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Item 2. Management’s Discussion and Analysis

2022-05-10 compared with 2021-11-03 · 160 added, 289 removed, 276 unchanged (62% of the section changed)

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Percentages may not recompute due to rounding.

and its Subsidiaries (collectively referred to herein as the “Company,” “YUM,” “we,” “us” or “our”) franchise or operate a system of over 52,000 restaurants in more than 150 countries and territories, primarily under the concepts of KFC, Pizza Hut, Taco Bell and The Habit Burger Grill (collectively, the “Concepts”).

The Company’s KFC, Pizza Hut and Taco Bell brands are global leaders of the chicken, pizza and Mexican-style food categories, respectively.

The Habit Burger Grill, a concept we acquired on March 18, 2020, is a fast-casual restaurant concept specializing in made-to-order chargrilled burgers, sandwiches and more.

and its Subsidiaries (collectively referred to herein as the “Company,” “YUM,” “we,” “us” or “our”) franchise or operate a system of over 54,000 restaurants in more than 155 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, respectively.

The Habit Burger Grill, is a fast-casual restaurant concept specializing in made-to-order chargrilled burgers, sandwiches and more.

Of the over 54,000 restaurants, 98% are operated by franchisees.

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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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Drive market and franchise expansion with strong economics and value

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

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

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

Throughout this MD&A, we commonly discuss the following performance metrics:

• Same-store sales growth is the estimated percentage change in system sales of all restaurants that have been open and in the YUM system for one year or more (with the exception of Habit Burger Grill restaurants acquired in the first quarter of 2020 for which we included all sales in the quarter ended March 31, 2020 both before and after the acquisition in the prior year base for purposes of determining same-store sales growth for the year to date ended September 30, 2021), including those temporarily closed.

• Same-store sales growth is the estimated percentage change in system sales of all restaurants that have been open and in the YUM system for one year or more, including those temporarily closed.

From time-to-time restaurants may be temporarily closed due to remodeling or image enhancement, rebuilding, natural disasters, health epidemic or pandemic, landlord disputes or other issues.

Throughout 2020 and continuing into 2021 we have had a significant number of restaurants that were temporarily closed including restaurants closed due to government and landlord restrictions as a result of COVID-19.

The system sales of restaurants we deem temporarily closed remain in our base for purposes of determining same-store sales growth and the restaurants remain in our unit count (see below).

Throughout 2021 we had a significant number of restaurants that were temporarily closed including restaurants closed due to government and landlord restrictions as a result of COVID-19.

Additionally, due to our decision in the quarter ended March 31, 2022, to suspend the operations of our 70 company-owned KFC stores in Russia, such restaurants are considered temporarily closed at March 31, 2022 for purposes of our same-store sales growth calculation and unit count presentation.

We believe same-store sales growth is useful to investors because our results are heavily dependent on the results of our Concepts' existing store base.

Additionally, same-store sales growth is reflective of the strength of our Brands, the effectiveness of our operational and advertising initiatives and local economic and consumer trends.

• Net new unit growth reflects new unit openings offset by permanent store closures, by us and our franchisees.

To determine whether a restaurant meets the definition of a unit we consider whether the restaurant has operations that are ongoing and independent from another YUM unit, serves the primary product of one of our Concepts, operates under a separate franchise agreement (if operated by a franchisee) and has substantial and sustainable sales.

We believe net new unit growth is useful to investors because we depend on net new units for a significant portion of our growth.

Additionally, net new unit growth is generally reflective of the economic returns to us and our franchisees from opening and operating our Concept restaurants.

• Gross unit openings reflects new openings by us and our franchisees.

Net new unit growth reflects gross unit openings offset by permanent store closures, by us and our franchisees.

To determine whether a restaurant meets the definition of a

unit we consider whether the restaurant has operations that are ongoing and independent from another YUM unit, serves the primary product of one of our Concepts, operates under a separate franchise agreement (if operated by a franchisee) and has substantial and sustainable sales.

We believe gross unit openings and net new unit growth are useful to investors because we depend on new units for a significant portion of our growth.

Additionally, gross unit openings and net new unit growth are generally reflective of the economic returns to us and our franchisees from opening and operating our Concept restaurants.

• System sales and System sales excluding the impacts of foreign currency translation (“FX”) reflect the results of all restaurants regardless of ownership, including Company-owned and franchise restaurants .

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All comparisons within this summary are versus the same period a year ago.

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

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

For the quarter ended March 31, 2022, GAAP diluted EPS was $1.36 per share, an increase from $1.07 per share in the quarter ended March 31, 2021, and diluted EPS, excluding Special Items, was $1.05 per share, a decrease from $1.07 per share in the quarter ended March 31, 2021.

Quarterly Financial highlights:

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KFC Division +9 +3 +8 (3) +1

Pizza Hut Division +4 +4 +1 +13 +11

Taco Bell Division +8 +5 +5 +4 +4

Worldwide +8 +5 +4 +12 +3

Year to date Financial highlights:

System Sales, ex FX Same-Store Sales Units GAAP Operating Profit Core Operating Profit

KFC Division +18 +14 +7 +42 +35

Pizza Hut Division +7 +9 +1 +21 +18

Taco Bell Division +14 +12 +3 +16 +16

Pizza Hut Division +3 Even +5 Even +2

Worldwide +8 +3 +6 (6) (5)

+15 +12 +4 +60 +26

(1) Worldwide system sales growth ex F/X for the year to date ended September 30, 2021, includes the benefit of our acquisition of Habit Burger Grill on March 18, 2020.

Same-store sales reflects the inclusion of Habit Burger Grill in the prior year base for periods in the first-quarter of 2020 both before and after the acquisition.

Operating profit results of Habit Burger Grill for the period subsequent to our acquisition are reflected in the consolidated figures.

Additionally:

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

• During the quarter, 997 gross units were opened contributing to the addition of 628 net new units.

• During the quarter, we repurchased 3.4 million shares totaling $407 million at an average price of $121.

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

• Foreign currency translation positively impacted Divisional Operating Profit for the quarter and year to date by $12 million and $55 million, respectively.

Quarter ended Year to date

2021 2020 % B/(W) 2021 2020 % B/(W)

• Foreign currency translation unfavorably impacted Divisional Operating Profit for the quarter by $14 million.

Quarter ended

2022 2021 % B/(W)

Company sales $ 470 $ 476 (1)

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Refranchising (gain) loss (4) (15) (76)

Other (income) expense (2) 4 NM (12) 154 NM

Other (income) expense (6) (6) NM

Total costs and expenses, net 1,038 943 (10)

Operating Profit 509 543 (6)

Investment (income) expense, net (51) (10) 386 (52) (67) (22)

Investment (income) expense, net (7) — NM

Other pension (income) expense — 3 83

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Effective tax rate (0.2) % 20.2 % 20.4 ppts.

