What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-02-23 compared with 2021-02-22 · 360 added, 368 removed, 1337 unchanged (35% of the section changed)

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Also in our opinion, the Company maintained, in all material 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.

The Company acquired The Habit Restaurants, Inc.

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

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

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for leases in fiscal year 2019 due to the adoption of Topic 842, Leases.

Basis for Opinions

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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 Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate 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 critical audit matters 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 matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

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.

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 tax payers and the respective taxing authorities.

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 jurisdiction to determine the population of significant uncertain tax positions identified by the Company arising from tax planning strategies.

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 identification of uncertain tax positions process.

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.

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• 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.

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

As discussed in Note 3 to the consolidated financial statements, the Company completed the acquisition of The Habit Restaurants, Inc.

(Habit Burger Grill) during fiscal year 2020 for total cash consideration of $408 million.

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

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

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

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

or circumstances indicate that the carrying value of a reporting unit likely exceeds it fair value.

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

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

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

The fair value estimates used the following significant assumptions for which there was limited observable market information:

projected cash flows, including the projected growth in restaurant unit counts and average unit volumes, royalty rate, and discount rates.

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

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

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

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 acquisition and related impairment process, including controls related to:

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

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

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

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

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

We involved valuation professionals with specialized skills and knowledge who assisted in:

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

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

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

We have served as the Company’s auditor since 1997.

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62 ( 93 ) ( 76 )

( 93 ) ( 76 ) ( 20 )

Tax (expense) benefit

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Investment (income) expense, net ( 86 ) ( 74 ) 67

Contributions to defined benefit pension plans ( 6 ) ( 15 ) ( 16 )

Deferred income taxes ( 200 ) ( 65 ) ( 232 )

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Capital spending ( 230 ) ( 160 ) ( 196 )

QuikOrder acquisition, net of cash acquired — — ( 66 )

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

Proceeds from sale/(purchase) of investment in Grubhub, Inc.

Proceeds from sale of investment in Grubhub, Inc.

common stock — 206 —

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Other, net ( 28 ) 8 ( 2 )

Net Cash Provided by (Used in) Investing Activities ( 335 ) ( 88 ) 313

Net Cash Used in Investing Activities ( 173 ) ( 335 ) ( 88 )

Cash Flows – Financing Activities

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Common Stock, no par value, 750 shares authorized;

300 shares issued in 2020 and 2019

289 shares and 300 shares issued in 2021 and 2020, respectively

Accumulated deficit ( 8,048 ) ( 7,480 )

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Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature (net of tax impact of $ 4 million)

( 88 ) ( 88 )

Reclassification of translation adjustments into income ( 4 ) ( 4 )

Pension and post-retirement benefit plans (net of tax impact of $ 7 million)

( 22 ) ( 22 )

Net loss on derivative instruments (net of tax impact of $ 20 million)

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Net Income 904 904

Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature (net of tax impact of $ 4 million)

Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature 39 39

Pension and post-retirement benefit plans (net of tax impact of $ 2 million)

( 22 ) ( 22 )

Net loss on derivative instruments (net of tax impact of $ 23 million)

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Pension and post-retirement benefit plans (net of tax impact of $ 19 million)

Net loss on derivative instruments (net of tax impact of $ 23 million)

( 70 ) ( 70 )

Net gain on derivative instruments (net of tax impact of $ 14 million)

Comprehensive Income 1,661

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Share-based compensation events 81 81

Adoption of accounting standards ( 8 ) ( 8 )

Balance at December 31, 2021 289 $ — $ ( 8,048 ) $ ( 325 ) $ ( 8,373 )

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Note 1 – Description of Business

and its Subsidiaries (collectively referred to herein as the “Company,” “YUM,” “we,” “us” or “our”) franchise or operate a system of over 50,000 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.

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.

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 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 restaurants were owned and operated by franchisees.

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Our traditional restaurants feature dine-in, carryout and, in some instances, drive-thru service.

Non-traditional units include express units and kiosks which have a more limited menu and operate in non-traditional locations like malls, airports, gasoline service stations, train stations, subways, convenience stores, stadiums, amusement parks and colleges, where a full-scale traditional outlet would not be practical or efficient.

Non-traditional units include express units which have a more limited menu and operate in non-traditional locations like malls, airports, gasoline service stations, train stations, subways, convenience stores, stadiums, amusement parks and colleges, where a full-scale traditional outlet would not be practical or efficient.

As of December 31, 2021, over 45,000 of our restaurants are also currently offering delivery.

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• 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 Pizza Hut Division which includes our worldwide operations of the Pizza Hut concept

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

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As our 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.

We do not have an equity interest in any of our franchisee businesses except for 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 KFC and Pizza Hut franchised units in India.

These minority interests do not give us the ability to significantly influence these entities and we account for our investment in these entities 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 ASC Topic 321 and, when applicable, record fair value changes from observable prices as well as impairment in Investment (income) expense, net.

We do not have an equity interest in any of our franchisee businesses except for a minority interest in an entity, Devyani 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 that operates Taco Bell units 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.

We participate in various advertising cooperatives with our franchisees, typically within a country where we have both Company-owned restaurants and franchise restaurants, established to collect and administer funds contributed for use in advertising and promotional programs designed to increase sales and enhance the reputation of the Company and our Concepts.

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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, which we acquired on March 18, 2020, operate on a weekly periodic calendar where each quarter consists of 13 weeks, except in fiscal years with 53 weeks when the fourth quarter consists of 14 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 when the fourth quarter consists of 14 weeks.

Our remaining international subsidiaries operate on a monthly calendar similar to that on which YUM operates.

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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 is 2024.

Our next fiscal year scheduled to include a 53rd week for our period calendar reporters is 2024.

Foreign Currency.

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Revenue Recognition.

Below is a discussion of how our revenues are earned, our accounting policies pertaining to revenue recognition subsequent to the adoption of the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Update (“ASU”) No.

2014-09, Revenue from Contracts with Customers (“Topic 606”) and other required disclosures.

We adopted Topic 606 at the beginning of the year ended December 31, 2018, using the modified retrospective method.

