YUM BRANDS INC. Management’s Discussion and Analysis of Financial Position and Operating Results (Form 10-Q)

Introduction and overview

The following Management's Discussion and Analysis ("MD&A"), should be read in
conjunction with the unaudited Condensed Consolidated Financial Statements
("Financial Statements"), the Forward-Looking Statements and our Annual Report
on Form 10-K for the fiscal year ended December 31, 2020, ("2020 Form 10-K").
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
52,000 restaurants in more than 150 countries and territories, primarily under
the concepts of KFC, Pizza Hut, Taco Bell and The Habit Burger Grill
(collectively, the "Concepts").  The Company's KFC, Pizza Hut and Taco Bell
brands are global leaders of the chicken, pizza and Mexican-style food
categories, respectively. The Habit Burger Grill, a concept we acquired on March
18, 2020, is a fast-casual restaurant concept specializing in made-to-order
chargrilled burgers, sandwiches and more. Of the over 52,000 restaurants, 98%
are operated by franchisees.

YUM currently consists of four operating segments:

•The KFC Division which includes our worldwide operations of the KFC concept
•The Pizza Hut Division which includes our worldwide operations of the Pizza Hut
concept
•The Taco Bell Division which includes our worldwide operations of the Taco Bell
concept
•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:
•Unrivaled Culture and Talent: Leverage our culture and people capability to
fuel brand performance and franchise success
•Unmatched Operating Capability: Recruit and equip the best restaurant operators
in the world to deliver great customer experiences
•Relevant, Easy and Distinctive Brands: Innovate and elevate iconic restaurant
brands people trust and champion
•Bold Restaurant Development: Drive market and franchise expansion with strong
economics and value

Our global citizenship strategy, called Recipe for Good, reflects our priorities for socially responsible growth, risk management and the sustainable stewardship of our people, our food and our planet.

We intend for this MD&A to provide the reader with information that will assist
in understanding our results of operations, including performance metrics that
management uses to assess the Company's performance. Throughout this MD&A, we
commonly discuss the following performance metrics:

•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
(with the exception of Habit Burger Grill restaurants acquired in the first
quarter of 2020 for which we included all sales in the quarter ended March 31,
2020 both before and after the acquisition in the prior year base for purposes
of determining same-store sales growth for the year to date ended September 30,
2021), 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 continuing into 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.

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

•System sales and System sales excluding the impacts of foreign currency
translation ("FX") reflect the results of all restaurants regardless of
ownership, including Company-owned and franchise restaurants. Sales at franchise
restaurants typically generate ongoing franchise and license fees for the
Company at a rate of 3% to 6% of sales. Increasingly, customers are paying a fee
to a third party to deliver or facilitate the ordering of our Concepts'
products. We also include in System sales any portion of the amount customers
pay these third parties for which the third party is obligated to pay us a
license fee as a percentage of such amount. Franchise restaurant sales and fees
paid by customers to third parties to deliver or facilitate the ordering of our
Concepts' products are not included in Company sales on the Condensed
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 United States of America (“GAAP”), the Company provides the following non-GAAP measures:

• Diluted earnings per share excluding special items (as defined below);

• Effective tax rate excluding special items;

• Basic operating profit. Principal operating profit excludes special items and currencies and we use principal operating profit for the purpose of evaluating performance internally.

• 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 presentation of our
financial results in accordance with GAAP. Rather, the Company believes that the
presentation of these non-GAAP measurements provide additional information to
investors to facilitate the comparison of past and present operations.

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 our Condensed Consolidated
Statements of Income. Company restaurant 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 restaurant-level asset impairment and closures expenses, which 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.


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Results of operations

Summary

All comparisons in this summary are against the same period one year ago.

For the quarter ended September 30, 2021, GAAP diluted EPS was $1.75 per share,
an increase from $0.92 per share in the quarter ended September 30, 2020, and
diluted EPS, excluding Special Items, was $1.22 per share, an increase from
$1.01 per share in the quarter ended September 30, 2020.

For the year to date ended September 30, 2021, GAAP diluted EPS was $4.10 per
share, an increase from $1.86 per share in the year to date ended September 30,
2020, and diluted EPS, excluding Special Items, was $3.44 per share, an increase
from $2.47 per share in the year to date ended September 30, 2020.

Quarterly Financial Highlights:

                                                                                         % Change
                                  System Sales, ex FX         Same-Store Sales          Units         GAAP Operating Profit       Core Operating Profit
KFC Division                              +11                        +6                   +7                   +14                         +10
Pizza Hut Division                         +4                        +4                   +1                   +13                         +11
Taco Bell Division                         +8                        +5                   +3                   (1)                         (1)

Worldwide                                  +8                        +5                   +4                   +12                          +3

To date Financial highlights:

                                                                                         % Change
                                  System Sales, ex FX         Same-Store Sales          Units         GAAP Operating Profit       Core Operating Profit
KFC Division                              +18                       +14                   +7                   +42                         +35
Pizza Hut Division                         +7                        +9                   +1                   +21                         +18
Taco Bell Division                        +14                       +12                   +3                   +16                         +16

Worldwide(1)                              +15                       +12                   +4                   +60                         +26


(1)  Worldwide system sales growth ex F/X for the year to date ended September
30, 2021, includes the benefit of our acquisition of Habit Burger Grill on March
18, 2020. Same-store sales reflects the inclusion of Habit Burger Grill in the
prior year base for periods in the first-quarter of 2020 both before and after
the acquisition. Operating profit results of Habit Burger Grill for the period
subsequent to our acquisition are reflected in the consolidated figures.