1.8 % 14.4 % 12.6 ppts.

(a) See Note 2 for the number of shares used in this calculation.

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Total 54,052 50,788 6

Quarter ended Year to date

2021 2020 2021 2020

Quarter ended

Same-store Sales Growth (Decline) % 3 9

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Our system sales breakdown by Company and franchise sales was as follows:

Quarter ended Year to date

2021 2020 2021 2020

Quarter ended

Company sales (a)

$ 513 $ 486 $ 1,509 $ 1,244

Franchise sales 13,676 12,909

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Foreign Currency Impact on System sales (b)

298 N/A 1,297 N/A

System sales, excluding FX $ 14,421 $ 13,385

Company sales (a)

$ 143 $ 130 $ 423 $ 346

Franchise sales 7,607 7,140

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Foreign Currency Impact on System sales (b)

235 N/A 1,012 N/A

System sales, excluding FX $ 7,962 $ 7,273

Pizza Hut Division

Taco Bell Division

Company sales (a)

$ 13 $ 20 $ 39 $ 57

Franchise sales 2,894 2,672

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Foreign Currency Impact on System sales (b)

59 N/A 267 N/A

System sales, excluding FX $ 3,113 $ 2,880

Taco Bell Division

Pizza Hut Division

Company sales (a)

$ 225 $ 218 $ 656 $ 610

Franchise sales 3,155 3,082

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Company sales (a)

$ 132 $ 118 $ 391 $ 231

Franchise sales 20 15

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Non-GAAP Items, along with the reconciliation to the most comparable GAAP financial measure, as presented below.

Quarter ended Year to date

2021 2020 2021 2020

Quarter ended

Core Operating Profit Growth (Decline) % (5) 33

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Effective Tax Rate excluding Special Items 20.3 % 20.2 %

Quarter ended Year to date

2021 2020 2021 2020

Quarter ended

Company restaurant profit $ 68 $ 84

Company restaurant margin % 14.5 % 17.6 %

Quarter ended Year to date

Quarter ended

Detail of Special Items 2022 2021

Refranchising gain (loss) (a)

$ — $ 2 $ 4 $ 8

Costs associated with acquisition and integration of Habit Burger Grill (See Note 2) — — — (9)

Impairment of Habit Burger Grill goodwill (See Note 2) — (5) — (144)

Unlocking Opportunity Initiative contribution (b)

Charges associated with resource optimization (c)

(4) (32) (7) (32)

Profits from operations in Russia (b)

Other Special Items Income (Expense) (1) —

Special Items Income (Expense) - Operating Profit 10 2

Charges associated with resource optimization - Other pension (expense) income (c)

Interest expense, net (d)

— (34) (34) (34)

Special Items Income (Expense) before Income Taxes (3) (69) (34) (268)

Tax (Expense) Benefit on Special Items (e)

Tax Benefit - Intra-entity transfer of intellectual property (f)

152 25 216 25

Tax (Expense) Benefit on Special Items (c)

Tax Benefit - Newly issued U.S.

foreign tax credit regulations (d)

Special Items Income (Expense), net of tax $ 90 $ 1

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Special Items diluted EPS $ 0.31 $ —

Reconciliation of GAAP Operating Profit to Core Operating Profit

(a) Due to their size and volatility, we have reflected as Special Items those refranchising gains and losses that were recorded in connection with our previously announced plans to have at least 98% franchise restaurant ownership by the end of 2018.

As such, refranchising gains and losses recorded during 2022 and 2021 as Special Items are directly associated with restaurants that were refranchised prior to the end of 2018.

During the quarters ended March 31, 2022 and 2021, we recorded net refranchising gains of $4 million and $2 million, respectively, that have been reflected as a Special Item.

Additionally, we recorded net refranchising gains of less than $1 million and $13 million during the quarters ended March 31, 2022 and 2021, respectively, that have not been reflected as Special Items.

These net gains relate to refranchising of restaurants in 2022 and 2021 that were not part of our aforementioned plans to achieve 98% franchise ownership and that we believe are now more indicative of our expected ongoing refranchising activity.

(b) Our operating results for the quarter ended March 31, 2022, continue to reflect revenues and expenses related to Russia within their historical financial statement line items and operating segments.

However, we have reclassed net Operating Profit attributable to Russia subsequent to the date of our pledge to direct any future net profits from operations in Russia to humanitarian efforts that had not yet been directed to humanitarian efforts as of March 31, 2022, from the Division segment results in which they were earned to Corporate and unallocated.

Such Operating Profit has been reflected within Other (income) expense and reflected as a Special Item.

See further discussion of the situation in Russia within this Management's Discussion and Analysis.

(c) Tax (Expense) Benefit on Special Items was determined based upon the impact of the nature, as well as the jurisdiction of the respective individual components within Special Items.

(d) 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 a result, we reversed a valuation allowance associated with existing foreign tax credit carryforwards that we now believe will be used to offset these now non-creditable taxes in 2022 and future years.

This valuation allowance reversal resulted in a one-time tax benefit of $82 million that was reflected as a Special Item.

Reconciliation of GAAP Operating Profit to Core Operating Profit Quarter ended

GAAP Operating Profit $ 509 $ 543

Special Items Income (Expense) 10 2

Foreign Currency Impact on Divisional Operating Profit (g)

12 N/A 55 N/A

Foreign Currency Impact on Divisional Operating Profit (a)

Core Operating Profit $ 513 $ 541

GAAP Operating Profit $ 291 $ 300

Foreign Currency Impact on Divisional Operating Profit (g)

10 N/A 46 N/A

Foreign Currency Impact on Divisional Operating Profit (a)

Core Operating Profit $ 303 $ 300

Pizza Hut Division

Taco Bell Division

GAAP Operating Profit $ 185 $ 178

Foreign Currency Impact on Divisional Operating Profit (g)

Foreign Currency Impact on Divisional Operating Profit (a)

Core Operating Profit $ 185 $ 178

Taco Bell Division

Pizza Hut Division

GAAP Operating Profit $ 102 $ 102

Foreign Currency Impact on Divisional Operating Profit (g)

Foreign Currency Impact on Divisional Operating Profit (a)

Core Operating Profit $ 104 $ 102

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GAAP Operating Profit (Loss) $ (8) $ —

Foreign Currency Impact on Divisional Operating Profit (g)

Foreign Currency Impact on Divisional Operating Profit (a)

Core Operating Profit (Loss) $ (8) $ —

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GAAP Effective Tax Rate (0.2) % 20.2 %

Impact on Tax Rate as a result of Special Items (e)(f)

(35.9) % (8.8) % (17.9) % (4.6) %

Impact on Tax Rate as a result of Special Items (20.5) % — %

Effective Tax Rate excluding Special Items 20.3 % 20.2 %

As such, refranchising gains and losses recorded during 2021 and 2020 as Special Items are directly associated with restaurants that were refranchised prior to the end of 2018.