Topic 606 was applied to all contracts with customers as of January 1, 2018, and the cumulative effect of this transition was recorded as an increase to Accumulated deficit of $ 240 million as of this date.

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.

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Revenues for these upfront franchise fees are recognized on a straight-line basis, which is consistent with the franchisee’s or sub-franchisee's right to use and benefit from the intellectual property.

Revenues from continuing fees and upfront franchise fees are presented within Franchise and property revenues in our Consolidated Statements of Income.

Additionally, from time-to-time we provide non-refundable consideration to franchisees in the form of cash or other incentives (e.g.

cash payments to incent new unit openings, free or subsidized equipment, etc.).

The Company’s intent in providing such consideration is to drive new unit development or same-store sales growth that will result in higher future revenues for the Company.

Additionally, from time-to-time we provide 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.

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Amounts owed under the rental agreements are typically billed and paid on a monthly basis.

Revenues from rental agreements with franchisees are presented within Franchise and property revenues within our Consolidated Statements of Income.

Related expenses are presented as Franchise and property expenses within our Consolidated Statements of Income and primarily include depreciation or, in the case of a sublease, rental expense.

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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 therefore not distinct.

Franchisees remit to these consolidated advertising cooperatives a percentage of restaurant sales as consideration for providing the advertising services.

As a result, revenues for advertising services are recognized when the related restaurant sales occur based on the application of the sales-based royalty exception within Topic 606.

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.

These revenues are presented as Franchise contributions for advertising and other services.

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 supply chain, quality assurance and information technology services.

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.

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.

Similar to advertising services, receipts related to these other services are presented as Franchise contributions for advertising and other services within our Consolidated Statements of Income.

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.

The internal 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.

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.

Expenses related to the provisioning of goods or services for which we receive reimbursement or other payment 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 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.

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To the extent the advertising cooperatives we are required to consolidate are unable to collect amounts due from franchisees they incur bad debt expense.

In 2020 and 2019 we recorded $ 7 million in net recoveries and $ 19 million in net provisions, respectively, within Franchise advertising and other services expense related to recoveries on and provisions for uncollectible franchisee receivables.

In 2021 and 2020 we recorded $ 6 million and $ 7 million in net recoveries, 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.

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This compensation cost is recognized over the service period on a straight-line basis, net of an assumed forfeiture rate, for awards that actually vest.

Forfeiture rates are estimated at

grant date based on historical experience and compensation cost is adjusted in subsequent periods for differences in actual forfeitures from the previous estimates.

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.

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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, automobile liability, product liability and property losses (collectively, "property and casualty losses") are accrued when deemed probable and reasonably estimable.

Anticipated legal fees related to self-insured workers' compensation, employment practices liability, general liability, automobile liability, product

liability and property losses (collectively, "property and casualty losses") are accrued when deemed probable and reasonably estimable.

Legal fees not related to self-insured property and casualty losses are recognized as incurred.

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We recognize, at inception of a guarantee, a liability for the fair value of certain obligations undertaken.

Additionally, effective January 1, 2020, we adopted ASU No.

2016-13 which required that we also recognize as a liability the expected credit losses over the life of such guarantees.

As a result of the adoption of ASU No.

2016-13, we recorded a cumulative adjustment to Accumulated deficit of $ 8 million to establish such expected credit loss liability for our outstanding guarantees.

Additionally, effective January 1, 2020, we adopted the Financial Accounting Standards Board’s Accounting Standards Update (“ASU”) No.

2016-13, Financial Instruments - Credit Losses (“Topic 326”) which required 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.

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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 ASU No.

2016-13 on January 1, 2020, our receivables are now stated net of expected credit losses.

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 losses.

The impact to our net receivables as a result of adopting the standard was not significant.

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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 $ 12 million, $ 24 million and $ 11 million in net provisions within Franchise and property expenses in 2020, 2019 and 2018, respectively, related to uncollectible continuing fees, initial fees and rent receivables from our franchisees.

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, initial fees and rent receivables from our franchisees.

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:

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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 $ 72 million (net of an allowance of $ 5 million) and $ 68 million (net of an allowance of less than $ 1 million) at December 31, 2020, and December 31, 2019, respectively.

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.

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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.

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.

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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.

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.

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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, Pizza Hut, Taco Bell and Habit Burger Grill Divisions.

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.

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We believe the discount rate is commensurate with the risks and uncertainty inherent in the forecasted cash flows.

At the beginning of the quarter ended March 31, 2020, we adopted ASU No.

2017-04, which eliminated the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge.

Instead, an impairment charge is recognized based on the excess of a reporting unit’s carrying amount over its fair value.

This standard required prospective application, beginning with the quarter ended March 31, 2020.

As a result, the goodwill impairment charge related to our Habit Burger Grill reporting unit (see Note 3) was measured as the excess of the reporting unit’s carrying value over its fair value.

An impairment charge is recognized based on the excess of a reporting unit’s carrying amount over its fair value.

If we record goodwill upon acquisition of a restaurant(s) from a franchisee and such restaurant(s) is then sold within two years of acquisition, the goodwill associated with the acquired restaurant(s) is written off in its entirety.

If the restaurant is refranchised two years or more subsequent to its acquisition, we include goodwill in the carrying amount of the restaurants disposed of based on the relative fair values of the portion of the reporting unit disposed of in the refranchising and the portion of the reporting unit that will be retained.

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 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.

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Derivative Financial Instruments.

We use derivative instruments primarily to hedge interest rate and foreign currency risks.

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.

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In such instances, on a period basis, we record the cost of any further share repurchases, or other deductions to Common Stock as an addition to Accumulated deficit.

Due to the large

number of share repurchases of our stock over the past several years, our Common Stock balance is frequently zero at the end of any period.

Due to the large number of share repurchases of our stock over the past several years, our Common Stock balance is frequently zero at the end of any period.

Accordingly, $ 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.

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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.

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.

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We recognize settlement gains or losses only when we have determined that the cost of all settlements in a year will exceed the sum of the service and interest costs within an individual plan.

Note 3 - Habit Burger Grill Acquisition

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.

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Total cash consideration paid in connection with the acquisition was $ 408 million, net of acquired cash of $ 20 million.

