively referred to as the “Credit Agreement”. Additionally, the Borrowers through a series of transactions have issued Subsidiary Senior Unsecured Notes (collectively referred to as the “Subsidiary Senior Unsecured Notes”). As a result of this Credit Agreement refinancing, $8 million of fees were capitalized as debt issuance costs, $3 million of which were paid directly to lenders. The debt issuance costs will be amortized to Interest expense, net through the contractual maturities of the Credit Agreement using the effective interest method. During the quarter fees expensed of $4 million as well as ended March 31, 2021, previously recorded unamortized debt issuance costs written off of $8 million were recognized within Interest expense, net due to this refinancing. redemption amount was On April 23, 2021, the Borrowers issued a notice of redemption for June 1, 2021 for $1,050 million aggregate principal amount of 5.25% Subsidiary Senior Unsecured Notes due in 2026 (the “2026 Notes”). The the $1,050 million aggregate principal amount redeemed, reflecting a $28 million “call premium”. We recognized the call premium and the write-off of $6 million of unamortized debt issuance costs associated with the 2026 Notes within Interest expense, net in the quarter ended June 30, 2021. to 102.625% of equal On March 15, 2021, the Borrowers completed the refinancing of the then existing $1.9 billion term loan B facility, $431 million term loan A facility and $1.0 billion revolving facility through the issuance of a $1.5 billion term loan B facility maturing March 15, 2028 (the “Term Loan B Facility”), a $750 million term loan A facility maturing March 15, 2026 (the “Term Loan A Facility”) and a $1.25 billion revolving facility maturing March 15, 2026 (the “Revolving Facility”) pursuant to the Credit Agreement. The amendment reduced the interest rate currently applicable to the refinanced Term Loan A Facility and for borrowings under the refinanced Revolving Facility by 25 basis points. to an amendment 66 YUM! BRANDS, INC. - 2021 Form 10-K PART II ITEM 8. Financial Statements and Supplementary Data. The following table summarizes borrowings outstanding under the Credit Agreement as well as our Subsidiary Senior Unsecured Notes as of December 31, 2021. There are no outstanding borrowings under the Revolving Facility and $2.1 million of letters of credit outstanding as of December 31, 2021. Term Loan A Facility Term Loan B Facility Senior Note Due 2027 Issuance Date Maturity Date March 2021 March 2021 June 2017 March 2026 March 2028 June 2027 Outstanding Principal (in millions) Interest Rate Stated Effective(b) $ 750 $ 1,489 (a) (a) $ 750 4.75% 0.96% 4.99% 4.90% (a) Subsequent to the refinance, the interest rates applicable to the Term Loan A Facility as well as the Revolving Facility range from 0.75% to 1.50% plus LIBOR or from 0.00% to 0.50% plus the Base Rate (as defined in the Credit Agreement), at the Borrowers’ election, based upon the total leverage ratio (as defined in the Credit Agreement). As of December 31, 2021, the interest rate spreads on the LIBOR and Base Rate applicable to our Term Loan A Facility were 0.75% and 0.00%, respectively. The interest rates applicable to the Term Loan B Facility are 1.75% plus LIBOR or 0.75% plus the Base Rate, at the Borrowers’ election. Includes the effects of the amortization of any discount and debt issuance costs as well as the impact of the interest rate swaps on the Term Loan A and Term Loan B Facilities (see Note 13). The effective rates related to our Term Loan A and B Facilities are based on LIBOR-based interest rates through December 31, 2021. (b) The refinanced Term Loan A Facility is subject to quarterly amortization payments in an amount equal to 0.625% of the principal amount of the facility as of the refinance date beginning with the second quarter of 2022. The Term Loan A Facility quarterly amortization payments increase to 1.25% of the principal amount of the facility as of the refinance date beginning with the second quarter of 2024 with the balance payable at maturity on March 15, 2026. 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 as of the refinance date with the balance now payable at maturity on March 15, 2028. All other material provisions under the Credit Agreement remained unchanged. 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- owned subsidiaries (see above). The Credit Agreement is also the secured by first priority liens on substantially all assets of 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 leverage ratio which require the Borrowers to maintain a total (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, 2021. that are customary for facilities of things, The Subsidiary Senior Unsecured Notes are guaranteed on a senior unsecured basis by (i) the Company, (ii) the Specified Guarantors (as defined in the Credit Agreement) 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, 2021. YUM Senior Unsecured Notes The majority of our remaining long-term debt primarily comprises YUM Senior Unsecured Notes. The following table summarizes all YUM Senior Unsecured Notes issued that remain outstanding at December 31, 2021: Issuance Date October 2007 October 2013 October 2013 September 2019 April 2020 September 2020 April 2021 Maturity Date November 2037 November 2023 November 2043 January 2030 April 2025 March 2031 January 2032 Principal Amount (in millions) Interest Rate Stated Effective(a) $ $ $ $ $ 325 325 275 800 600 $ 1,050 $ 1,100 6.88% 3.88% 5.35% 4.75% 7.75% 3.63% 4.63% 7.45% 4.01% 5.42% 4.90% 8.05% 3.77% 4.77% (a) 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. YUM! BRANDS, INC. - 2021 Form 10-K 67 F o r m 1 0 - K PART II ITEM 8. Financial Statements and Supplementary Data. On April 1, 2021, Yum! Brands, Inc. issued $1.1 billion aggregate principal amount of 4.625% YUM Senior Unsecured Notes due January 31, 2032 (the “2032 Notes”). Interest on the 2032 Notes is payable semi-annually in arrears on April 1 and October 1 of each year, beginning on October 1, 2021. The Company paid debt issuance costs of $13 million in connection with the 2032 Notes. The debt issuance costs will be amortized to Interest expense, net over the life of the 2032 Notes using the effective interest method. We used the net proceeds from the 2032 Notes to fund the redemption of the 2026 Notes discussed above. On June 30, 2021, Yum! Brands, Inc. issued a notice of redemption for $350 million aggregate principal amount of 3.75% YUM Senior Unsecured Notes due November 1, 2021 (the “2021 Notes”). The redemption, which occurred on August 2, 2021, was in an amount equal to 100% of the principal amount of the 2021 Notes, plus accrued interest to the date of redemption. 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 covenants and events of default that are customary for debt securities of this type, including cross- default provisions whereby the acceleration of the maturity of any of our indebtedness in a principal amount in excess of $50 million ($100 million or more in the case of the YUM Senior Unsecured Notes issued in 2019 and subsequent years) 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 annual maturities of all Short-term borrowings and Long-term debt as of December 31, 2021, excluding finance lease obligations of $64 million and debt issuance costs and discounts of $93 million are as follows: Year ended: 2022 2023 2024 2025 2026 Thereafter Total $ 68 398 87 692 1,606 8,424 $ 11,275 Interest expense on Short-term borrowings and Long-term debt was $551 million, $558 million and $519 million in 2021, 2020 and 2019, respectively. NOTE 12 – Lease Accounting Components of Lease Expense K - 0 1 m r o F Operating lease cost Finance lease cost Amortization of right-of-use assets Interest on lease liabilities Total finance lease cost Sublease income Supplemental Cash Flow Information Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases Operating cash flows from finance leases Financing cash flows from finance leases Right-of-use assets obtained in exchange for lease obligations Operating leases(a) Finance leases Operating lease liabilities transferred through refranchising Finance lease and other debt obligations transferred through refranchising 2021 2020 2019 $ 145 $ 137 $ 115 5 4 9 (59) $ $ 5 3 8 (60) $ $ 3 3 6 (69) $ $ 2021 2020 2019 $ 140 $ 133 $ 104 4 4 119 5 (25) (2) 3 5 296 4 (3) (1) 3 4 79 14 (25) (1) (a) The year ended December 31, 2020, includes right-of-use assets acquired as part of the acquisition of Habit Burger Grill of $196 million (See Note 3). 