During the quarter ended September 30, 2020, we recorded net refranchising gains of $2 million that have been reflected as a Special Item.

During the years to date ended September 30, 2021 and 2020, we recorded net refranchising gains of $4 million and $8 million, respectively, that have been reflected as Special Items.

Additionally, we recorded net refranchising losses of $1 million and net refranchising gains of $7 million during the quarters ended September 30, 2021 and 2020, respectively, that have not been reflected as Special Items.

During the years to date ended September 30, 2021 and 2020, we recorded net refranchising gains of $17 million and $22 million, respectively, that have not been reflected as Special Items.

These net gains and losses relate to refranchising of restaurants in 2021 and 2020 that were not part of our aforementioned plans to achieve 98% franchise ownership and that we believe are now more indicative of our expected ongoing refranchising activity.

(b) On June 24, 2020, the YUM!

Board of Directors approved the establishment of the Company's new global “Unlocking Opportunity Initiative” including a $100 million investment over the next five years to fight inequality by unlocking opportunities for employees, restaurant team members and communities.

The Company contributed $50 million in the quarter ended June 30, 2020 to Yum!

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, we have reflected the associated expense as a Special Item.

(c) During the quarter ended September 30, 2021, we recorded a charge of $4 million to General and administrative expenses, and during the quarter ended September 30, 2020, we recorded charges of $32 million and $1 million to General and administrative expenses and Other pension (expense) income, respectively, related to a resource optimization program initiated in the third quarter of 2020.

During the years to date ended September 30, 2021 and 2020, we recorded charges of $7 million and $32 million to General and administrative expenses, respectively, and a credit of $1 million and a charge of $1 million, respectively, to Other pension (expense) income related to the resource optimization program.

This program is part of our efforts to optimize our resources, reallocating them toward critical areas of the business that will drive future growth.

These critical areas include accelerating our digital, technology and innovation capabilities to deliver a modern, world-class team member and customer experience and improve unit economics.

Due to the size and scope of the resource optimization program, these amounts have been reflected as Special Items.

(d) During the quarter ended June 30, 2021, certain subsidiaries of the Company redeemed $1,050 million aggregate principal amount of 5.25% Subsidiary Senior Unsecured Notes due in 2026 (the “2026 Notes”).

The redemption amount was equal to 102.625% of the $1,050 million aggregate principal amount redeemed, reflecting a $28 million “call premium”.

We recognized the call premium and the write-off of $6 million of unamortized debt issuance costs associated with the 2026 Notes within Interest expense, net which we reflected as Special Items due to their collective size and the fact that the amounts are not indicative of our ongoing interest expense.

During the quarter ended September 30, 2020, KFC Holding Co., Pizza Hut Holdings, LLC and Taco Bell of America, LLC, each of which a wholly-owned subsidiary of the Company, issued a notice of redemption for $1,050 million aggregate principal amount of 5.00% Subsidiary Senior Unsecured Notes due in 2024 (the "2024 Notes").

The redemption amount included a $26 million call premium plus accrued and unpaid interest to the date of redemption of October 9, 2020.

We recorded the call premium, $6 million of unamortized debt issuance costs associated with the 2024 Notes and $2 million of accrued and unpaid interest associated with the period of time from prepayment of the 2024 Notes with the Trustee on September 25, 2020, to their redemption date within Interest expense, net and reflected the charges as Special Items due to their collective size and the fact that the amounts are not indicative of our ongoing interest expense.

(e) Tax (Expense) Benefit on Special Items was determined based upon the impact of the nature, as well as the jurisdiction of the respective individual components within Special Items.

Additionally, during the quarter ended September 30, 2021, we recorded as a Special Item a $10 million tax benefit related to prior refranchisings for which the associated pre-tax gain or loss was recorded as Special.

(f) During the quarter ended September 30, 2020, the United Kingdom (“UK”) Finance Act 2020 was enacted resulting in an increase in the UK corporate income tax rate from 17% to 19%.

As a result, in the quarter ended September 30, 2020, we remeasured the deferred tax assets originally recorded as a Special Item in the fourth quarter of 2019 as part of an intercompany restructuring of certain intellectual property (“IP”) rights into the UK and recognized an additional $25 million deferred tax benefit as a Special Item.

During the quarter ended June 30, 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 quarter ended June 30, 2021, we remeasured the deferred tax assets originally recorded as a Special Item as part of the aforementioned 2019 intercompany restructuring of certain IP rights into the UK and recognized an additional $64 million deferred tax benefit as a Special Item.

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 completed intra-entity transfers of certain KFC IP rights from subsidiaries in the UK to subsidiaries in Switzerland.

With the transfer 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 tax benefit of $152 million as a Special Item in the quarter ended September 30, 2021.

(g) The foreign currency impact on reported Operating Profit is presented in relation only to the immediately preceding year presented.

(a) The foreign currency impact on reported Operating Profit is presented in relation only to the immediately preceding year presented.

When determining applicable Core Operating Profit growth percentages, the Core Operating Profit for the current year should be compared to the prior year GAAP Operating Profit adjusted only for any prior year Special Items Income (Expense).

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Quarter ended 3/31/2022

KFC Division Pizza Hut Division Taco Bell Division Habit Burger Grill Division Corporate and Unallocated Consolidated

KFC Division Taco Bell Division Pizza Hut Division Habit Burger Grill Division Corporate and Unallocated Consolidated

GAAP Operating Profit (Loss) $ 291 $ 185 $ 102 $ (8) $ (61) $ 509

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Quarter ended 3/31/2021

KFC Division Pizza Hut Division Taco Bell Division Habit Burger Grill Division Corporate and Unallocated Consolidated

GAAP Operating Profit (Loss) $ 278 $ 89 $ 186 $ (7) $ (75) $ 471

Franchise and property revenues 340 134 165 — — 639

Franchise contributions for advertising and other services 116 89 118 — — 323

General and administrative expenses 81 51 33 11 81 257

Franchise and property expenses 7 (2) 8 — — 13

Franchise advertising and other services expense 111 85 117 — — 313

Refranchising (gain) loss — — — — (9) (9)

Other (income) expense — 2 (1) (1) 4 4

Company restaurant profit $ 21 $ 2 $ 60 $ 3 $ 1 $ 87

Company sales $ 130 $ 20 $ 218 $ 118 $ — $ 486

Company restaurant margin % 16.3 % 8.2 % 27.8 % 2.2 % N/A 17.8 %

Year to date 9/30/2021

KFC Division Pizza Hut Division Taco Bell Division Habit Burger Grill Division Corporate and Unallocated Consolidated