This included $ 9 million for the settlement of existing share-based awards previously issued to The Habit Restaurants, Inc.

employees and $ 53 million associated with an obligation to former shareholders of The Habit Restaurants, Inc.

related to a tax receivable agreement entered into in connection with its initial public offering in 2014.

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

During the quarter ended December 31, 2020, we adjusted our preliminary estimate of the fair value of net assets acquired.

The components of the preliminary purchase price allocation upon the March 18, 2020, acquisition, subsequent to the adjustments to the allocation through the year ended December 31, 2020, were as follows:

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.

Total Current Assets $ 11

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Operating lease liabilities (included in Other liabilities and deferred credits) ( 170 )

Other liabilities ( 1 )

Total Liabilities ( 238 )

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Net consideration transferred $ 408

The adjustments to the preliminary estimate of identifiable net assets acquired resulted in a corresponding $ 13 million decrease in estimated goodwill due to the following changes to the preliminary purchase price allocation.

Change in Increase (Decrease) in Goodwill

Total Current Assets $ 1

Property, plant and equipment, net 18

Habit Burger Grill brand (included in Intangible assets, net) 2

Operating lease right-of-use assets (included in Other assets) ( 33 )

Other assets ( 6 )

Total Current Liabilities 1

Operating lease liabilities (included in Other liabilities and deferred credits) 5

Other liabilities ( 1 )

Total decrease in goodwill $ ( 13 )

The preliminary allocation of the purchase price was based on management's analysis as of March 18, 2020.

We will continue to obtain information to assist in determining the fair value of net assets acquired during the remaining measurement period.

The Habit Burger Grill brand, which includes the related trademarks, was valued by applying the income approach through a relief from royalty analysis and it has been assigned an indefinite life and, therefore, will not be amortized.

The brand asset will be tested 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 indicate impairment might exist.

The excess of the purchase price over the preliminary estimated fair value of the net, identifiable assets acquired was recorded as goodwill.

The factors contributing to the recognition of goodwill were several strategic and synergistic benefits that are expected to be realized by Habit Burger Grill from the acquisition.

These benefits include leveraging YUM's scale and resources in unit development, primarily through franchising, supply chain and global brand-building.

Goodwill determined through the purchase price allocation will be entirely allocated to the Habit Burger Grill Division and goodwill of approximately $ 200 million is expected to be deductible for tax purposes.

The pro forma impact on our results of operations if the acquisition had been completed as of the beginning of 2019 would not have been significant.

During the first quarter of 2020, the operations of substantially all Habit Burger Grill restaurants were impacted by COVID-19.

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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.

The amount of the goodwill impairment charge and related tax benefit could change again as we finalize the purchase price allocation associated with the acquisition.

During the fourth quarter of 2020, in accordance with our policy on evaluating goodwill and indefinite-lived intangible assets annually for impairment, we performed an impairment test of the Habit Burger Grill reporting unit goodwill and Habit Burger Grill brand asset.

The fair values of the reporting unit goodwill and brand asset were determined to be in excess of their respective carrying values and no further impairment charges were recorded.

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 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 for 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.

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 recognized from the Dragontail acquisition 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.

The financial results of Dragontail have been included in our Consolidated Financial Statements since the date of the acquisition but did not significantly impact our results for the year ended December 31, 2021.

The pro forma impact on our results of operations if the acquisition had been completed as of the beginning 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”)

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Additionally, during the years ended December 31, 2021, 2020 and 2019, we sold certain restaurant assets associated with existing franchise restaurants to the franchisee.

We received $ 19 million, $ 110 million and $ 825 million in pre-tax cash refranchising proceeds in 2020, 2019 and 2018, respectively.

In 2020, we also received as refranchising proceeds minority interests in an entity that operates KFC and Pizza Hut franchised units in India.

At the time of the refranchisings, these minority interests had

fair values of $ 31 million.

In 2019, we also received as refranchising proceeds a minority interest in an entity that owns our KFC Brazil and Pizza Hut Brazil master franchisee rights.

At the time of refranchising, this minority interest had a fair value of $ 6 million.

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 the sales of these restaurants and restaurant assets.

In 2020, we also received as 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.

A summary of Refranchising (gain) loss is as follows:

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KFC Division $ ( 1 ) $ ( 33 ) $ ( 6 )

Pizza Hut Division 1 — 13

Taco Bell Division ( 29 ) ( 2 ) ( 31 )

Pizza Hut Division 1 1 —

Habit Burger Grill Division ( 6 ) — —

Worldwide $ ( 35 ) $ ( 34 ) $ ( 37 )

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Brands Foundation, Inc.

(a stand-alone, not-for-profit 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 it was not allocated to any of our segment operating results for performance reporting purposes.

(a stand-alone, not-for-profit 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.

COVID-19 Relief

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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 it was not allocated to any of our segment operating results for performance reporting purposes.

Resource Optimization

During the year ended December 31, 2020, we recorded charges of $ 36 million and $ 2 million to G&A expenses and Other pension (income) expense, respectively, associated with a voluntary early retirement program offered to our U.S.

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.

These programs were part of our efforts to optimize our resources, reallocating them toward critical areas of the business that will drive future growth.

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.

Redemption of Subsidiary Senior Unsecured Notes

During the quarter ended September 30, 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.

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 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.

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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, 2019 and 2018, we recognized pre-tax investment income of $ 69 million, pre-tax investment expense of $ 77 million and pre-tax investment income of $ 14 million, respectively.

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 the fourth quarter of 2019, we completed intra-entity transfers of certain intellectual property rights.

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 will be amortizable against future taxable income, we recognized one-time deferred tax benefits of $ 3 million and $ 226 million in the quarters ended December 31, 2020 and December 31, 2019, respectively.

During the quarter ended September 30, 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 quarter ended September 30, 2020, we remeasured the related deferred tax asset originally recorded in the fourth quarter of 2019.

This remeasurement resulted in the recognition of an additional $ 25 million deferred tax benefit in the quarter ended September 30, 2020.

During the year ended December 31, 2018, we recorded a $ 35 million decrease related to our provisional tax expense recorded in the fourth quarter of 2017 associated with the Tax Cuts and Jobs Act of 2017 ("Tax Act").