68 YUM! BRANDS, INC. - 2021 Form 10-K PART II ITEM 8. Financial Statements and Supplementary Data. Supplemental Balance Sheet Information 2021 2020 Consolidated Balance Sheet Assets Operating lease right-of-use assets Finance lease right-of-use assets Total right-of-use assets(a) Liabilities Current Operating Finance Non-current Operating Finance $ $ $ 809 37 846 88 7 793 57 $ $ $ 851 40 891 97 7 823 65 Other assets Property, plant and equipment, net Accounts payable and other current liabilities Short-term borrowings Other liabilities and deferred credits Long-term debt Total lease liabilities(a) $ 945 $ 992 Weighted-average Remaining Lease Term (in years) Operating leases Finance leases Weighted-average Discount Rate Operating leases Finance leases 10.9 12.1 11.1 12.2 4.9% 6.4% 5.1% 6.5% (a) U.S. operating lease right-of-use assets and liabilities totaled $516 million and $577 million, respectively, as of December 31, 2021, and $499 million including and $556 million, respectively, as of December 31, 2020. These amounts primarily related to Taco Bell U.S. and the Habit Burger Grill leases related to Company-operated restaurants, leases related to franchise-operated restaurants we sublease and the Taco Bell restaurant support center. Maturity of Lease Payments and Receivables Future minimum lease payments, including rental payments for lease renewal options we are reasonably certain to exercise, and amounts to be received as lessor or sublessor as of December 31, 2021, were as follows: 2022 2023 2024 2025 2026 Thereafter Total lease payments/receipts Less imputed interest/unearned income Total lease liabilities/receivables F o r m 1 0 - K Commitments Lease Receivables Finance Operating Direct Financing Operating $ 10 $ 9 8 7 7 48 89 (25) 131 128 119 109 101 575 1,163 (282) $ $ 84 81 78 68 72 550 933 $ 4 3 3 3 2 23 38 (14) $ 64 $ 881 $ 24 As of December 31, 2021, we have executed real estate leases that have not yet commenced with estimated future nominal lease payments of approximately $125 million, which are not included in the tables above. These leases are expected to commence in 2022 and 2023 with lease terms of up to 20 years. YUM! BRANDS, INC. - 2021 Form 10-K 69 PART II ITEM 8. Financial Statements and Supplementary Data. NOTE 13 – 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 have entered 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. These interest rate swaps expired 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 combined borrowings under our Term Loan A and Term Loan B Facilities from the date the July 2016 swaps expired through March 2025. The interest rate swaps executed in May 2018 result in fixed rates of 3.81% and 4.81% on the swapped portion of the Term Loan A and Term Loan B Facilities, respectively, 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 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, 2021. 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, 2021, 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 losses to offset quarter recorded within Other (income) expense when the related intercompany receivables and payables affect earnings due to their functional currency remeasurements. Through December 31, 2021, all foreign currency contracts related to intercompany receivables and payables were highly effective cash flow hedges. As of December 31, 2021 and 2020, foreign currency contracts outstanding related to intercompany receivables and payables had total notional amounts of $28 million and $39 million, respectively. Our foreign currency forward contracts all have durations that expire in 2022. 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, 2021, all of the counterparties to rate swaps and foreign currency contracts had our investment grade ratings according to the three major ratings 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: K - 0 1 m r o F Interest rate swaps Foreign currency contracts Income tax benefit/(expense) Gains/(Losses) Recognized in OCI 2021 2020 2019 (Gains)/Losses Reclassified from AOCI into Net Income 2020 2021 2019 $ 34 — (9) $ (103) $ (71) $ 29 $ 10 $ (17) 4 24 20 16 (1) (5) (4) (1) (8) 4 As of December 31, 2021, the estimated net loss included in AOCI related to our cash flow hedges that will be reclassified into earnings in the next 12 months is $38 million, based on current LIBOR interest rates. Total Return Swaps Beginning in 2021, we have entered into total return swap derivative contracts, with the objective of reducing our exposure to market- driven changes the liabilities associated with compensation deferrals into our EID plan. While these total return swaps represent economic hedges, we have not designated them as hedges for accounting purposes. As a result, the changes in the fair in certain of value of these derivatives are recognized immediately in earnings within General and administrative expenses in our Consolidated Statements of Income largely offsetting the changes in the associated EID liabilities. The fair value associated with the total return swaps as of December 31, 2021, was not significant. See Note 14 for the fair value of our derivative assets and liabilities. 70 YUM! BRANDS, INC. - 2021 Form 10-K PART II ITEM 8. Financial Statements and Supplementary Data. NOTE 14 – Fair Value Disclosures As of December 31, 2021, 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) 2021 2020 Carrying Value Fair Value (Level 2) Carrying Value Fair Value (Level 2) $ 3,811 $ 3,872 $ 2,869 $ 3,015 750 750 1,489 4,475 784 748 1,490 4,845 1,800 431 1,916 3,725 1,890 428 1,907 4,094 (a) We estimated the fair value of the Securitization Notes using market quotes and calculations. 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 and other investments, all of which are required to be measured at fair value on a recurring basis (see Note 13 for discussion regarding derivative instruments). 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. Consolidated Balance Sheet Level 2021 2020 Fair Value Assets Foreign Currency Contracts Prepaid expenses and other current assets Other Investments Other Investments Liabilities Interest Rate Swaps Interest Rate Swaps Other assets Other assets Accounts Payable and other current liabilities Other liabilities and deferred credits 2 1 3 2 2 — 119 5 38 54 1 45 — 28 127 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 other investments as of December 31, 2021, primarily include our approximate 5% minority interest in Devyani with a fair value of $118 million. On August 16, 2021, Devyani executed an initial public offering and subsequently the fair value of these equity securities became readily determinable (see Note 5). Prior to the initial public offering the fair value of these equity securities was not readily determinable and we applied the measurement alternative in accordance with ASC Topic 321, Investments – Equity Securities. The other investments as of December 31, 2020, primarily include investments in mutual funds, which were historically used to offset fluctuations for a portion of our EID liabilities and whose fair values were determined based on the closing market prices of the respective mutual funds. In the quarter ended March 31, 2021, upon entering into the total return swaps as disclosed in Note 13, we sold these investments in mutual funds and received cash proceeds of $44 million. These proceeds have been classified within Other, net cash flows from investing activities within our Consolidated Statements of Cash Flows. F o r m 1 0 - K Non-Recurring Fair Value Measurements During the year ended December 31, 2021, we recognized non-recurring fair value measurements of $6 million related to refranchising related impairment. Refranchising related impairment results from writing down the assets of restaurants or restaurant groups offered for refranchising, including certain instances where a decision has been made to refranchise restaurants that are deemed to be impaired. The fair value measurements used in our impairment evaluation were based on actual bids received from potential buyers (Level 2). The remaining net book value of these restaurants at December 31, 2021, was approximately $6 million. During the years ended December 31, 2021 and 2020, we recognized non-recurring fair value measurements of $4 million and $12 million, respectively, related to restaurant-level impairment. Restaurant-level impairment charges are recorded in Other (income) expense and resulted primarily from our impairment evaluation of long-lived assets of individual restaurants that were being operated at the time of impairment and had YUM! BRANDS, INC. - 2021 Form 10-K 71 PART II ITEM 8. Financial Statements and Supplementary Data. 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, 2021 and 2020, was $16 million and $11 million, respectively. During the year ended December 31, 2020, we also recognized impairment charges related to our Habit Burger Grill reporting unit. See Note 3. NOTE 15 – 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 provides 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 2022. Our two significant U.S. plans, including the Plan and a supplemental plan, were previously amended such that any salaried employee hired or rehired by YUM after September 30, 2001, is not eligible to participate in those plans. We do not anticipate any plan assets being returned to the Company during 2022 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 Special termination benefits Benefits paid Settlement payments Actuarial (gain) loss Benefit obligation at end of year K - 0 1 m r o F 2021 2020 $ 1,133 $ 1,015 8 32 1 — (33) (67) (5) 8 35 1 2 (46) — 118 $ 1,069 $ 1,133 A significant component of the overall decrease in the Company’s benefit obligation for the year ended December 31, 2021, was due to settlement payments, which were primarily related to a resource optimization program initiated in the third quarter of 2020 (see Note 5). A significant component of the overall increase in the Company’s benefit obligation for the year ended December 31, 2020, was due to an actuarial loss, which was primarily due to a decrease in the discount rate used to measure our benefit obligation from 3.50% at December 31, 2019, to 2.80% at December 31, 2020. Change in plan assets: Fair value of plan assets at beginning of year Actual return on plan assets Employer contributions Benefits paid Settlement payments Fair value of plan assets at end of year Funded status at end of year 72 YUM! BRANDS, INC. - 2021 Form 10-K 2021 2020 $ 1,014 $ 88 8 (33) (67) 886 168 6 (46) — $ 1,010 $ 1,014 $ (59) $ (119) Amounts recognized in the Consolidated Balance Sheet: Accrued benefit asset—non-current Accrued benefit liability—current Accrued benefit liability—non-current PART II ITEM 8. Financial Statements and Supplementary Data. 2021 2020 $ 43 $ — (7) (95) (9) (110) $ (59) $ (119) The accumulated benefit obligation was $1,048 million and $1,111 million at December 31, 2021 and 2020, respectively. The table below provides information for those pension plan(s) with an accumulated benefit obligation in excess of plan assets. The pension plan(s) included also have 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 2021 2020 $ 102 $ 1,133 98 — 1,111 1,014 2021 2020 2019 $ 8 32 6 (43) 14 $ 8 35 5 (43) 14 $ 17 $ 19 $ $ — $ — $ $ — $ 2 $ — $ 6 39 6 (44) 1 8 3 (a) Prior service costs are amortized on a straight-line basis over the average remaining service period of employees expected to receive benefits. (b) Settlement losses result when benefit payments exceed the sum of the service cost and interest cost within a plan during the year. These losses were recorded in Other pension (income) expense. 