Besides:

• New net units added were 760 for the quarter and 1,798 for the year to date.

•During the quarter, we repurchased 2.6 million shares totaling $330 million at
an average price of $126.98. During the year to date, we repurchased 7.3 million
shares totaling $860 million at an average price of $117.07.

• Currency translation had a positive impact on the division’s operating profit for the quarter and year to date of $ 12 million and $ 55 million, respectively.

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Worldwide

GAAP Results
                                                            Quarter ended                                                  Year to date
                                         2021            2020                  % B/(W)                  2021             2020                 % B/(W)
Company sales                          $  513          $  486                5                       $ 1,509          $ 1,244              21
Franchise and property revenues           716             639               12                         2,080            1,760              18
Franchise contributions for               377             323               17                         1,105              905              22
advertising and other services
Total revenues                          1,606           1,448               11                         4,694            3,909              20

Company restaurant expenses               421             399               (5)                        1,230            1,046             (18)
G&A expenses                              253             257                1                           689              724               5
Franchise and property expenses            31              13             (145)                           81              107              25
Franchise advertising and other           375             313              (19)                        1,090              887             (23)
services expense
Refranchising (gain) loss                   1              (9)            (108)                          (21)             (30)            (30)
Other (income) expense                     (2)              4                   NM                       (12)             154                  NM
Total costs and expenses, net           1,079             977              (10)                        3,057            2,888              (6)
Operating Profit                          527             471               12                         1,637            1,021              60

Investment (income) expense, net          (51)            (10)             386                           (52)             (67)            (22)
Other pension (income) expense              1               4               74                             6                9              34
Interest expense, net                     126             161               23                           416              411              (1)
Income before income taxes                451             316               43                         1,267              668              90
Income tax (benefit) provision            (77)             33              330                            22               96              77
Net Income                             $  528          $  283               87                       $ 1,245          $   572             118

Diluted EPS(a)                         $ 1.75          $ 0.92               90                       $  4.10          $  1.86             120
Effective tax rate                      (17.0) %         10.5  %          27.5     ppts.                 1.8  %          14.4  %         12.6           ppts.

(a) See Note 3 for the number of shares used in this calculation.

Performance Metrics
             Unit Count         9/30/2021       9/30/2020        % Increase (Decrease)
             Franchise        51,070          49,003                                   4
             Company-owned     1,081           1,123                                  (4)
             Total            52,151          50,126                                   4



                                                      Quarter ended                Year to date
                                                   2021             2020       2021             2020
 Same-store Sales Growth (Decline) %                5                (2)       12                (8)
 System Sales Growth (Decline) %, reported         11                 1        18                (6)
 System Sales Growth (Decline) %, excluding FX      8                 1        15                (5)


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The distribution of sales of our system by company and franchise was as follows:

                                                      Quarter ended                Year to date
                                                    2021          2020          2021          2020

Consolidated
Company sales(a)                                 $    513      $    486      $  1,509      $  1,244
Franchise sales                                    13,828        12,457        40,341        34,108
System sales                                       14,341        12,943        41,850        35,352
Foreign Currency Impact on System sales(b)            298             N/A       1,297             N/A
System sales, excluding FX                       $ 14,043      $ 12,943      $ 40,553      $ 35,352

KFC Division
Company sales(a)                                 $    143      $    130      $    423      $    346
Franchise sales                                     7,735         6,779        22,366        18,138
System sales                                        7,878         6,909        22,789        18,484
Foreign Currency Impact on System sales(b)            235             N/A       1,012             N/A
System sales, excluding FX                       $  7,643      $  6,909      $ 21,777      $ 18,484

Pizza Hut Division
Company sales(a)                                 $     13      $     20      $     39      $     57
Franchise sales                                     3,157         2,974         9,370         8,491
System sales                                        3,170         2,994         9,409         8,548
Foreign Currency Impact on System sales(b)             59             N/A         267             N/A
System sales, excluding FX                       $  3,111      $  2,994      $  9,142      $  8,548

Taco Bell Division
Company sales(a)                                 $    225      $    218      $    656      $    610
Franchise sales                                     2,918         2,696         8,556         7,464
System sales                                        3,143         2,914         9,212         8,074
Foreign Currency Impact on System sales(b)              4             N/A          18             N/A
System sales, excluding FX                       $  3,139      $  2,914      $  9,194      $  8,074

Habit Burger Grill Division
Company sales(a)                                 $    132      $    118      $    391      $    231
Franchise sales                                        18             8            49            15
System sales                                          150           126           440           246
Foreign Currency Impact on System sales(b)              -             N/A           -             N/A
System sales, excluding FX                       $    150      $    126      $    440      $    246


(a) Company sales represent sales from our company-operated stores, as presented in our condensed consolidated statements of earnings.

(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.

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