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 operations and management oversight in Switzerland (the “KFC Europe Reorganization”).

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 net one-time deferred tax benefit of $ 152 million in the year ended December 31, 2021.

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.

Note 6 – Revenue Recognition

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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.

KFC Division Pizza Hut Division Taco Bell Division Habit Burger Grill Division Total

KFC Division Taco Bell Division Pizza Hut Division Habit Burger Grill Division Total

Company sales $ 65 $ 944 $ 21 $ 520 $ 1,550

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$ 2,793 $ 2,238 $ 1,028 $ 525 $ 6,584

KFC Division Pizza Hut Division Taco Bell Division Total

KFC Division Taco Bell Division Pizza Hut Division Habit Burger Grill Division Total

Company sales $ 60 $ 882 $ 21 $ 346 $ 1,309

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$ 2,272 $ 2,031 $ 1,002 $ 347 $ 5,652

KFC Division Taco Bell Division Pizza Hut Division Total

Company sales $ 74 $ 919 $ 21 $ 1,014

Franchise revenues 175 602 282 1,059

Property revenues 20 44 6 70

Franchise contributions for advertising and other services 10 483 318 811

Franchise revenues 214 — 60 274

Company sales 497 2 33 532

Franchise revenues 912 27 246 1,185

Property revenues 69 — 3 72

Franchise contributions for advertising and other services 520 2 58 580

$ 2,491 $ 2,079 $ 1,027 $ 5,597

Contract Liabilities

Our contract liabilities are comprised of unamortized upfront fees received from franchisees.

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.

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Balance at December 31, 2021

(a) Includes impact of foreign currency translation.

(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:

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Cash Paid For:

Interest $ 480 $ 497 $ 455

$ 474 $ 480 $ 497

Income taxes 308 328 283

Significant Non-Cash Investing and Financing Activities:

Finance lease obligations incurred $ 4 $ 14 $ 4

Finance lease and other debt obligations transferred through refranchising

( 1 ) ( 1 ) ( 24 )

Non-cash refranchising proceeds (c)

Non-cash refranchising proceeds (b)

Reconciliation of Cash and cash equivalents to Consolidated Statements of Cash Flows:

Cash and cash equivalents as presented in Consolidated Balance Sheets $ 486 $ 730 $ 605

Restricted cash included in Prepaid expenses and other current assets (a)

Restricted cash and restricted cash equivalents included in Other assets (b)

Restricted cash included in Prepaid expenses and other current assets (c)

Restricted cash and restricted cash equivalents included in Other assets (d)

Cash, Cash Equivalents and Restricted Cash as presented in Consolidated Statements of Cash Flows $ 771 $ 1,024 $ 768

(a) Restricted cash within Prepaid expenses and other current assets reflects cash related to advertising cooperatives that we consolidate that can only be used to settle obligations of the respective cooperatives and Taco Bell Securitization interest reserves (See Note 11).

(b) Primarily trust accounts related to our self-insurance program.

(c) In 2020 we received as refranchising consideration a minority interest in an entity that operates KFC and Pizza Hut franchised units in India and in 2019 we received as refranchising consideration a minority interest in an entity that owns our KFC Brazil and Pizza Hut Brazil master franchisee rights, respectively (See Note 5).

(a) Amounts exclude payments of $ 28 million in both 2021 and 2020 classified as Interest expense in our Consolidated Statements of Income which are included in Repayments of long-term debt within financing activities in our Consolidated Statements of Cash Flows (see Note 11).

(b) 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

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(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.

(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.

The years ended December 31, 2019 and 2018 primarily included impairment of restaurant-level assets and store closure expenses, respectively.

Note 9 – Supplemental Balance Sheet Information

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Operating lease right-of-use assets $ 809 $ 851

Investment in Grubhub common stock (b)

Franchise incentives 164 163

Investment in Devyani International Limited 118 31

Other 396 390

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Operating lease liabilities 88 97

Accrued taxes, other than income taxes 36 52

Accrued interest 78 73

Other current liabilities 420 383

Accounts payable and other current liabilities $ 1,334 $ 1,189

(a) Reflects the carrying value of restaurants we have offered for sale to franchisees and excess properties that we do not intend to use for restaurant operations in the future.

(b) In the third quarter of 2020 we sold our entire investment in Grubhub, Inc.

common stock and received proceeds of $ 206 million.

(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 Pizza Hut Taco Bell Habit Burger Grill Worldwide

KFC Taco Bell Pizza Hut Habit Burger Grill Worldwide

Goodwill, net as of December 31, 2019 (a)

$ 233 $ 98 $ 199 $ — $ 530

Disposal and other, net (b)

3 3 ( 1 ) — 5

Disposals and other, net (b)

Habit Burger Grill acquisition and impairment (See Note 3)

Goodwill, net as of December 31, 2020 (a)

$ 235 $ 98 $ 202 $ 62 $ 597

Disposal and other, net (b)

Habit Burger Grill acquisition and impairment (See Note 3)

Acquisitions — — — 10 10

Disposals and other, net (b)

( 3 ) — ( 2 ) ( 2 ) ( 7 )

Dragontail Systems acquisition (See Note 3)

Goodwill, net as of December 31, 2021 (a)

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Franchise contract rights 100 ( 88 ) 100 ( 85 )

Lease tenancy rights 5 ( 1 ) 5 ( 1 )

Other 53 ( 36 ) 53 ( 33 )

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May 2016 May 2026 $ 955 4.970 % 5.14 %

May 2016 May 2026 $ 965 4.970 % 5.14 %

November 2018 November 2028 $ 606 4.940 % 5.06 %

November 2018 November 2028 $ 613 4.940 % 5.06 %

(a) The legal final maturity dates of the Securitization Notes issued in 2016 and 2018 are May 2046 and November 2048, respectively.

August 2021 February 2027 $ 900 1.946 % 2.11 %

August 2021 February 2029 $ 600 2.294 % 2.42 %

August 2021 August 2031 $ 750 2.542 % 2.64 %

(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.

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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.

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.

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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.

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.

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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 $ 1.0 billion revolving facility (the Revolving Facility").

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”).