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 End of year Accumulated pre-tax losses recognized within AOCI: Actuarial net loss Prior service cost Weighted-average assumptions used to determine benefit obligations at the measurement dates: Discount rate Rate of compensation increase F o r m 1 0 - K 2021 2020 $ (111) $ (136) 49 — 14 6 (1) 7 1 14 5 (2) $ (43) $ (111) 2021 2020 $ (33) $ (10) (96) (15) $ (43) $ (111) 2021 3.00% 3.00% 2020 2.80% 3.00% YUM! BRANDS, INC. - 2021 Form 10-K 73 PART II ITEM 8. Financial Statements and Supplementary Data. 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 2021 2.80% 5.25% 3.00% 2020 3.50% 5.50% 3.00% 2019 4.60% 5.75% 3.00% 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, 2021 and 2020 by asset category and level within the fair value hierarchy are as follows: 2021 2020 Level 1: Cash Cash Equivalents(a) Fixed Income Securities—U.S. Corporate(b) Equity Securities—U.S.(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 assets in the fair value hierarchy Investments measured at net asset value(e) Equity Securities Total fair value of plan assets(f) $ 237 $ 80 41 — — 49 175 30 612 456 9 10 164 409 102 148 354 30 1,226 — $ 1,068 $ 1,226 K - 0 1 m r o F (a) Short-term investments in money market funds. (b) Securities held in common or collective trusts. (c) (d) (e) Investments held directly by the Plan. Includes securities held in common or collective trusts and investments held directly by the Plan. Includes securities that have been measured at fair value using the net asset value per unit practical expedient due to the absence of readily available market prices. Accordingly, these securities have not been classified in the fair value hierarchy. (f) 2021 and 2020 exclude net unsettled trade payables of $58 million and $212 million, respectively. 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. As of December 31, 2021, the Plan’s assets were in the process of being transitioned to the weighted-average target allocation summarized as follows: Asset Category Fixed income Equity securities Real assets Target Allocation 49% 32% 19% In addition to allocation differences between target percentages and actual plan assets at December 31, 2021, due to the transition described above, allocations to each asset class may vary from target allocations due to periodic investment strategy changes, market value fluctuations, the length of time it takes to fully implement investment allocation positions and the timing of benefit payments and contributions. Fixed income securities at December 31, 2021, primarily consist of a diversified portfolio of long duration instruments that are intended to mitigate interest rate risk or reduce the interest rate duration mismatch between the assets and liabilities of the Plan. A smaller allocation (constituting 40% of the fixed income target allocation) is to diversified credit investments in a range of public and credit securities, including below investment grade rated bonds and loans, securitized credit and emerging market debt. Equity securities at December 31, 2021, consist primarily of investments in publicly traded common stocks and other equity-type securities issued by companies throughout the world, including convertible securities, preferred stock, rights and warrants. 74 YUM! BRANDS, INC. - 2021 Form 10-K PART II ITEM 8. Financial Statements and Supplementary Data. Real assets represent investments in real estate and infrastructure. These may take the form of debt or equity securities in public or private funds. No amounts had yet to be invested in real assets at December 31, 2021, as part of the aforementioned transition. A mutual fund held as an investment by the Plan includes shares of Common Stock valued at $0.2 million and $0.3 million at December 31, 2021 and 2020, respectively, (less than 1% of total plan assets in each instance). Benefit Payments The benefits expected to be paid in each of the next five years and in the aggregate for the five years thereafter are set forth below: Year ended: 2022 2023 2024 2025 2026 2027 - 2031 $ 47 50 52 57 59 293 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 2021 and 2020, the projected benefit obligations of these UK plans totaled $351 million and $362 million, respectively and plan assets totaled $446 million and $440 million, respectively. These plans were both in a net overfunded position at the end of 2021 and 2020. Total actuarial pre-tax losses related to the UK plans of $5 million and $18 million were recognized in AOCI at the end of 2021 and 2020, respectively. The total net periodic benefit income recorded was less than $1 million in both 2021 and 2020, and $2 million in 2019. 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 2022. 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 and a cap on our liability. 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 $42 million At the end of 2021 and 2020, the accumulated post-retirement benefit $46 million, respectively. Actuarial pre-tax gains of $6 million and $4 million were recognized in AOCI at the end of 2021 and 2020, respectively. The net periodic benefit cost recorded was $1 million in each of 2021, 2020 and 2019, the majority of which is interest cost on the accumulated post-retirement benefit obligation. The weighted- average assumptions used to determine benefit obligations and net periodic benefit cost for the post-retirement medical plan are identical to those as shown for the U.S. pension plans. The benefits expected to be paid in each of the next five years are approximately $3 million and in aggregate for the five years thereafter are $13 million. for Plan”) eligible U.S. Retiree Savings Plan We sponsor a contributory plan to provide retirement benefits under the provisions of Section 401(k) of the Internal Revenue Code (the “401(k) hourly employees. 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 $11 million in 2021, $10 million in 2020 and $11 million in 2019. salaried U.S. and F o r m 1 0 - K NOTE 16 – Share-based and Deferred Compensation Plans Overview At year end 2021, we had one stock award plan in effect: the Yum! Brands, Inc. Long-Term Incentive Plan (the “LTIP”). Potential awards to employees and non-employee directors under the LTIP include stock options, restricted stock, incentive stock options, SARs, 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. 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 the LTIP can have varying vesting grant. While awards under 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 2021, approximately 24 million shares were available for future share-based compensation grants under the LTIP. YUM! BRANDS, INC. - 2021 Form 10-K 75 PART II ITEM 8. Financial Statements and Supplementary Data. the appreciation or 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 defined by the EID Plan, we credit the amounts deferred with earnings based on the investment options selected by the participants. These investment options are limited to cash, phantom shares of our Common Stock, phantom shares of a Stock Index Fund and phantom shares of a Bond Index Fund. Investments in cash and phantom shares of both index funds will be distributed in cash at a date as elected by the employee and therefore are classified as a liability on our Consolidated Balance Sheets. We 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 the recognize compensation expense for 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 an RSU award in that participants will generally forfeit both the match and incentive compensation amounts deferred if they voluntarily separate from employment during a vesting period that is two years from the date of deferral. We expense the intrinsic value of the match and the incentive compensation amount over the requisite service period which includes the vesting period. the appreciation or 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 2022. In connection with the 2016 spin-off of our China business into an independent, publicly-traded company under the name of Yum China Holdings, Inc. (“Yum China”), under the provisions of our LTIP, employee stock options, SARs, RSUs and PSUs outstanding at that time were adjusted to maintain the pre-spin intrinsic value of the awards. Depending on the tax laws of the country of employment, awards were modified using either the shareholder method or the employer method. Share-based compensation as recorded in Net Income is based on the amortization of the fair value for both YUM and Yum China awards held by YUM employees. The fair value of Yum China awards held by YUM employees became fully amortized in the year ended December 31, 2020. 