GAAP Operating Profit (Loss) $ 932 $ 306 $ 560 $ 6 $ (167) $ 1,637

Franchise and property revenues 1,124 435 518 3 — 2,080

Franchise contributions for advertising and other services 452 273 380 — — 1,105

General and administrative expenses 239 128 104 35 183 689

Franchise and property expenses 49 9 23 — — 81

Franchise advertising and other services expense 438 275 377 — — 1,090

Refranchising (gain) loss — — — — (21) (21)

Other (income) expense (5) (7) (5) — 5 (12)

Company restaurant profit $ 77 $ 3 $ 161 $ 38 $ — $ 279

Company sales $ 423 $ 39 $ 656 $ 391 $ — $ 1,509

Company restaurant margin % 18.3 % 6.9 % 24.5 % 9.7 % N/A 18.5 %

Year to date 9/30/2020

KFC Division Pizza Hut Division Taco Bell Division Habit Burger Grill Division Corporate and Unallocated Consolidated

KFC Division Taco Bell Division Pizza Hut Division Habit Burger Grill Division Corporate and Unallocated Consolidated

GAAP Operating Profit (Loss) $ 300 $ 178 $ 102 $ — $ (37) $ 543

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Company restaurant margin % 16.6 % 24.1 % 6.7 % 8.8 % N/A 17.6 %

Items Impacting Reported Results and Expected to Impact Future Results

The following items impacted reported results in 2021 and/or 2020 and/or are expected to impact future results.

Items Impacting Reported Results and Reasonably Likely to Impact Future Results

The following items impacted reported results in 2022 and/or 2021 and/or reasonably likely to impact future results.

See also the Detail of Special Items section of this MD&A for other items similarly impacting results.

Russia Invasion of Ukraine

Given the Russian invasion of Ukraine, during the quarter ended March 31, 2022 we announced the suspension of all investment and restaurant development efforts in Russia as well as the operations of our 70 company-owned KFC restaurants in Russia and that we are finalizing an agreement with our Pizza Hut master franchisee to suspend all Pizza Hut restaurant

Further, we pledged to direct any future net profits from operations in Russia subsequent to the invasion to humanitarian efforts.

In addition to these actions, we have begun a process aimed at transferring ownership to local operators.

Our business in Russia consists of the aforementioned company-owned KFC restaurants, approximately 1,100 franchisee-owned KFC restaurants and 50 Pizza Hut restaurants that are operated under a master franchise agreement.

Historically, our Russian business has constituted approximately 3% of our total operating profit and 2% of our total system sales.

During the quarter ended March 31, 2022, our Core Operating Profits in Russia declined versus the first quarter of last year, negatively impacting consolidated YUM and KFC Division Core Operating Profit growth by one and two percentage points, respectively.

On a full year basis, we expect that the year-over-year decline in Core Operating Profits in Russia will negatively impact YUM Core Operating Profit growth by three percentage points.

See Note 1 for a discussion regarding our net asset base in Russia.

In late 2019, a novel strain of coronavirus, COVID-19, was first detected and in March 2020, the World Health Organization declared COVID-19 a global pandemic.

Throughout 2020 and into 2021, COVID-19 has spread throughout the U.S.

and the rest of the world and governmental authorities have implemented measures to reduce the spread of COVID-19.

These measures include restrictions on travel outside the home and other limitations on business and other activities as well as encouraging social distancing.

As a result of COVID-19, we and our franchisees have experienced significant store closures and instances of reduced store-level operations, including reduced operating hours and dining-room closures.

As a result of COVID-19, governmental authorities around the world implemented measures to reduce the spread of COVID-19, some of which remain in place today.

These measures have included and in some instances continue to include restrictions on travel outside the home and other limitations on business and other activities as well as encouraging social distancing.

As a result of COVID-19, we and our franchisees have experienced store closures and instances of reduced store-level operations, including reduced operating hours and dining-room closures.

The impact on our sales in each of our markets has been dependent on the timing, severity and duration of the outbreak, measures implemented by government authorities to reduce the spread of COVID-19, as well as our reliance on dine-in sales in the market.

Our results were significantly impacted by the impacts of COVID-19 in the year ended December 31, 2020, as evidenced by our worldwide same-store sales decline of 6%.

Overall, our sales declines were primarily driven by temporary store closures, which peaked in early April 2020 at about 11,000 restaurants and ended the year at about 830 restaurants, which meant roughly 98% of our system was open in a full or limited capacity at year end.

In addition to the loss of sales due to restaurants being temporarily closed, we also lost sales due to dining room closures or other limitations on access.

Beginning in 2020 and continuing through the third quarter of 2021 we have been able to mitigate the loss of sales due to temporary unit closures, dining room closures or other limitations on access through the strength of our off-premise channels, aided by increasing consumer access to our brands via digital channels.

As a result, our same-store sales in the quarter and year to date ended September 30, 2021, increased 5% and 12%, respectively, driven by strong performance in developed markets such as North America and the United Kingdom.

Additionally, during the quarter ended September 30, 2021, we began to see significant recovery across Europe as restrictions eased throughout the quarter as well as pockets of strength in emerging markets including the Middle East, Latin America, Africa and India.

We have also seen strong net new unit development of 1,798 units during the year to date ended September 30, 2021, which we believe is primarily a result of improving unit-level economics, our franchisees’ financial strength and commitment to our Concepts, the inherent competitive advantages of the Quick Service Restaurant sector throughout the COVID-19 pandemic, our Concepts’ off-premise and digital capabilities, as well as selective use of development incentives with certain franchisees.

Our third quarter 2021 same-store sales results include the impact of approximately 500 restaurants remaining temporarily closed as of September 30, 2021, due to COVID-19.

These temporary closures were primarily KFC and Pizza Hut restaurants located in countries where COVID-19 government restrictions remained elevated, including certain parts of Asia and Latin America as well as Australia.

Assets located in malls, transportation centers, airports and other similar locations continue to be pressured, making up many of the temporary closures.

As we ended the first quarter of 2022, COVID-19 outbreaks and resulting government restrictions limiting mobility continued to impact sales in a few key markets, primarily in China.

Excluding China, our YUM consolidated same-store sales growth was 6%, our KFC Division same-store sales growth was 10% and our Pizza Hut Division same-store sales growth was 2% for the quarter ended March 31, 2022.

The COVID-19 situation is ongoing, and its dynamic nature makes it difficult to forecast any impacts on the Company's results for the balance of 2022.

The ultimate pace of our recovery will largely depend on the pace of restaurant reopenings and the continuation of current sales trends, although we expect continuing adverse impacts from COVID-19 in certain parts of the world.