On September 9, 2020, the Borrowers issued a notice of redemption for October 9, 2020, for $ 1,050 million aggregate principal amount of 5.00 % Subsidiary Senior Unsecured Notes due in 2024 (the “2024 Notes”).

On September 25, 2020, using the net proceeds from the issuance of the 2031 Notes (defined below) and cash on hand the Company prepaid the 2024 Notes and deposited sufficient funds with The Bank of New York Mellon Trust Company, N.A., as trustee under the related indenture, to redeem the 2024 Notes at their aggregate redemption price and the indenture with respect to the 2024 Notes was discharged.

The redemption amount was equal to 102.50 % of the principal amount redeemed, reflecting a $ 26 million “call premium”, plus accrued and unpaid interest to the date of redemption.

We recognized 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 notes with the trustee to their redemption date within Interest expense, net.

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 an amendment 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.

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 ended March 31, 2021, 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 due to this refinancing.

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 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 in the quarter ended June 30, 2021.

The following table summarizes borrowings outstanding under the Credit Agreement as well as our Subsidiary Senior Unsecured Notes as of December 31, 2021.

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(in millions) Stated Effective (b)

Term Loan A Facility June 2016 June 2022 $ 431 (a) 3.22 %

Term Loan B Facility June 2016 April 2025 $ 1,916 (a) 3.53 %

Senior Note Due 2026 June 2016 June 2026 $ 1,050 5.25 % 5.39 %

Term Loan A Facility March 2021 March 2026 $ 750 (a) 0.96 %

Term Loan B Facility March 2021 March 2028 $ 1,489 (a) 4.99 %

Senior Note Due 2027 June 2017 June 2027 $ 750 4.75 % 4.90 %

(a) The interest rates applicable to the Term Loan A Facility as well as the Revolving Facility range from 1.25 % to 1.75 % plus LIBOR or from 0.25 % to 0.75 % plus the Base Rate (as defined in the Credit Agreement), at the Borrowers’ election, based upon the total net leverage ratio of the Borrowers and the Specified Guarantors (as defined in the Credit Agreement).

(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.

(b) 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 B Facility (See Note 13).

(b) 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.

The Term Loan A Facility is currently subject to quarterly amortization payments in an amount equal to 1.875 % of the initial principal amount of the facility.

These amortization payments will increase to an amount equal to 3.75 % of the initial principal amount of the facility beginning with our payment in the third quarter of 2021, with the balance payable at maturity on June 7, 2022.

The Term Loan B Facility is subject to quarterly amortization payments in an amount equal to 0.25 % of the initial principal amount of the facility, with the balance payable at maturity on April 3, 2025.

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).

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We were in compliance with all debt covenants as of December 31, 2021 .

The Subsidiary Senior Unsecured Notes are guaranteed on a senior unsecured basis by (i) the Company, (ii) the Specified Guarantors and (iii) by each of the Borrower's and the Specified Guarantors’ domestic subsidiaries that guarantees the

Borrower's obligations under the Credit Agreement, except for any of the Company’s foreign subsidiaries.

The 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.

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October 2007 November 2037 $ 325 6.88 % 7.45 %

August 2011 November 2021 $ 350 3.75 % 3.88 %

October 2013 November 2023 $ 325 3.88 % 4.01 %

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September 2020 March 2031 $ 1,050 3.63 % 3.77 %

April 2021 January 2032 $ 1,100 4.63 % 4.77 %

(a) Includes the effects of the amortization of any (1) premium or discount;

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On April 1, 2021, Yum!

issued $ 600 million aggregate principal amount of 7.75 % YUM Senior Unsecured Notes due April 1, 2025, (the “2025 Notes”).

The net proceeds from the issuance were used to pay the fees and expenses of the offering with remaining amounts used for general corporate purposes.

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.

On September 25, 2020, Yum!

issued $ 1,050 million aggregate principal amount of 3.625 % YUM Senior Unsecured Notes due March 15, 2031, (the “2031 Notes”).

Interest on the 2031 Notes is payable semi-annually in arrears on March 15 and September 15 of each year, beginning on March 15, 2021.

The Company paid debt issuance costs of $ 7 million and $ 13 million in connection with the 2025 Notes and 2031 Notes, respectively.

These debt issuance costs are being amortized to Interest expense, net over the life of the notes using the effective interest rate method.

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!

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 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 2025 Notes, the 2030 Notes and the 2031 Notes) 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 .

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:

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Components of Lease Expense

2021 2020 2019

Operating lease cost $ 145 $ 137 $ 115

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Sublease income $ ( 59 ) $ ( 60 ) $ ( 69 )

Rental expense related to operating leases was $ 151 million for the year ended December 31, 2018.

Supplemental Cash Flow Information

2021 2020 2019

Cash paid for amounts included in the measurement of lease liabilities

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Finance leases 5 4 14

Operating lease liabilities transferred through refranchising ( 25 ) ( 3 ) ( 25 )

Finance lease and other debt obligations transferred through refranchising ( 2 ) ( 1 ) ( 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).

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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 will expire in July 2021.

Further, on May 14, 2018, we entered into forward-starting interest rate swaps to fix the interest rate on $ 1.5 billion of borrowings under our Term Loan B Facility from the date the July 2016 swaps expire through March 2025.

The interest rate swaps executed in May 2018 will result in a fixed rate of 4.81 % on the swapped portion of the Term Loan B Facility from July 2021 through March 2025.

These interest rate swaps 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.

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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 in certain of 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 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.

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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.

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

Interest Rate Swaps

Prepaid expenses and other current assets 2 $ — $ 6

Foreign Currency Contracts

Prepaid expenses and other current assets 2 — 1

Interest Rate Swaps

Other assets 2 — 3

Investment in Grubhub, Inc.

Common Stock Other assets 1 — 137

Other Investments

Other assets 1 119 45

Other Investments Other assets 3 5 —

Interest Rate Swaps

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The fair value of the Company’s foreign currency contracts and interest rate swaps were determined based on the present value of expected future cash flows considering the risks involved, including nonperformance risk, and using discount rates appropriate for the duration based on observable inputs.

The fair value of our investment in 2.8 million shares of Grubhub, Inc.

common stock at December 31, 2019, was determined primarily based on closing market prices for the shares.

