What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-27 compared with 2022-02-23 · 307 added, 334 removed, 1363 unchanged (32% of the section changed)

48 unchanged sentences

As discussed in Note 18 to the consolidated financial statements, the Company has recorded unrecognized tax benefits, excluding associated interest, of $128 million.

Tax laws are complex and often subject to different interpretations by taxpayers and the respective taxing authorities.

Tax laws are complex and often subject to different interpretations by tax payers and the respective tax authorities.

We identified the evaluation of the Company’s unrecognized tax benefits as a critical audit matter.

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Adjustments and gains (losses) arising during the year

( 84 ) ( 24 ) 39

Reclassifications of adjustments and (gains) losses into Net Income

( 84 ) ( 24 ) 39

Tax (expense) benefit

( 84 ) ( 24 ) 39

Changes in pension and post-retirement benefits

11 unchanged sentences

( 33 ) ( 14 ) 23

100 48 ( 70 )

Other comprehensive income (loss), net of tax ( 44 ) 86 ( 23 )

86 unchanged sentences

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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Pension and post-retirement benefit plans (net of tax impact of $ 21 million)

( 60 ) ( 60 )

Net gain on derivative instruments (net of tax impact of $ 33 million)

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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 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.

and its Subsidiaries (collectively referred to herein as the “Company,” “YUM,” “we,” “us” or “our”) franchise or operate a system of over 55,000 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 categories.

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

At December 31, 2022, 98 % of our restaurants were owned and operated by franchisees.

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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.

We also operate or franchise multibrand units, where two or more of our Concepts are operated in a single unit.

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Thus, our most significant variable interests in franchisees result from real estate lease arrangements to which we are a party.

At the end of 2021, YUM has future lease payments due from certain franchisees, on a nominal basis, of approximately $ 1 billion, and we are secondarily liable on certain other lease agreements that have been assigned to certain franchisees.

At the end of 2022, YUM has future lease payments due from certain franchisees, on a nominal basis, of approximately $ 900 million, and we are secondarily liable on certain other lease agreements that have been assigned to certain franchisees.

See the Lease Guarantees section in Note 20.

As our 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, 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 do not have a significant 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.

This minority interest does not give us the ability to significantly influence this entity.

We account for our investment in Devyani as an equity security.

As the fair value of this equity security is readily determinable we record changes in fair value in Investment (income) expense, net.

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.

Contributions to the advertising cooperatives are required for both Company-owned and franchise restaurants and are generally based on a percentage of restaurant sales.

Contributions to the advertising cooperatives are required for both Company-owned, if any, and franchise restaurants and are generally based on a percentage of restaurant sales.

We maintain certain variable interests in these cooperatives.

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The majority of our U.S.

subsidiaries and certain international subsidiaries operate on a weekly periodic calendar where the first three quarters of each fiscal year consists of 12 weeks and the fourth quarter consists of 16 weeks in fiscal years with 52 weeks and 17 weeks in fiscal years with 53 weeks.

Our Habit Burger Grill subsidiaries operate on a weekly periodic calendar where each quarter consists of 13 weeks, except in fiscal years with 53 weeks when the fourth quarter consists of 14 weeks.

subsidiaries, including our Habit Burger Grill Division beginning in 2022, 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 remaining international subsidiaries operate on a monthly calendar similar to that on which YUM operates.

Fiscal year 2019 included 53 weeks for our U.S.

businesses and for our international subsidiaries that reported on a period calendar.

The 53rd week added $ 66 million to Total revenues, $ 24 million to Operating Profit and $ 17 million to Net Income in our 2019 Consolidated Statement of Income.

For fiscal year 2021 and prior, our Habit Burger Grill Division operated on a weekly periodic calendar where each quarter consisted of 13 weeks.

The impact of this change in reporting calendar was not significant and accordingly, prior year amounts presented in these Consolidated Financial Statements have not been restated.

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

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Assets and liabilities of these foreign entities are then translated into U.S.

dollars at exchange rates in effect at the balance sheet date.

dollars at exchange rates in effect at each period-end balance sheet date.