In addition, for our restaurants that prominently feature drive-thru, carryout and delivery options, COVID-19 has in many cases contributed to an increase in sales during 2020 and the year to date 2021.

If the impact of COVID-19 recedes, in-person dining restrictions are lifted or lessened and the restaurant industry in general returns to more normal operations, the benefits to sales experienced by certain of our restaurants, including our Pizza Hut delivery restaurants, could wane and our results could be negatively impacted.

As 98% of our restaurants are operated by approximately 2,000 independent franchisees across the world, we are closely monitoring the impact of COVID-19 on our franchisees' financial condition.

Franchise Bad Debt Expense

We experienced significant quarterly fluctuations in franchise bad debt expense in 2020 due in large part to the uncertainties associated with COVID-19.

During the quarter ended September 30, 2021, we recognized net bad debt expense of $3 million related to short-term accounts receivable due from our franchisees for royalties, rent and other services we provide, which were primarily reflected within Franchise and property expenses.

This net bad debt expense of $3 million compared to $21 million of net bad debt recoveries recognized in the quarter ended September 30, 2020, and thus negatively impacted Operating Profit growth by $24 million quarter-over-quarter.

During the year to date ended September 30, 2021, we recognized net bad debt recoveries of $7 million related to short-term accounts receivable due from our franchisees for royalties, rent and other services we provide, which were primarily reflected within Franchise and property expenses.

These net bad debt recoveries of $7 million compared to $21 million of bad debt expense recognized in the year to date ended September 30, 2020, and thus benefited Operating Profit growth by $28 million year-over-year.

Due to the quarterly fluctuations in franchise bad debt expense in 2020 discussed above, we expect quarterly operating profit growth to be negatively impacted in the fourth quarter of 2021 as we lap net bad debt recoveries of $8 million in the quarter ended December 31, 2020.

Investment in Devyani

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At the time of the refranchisings, the fair value of this minority interest was estimated to be approximately $31 million.

During the quarter ended September 30, 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 Condensed Consolidated Statements of Income and recognized pre-tax investment income of $52 million, in the quarter ended September 30, 2021.

Investment in Grubhub, Inc.

In April of 2018 we purchased 2.8 million shares of Grubhub common stock for $200 million.

In the quarter ended September 30, 2020, we sold our entire investment in Grubhub and received proceeds of $206 million.

While we held our investment in Grubhub common stock we recognized changes in the fair value in our investment in our Condensed Consolidated Statements of Income.

For the quarter and year to date ended September 30, 2020, we recognized pre-tax investment income of $8 million and $69 million, respectively, related to changes in fair value of our investment in Grubhub common stock.

On August 16, 2021, Devyani executed an initial public offering and subsequently the fair value of this investment became readily determinable.

The KFC Division has 27,372 units, 86% of which are located outside the U.S.

Additionally, 99% of the KFC Division units were operated by franchisees as of September 30, 2021.

Quarter ended Year to date

% B/(W) % B/(W)

2021 2020 Reported Ex FX 2021 2020 Reported Ex FX

Additionally, 99% of the KFC Division units were operated by franchisees as of March 31, 2022.

Quarter ended

2022 2021 Reported Ex FX

System Sales $ 7,733 $ 7,273 6 9

Same-Store Sales Growth (Decline) % 6 (4) N/A N/A 14 (11) N/A N/A

Same-Store Sales Growth (Decline) % 3 8 N/A N/A

Company sales $ 126 $ 133 (5) —

4 unchanged sentences

Company restaurant margin % 14.1 % 16.6 % (2.5) ppts.

18.3 % 11.2 % 7.1 ppts.

G&A expenses $ 84 $ 73 (15) (18)

8 unchanged sentences

Company sales and Company restaurant margin %

The quarterly and year to date increases in Company sales, excluding the impacts of foreign currency translation, were driven by company same-store sales growth of 9% and 22% for the quarter and year to date, respectively, partially offset by refranchising.

The quarterly and year to date increases in Company restaurant margin % were driven by same-store sales growth.

Company sales, excluding the impacts of foreign currency translation, were flat including the impact of a company same-store sales decline of 1%.

The quarterly decrease in Company restaurant margin percentage was driven by commodity and wage inflation.

Franchise and property revenues

The quarterly and year to date increases in Franchise and property revenues, excluding the impacts of foreign currency translation, were driven by franchise same-store sales growth of 6% and 14% for the quarter and year to date, respectively, and unit growth.

The quarterly increase in G&A, excluding the impact of foreign currency translation, was driven by higher professional fees.

The year to date increase in G&A, excluding the impact of foreign currency translation, was driven by higher expenses related to our annual incentive compensation program and higher professional fees, partially offset by lower travel related costs.

The quarterly increase in Franchise and property revenues, excluding the impacts of foreign currency translation, was driven by franchise same-store sales growth of 4% and unit growth.

The quarterly increase in G&A, excluding the impact of foreign currency translation, was driven by higher headcount and salaries and higher professional fees.

Operating Profit

The quarterly increase in Operating Profit, excluding the impact of foreign currency translation, was driven by same-store sales growth and unit growth, partially offset by current year net bad debt expense lapping prior year net bad debt recoveries for past due franchise receivables and higher G&A.

The year to date increase in Operating Profit, excluding the impact of foreign currency translation, was driven by same-store sales growth, unit growth, current year net bad debt recoveries lapping prior year net bad debt expense for past due franchise receivables and lapping the prior year write-off of software no longer being used, partially offset by higher G&A.

Pizza Hut Division

The Pizza Hut Division has 18,007 units, 64% of which are located outside the U.S.

The Pizza Hut Division uses multiple distribution channels including delivery, dine-in and express (e.g.

airports) and includes units operating under both the Pizza Hut and Telepizza brands.

Additionally, over 99% of the Pizza Hut Division units were operated by franchisees as of September 30, 2021.

Quarter ended Year to date

% B/(W) % B/(W)

2021 2020 Reported Ex FX 2021 2020 Reported Ex FX

The quarterly increase in Operating Profit, excluding the impact of foreign currency translation, was driven by same-store sales growth and unit growth, partially offset by current year bad debt expense lapping prior year net bad debt recoveries for past due franchise receivables and higher G&A.

Taco Bell Division

The Taco Bell Division has 7,831 units, 90% of which are in the U.S.

The Company owned 7% of the Taco Bell units in the U.S.

as of March 31, 2022.

Quarter ended

2022 2021 Reported Ex FX

System Sales $ 3,108 $ 2,880 8 8

Same-Store Sales Growth (Decline) % 4 (3) N/A N/A 9 (8) N/A N/A

Same-Store Sales Growth % 5 9 N/A N/A

Company sales $ 214 $ 208 3 3

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Company restaurant margin % 21.9 % 24.1 % (2.2) ppts.