In the third quarter of 2020 we sold our entire investment in Grubhub, Inc.

common stock (See Note 5).

The other investments primarily include investments in mutual funds, which are used to offset fluctuations for a portion of our deferred compensation liabilities and whose fair values were determined based on the closing market prices of the respective mutual funds as of December 31, 2020 and December 31, 2019.

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.

Non-Recurring Fair Value Measurements

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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, 2020, is insignificant.

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.

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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 year ended December 31, 2020, is $ 11 million and is insignificant for assets measured at fair value during the year ended December 31, 2019.

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.

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Benefit obligation at end of year $ 1,069 $ 1,133

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.

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).

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Benefits paid ( 33 ) ( 46 )

Settlement payments ( 67 ) —

Fair value of plan assets at end of year $ 1,010 $ 1,014

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Amounts recognized in the Consolidated Balance Sheet:

Accrued benefit asset - non-current $ 43 $ —

Accrued benefit liability - current ( 7 ) ( 9 )

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$ ( 59 ) $ ( 119 )

The accumulated benefit obligation was $ 1,111 million and $ 984 million at December 31, 2020 and December 31, 2019, respectively.

The table below provides information for pension plans with an accumulated benefit obligation in excess of plan assets.

These pension plans also have a projected benefit obligation in excess of plan assets.

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 $ 102 $ 1,133

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Prior service cost ( 1 ) ( 2 )

Settlement charges — 4

End of year $ ( 43 ) $ ( 111 )

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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.

The fair values of our pension plan assets at December 31, 2020 and December 31, 2019, by asset category and level within the fair value hierarchy are as follows:

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:

Cash $ 237 $ 9

Cash Equivalents (a)

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Equity Securities - U.S.

Large cap (b)

Equity Securities – U.S.

Small cap (b)

Equity Securities - Non-U.S.

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Fixed Income Securities - Other (d)

Total fair value of plan assets (e)

Total assets in the fair value hierarchy 612 1,226

Investments measured at net asset value (e)

Equity Securities 456 —

Total fair value of plan assets (f)

$ 1,068 $ 1,226

(a) Short-term investments in money market funds.

(b) Securities held in common trusts.

(b) Securities held in common or collective trusts.

(d) Includes securities held in common trusts and investments held directly by the Plan.

(e) 2020 and 2019 exclude net unsettled trade payables of $ 212 million and $ 169 million, respectively.

(d) Includes securities held in common or collective trusts and investments held directly by the Plan.

(e) 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.

The Plan's equity securities, currently targeted to be 50 % of our investment mix, consist primarily of low-cost index funds focused on achieving long-term capital appreciation.

The Plan diversifies its equity risk by investing in several different U.S.

and foreign market index funds.

Investing in these index funds provides the Plan with the adequate liquidity required to fund benefit payments and plan expenses.

The fixed income asset allocation, currently targeted to be 50 % of our mix, is actively managed and consists of long-duration fixed income securities that help to reduce exposure to interest rate variation and to better correlate asset maturities with obligations.

The fair values of all pension plan assets are determined based on closing market prices or net asset values.

A mutual fund held as an investment by the Plan includes shares of Common Stock valued at $ 0.3 million at both December 31, 2020 and 2019 (less than 1 % of total plan assets in each instance).

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 Target Allocation

Fixed income 49 %

Equity securities 32 %

Real assets 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.

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

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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 2020, $ 2 million in 2019 and $ 4 million in 2018.

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.

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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 2020, $ 1 million in 2019 and $ 2 million in 2018, the majority of which is interest cost on the accumulated post-retirement benefit obligation.

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.

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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 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.

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At year end 2021, approximately 24 million shares were available for future share-based compensation grants under the LTIP.

Our Executive Income Deferral ("EID") Plan allows participants to defer receipt of a portion of their annual salary and all or a portion of their incentive compensation.

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.

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Expected dividend yield 1.9 % 1.9 % 1.8 %

We believe it is appropriate to group our stock option and SAR awards into two homogeneous groups when estimating expected term.

These groups typically consist of grants made primarily to restaurant-level employees, which cliff-vest after four years and expire ten years after grant, and grants made to executives, which typically have a graded vesting schedule of 25% per year over four years and expire ten years after grant.

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 restaurant-level employees and our executives exercised the awards on average after 5 years and 6.5 years, respectively.

Additionally, during 2020, we granted stock option and SAR awards to certain executives that vested immediately.

For these immediately vested awards, the expected term was estimated as one-half the contractual term of 10 years.

We utilized this simplified method as we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term for immediately vested awards.

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.

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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 over a remaining weighted-average period of approximately 1.5 years.

The total fair value at grant date of awards for both YUM and Yum China awards held by YUM employees that vested during 2020, 2019 and 2018 was $ 70 million, $ 31 million and $ 28 million, respectively.

The total fair value at grant date of awards held by YUM employees (including Yum China awards as applicable) that vested during 2021, 2020 and 2019 was $ 35 million, $ 70 million and $ 31 million, respectively.

RSUs and PSUs

As of December 31, 2020, there was $ 28 million of unrecognized compensation cost related to 1.0 million unvested RSUs and PSUs, none of which related to Yum China common stock.

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.

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Deferred Tax Benefit recognized $ 15 $ 18 $ 9

EID compensation expense not share-based $ 9 $ 17 $ ( 2 )

Cash received from stock option exercises for 2021, 2020 and 2019 was $ 11 million, $ 10 million and $ 1 million, respectively.

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Authorization Date 2021 2020 2019 2021 2020 2019

May 2021 8,235 — — $ 1,050 $ — $ —

November 2019 4,746 2,419 — 530 250 —

August 2018 — — 7,788 — — 810

November 2017 — — 18,240 — — 1,500

Total 12,981 (a)

(a) 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 and 2018 amount includes the effect of $ 5 million in share repurchases ( 0.1 million shares) with trade dates on, or prior to, December 31, 2018, but settlement dates subsequent to December 31, 2018.

On November 21, 2019, our Board of Directors authorized share repurchases through June 2021 of up to $ 2 billion (excluding applicable transaction fees) of our outstanding Common Stock.