As of December 31, 2022, net cumulative translation adjustment losses of $ 290 million are recorded in Accumulated other comprehensive income (“AOCI”) in the Consolidated Balance Sheet.

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Revenue Recognition.

Below is a discussion of how our revenues are earned, our accounting policies pertaining to revenue recognition under ASC Topic 606, Revenue from Contracts with Customers (“Topic 606”) and other required disclosures.

Below is a discussion of how our revenues are earned, our accounting policies pertaining to revenue recognition under Accounting Standards Codification (“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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Our most significant source of revenues arises from the operation of our Concepts’ stores by our franchisees.

Franchise rights may be granted through a store-level franchise agreement or through a master franchise agreement that sets out the terms of our arrangement with the franchisee.

Franchise rights may be granted through a store-level franchise agreement or through a master franchise agreement that set out the terms of our arrangement with the franchisee.

Our franchise agreements require that the franchisee remit continuing fees to us as a percentage of the applicable restaurant’s sales in exchange for the license of the intellectual property associated with our Concepts’ brands (the “franchise right”).

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

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

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, rent expense.

Franchise Contributions for Advertising and Other Services

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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 franchise 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.

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On a much more limited basis, we provide goods or services to certain franchisees that are individually distinct from the franchise right because they do not require integration with other goods or services we provide.

Such arrangements typically relate to technology, supply chain and quality assurance services.

Such arrangements typically

relate to technology, supply chain and quality assurance services.

The extent to which we provide such goods or services varies by brand, geographic region and, in some instances, franchisee.

In instances where we rely on third parties to provide goods or services to franchisees at our direction, we have determined we act as a principal in these transactions.

These revenues are recognized as the goods or services are transferred to the franchisee.

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 and recognize related revenues as the goods or services are transferred to the franchisee.

Franchise Support Costs.

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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 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.

In 2022, we recorded a $ 6 million net provision and in 2021 and 2020, we recorded $ 6 million and $ 7 million in net recoveries, respectively.

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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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.

We present this compensation cost consistent with the other compensation costs for the employee recipient in G&A, Franchise advertising and other services expense or Company restaurant expenses.

See Note 16 for further discussion of our share-based compensation plans.

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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Long-lived assets, including Property, plant and equipment (“PP&E”) as well as right-of-use operating lease assets are tested for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable.

The assets are not recoverable if their carrying value is less than the undiscounted cash flows we expect to generate from such assets.

The assets are not recoverable if their carrying value is less than the

undiscounted cash flows we expect to generate from such assets.

If the assets are not deemed to be recoverable, impairment is measured based on the excess of their carrying value over their fair value.

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Other costs incurred when closing a restaurant such as costs of disposing of the assets as well as other facility-related expenses from previously closed stores are generally expensed as incurred.

Any costs recorded upon store closure as well as any subsequent adjustments to liabilities for remaining lease obligations as a result of lease termination or changes in estimates of sublease income are recorded in Other (income) expense.

Any costs recorded upon store closure as well as any changes in estimates of sublease income or subsequent adjustments to liabilities for remaining lease obligations as a result of lease termination are recorded in Other (income) expense.

To the extent we sell assets, primarily land, associated with a closed store, any gain or loss upon that sale is also recorded in Other (income) expense.

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

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

Additionally, effective January 1, 2020, we adopted the Financial Accounting Standards Board’s Accounting Standards Update 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.

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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 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.

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 and are presented net of expected credit losses.

Expected credit losses for uncollectible franchisee receivable balances consider both current conditions and reasonable and supportable forecasts of future conditions.

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Reasonable and supportable forecasts used in determining the probability of future collection consider publicly available data regarding default probability.

While we use the best information available in making our determination, the ultimate recovery of recorded receivables is dependent upon future economic events and other conditions that may be beyond our control.

While we use the best information available in making our determination, the ultimate recovery of recorded receivables is dependent upon future

economic events and other conditions that may be beyond our control.

Receivables that are ultimately deemed to be uncollectible, and for which collection efforts have been exhausted, are written off against the allowance for doubtful accounts.