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. 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: Risk-free interest rate Expected term Expected volatility 2021 0.5% 2020 1.0% 2019 2.5% 6.3 years 5.8 years 6.5 years 27.0% 24.0% 22.0% Expected dividend yield 1.9% 1.9% 1.8% Grants made to executives typically have a graded vesting schedule of 25% per year over four years and expire ten years after grant. We use a single weighted-average term for our awards that have a graded vesting schedule. Based on analysis of our historical exercise and post-vesting termination behavior, we have determined that our executives exercised the awards on average after 6.3 years. 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 PSU awards without market-based conditions and RSU awards are based on the closing price of our Common Stock on the date of grant. The fair values of PSU awards with market- based conditions have been valued based on the outcome of a Monte Carlo simulation. Award Activity Stock Options and SARs K - 0 1 m r o F 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 Shares (in thousands) Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term (years) Aggregate Intrinsic Value (in millions) 15,562 757 (3,720) (329) 12,270(a) 8,405 $ 74.52 103.85 60.77 94.60 79.96 $ 72.53 6.12 5.35 $ 723 $ 557 (a) Outstanding awards include 403 options and 11,867 SARs with weighted average exercise prices of $74.80 and $80.14, respectively. Outstanding awards represent YUM awards held by employees of both YUM and Yum China. 76 YUM! BRANDS, INC. - 2021 Form 10-K The weighted-average grant-date fair value of stock options and SARs granted during 2021, 2020 and 2019 was $21.32, $18.83 and $19.82, respectively. The total intrinsic value of stock options and SARs exercised during the years ended December 31, 2021, December 31, 2020 and December 31, 2019, was $234 million, $170 million and $204 million, respectively. As of December 31, 2021, $30 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 1.5 years. The total fair value at grant date of awards held by YUM employees (including Yum China awards as applicable) remaining weighted-average period over a PART II ITEM 8. Financial Statements and Supplementary Data. that vested during 2021, 2020 and 2019 was $35 million, $70 million and $31 million, respectively. RSUs and PSUs As of December 31, 2021, there was $81 million of unrecognized compensation cost related to 1.4 million unvested RSUs and PSUs. The majority of the unrecognized compensation cost is attributable to PSUs granted in 2021 with a net new unit performance condition and a three-year service vesting period. The total fair value at grant date of awards that vested during 2021, 2020 and 2019 was $20 million, $15 million and $14 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 2021 $ 29 16 30 $ 75 $ 15 2020 $ 75 20 2 $ 97 $ 18 2019 $ 39 12 8 $ 59 $ 9 Cash received from stock option exercises for 2021, 2020 and 2019 was $11 million, $10 million and $1 million, respectively. Tax benefits realized on our tax returns from tax deductions associated with share-based compensation for 2021, 2020 and 2019 totaled $72 million, $58 million and $66 million, respectively. NOTE 17 – Shareholders’ Deficit Under the authority of our Board of Directors, we repurchased shares of our Common Stock during 2021, 2020 and 2019. All amounts exclude applicable transaction fees. Authorization Date May 2021 November 2019 August 2018 Total Shares Repurchased (thousands) 2020 2021 2019 Dollar Value of Shares Repurchased 2021 2020 2019 8,235 — — $ 1,050 $ — $ — 4,746 2,419 — — — 7,788 530 — 250 — — 810 12,981(a) 2,419(a) 7,788(b) $ 1,580(a) $ 250(a) $ 810(b) F o r m 1 0 - K (a) 2021 amount excludes and 2020 amount includes the effect of $11 million in share repurchases (0.1 million shares) with trade dates on, or prior to, December 31, 2020, but settlement dates subsequent to December 31, 2020. (b) 2019 amount excludes 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. In May 2021, our Board of Directors authorized share repurchases from July 1, 2021 through December 31, 2022, of up to $2 billion (excluding applicable transaction fees) of our outstanding Common Stock. As of December 31, 2021, we have remaining capacity to repurchase up to $950 million of Common Stock under this authorization. Unutilized share repurchase capacity of $1.2 billion under a November 2019 authorization expired on June 30, 2021. YUM! BRANDS, INC. - 2021 Form 10-K 77 PART II ITEM 8. Financial Statements and Supplementary Data. Changes in AOCI are presented below. Balance at December 31, 2019, net of tax $ (221) $ (104) $ (63) $ (388) Translation Adjustments and Gains (Losses) From Intra-Entity Transactions of a Long-Term Nature Pension and Post-Retirement Benefits(a) Derivative Instruments(b) 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 39 — 39 (6) 14 8 (75) 5 (70) (42) 19 (23) Balance at December 31, 2020, net of tax $ (182) $ (96) $ (133) $ (411) OCI, net of tax Gains (losses) arising during the year classified into AOCI, net of tax (Gains) losses reclassified from AOCI, net of tax (24) — (24) 50 12 62 25 23 48 51 35 86 Balance at December 31, 2021, net of tax $ (206) $ (34) $ (85) $ (325) (a) Amounts reclassified from AOCI for pension and post-retirement benefit plans losses during 2021 include amortization of net losses of $12 million, amortization of prior service cost of $5 million and related income tax benefit of $4 million. Amounts reclassified from AOCI for pension and post- retirement benefit plans losses during 2020 include amortization of net losses of $14 million, amortization of prior service cost of $4 million and related income tax benefit of $4 million. See Note 15. (b) See Note 13 for details on amounts reclassified from AOCI. K - 0 1 m r o F NOTE 18 – 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 78 YUM! BRANDS, INC. - 2021 Form 10-K 2021 2020 2019 $ 1,062 $ 684 $ 612 336 466 907 $ 1,674 $ 1,020 $ 1,373 2021 2020 2019 $ 45 $ 37 $ 214 40 121 23 129 166 16 $ $ $ $ 299 $ 181 $ 311 21 $ (21) $ (16) (227) 6 (29) (15) (213) (3) (200) $ (65) $ (232) 99 $ 116 $ 79 The reconciliation of income taxes calculated at the U.S. federal statutory rate to our effective tax rate is set forth below: PART II ITEM 8. Financial Statements and Supplementary Data. 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 Excess tax benefits from stock-based awards Change in valuation allowances Intercompany restructuring Nondeductible interest Impact of tax law changes Other, net Effective income tax rate Statutory rate differential attributable to foreign operations. This item includes local country taxes, withholding taxes, and shareholder-level taxes, net of U.S. foreign tax credits. In 2021, this item was favorably impacted by the ongoing effects of the KFC Europe Reorganization (as described below). This was partially offset by the unfavorable impact of recording deferred tax liabilities associated with unremitted foreign earnings. In 2021 and 2020, this item was favorably impacted by the ongoing effects of the 2019 Intercompany Restructuring (as described below). tax returns, Adjustments to reserves and prior years. This item includes: (1) changes in tax reserves, including interest thereon, established for potential exposure we may incur if a taxing authority takes a position on a matter contrary to our position; and (2) the effects of reconciling income tax amounts recorded in our Consolidated Statements of Income to amounts reflected on our including any adjustments to the Consolidated Balance Sheets. In 2021, this item was unfavorably impacted by a $22 million reserve established due to a challenge of a prior year filing position in a foreign jurisdiction. In 2020, this item was favorably impacted by $11 million of adjustments made to current and deferred tax accounts in various jurisdictions to align with balances supported by 2019 and prior tax filings. Additionally, in 2020 this item was favorably impacted by a $6 million tax benefit associated with a state settlement. In 2019, this item was unfavorably impacted by $34 million in reserves related to taxes recorded associated with a prior year divestiture and $18 million of tax expense related to the establishment of reserves associated with the inclusion of stock based compensation in cost sharing arrangements as well as other matters. This unfavorable impact was partially offset by the reversal of a $20 million reserve established in 2018 due to the favorable resolution of an income tax rate dispute in a foreign jurisdiction. Excess tax benefits from stock-based awards. 2021, 2020 and 2019 includes $46 million, $35 million and $49 million, respectively, of excess federal tax benefit related to share-based compensation. 