As of December 31, 2020, we have remaining capacity to repurchase up to $ 1.75 billion of Common Stock under this authorization.

(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.

Changes in AOCI are presented below.

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39 8 ( 70 ) ( 23 )

24 ( 22 ) ( 56 ) ( 54 )

Balance at December 31, 2020, net of tax $ ( 182 ) $ ( 96 ) $ ( 133 ) $ ( 411 )

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Gains (losses) arising during the year classified into AOCI, net of tax ( 24 ) 50 25 51

39 ( 6 ) ( 75 ) ( 42 )

(Gains) losses reclassified from AOCI, net of tax — 12 23 35

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(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 2019 include amortization of net losses of $ 2 million, amortization of prior service cost of $ 5 million, settlement charges of $ 3 million and related income tax benefit of $ 2 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.

(b) See Note 13 for details on amounts reclassified from AOCI.

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Intercompany restructuring ( 11.3 ) ( 0.3 ) ( 16.6 )

Nondeductible interest 1.4 — —

Impact of tax law changes ( 3.8 ) ( 2.5 ) —

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Statutory rate differential attributable to foreign operations.

This item includes local country taxes, withholding taxes, and shareholder-level taxes, net of foreign tax credits.

In 2020, this item was favorably impacted by the ongoing effects of the fourth quarter 2019 intercompany restructuring that resulted in the transfer of certain intellectual property rights from wholly owned foreign subsidiaries to the United States (U.S.) and the United Kingdom (UK).

In 2019, this item was unfavorably impacted by the full year impact of the global intangible low-taxed income (GILTI) and Foreign Derived Intangible Income (FDII) provisions of the Tax Cuts and Jobs Act of 2017.

In 2018, this item was not significantly impacted by the GILTI or FDII provisions.

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).

Adjustments to reserves and prior years.

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and (2) the effects of reconciling income tax amounts recorded in our Consolidated Statements of Income to amounts reflected on our tax returns, including any adjustments to the Consolidated Balance Sheets.

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 .

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.

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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.

In 2018, this item was unfavorably impacted by the aforementioned $ 20 million reserve and a $ 19 million charge for the correction of an error associated with the tax recorded on a prior year divestiture.

Excess tax benefits from stock-based awards.

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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 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 carryforward in that jurisdiction .

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.

Intercompany Restructuring.

In December 2019, the Company completed an intercompany restructuring that resulted in the transfer of certain intellectual property rights held by wholly owned foreign subsidiaries primarily to the U.S.

The intellectual property 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.

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.

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 intellectual property 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.

Impact of Significant Tax Law Changes.

UK Tax Rate Change – 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 %.

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 associated with disallowed U.S.

interest expense.

Although the 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 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 .

Tax Reform - On December 22, 2017, the U.S.

government enacted comprehensive Federal tax legislation commonly referred to as the Tax Cuts and Jobs Act of 2017 (the "Tax Act").

The Tax Act significantly modified the U.S.

corporate income tax system by, among other things, reducing the federal income tax rate from 35 % to 21 %, limiting certain deductions, including limiting the deductibility of interest expense to 30 % of U.S.

Earnings Before Interest, Taxes, Depreciation and Amortization, imposed a mandatory one-time deemed repatriation tax on accumulated foreign earnings and changed the manner in which foreign earnings are subject to U.S.

On December 22, 2017, the SEC staff issued Staff Accounting Bulletin 118 which allowed us to record provisional amounts related to the impacts of the Tax Act during a measurement period not to extend beyond one year of the enactment date.

As a result, we recorded a $ 434 million provisional estimate of the effect of the Tax Act in 2017.

This expense was comprised of an estimate of our deemed repatriation tax, the remeasurement of net deferred tax assets resulting from the permanent reduction in the U.S.

tax rate to 21 %, and establishment of a valuation allowance on foreign tax credit carryforwards which were unlikely to be realized under revised U.S tax law.

In 2018, we completed the accounting for the tax effects of the enactment of the Tax Act.

As a result of the Tax Act, we recorded cumulative net tax expense of $ 399 million ($ 35 million benefit in 2018 and $ 434 million expense in 2017).

This net expense was comprised of $ 241 million for our deemed repatriation tax liability, $ 47 million related to the remeasurement of our net deferred tax assets to the 21 % U.S.

tax rate and $ 111 million to establish a valuation allowance on foreign tax credits that are unlikely to be realized under revised U.S.

This item primarily includes the net impact of permanent differences related to current year earnings, U.S.

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Operating lease right-of-use assets ( 200 ) ( 161 )

Employee benefits ( 24 ) ( 15 )

Other ( 51 ) ( 42 )

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End of Year $ ( 462 ) $ ( 789 )

Net deferred tax assets (liabilities) for 2020 and 2019 are reported in our Consolidated Balance Sheets as Deferred income taxes.

Reported in Consolidated Balance Sheets as:

Deferred income taxes $ 724 $ 553

Other liabilities and deferred credits ( 8 ) —

As of December 31, 2021, we had approximately $ 3.6 billion of unremitted foreign retained earnings.

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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.

Undistributed foreign earnings may still be subject to certain foreign income and withholding taxes upon repatriation.

Subject to limited exceptions, our intent is to indefinitely reinvest our unremitted earnings outside the U.S., and our current plans do not demonstrate a need to repatriate these amounts to fund our U.S.

Thus, we have not provided taxes, including U.S.

federal and state income, foreign income, or foreign withholding taxes, for the unremitted earnings that we believe are permanently invested.

However, if these funds were repatriated in taxable transactions, we would be required to accrue and pay applicable income taxes (if any) and foreign withholding taxes.

A determination of the deferred tax liability on this amount is not practicable due to the complexities, variables and assumptions inherent in the hypothetical calculations.

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 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:

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State tax credits 7 7 ( 5 ) 2023

Federal interest deduction carryforward - Indefinite 81 17 ( 8 ) None

State interest deduction carryforward - Indefinite 487 22 ( 21 ) None

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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 2020, 2019, and 2018 the Company recognized $ 2 million of net expense, $ 13 million of net expense, and $ 2 million of net benefit, respectively, for interest and penalties in our Consolidated Statements of Income as components of its Income tax provision.