6.9 % 3.4 % 3.5 ppts.

G&A expenses $ 36 $ 31 (17) (17)

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Total 7,831 7,493 5

Company sales

The quarterly and year to date decreases in Company sales, excluding the impacts of foreign currency translation, were driven by the refranchising of stores in the UK in the quarter ended March 31, 2021, partially offset by company same-store sales growth of 5% and 7% in the quarter and year to date, respectively.

Company sales and Company restaurant margin %

The quarterly increase in Company sales was driven by company same-store sales growth of 5% and unit growth partially offset by refranchising.

The quarterly decrease in Company restaurant margin percentage was driven by commodity and wage inflation and partially offset by same-store sales growth.

Franchise and property revenues

The quarterly decrease in G&A, excluding the impacts of foreign currency translation, was driven by lapping higher expenses in the prior year related to our annual incentive compensation program, lower professional fees and lower headcount.

The year to date decrease in G&A, excluding the impacts of foreign currency translation, was driven by lower headcount, lapping higher expenses in the prior year related to our annual incentive compensation program and lower professional fees.

The quarterly increases in Franchise and property revenues was driven by franchise same-store sales growth of 5% and unit growth.

The quarterly increase in G&A was driven by higher headcount and salaries and higher professional fees.

Operating Profit

The quarterly increase in Operating Profit, excluding the impacts of foreign currency translation, was driven by same-store sales growth and lower G&A, partially offset by higher Franchise advertising and other services expense primarily related to digital and technology expenses.

The year to date increase in Operating Profit, excluding the impacts of foreign currency translation, was driven by same-store sales growth, lower G&A and current year net bad debt recoveries lapping prior year net bad debt expense for past due franchise receivables, partially offset by higher Franchise advertising and other services expense primarily related to digital and technology expenses.

Taco Bell Division

The Taco Bell Division has 7,619 units, the vast majority of which are in the U.S.

The Company owned 7% of the Taco Bell units in the U.S.

as of September 30, 2021.

Quarter ended Year to date

% B/(W) % B/(W)

2021 2020 Reported Ex FX 2021 2020 Reported Ex FX

The quarterly increase in Operating Profit was driven by same-store sales growth and unit growth partially offset by higher restaurant operating costs and higher G&A.

Pizza Hut Division

The Pizza Hut Division has 18,518 units, 65% of which are located outside the U.S.

The Pizza Hut Division uses multiple distribution channels including delivery, dine-in and express (e.g.

airports) and includes units operating under both the Pizza Hut and Telepizza brands.

Additionally, over 99% of the Pizza Hut Division units were operated by franchisees as of March 31, 2022.

Quarter ended

2022 2021 Reported Ex FX

System Sales $ 3,160 $ 3,096 2 3

Same-Store Sales Growth % 5 3 N/A N/A 12 (2) N/A N/A

Same-Store Sales Growth (Decline) % Even 12 N/A N/A

Company sales $ 5 $ 14 (66) (66)

2 unchanged sentences

Total revenues $ 244 $ 251 (3) (2)

Company restaurant profit $ 53 $ 60 (13) (13) $ 161 $ 152 5 5

Company restaurant profit $ — $ 1 NM NM

Company restaurant margin % (0.7) % 6.7 % (7.4) ppts.

24.5 % 25.0 % (0.5) ppts.

G&A expenses $ 50 $ 40 (22) (22)

1 unchanged sentence

Franchise advertising and other services expense 87 94 7 7

Operating Profit $ 184 $ 186 (1) (1) $ 560 $ 484 16 16

Operating Profit $ 102 $ 102 Even 2

% Increase (Decrease)

3 unchanged sentences

Total 18,518 17,710 5

Company sales and Company restaurant margin %

The quarterly and year to date increases in Company sales were driven by same-store sales growth of 2% and 7% for the quarter and year to date, respectively, and unit growth.

The quarterly decrease in Company restaurant margin percentage was driven by higher labor costs, higher advertising expenses, commodity inflation and higher other restaurant operating costs, partially offset by same-store sales growth.

The year to date decrease in Company restaurant margin percentage was driven by higher labor costs, higher other restaurant operating costs, higher advertising costs and commodity inflation, partially offset by same-store sales growth.

Company sales

The quarterly decrease in Company sales, excluding the impacts of foreign currency translation, was driven by the refranchising of stores in the United Kingdom.

Franchise and property revenues

The quarterly and year to date increases in Franchise and property revenues were driven by franchise same-store sales growth of 5% and 12%, respectively, and unit growth.

The quarterly increase in G&A was driven by higher expenses related to our annual incentive compensation programs and higher professional fees.

The year to date decrease in G&A was driven by lower headcount and lapping higher prior year severance expenses, offset by higher expenses related to our annual incentive compensation programs.

The quarterly increase in Franchise and property revenues, excluding the impacts of foreign currency translation, was driven by the recognition of franchise fees related to unexercised development rights arising from a master franchise agreement and unit growth.

The quarterly increase in G&A, excluding the impacts of foreign currency translation, was driven by higher headcount and salaries and higher professional fees.

Operating Profit

The quarterly decrease in Operating Profit was driven by higher restaurant costs and higher G&A expenses partially offset by same-store sales growth and unit growth.

The year to date increase in Operating Profit was driven by same-store sales growth, unit growth and lower G&A expenses partially offset by higher restaurant costs.

The quarterly increase in Operating Profit, excluding the impacts of foreign currency translation, was driven by the recognition of franchise fees related to unexercised development rights arising from a master franchise agreement and unit growth, partially offset by higher G&A.

Habit Burger Grill Division

1 unchanged sentence

The Company owned 90% of the Habit Burger Grill units in the U.S.

as of September 30, 2021.

During the quarter ended September 30, 2021, The Habit Burger Grill opened 8 gross new restaurants and reported same-store sales growth of 11%.

Total revenues and Operating Profit were $133 million and $1 million, respectively, for the quarter ended September 30, 2021.

During the year to date ended September 30, 2021, The Habit Burger Grill opened 18 gross new restaurants and reported same-store sales growth of 18%.

Total revenues and Operating Profit were $394 million and $6 million, respectively, for the year to date ended September 30, 2021.

as of March 31, 2022.

Quarter ended

2022 2021 Reported Ex FX

System Sales $ 145 $ 136 6 6

Same-Store Sales Growth % (a)

Total revenues $ 126 $ 122 3 3

Operating Profit (Loss) $ (8) $ — NM NM

(a) Beginning with the quarter ended March 31, 2022, our Habit Burger Grill Division adopted a reporting calendar change as discussed in Note 1.