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. In 2021, this item was favorably impacted by $15 million of tax benefit associated with a valuation allowance release resulting from a change in management’s judgment as to the realizability of foreign tax credit carryforwards in the U.S. In 2020, this item was favorably impacted by $22 million of tax benefit associated with a valuation allowance release in a foreign jurisdiction resulting from a change in management’s judgement as to realizability of indefinite lived tax loss carryforwards in that jurisdiction. 2021 2020 2019 21.0% 21.0% 21.0% 1.8 (1.0) 1.1 (2.7) (0.8) (11.3) 1.4 (3.8) 0.2 1.0 (0.9) (1.7) (3.4) (2.5) (0.3) — (2.5) 0.7 0.9 0.9 2.3 (3.6) (0.6) (16.6) — — 1.4 5.9% 11.4% 5.7% Intercompany Restructuring. KFC Europe Reorganization – In July 2021, we concentrated management responsibility for European (excluding the UK) KFC franchise development, support operations and management oversight in Switzerland. Concurrent with this change in management responsibility, we have completed intra-entity transfers of certain KFC IP rights from subsidiaries in the UK to subsidiaries in Switzerland. With the transfers of these rights, we received a step-up in amortizable tax basis to current fair value under applicable Swiss tax law. As a result of this transfer, we recorded a one-time net deferred tax benefit of $152 million. In December 2021, we continued our KFC Europe Reorganization and completed intra-entity transfers of additional European KFC IP rights from subsidiaries in the U.S. to subsidiaries in Switzerland. With the transfers of these additional rights, we received a step-up in amortizable tax basis to current fair value under applicable Swiss tax law. As a result of this transfer, we recorded a net one-time tax benefit of $35 million. 2019 Intercompany Restructuring – In December 2019, the Company completed an intercompany restructuring that resulted in the transfer of certain IP rights held by wholly owned foreign subsidiaries primarily to the U.S. and the UK. The IP rights transferred to the UK resulted in a step up in the tax basis for UK tax purposes resulting in a deferred tax asset of $586 million. The deferred tax asset was analyzed for realizability and a valuation allowance of $366 million was established representing the portion of the deferred tax asset not likely to be realized. The recognized tax benefit of $220 million is amortizable for UK tax purposes over a twenty-year period. The transfer of certain IP rights to other non-UK jurisdictions in 2019 resulted in the recording of deferred tax assets of $13 million and related valuation allowances of $7 million for deferred tax assets that are not likely to be realized, for a net tax benefit of $6 million. Nondeductible Interest. As a result of the enactment of the Tax Cuts and Jobs Act of 2017 (“Tax Act”) on December 22, 2017, deductibility of U.S. interest expense was limited to 30% of U.S. Earnings Before Interest, Taxes, Depreciation and Amortization in 2021. In 2021, the Company recorded $23 million of tax expense interest expense. Although the associated with disallowed U.S. disallowed interest can be carried forward, in management’s judgment it is not expected to be realizable in the future. Due to legislative relief provisions applicable to the 2019 and 2020 tax years contained within the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), the Company was not impacted by the interest expense limitation in 2019 or 2020. Beginning in 2022, deductibility YUM! BRANDS, INC. - 2021 Form 10-K 79 F o r m 1 0 - K PART II ITEM 8. Financial Statements and Supplementary Data. of U.S. interest expense will be limited to 30% of U.S. Earnings Before Interest and Taxes, which will unfavorably impact our effective tax rate. Impact of Tax Law Changes. UK Tax Rate Change – On June 10, 2021, the UK Finance Act 2021 was enacted resulting in an increase in the UK corporate tax rate from 19% to 25%. As such, the Company recognized a $64 million tax benefit in the quarter ended June 30, 2021 associated with remeasuring its deferred tax assets in the UK from 19% to 25%. These deferred tax assets were primarily related to the step-up in tax basis associated with the 2019 Intercompany Restructuring. On July 22, 2020, the UK Finance Act 2020 was enacted resulting in an increase in the UK corporate tax rate from 17% to 19%. As such, the Company recognized a $25 million tax benefit in 2020 associated with remeasuring its deferred tax assets in the UK from 17% to 19%. These deferred tax assets were primarily related to the step-up in tax basis associated with the 2019 Intercompany Restructuring. Other. This item primarily includes the net impact of permanent differences related to current year earnings, U.S. tax credits, and other individually insignificant items impacting income tax expense. to the Global Intangible Low-Taxed Income Companies subject 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 2021 and 2020 deferred tax assets (liabilities) are set forth below: Operating losses and interest deduction carryforwards Capital losses Tax credit carryforwards Employee benefits Share-based compensation Lease-related liabilities Accrued liabilities and other Derivative instruments Intangible assets Property, plant and equipment Deferred income Gross deferred tax assets Deferred tax asset valuation allowances Net deferred tax assets Intangible assets, including goodwill Property, plant and equipment Operating lease right-of-use assets Employee benefits Other Gross deferred tax liabilities Net deferred tax assets (liabilities) K - 0 1 m r o F The details of the 2021 valuation allowance activity are set forth below: Beginning of Year Increases Decreases Other Adjustments End of Year 80 YUM! BRANDS, INC. - 2021 Form 10-K 2021 2020 $ 186 $ 181 72 194 68 51 236 52 — 560 35 87 3 226 82 58 199 47 50 678 31 81 1,541 (462) 1,636 (789) 1,079 $ 847 (3) $ (85) (200) (24) (51) (1) (75) (161) (15) (42) (363) $ (294) 716 $ 553 $ $ $ $ 2021 2020 $ (789) $ (787) (31) 355 3 (64) 45 17 $ (462) $ (789) Reported in Consolidated Balance Sheets as: Deferred income taxes Other liabilities and deferred credits PART II ITEM 8. Financial Statements and Supplementary Data. 2021 2020 $ $ 724 $ 553 (8) — 716 $ 553 As of December 31, 2021, 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 or considered a distribution of previously taxed income and, therefore, exempt from U.S. federal tax. Undistributed foreign earnings may still be subject to certain state and foreign income and withholding taxes upon repatriation. Subject to limited exceptions, we do not intend to indefinitely reinvest our unremitted earnings outside the U.S. Thus, we have provided taxes, including any U.S. federal and state income, foreign income, foreign withholding taxes on the majority of our unremitted or earnings. In jurisdictions where we do intend to indefinitely reinvest our unremitted earnings, we would be required to accrue and pay applicable income taxes (if any) and foreign withholding taxes if the funds were repatriated in taxable transactions. We believe any such taxes would be immaterial. Details of tax loss, credit carryforwards, and expiration dates along with valuation allowances as of December 31, 2021, are as follows: Federal net operating losses Federal net operating losses – Indefinite Foreign net operating losses Foreign net operating losses – Indefinite State net operating losses Foreign capital loss carryforward – Indefinite Foreign tax credits State tax credits Federal interest deduction carryforward – Indefinite State interest deduction carryforward – Indefinite 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. 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, 2021, may decrease by approximately $3 million in the next 12 months due to settlements or statute of limitations expirations. During 2021, 2020, and 2019 the Company recognized $4 million, $2 million and $13 million of net expense, respectively, for interest Income as and penalties in our Consolidated Statements of components of its Income tax provision. At December 31, 2021 and 2020, $3 million and $1 million of net associated with interest and penalties. the Company has recorded respectively, tax receivables, Gross Amount Deferred Tax Asset Valuation Allowance Expiration $ 18 61 59 229 1,408 289 187 7 81 487 $ 4 13 12 59 59 72 187 7 17 22 $ — 2036-2037 — None (11) 2022-2037 (35) None (43) 2022-2040 (72) None (172) 2026-2030 (5) (8) (21) 2023 None None $ 2,826 $ 452 $ (367) At December 31, 2021, the Company had $116 million of gross unrecognized tax benefits, $75 million of which would impact the effective income tax rate if the beginning and ending unrecognized tax benefits follows: recognized. A reconciliation of F o r m 1 0 - K 2021 2020 $ 175 $ 188 13 41 (110) (3) — — 5 34 (22) (30) — — $ 116 $ 175 The Company’s income tax returns are subject to examination in the jurisdiction and numerous U.S. state and foreign federal U.S. jurisdictions. The Company has settled audits with the IRS through fiscal year 2012 and is currently under IRS examination for 2013-2018. Our operations to examination for tax years as far back as 2006, some of which years are currently under audit by local tax authorities. See Note 20 for discussion of an Internal Revenue Service Proposed Adjustment. in certain foreign jurisdictions remain subject YUM! BRANDS, INC. - 