At December 31, 2020 and December 31, 2019, the Company has recorded $ 1 million of net tax receivables and $ 26 million of net tax payables, respectively, associated with interest and penalties.

During 2021, 2020, and 2019 the Company recognized $ 4 million, $ 2 million and $ 13 million of net expense, respectively, for interest and penalties in our Consolidated Statements of Income as components of its Income tax provision.

At December 31, 2021 and 2020, the Company has recorded $ 3 million and $ 1 million of net tax receivables, respectively, associated with interest and penalties.

The Company’s income tax returns are subject to examination in the U.S.

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Our operations in certain foreign jurisdictions remain subject 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.

Note 19 – Reportable Operating Segments

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$ 2,793 $ 2,272 $ 2,491

Pizza Hut Division (a)

1,002 1,027 988

Taco Bell Division (a)

2,238 2,031 2,079

Pizza Hut Division (a)

1,028 1,002 1,027

Habit Burger Grill Division (a)

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KFC Division $ 1,230 $ 922 $ 1,052

Pizza Hut Division 335 369 348

Taco Bell Division 758 696 683

Pizza Hut Division 387 335 369

Habit Burger Grill Division 2 ( 22 ) —

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( 260 ) ( 312 ) ( 188 )

Unallocated Company restaurant expenses (b)(d)

Unallocated Franchise and property expenses (b)(e)

Unallocated Franchise and property expenses (b)(d)

1 ( 4 ) ( 14 )

Unallocated Refranchising gain (loss) (b)

Unallocated Other income (expense) (b)(f)

Unallocated Other income (expense) (b)(e)

( 14 ) ( 146 ) ( 9 )

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KFC Division $ 28 $ 29 $ 30

Pizza Hut Division 24 15 10

Taco Bell Division 53 56 59

Pizza Hut Division 32 24 15

Habit Burger Grill Division 28 25 —

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KFC Division $ 60 $ 59 $ 81

Pizza Hut Division 28 33 38

Taco Bell Division 62 42 76

Pizza Hut Division 18 28 33

Habit Burger Grill Division 56 16 —

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$ 230 $ 160 $ 196

Identifiable Assets (h)

Identifiable Assets (g)

KFC Division $ 2,313 $ 2,011

Pizza Hut Division 804 801

Taco Bell Division 1,397 1,387

Pizza Hut Division 850 804

Habit Burger Grill Division 586 537

Corporate (g)

Corporate (f)

$ 5,966 $ 5,852

Long-Lived Assets (i)

Long-Lived Assets (h)

KFC Division $ 1,069 $ 1,160

Pizza Hut Division 415 427

Taco Bell Division 904 925

Pizza Hut Division 423 415

Habit Burger Grill Division 516 458

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$ 3,032 $ 3,026

revenues included in the combined KFC, Pizza Hut, Taco Bell and Habit Burger Grill Divisions totaled $ 3.2 billion in 2020, $ 3.0 billion in 2019 and $ 2.9 billion in 2018.

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.

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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) and $ 9 million in costs associated with our acquisition and integration of Habit Burger Grill (See Note 3).

(d) Represents depreciation reductions arising primarily from KFC restaurants that were held for sale.

(e) Represents costs related to an agreement executed in 2015 with our KFC U.S.

franchisees that gave us control of brand marketing execution as well as an accelerated path to expanded menu offerings, improved assets and enhanced customer experience (the “KFC U.S.

Acceleration Agreement”).

Also represents costs related to an agreement executed in May 2017 with our Pizza Hut U.S.

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”).

(f) Unallocated Other income (expense) in 2020 includes a charge of $ 144 million related to the impairment of Habit Burger Grill goodwill.

(g) Primarily includes cash, deferred tax assets and, in 2019, our Grubhub investment.

identifiable assets included in the combined Corporate and KFC, Pizza Hut, Taco Bell and Habit Burger Grill Divisions totaled $ 3.0 billion and $ 2.7 billion in 2020 and 2019, respectively.

(i) Includes PP&E, goodwill, intangible assets, net and Operating lease right-of-use assets.

(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.

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.

(h) Includes PP&E, net, goodwill, intangible assets, net and Operating lease right-of-use assets.

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.

The IRS asserts that 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.

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.

Lease Guarantees

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We generally have cross-default provisions with these franchisees that would put them in default of their franchise agreement in the event of non-payment under the lease.

We believe these cross-default provisions significantly reduce the risk that we will be required to make payments under these leases.

Accordingly, the liability recorded for our expected exposure under such leases at December 31, 2020, and December 31, 2019, was not material.

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.

Insurance Programs

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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 24, 2021.

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.

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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 – Selected Quarterly Financial Data (Unaudited )

Quarter Second

Quarter Third

Quarter Fourth

Company sales $ 355 $ 403 $ 486 $ 566 $ 1,810

Franchise and property revenues 596 525 639 750 2,510

Franchise contributions for advertising and other services 312 270 323 427 1,332

Total revenues 1,263 1,198 1,448 1,743 5,652

Restaurant profit 57 54 87 106 304

Operating Profit

250 300 471 482 1,503

Net Income 83 206 283 332 904

Basic earnings per common share 0.28 0.68 0.94 1.10 2.99

Diluted earnings per common share 0.27 0.67 0.92 1.08 2.94

Dividends declared per common share 0.47 0.47 0.47 0.47 1.88

Quarter Second

Quarter Third

Quarter Fourth

Company sales $ 333 $ 359 $ 364 $ 490 $ 1,546

Franchise and property revenues 612 633 645 770 2,660

Franchise contributions for advertising and other services 309 318 330 434 1,391

Total revenues 1,254 1,310 1,339 1,694 5,597

Restaurant profit 61 73 72 105 311

Operating Profit 433 471 480 546 1,930

Net Income 262 289 255 488 1,294

Basic earnings per common share 0.85 0.94 0.83 1.61 4.23

Diluted earnings per common share 0.83 0.92 0.81 1.58 4.14

Dividends declared per common share 0.42 0.42 0.42 0.42 1.68

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.

Changes In and Disagreements with Accountants on Accounting and Financial Disclosure .

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data