The impact of this change in reporting calendar was not significant, and accordingly, prior year amounts in these Condensed Consolidated Financial Statements and accompanying Management's Discussion and Analysis have not been restated.

System sales growth, excluding the impact of the reporting calendar change, was 17% for the quarter ended March 31, 2022.

Unit Count 3/31/2022 3/31/2021 % Increase (Decrease)

Franchise 46 36 28

Company-owned 285 257 11

Total 331 293 13

Corporate & Unallocated

Quarter ended Year to date

(Expense) / Income 2021 2020 % B/(W) 2021 2020 % B/(W)

Quarter ended

(Expense) / Income 2022 2021 % B/(W)

Corporate and unallocated G&A $ ( 71 ) $ ( 50 ) (42)

Unallocated Company restaurant expenses — 1 NM — — NM

Unallocated Franchise and property expenses — — (70) — (3) 118

Unallocated Company restaurant expenses — — NM

Unallocated Refranchising gain (loss) 4 15 (76)

Unallocated Other income (expense) (2) (4) NM (5) (153) NM

Investment income (expense), net (See Note 9) 51 10 386 52 67 (22)

Unallocated Other income (expense) 6 ( 2 ) NM

Investment income (expense), net (See Note 8) 7 — NM

Other pension income (expense) (See Note 9)

(1) (4) 74 (6) (9) 34

Interest expense, net ( 118 ) ( 131 ) 11

1 unchanged sentence

Effective tax rate (See Note 6) ( 0.2 ) % 20.2 % 20.4 ppts.

1.8 % 14.4 % 12.6 ppts.

Corporate and unallocated G&A

The quarterly decrease in Corporate and Unallocated G&A expense was driven by lapping higher prior year costs associated with a voluntary early retirement program offered to our U.S.

based employees and a worldwide severance program (see Note 9) and lapping prior year higher charitable contributions, partially offset by higher current year expenses related to our annual incentive compensation programs and increased headcount supporting our technology initiatives.

The year to date decrease in Corporate and Unallocated G&A expense was driven by lapping higher prior year costs for charitable contributions including $50 million related to our “Unlocking Opportunity Initiative” (see Note 9), lapping prior year costs associated with a voluntary early retirement program offered to our U.S.

based employees and a worldwide severance program (see Note 9) and lower professional fees including lapping prior year costs associated with the acquisition of Habit Burger Grill, offset by higher current year expenses related to our annual incentive compensation programs, higher share-based compensation expense and increased headcount supporting our technology initiatives.

Unallocated Other income (expense)

Unallocated Other income (expense) for the quarter and year to date ended September 30, 2020, includes charges of $5 million and $144 million, respectively, related to the impairment of Habit Burger Grill goodwill (see Note 2).

The quarterly increase in Corporate and unallocated G&A expense was driven by higher headcount and salaries including personnel associated with our 2021 investments in digital and technology companies, higher meeting costs and higher professional fees.

Interest expense, net

The quarterly decrease in Interest expense, net was primarily driven by lapping $34 million in expense representing a prior year call premium and unamortized debt issuance costs write-off associated with the prior year redemption of YUM Subsidiary Senior Unsecured Notes due in 2024.

The year to date increase in Interest expense, net was primarily driven by higher borrowings offset by a lower weighted-average interest rate.

The quarterly decrease in Interest expense, net was primarily driven by $12 million of previously unamortized debt issuance costs written off during the quarter ended March 31, 2021 due to the refinancing of our Credit Agreement.

Consolidated Cash Flows

Net cash provided by operating activities was $253 million in 2022 versus $324 million in 2021.

The increase was largely driven by an increase in Operating profit before Special Items, the lapping of our $50 million contribution related to our “Unlocking Opportunity Initiative” and a decrease in income tax payments, partially offset by the timing of accounts receivable collections.

Net cash used in investing activities was $123 million in 2021 versus $269 million in 2020.

The change was primarily driven by the lapping of our prior year acquisition of The Habit Restaurants, Inc., the current year sale of certain mutual fund investments and higher refranchising proceeds in the current year, partially offset by the lapping of prior year proceeds from the sale of our investment in Grubhub, Inc.

common stock, the current year acquisition of Dragontail Systems Limited and higher current year capital spending.

Net cash used in financing activities was $881 million in 2021 versus net cash provided by financing activities of $24 million in 2020.

The change was primarily driven by higher share repurchases.

The decrease was largely driven by an increase in incentive compensation payments and a decrease in Operating profit before Special Items.

Net cash used in investing activities was $29 million in 2022 versus net cash provided by investing activities of $14 million in 2021.

The change was primarily driven by the lapping of our prior year sale of certain mutual fund investments.

Net cash used in financing activities was $377 million in 2022 versus $563 million in 2021.

The change was primarily driven by higher net borrowings in 2022, partially offset by higher share repurchases.

Liquidity and Capital Resources

Our primary sources of liquidity are cash generated by operations, cash on hand and our Revolving Facility (as defined below).

We have historically generated substantial cash flows from the operations of our Company-owned stores and from our extensive franchise operations, which require a limited YUM investment.

Our annual operating cash flows have historically been in excess of $1 billion.

It is our intent to use these operating cash flows to continue to invest in growing our business and pay a meaningful dividend, with any remaining excess then returned to shareholders through share repurchases.

To the extent operating cash flows plus other sources of cash do not cover our anticipated cash needs, we maintain a $1.25 billion Revolving Facility under our Credit Agreement that was undrawn as of September 30, 2021.

We believe that our existing cash from operations, cash on hand and availability under our Revolving Facility, will be sufficient to fund our operations, anticipated capital expenditures and debt repayment obligations over the next twelve months.

We have historically generated substantial cash flows from our extensive franchise operations, which require a limited YUM investment, and from the operations of our Company-owned stores.

Our annual operating cash flows have been in excess of $1.3 billion in each of the past three years and we expect that to continue to be the case in 2022.

It is our intent to use these operating cash flows to continue to invest in growing our business and pay a competitive dividend, with any remaining excess then returned to shareholders through share repurchases.

To the extent operating cash flows plus other sources of cash do not cover our anticipated cash needs, we maintain a $1.25 billion Revolving Facility under our Credit Agreement (see Note 10), of which $174 million was drawn as of March 31, 2022.

We believe that our ongoing cash from operations, cash on hand, which was approximately $350 million at March 31, 2022, and availability under our Revolving Facility will be sufficient to fund our cash requirements over the next twelve months.

There have been no material changes to the disclosures made in Item 7 of the Company's 2021 Form 10-K regarding our material cash requirements.

Due to the ongoing significance of our debt obligations, we are providing the update below.