2021 Form 10-K 81 PART II ITEM 8. Financial Statements and Supplementary Data. NOTE 19 – Reportable Operating Segments See Note 1 for a description of our operating segments. KFC Division(a) Taco Bell Division(a) Pizza Hut Division(a) Habit Burger Grill Division(a) KFC Division Taco Bell Division Pizza Hut Division Habit Burger Grill Division Corporate and unallocated G&A expenses(b)(c) Unallocated Franchise and property expenses(b)(d) Unallocated Refranchising gain (loss)(b) Unallocated Other income (expense)(b)(e) Operating Profit Investment income (expense), net(b) Other pension income (expense)(b) Interest expense, net(b) Income before income taxes KFC Division Taco Bell Division Pizza Hut Division Habit Burger Grill Division Corporate K - 0 1 m r o F KFC Division Taco Bell Division Pizza Hut Division Habit Burger Grill Division Corporate 82 YUM! BRANDS, INC. - 2021 Form 10-K 2021 Revenues 2020 2019 $ 2,793 $ 2,272 $ 2,491 2,238 1,028 525 2,031 1,002 347 2,079 1,027 — $ 6,584 $ 5,652 $ 5,597 Operating Profit 2021 2020 2019 $ 1,230 $ 758 387 2 (260) 1 35 (14) 2,139 86 (7) (544) 922 696 335 (22) (312) (4) 34 (146) 1,503 74 (14) (543) $ 1,052 683 369 — (188) (14) 37 (9) 1,930 (67) (4) (486) $ 1,674 $ 1,020 $ 1,373 Depreciation and Amortization 2019 2020 2021 $ 28 53 32 28 23 $ 29 $ 56 24 25 12 30 59 15 — 8 $ 164 $ 146 $ 112 Capital Spending 2021 2020 2019 $ 60 62 18 56 34 $ 59 $ 42 28 16 15 81 76 33 — 6 $ 230 $ 160 $ 196 KFC Division Taco Bell Division Pizza Hut Division Habit Burger Grill Division Corporate(f) KFC Division Taco Bell Division Pizza Hut Division Habit Burger Grill Division Corporate PART II ITEM 8. Financial Statements and Supplementary Data. Identifiable Assets(g) 2021 $ 2,313 $ 1,397 850 586 820 2020 2,011 1,387 804 537 1,113 $ 5,966 $ 5,852 Long-Lived Assets(h) 2021 2020 $ 1,069 $ 1,160 904 423 516 120 925 415 458 68 $ 3,032 $ 3,026 (a) U.S. revenues included in the combined KFC, Taco Bell, Pizza Hut and Habit Burger Grill Divisions totaled $3.6 billion in 2021, $3.2 billion in 2020 and $3.0 billion in 2019. (b) Amounts have not been allocated to any segment for performance reporting purposes. (c) Amounts in 2020 include charitable contributions to Yum! Brands Foundation, Inc. of $50 million and $25 million related to our Unlocking Opportunity Initiative and COVID-19 employee relief, respectively. Additionally, 2020 includes $36 million for charges associated with resource optimization (see Note 5). (d) Represents costs related to an agreement executed in May 2017 with our Pizza Hut U.S. franchisees to improve brand marketing alignment, accelerate enhancements in operations and technology and that included a permanent commitment to incremental advertising as well as digital and technology contributions by franchisees (the “Pizza Hut U.S. Transformation Agreement”). (e) Unallocated Other income (expense) in 2020 includes a charge of $144 million related to the impairment of Habit Burger Grill goodwill (see Note 3). (f) Primarily includes cash and deferred tax assets. (g) U.S. identifiable assets included in the combined Corporate and KFC, Taco Bell, Pizza Hut, and Habit Burger Grill Divisions totaled $2.8 billion and $3.0 billion in 2021 and 2020, respectively. Includes PP&E, net, goodwill, intangible assets, net and Operating lease right-of-use assets. (h) NOTE 20 – Contingencies Internal Revenue Service Proposed Adjustment As a result of an audit by the Internal Revenue Service (“IRS”) for fiscal years 2013 through 2015, on October 13, 2021, we received a Notice of Proposed Adjustment (“NPA”) from the IRS for the 2014 fiscal year relating to a series of reorganizations we undertook during that year in connection with the business realignment of our corporate and management reporting structure along brand lines. these reorganizations involved taxable The IRS asserts that distributions of approximately $6.0 billion. We expect to receive the final Revenue Agent’s Report (“RAR”) including the IRS’s calculation of the tax assessment in early 2022. The amount of additional tax that may be asserted by the IRS in the RAR cannot be quantified at this time; however, based on the NPA, the amount of additional tax to be proposed is expected to be material. We disagree with the IRS’s position as asserted in the NPA and intend to contest it vigorously by filing a protest disputing on multiple grounds any proposed taxes and proceeding to the IRS Office of Appeals. The final resolution of this matter is uncertain, but the Company believes that it is more likely than not the Company’s tax position will be sustained; therefore no reserve is recorded with respect to this matter. An unfavorable resolution of this matter could have a material, adverse impact on our Consolidated Financial Statements in future periods. F o r m 1 0 - K 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, 2021, the potential amount of undiscounted payments we could be required to make in the event of non-payment by the primary lessee was approximately $425 million. The present value of these potential payments discounted at our pre-tax cost of debt at December 31, 2021, was approximately $350 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 franchise agreement in the event of non-payment under the lease. We believe these cross-default provisions significantly reduce the risk that we will be required to make payments under these leases, although such risk may not be reduced in the context of a bankruptcy or other similar restructuring of a large franchisee or group of franchisees. Accordingly, the liability recorded for our expected exposure under such leases at both December 31, 2021 and 2020 was not material. them in default of their YUM! BRANDS, INC. - 2021 Form 10-K 83 PART II ITEM 8. Financial Statements and Supplementary Data. 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, loss up to defined maximum per we self-insure the risks of 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 2021 and 2020 activity related to our net self-insured property and casualty reserves as of December 31, 2021. 2021 Activity 2020 Activity Beginning Balance Habit Acquisition(a) Expense Payments Ending Balance $ 50 $ 54 — 6 23 13 (25) (23) $ 48 $ 50 (a) Represents self-insurance liabilities assumed as part of our acquisition of Habit Burger Grill. See Note 3. it Due to the inherent volatility of actuarially determined property and casualty loss estimates, is reasonably possible that we could experience changes in estimated losses which could be material to our growth in quarterly and annual Net Income. We believe that we have recorded reserves for property and casualty losses at a level which has substantially mitigated the potential negative impact of adverse developments and/or volatility. 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. 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. Yum! Restaurants India Private Limited (“YRIPL”), a Yum subsidiary that operates KFC and Pizza Hut restaurants in India, is the subject of a regulatory enforcement action in India (the “Action”). The Action alleges, among other things, that KFC International Holdings, Inc. and Pizza Hut failed to satisfy certain conditions imposed by the Secretariat for Industrial Approval in 1993 and 1994 foreign when those companies were granted permission for investment and operation in India. The conditions at issue include an International K - 0 1 m r o F alleged minimum investment and store build requirements as well as limitations on the remittance of fees outside of India. commitment The Action originated with a complaint and show cause notice filed in 2009 against YRIPL by the Deputy Director of the Directorate of Enforcement (“DOE”) of the Indian Ministry of Finance following an income tax audit for the years 2002 and 2003. The matter was argued at various hearings in 2015, but no order was issued. Following a change in the incumbent official holding the position of Special Director of DOE (the “Special Director”), the matter resumed in 2018 and several additional hearings were conducted. On January 29, 2020, the Special Director issued an order imposing a penalty on YRIPL and certain former directors of approximately this Indian Rupee 11 billion, or approximately $150 million. Of amount, $145 million relates to the alleged failure to invest a total of $80 million in India within an initial seven-year period. We have been advised by external counsel that the order is flawed and have filed a writ petition with the Delhi High Court, which granted an interim stay of the penalty order on March 5, 2020. The stay order remains in effect and the next hearing is now scheduled for March 4, 2022. We deny liability and intend to continue vigorously defending this matter. We do not consider the risk of any significant loss arising from this order to be probable. We are currently engaged in various other legal proceedings and have certain unresolved claims pending, the ultimate liability for which, if any, cannot be determined at this time. However, based upon consultation with legal counsel, we are of the opinion that such proceedings and claims are not expected to have a material adverse effect, individually or in the aggregate, on our Consolidated Financial Statements. NOTE 21 – Subsequent Event In January 2022, the U.S. Treasury published new regulations impacting foreign tax credit utilization beginning in the Company’s 2022 tax year. These regulations make foreign taxes paid to certain countries no longer creditable in the U.S. As discussed in Note 18, we currently have foreign tax credit carryforwards of $187 million, on which there is a $172 million valuation allowance. We anticipate that these regulations will result in the utilization of some amount of our existing prior year foreign tax credit carryforwards and that a corresponding amount of the existing valuation allowance will be released in the first quarter of 2022. While our determination of which foreign taxes that will no longer be creditable is not yet complete, we anticipate that the amount of valuation allowance to be released could be significant. Further, we anticipate that these regulations will result in additional cash tax due in the U.S. in future years once all existing foreign tax credit carryforwards have either been utilized or have expired. Subject to finalizing our review, we estimate we could be subject to incremental cash taxes as early as 2028. 