Debt Instruments

As of September 30, 2021, approximately 93%, including the impact of interest rate swaps, of our $11.3 billion of total debt outstanding, excluding finance leases, is fixed with an effective overall interest rate of approximately 4.2%.

As of March 31, 2022, approximately 92%, including the impact of interest rate swaps, of our $11.4 billion of total debt outstanding, excluding finance leases, is fixed with an effective overall interest rate of approximately 4.3%.

We are managing a capital structure which reflects consolidated leverage, net of available cash, in-line with our target of ~5.0x EBITDA, and which we believe provides an attractive balance between optimized interest rates, duration and flexibility with diversified sources of liquidity and maturities spread over multiple years.

We have credit ratings of BB+ (Standard & Poor's)/Ba2 (Moody's) with a balance sheet consistent with highly-levered peer restaurant franchise companies.

The following table summarizes the future maturities of our outstanding long-term debt, excluding finance leases and debt issuance costs and discounts, as of September 30, 2021.

The following table summarizes the future maturities of our outstanding long-term debt, excluding finance leases and debt issuance costs and discounts, as of March 31, 2022.

2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2037 2043 Total

3 unchanged sentences

YUM Senior Unsecured Notes 325 600 800 1,050 $ 1,100 $ 325 $ 275 4,475

Revolving Facility 174 174

Total $ 55 $ 398 $ 87 $ 692 $ 1,780 $ 1,640 $ 1,980 $ 565 $ 807 $ 1,732 $ 1,100 $ 325 $ 275 $ 11,436

Securitization Notes include five series of senior secured notes issued by Taco Bell Funding, LLC (the “Issuer”) totaling $3.8 billion with fixed interest rates ranging from 1.946% to 4.970%.

The Securitization Notes are secured by substantially all of the assets of the Issuer and the Issuer’s special purpose, wholly-owned subsidiaries (collectively with the Issuer, the “ Securitization Entities ” ), and include a lien on all existing and future U.S.

Taco Bell franchise and license agreements and the royalties payable thereunder, existing and future U.S.

Taco Bell intellectual property, certain transaction accounts and a pledge of the equity interests in asset-owning Securitization Entities.

The Securitization Notes contain cross-default provisions whereby the failure to pay principal on any outstanding Securitization Notes will constitute an event of default under any other Securitization Notes.

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 Class A-2-II Notes of $480 million and 2018 Class A-2-I Notes of $804 million.

The remaining net proceeds were distributed to Taco Bell Corp.

to pay certain transaction-related expenses, for general corporate purposes and may also be used to return capital to shareholders of the Company.

See Note 11 for details regarding our refinance of the Securitization Notes during the quarter ended September 30, 2021.

Credit Agreement includes senior secured credit facilities consisting of a $750 million Term Loan A facility (the “Term Loan A Facility”), a $1.5 billion Term Loan B facility (the “Term Loan B Facility”) and a $1.25 billion revolving facility (the “Revolving Facility”) issued by KFC Holding Co., Pizza Hut Holdings, LLC and Taco Bell of America, LLC (collectively, the “Borrowers”), each of which is a wholly-owned subsidiary of the Company.

Our Revolving Facility was undrawn as of September 30, 2021.

The interest rates applicable to the Term Loan A Facility and the Revolving Facility range from 0.75% to 1.50% plus LIBOR or from 0.00% to 0.50% plus the Base Rate, at the Borrowers’ election, based upon the total net leverage ratio of the Borrowers and the Specified Guarantors (as defined in the Credit Agreement).

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.

Our Term Loan A Facility and Term Loan B Facility contain cross-default provisions whereby the failure to pay principal of or otherwise perform any agreement or condition under indebtedness of certain subsidiaries with a principal amount in excess of $100 million will constitute an event of default under the Credit Agreement.

See Note 11 for details regarding our refinance of the Credit Agreement during the quarter ended March 31, 2021.

Subsidiary Senior Unsecured Notes include $750 million aggregate principal amount of 4.75% Subsidiary Senior Unsecured Notes due 2027.

Our Subsidiary Senior Unsecured Notes contain cross-default provisions whereby the acceleration of the maturity of the indebtedness of certain subsidiaries with a principal amount in excess of $100 million or the failure to pay principal of such indebtedness will constitute an event of default under the Subsidiary Senior Unsecured Notes.

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 for 2026 (the “2026 Notes”).

The redemption amount was equal to 102.625% of the principal amount redeemed, reflecting a “call premium”.

YUM Senior Unsecured Notes include seven series of senior unsecured notes issued by Yum!

totaling $4.5 billion with fixed interest rates ranging from 3.625% to 7.75%.

Our YUM Senior Unsecured Notes contain cross-default provisions

whereby the acceleration of the maturity of any of our indebtedness or the failure to pay principal of such indebtedness above certain thresholds will constitute an event of 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.

On April 1, 2021, Yum!

issued $1.1 billion aggregate principal amount of 4.625% YUM Senior Unsecured Notes due January 31, 2032 (the “2032 Notes”).

We used the net proceeds from the 2032 Notes and cash on hand to fund the redemption of the 2026 Notes discussed above.

On June 30, 2021, YUM!

issued a notice of redemption for August 2, 2021 for $350 million aggregate principal amount of 3.75% YUM Senior Unsecured Notes due November 1, 2021 (the “2021 Notes”).

The redemption amount was equal to 100% of the $350 million aggregate principal amount redeemed, plus accrued interest to the date of redemption.

See Note 10 for details on the Securitization Notes, the Credit Agreement, Subsidiary Senior Unsecured Notes and YUM Senior Unsecured Notes.

On February 23, 2022, Yum!

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

The 2025 Notes were redeemed subsequent to the first quarter, on April 1, 2022, at an amount equal to 103.875% of the aggregate principal amount of the 2025 Notes, reflecting a $23 million “call premium”, plus accrued and unpaid interest to the date of redemption.

Also subsequent to the first quarter, on April 1, 2022, Yum!

issued $1.0 billion aggregate principal amount of 5.375% YUM Senior Unsecured Notes due April 1, 2032 (the “April 2032 Notes”).

The net proceeds from the April 2032 Notes were used to fund the redemption of the 2025 Notes discussed above and for general corporate purposes.

The redemption of the 2025 Notes and issuance of the April 2032 Notes are not included in the table above.

New Accounting Pronouncements Not Yet Adopted

6 unchanged sentences

Quantitative and Qualitative Disclosures About Market Risk

There were no material changes during the quarter ended September 30, 2021, to the disclosures made in Item 7A of the Company’s 2020 Form 10-K.

There were no material changes during the quarter ended March 31, 2022, to the disclosures made in Item 7A of the Company’s 2021 Form 10-K.

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-Q

Item 2. Management’s Discussion and Analysis