84 YUM! BRANDS, INC. - 2021 Form 10-K PART II ITEM 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure. 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 participation of the Company’s management, including the Chief Executive Officer (the “CEO”) and the Chief Financial Officer (the “CFO”), the Company’s management, including the CEO and CFO, concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report. Management’s Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) under the Securities Exchange Act of 1934. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in 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 reporting was concluded that our effective as of December 31, 2021. 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, 2021. F o r m 1 0 - K ITEM 9B. Other Information. None. ITEM 9C.Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. Not applicable. YUM! BRANDS, INC. - 2021 Form 10-K 85 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” 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, 2021. Information regarding executive officers of the Company is included in Part I. ITEM 11. Executive Compensation. Information regarding executive and director compensation and the Management Planning and Development Committee appearing under the captions “Governance of the Company” and “Executive Compensation” is incorporated by reference from the Company’s definitive proxy statement which will be filed with the Securities and Exchange Commission no later than 120 days after December 31, 2021. 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, 2021. K - 0 1 m r o F 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, 2021. ITEM 14. Principal Accountant Fees and Services. Our independent registered public accounting firm is KPMG, LLP, Louisville, Kentucky, Auditor Firm ID: 185. 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, 2021. 86 YUM! BRANDS, INC. - 2021 Form 10-K 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. F o r m 1 0 - K YUM! BRANDS, INC. - 2021 Form 10-K 87 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 22, 2022 YUM! BRANDS, INC. By: /s/ David W. Gibbs Pursuant to the requirements of the Securities Exchange Act of 1934, this annual report has been signed on February 22, 2022, by the following persons on behalf of the registrant and in the capacities indicated. Signature Title /s/ David W. Gibbs David W. Gibbs /s/ Chris Turner Chris Turner /s/ David E. Russell David E. Russell /s/ Paget L. Alves Paget L. Alves /s/ Keith Barr Keith Barr Chief Executive Officer (principal executive officer) Chief Financial Officer (principal financial officer) Senior Vice President, Finance and Corporate Controller (principal accounting officer) Director Director K - 0 1 m r o F /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/ Lauren R. Hobart Lauren R. Hobart /s/ Thomas C. Nelson Thomas C. Nelson /s/ P. Justin Skala P. Justin Skala /s/ Elane B. Stock Elane B. Stock /s/ Annie Young-Scrivner Annie Young-Scrivner Director Director Director Director Director 88 YUM! BRANDS, INC. - 2021 Form 10-K PART IV Yum! Brands, Inc. Exhibit Index (Item 15) Exhibit Number Description of Exhibits 2.1 3.1 3.2 4.1 4.2 4.2.1 4.2.2 4.3 10.1 10.1.1 10.1.2 10.1.3 10.1.4 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 November 12, 2021, which are incorporated herein by reference from Exhibit 3.2 to YUM’s Report on Form 8-K filed on November 17, 2021. 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) 6.875% Senior Notes due November 15, 2037, issued under the forgoing 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. 3.875% Senior Notes due November 1, 2023, issued under the forgoing 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 forgoing 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. Indenture, dated as of September 25, 2020 by and between YUM and U.S. Bank National Association, as Trustee, which is incorporated herein by reference from Exhibit 4.1 to YUM’s Report on Form 8-K filed on September 25, 2020. First Supplemental Indenture, dated as of September 25, 2020 by and between YUM and U.S. Bank National Association, as Trustee, relating to the 3.625% Notes due 2031, which is incorporated herein by reference from Exhibit 4.2 to YUM’s Report on Form 8-K filed on September 25, 2020. Second Supplemental Indenture, dated as of April 1, 2021, by and between the Company and U.S. Bank National Association, as Trustee, which is incorporated herein by reference from Exhibit 4.1. to YUM’s Report on Form 8-K filed April 1, 2021. Description of Securities registered under Section 12 of the Securities Exchange Act of 1934 (Common Stock), which is incorporated herein by reference from Exhibit 4.2 to YUM’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019. 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. F o r m 1 0 - K 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 No. 3, 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. Refinancing Amendment No. 4, dated as of March 15, 2021, 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 filed on March 18, 2021. YUM! BRANDS, INC. - 2021 Form 10-K 89 PART IV ITEM 15 Exhibit Index Exhibit Number Description of Exhibits 10.2† 10.2.1† 10.3† 10.4† YUM Director Deferred Compensation Plan, as effective October 7, 1997, which is incorporated herein by reference from Exhibit 10.7 to YUM’s Annual Report on Form 10-K for the fiscal year ended December 27, 1997. YUM Director Deferred Compensation Plan, Plan Document for the 409A Program, as effective January 1, 2005, and as Amended through November 14, 2008, which is incorporated by reference from Exhibit 10.7.1 to YUM’s Quarterly Report on Form 10-Q for the quarter ended June 13, 2009. YUM 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. 10.4.1† YUM! Brands Executive Income Deferral Program, Plan Document for the 409A Program, as effective January 1, 2005, and as Amended and Restated as of January 1, 2021, as attached herein. 10.5† 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, and as Amended and Restated as of January 1, 2021, as attached herein. 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. 10.11.3† Form of YUM Long Term Incentive Plan Global YUM! Non-Qualified Stock Option Agreement (2019), which is incorporated herein by reference from Exhibit 10.11.3 to YUM’s Quarterly Report on Form 10-Q filed on May 8, 2019. K - 0 1 m r o F 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. 10.13.3† Yum! Brands, Inc. Long Term Incentive Plan Form of Global YUM! Stock Appreciation Rights Agreement (2019), which is incorporated herein by reference from Exhibit 10.13.3 to YUM’s Quarterly Report on Form 10-Q filed on May 8, 2019. 10.13.4† Yum! Brands, Inc. Long Term Incentive Plan Form of Global Restricted Stock Unit Agreement (2019), which is incorporated herein by reference from Exhibit 10.20 to YUM’s Quarterly Report on Form 10-Q filed on May 8, 2019. 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 and Restated as of January 1, 2021, as attached herein. 90 YUM! BRANDS, INC. - 2021 Form 10-K PART IV ITEM 15 Exhibit Index Exhibit Number Description of Exhibits 10.15† 10.16† 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. 10.16.1† YUM! Brands Third Country National Retirement Plan Amendment, as effective January 1, 2021, as attached herein. 10.17† 10.18† 10.20 10.21 10.21.1 10.21.2 10.21.3 10.21.4 10.21.5 10.21.6 10.22 10.23 10.23.1 10.23.2 10.23.3 10.24 10.25 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. 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 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. Series 2021-1 Supplement to Amended and Restated Base Indenture, dated as of August 19, 2021, by and between Taco Bell Funding, LLC, as issuer, and Citibank, N.A. as trustee and Series 2021-1 securities intermediary, which is incorporated herein by reference from Exhibit 10.2 to YUM’s Report on Form 8-K filed on August 25, 2021. 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, which is incorporated herein by reference from Exhibit 10.22.3 to YUM’s Annual Report on Form 10-K for fiscal year ended December 31, 2018. 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. Amended and Restated Base Indenture, dated as of August 19, 2021, by and between Taco Bell Funding, LLC, as issuer, and Citibank, N.A. as trustee and the Series 2021-1 securities intermediary, which is incorporated herein by reference from Exhibit 10.1 to YUM’s Report on Form 8-K filed on August 25, 2021. 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, which is incorporated herein by reference from Exhibit 10.25.1 to YUM’s Annual Report on Form 10-K for fiscal year ended December 31, 2018. 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, which is incorporated herein by reference from Exhibit 10.25.2 to YUM’s Annual Report on Form 10-K for fiscal year ended December 31, 2018. Amended and Restated Management Agreement, dated as of August 19, 2021, by and between 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, and Citibank, N.A. as trustee, which is incorporated herein by reference from Exhibit 10.3 to YUM’s Report on Form 8-K filed on August 25, 2021. Indenture, dated as of September 11, 2019, by and between Yum 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 September 16, 2019. Indenture, dated as of April 1, 2020 by and between Yum 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 April 6, 2020. F o r m 1 0 - K YUM! BRANDS, INC. - 2021 Form 10-K 91 PART IV ITEM 15 Exhibit Index Exhibit Number Description of Exhibits 10.26 10.26.1 10.27 10.28† 10.29† 10.30 21.1 23.1 31.1 31.2 32.1 32.2 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. Confirmatory License Agreement, dated as of January 1, 2020, by and between YRI China Franchising, LLC and Yum Restaurants Consulting (Shanghai) Company Limited, which is incorporated herein by reference from Exhibit 10.26.1 to YUM’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020. 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. Offer Letter dated June 19, 2019, between the Company and Christopher Turner, which is incorporated herein by reference from Exhibit 10.28 to YUM’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019. Offer Letter dated July 16, 2019, between the Company and Mark King, which is incorporated herein by reference from Exhibit 4.2 to YUM’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019. Yum! Brands, Inc. Long Term Incentive Plan Form of Global Performance Share Unit Agreement (2021), which is incorporated herein by reference from Exhibit 10.20 to YUM’s Quarterly Report on Form 10-Q filed on May 5, 2021. 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. 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 XBRL 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 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) † Indicates a management contract or compensatory plan. K - 0 1 m r o F 92 YUM! BRANDS, INC. - 2021 Form 10-K Cautionary Language Regarding Forward-Looking Statements “model,” “ongoing,” report may the meaning statements” within contain Forward-Looking Statements. This of “forward-looking 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,” “project,” “forecast,” “outlook” or similar terminology. These statements are based on estimates, current assumptions and/or projections, our perception of historical trends and current conditions, as well as other factors that we the believe and circumstances. neither Forward-looking 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, including with to the future earnings and performance or capital respect structure of Yum! Brands, will prove to be correct or that any of our expectations, estimates or projections will be achieved. reasonable statements under are expectations, appropriate “should,” reflect “will,” and our are Numerous factors could cause our actual results and events to differ materially from those expressed or implied by forward- looking statements, including, without limitation: the severity and duration of the COVID-19 pandemic; food safety and food the occurrence of a significant health borne-illness issues; the success of our epidemic or other catastrophic event; franchisees and licensees; our significant exposure to the Chinese market; changes in economic and political conditions in, and other risks associated with countries and territories outside of the U.S. where we operate; changes in currency exchange rates; our ability to protect the integrity and security of personal information of our customers and employees, and other cybersecurity risks; our ability to successfully implement technology initiatives; our increasing dependence on multiple digital commerce platforms; the impact of social media; our ability to secure and maintain distribution and adequate supply to our restaurants; the loss of key personnel, or labor shortages or difficulty finding qualified employees; the success of our development strategy, including in emerging markets; changes in commodity, labor and other operating costs; the impact of climate change and other environmental and sustainability matters; pending or future litigation and legal claims or proceedings; changes in or noncompliance with government tax matters, indebtedness. In addition, other regulations, including data privacy laws, labor standards and including anti-bribery or anti-corruption laws; changes in tax laws or disagreements with taxing authorities; consumer preferences and perceptions of our brands and corporate reputation; failure to protect our service marks or other intellectual property; changes in consumer discretionary spending and general economic conditions; competition within the retail food industry; not realizing the anticipated benefits from past or potential future acquisitions, investments or other strategic transactions; and risks relating to our significant risks and amount of 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 the date of this report and we disclaim any obligation to publicly update any forward-looking statement to reflect subsequent events or circumstances. You should consult our filings with the Securities and Exchange Commission (including the information set the captions “Risk Factors” and “Forward-Looking Statements” in our most recently filed Annual Report on Form 10-K and Quarterly Report on Form 10-Q) for additional detail about factors that could affect our financial and other results. forth under Trademarks and Brands. We use “Yum! Brands” and the Yum! logo as our trademarks, among others. 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 accuracy or and cannot 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, address changes, lost certificates and other administrative matters to: BENEFICIAL SHAREHOLDERS (those who hold YUM shares in the name of a bank or broker) should direct communications about all administrative matters related to their accounts to their stockbroker. 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 accounts and at www.computershare.com SHAREHOLDERS complete the the website of Computershare, can following Inc. access functions their online (“Computershare”): (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://www-us.computershare.com/Investor/ Your account number and social security number are required. If you do not know your account number, please call Computershare at (888) 439-4986. 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 401k Plan Customer Service Representative (888) 875-4015 401k Plan Customer Service Representative (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# for a customer service representative and give the representative the name of the plan. Shareholder Services DIRECT STOCK PURCHASE PLAN INDEPENDENT AUDITORS 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. 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: Ms. Jodi Dyer Vice President, Investor Relations, 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 https://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. BOARD OF DIRECTORS SENIOR OFFICERS Paget L. Alves 67 Former Chief Sales Officer, Sprint Corporation Keith Barr 51 Chief Executive Officer, InterContinental Hotels Group PLC David W. Gibbs 59 Chief Executive Officer, Yum! Brands, Inc. Scott A. Catlett 46 Chief Legal and Franchise Officer and Corporate Secretary, Yum! Brands, Inc. Christopher M. Connor 66 Former Chairman and Chief Executive Officer, Sherwin-Williams Company Tracy L. Skeans 49 Chief Operating Officer and Chief People Officer, Yum! Brands, Inc. Brian C. Cornell 63 Chairman and Chief Executive Officer, Target Corporation Christopher Turner 47 Chief Financial Officer, Yum! Brands, Inc. David E. Russell 52 Senior Vice President, Finance and Corporate Controller, Yum! Brands, Inc. Jodi Dyer 34 Vice President, Investor Relations, Yum! Brands, Inc. Mark King 62 Chief Executive Officer, Taco Bell Division Aaron Powell 50 Chief Executive Officer PH Division Sabir Sami 55 Chief Executive Officer, KFC Division Russ Bendel 67 Chief Executive Officer, Habit Restaurants Division Tanya L. Domier 56 Chief Executive Officer, Advantage Solutions, Inc. David W. Gibbs 59 Chief Executive Officer, Yum! Brands, Inc. Mirian M. Graddick-Weir 67 Retired Executive Vice President Human Resources, Merck & Co., Inc. Lauren R. Hobart 53 President and Chief Executive Officer, DICK’S Sporting Goods Thomas C. Nelson 59 Chairman, Chief Executive Officer and President, National Gypsum Company P. Justin Skala 62 Chief Executive Officer, BMI Group Elane B. Stock 57 Chief Executive Officer, ServiceMaster Brands, LLC Annie Young-Scrivner 53 Chief Executive Officer, Wella Company U N L O C K I N G O P P O R T U N I T Y F O R G R O W T H & G O O D 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. 

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