We recorded $ 8 million of net bad debt recoveries in 2021 and $ 12 million and $ 24 million of net bad debt expense in 2020 and 2019, respectively, within Franchise and property expenses related to continuing fees, initial fees and rent receivables from our franchisees.

We recorded $ 5 million and $ 12 million of net bad debt expense in 2022 and 2020, respectively, and $ 8 million of net bad debt recoveries in 2021, 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, 2022 and 2021, respectively, are as follows:

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Leases and Leasehold Improvements.

We adopted ASU No.

2016-02, Leases (“Topic 842”) as of the beginning of the year ended December 31, 2019, using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of 2019.

The cumulative effect of this transition was recorded as an increase to Accumulated deficit of $ 2 million as of this date.

We lease land, buildings or both for certain of our Company-operated restaurants and restaurant support centers worldwide.

Rental expense for leased Company-operated restaurants is presented in our Consolidated Statements of Income within Company restaurant expenses and rental expense for restaurant support centers is presented within G&A.

Rent expense for leased Company-operated restaurants is presented in our Consolidated Statements of Income within Company restaurant expenses and rent expense for restaurant support centers is presented within G&A.

The length of our lease terms, which vary by country and often include renewal options, are an important factor in determining the appropriate accounting for leases including the initial classification of the lease as finance or operating as well as the timing of recognition of rent expense over the duration of the lease.

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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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Leases with an initial term of 12 months or less are not recorded in the Consolidated Balance Sheet;

we recognize lease expense for these leases on a straight-line basis over the lease term.

Right-of-use assets are assessed for impairment in accordance with our long-lived asset impairment policy, which is performed annually for restaurant-level assets or whenever events or changes in circumstances indicate that the carrying amount of a restaurant may not be recoverable.

we recognize rent expense for these leases on a straight-line basis over the lease term.

restaurant may not be recoverable.

We reassess lease classification and remeasure right-of-use assets and lease liabilities when a lease is modified and that modification is not accounted for as a separate new lease or upon certain other events that require reassessment.

The difference between operating lease rental expense recognized in our Consolidated Statements of Income and cash payments for operating leases is recognized within Other, net within Net Cash Provided by Operating Activities in our Consolidated Statements of Cash Flows.

The difference between operating lease single lease cost recognized in our Consolidated Statements of Income and cash payments for operating leases is recognized within Other, net within Net Cash Provided by Operating Activities in our Consolidated Statements of Cash Flows.

In certain instances, we lease or sublease certain restaurants to franchisees.

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Appropriate adjustments are made if a franchise agreement includes terms that are determined to not be at prevailing market rates.

As such, the fair value of the reporting unit retained can include expected cash flows from future royalties from those restaurants currently being refranchised, future royalties from existing franchise businesses and company restaurant operations.

As such, the fair value of the reporting unit retained can include expected future cash flows from royalties from those restaurants currently being refranchised, royalties from existing franchise businesses and company restaurant operations.

As a result, the percentage of a reporting unit’s goodwill that will be written off in a refranchising transaction will be less than the percentage of the reporting unit’s Company-owned restaurants that are refranchised in that transaction and goodwill can be allocated to a reporting unit with only franchise restaurants.

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If an intangible asset that is not being amortized is subsequently determined to have a finite useful life, we amortize the intangible asset prospectively over its estimated remaining useful life.

Intangible assets that are deemed to have a definite life are amortized on a straight-line basis to their residual value.

Intangible assets that are deemed to have a finite life are amortized on a straight-line basis to their residual value.

We evaluate our indefinite-lived intangible assets for impairment on an annual basis or more often if an event occurs or circumstances change that indicate impairments might exist.

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We may elect to perform a qualitative assessment to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is greater than its carrying value.

If a qualitative assessment is not performed, or if as a result of a qualitative assessment it is not more likely than not that the fair value of an indefinite-lived intangible asset exceeds its carrying value, then the asset's fair value is compared to its carrying value.

If a qualitative assessment is not performed, or if as a result of a qualitative assessment it is not more likely than not that the fair

value of an indefinite-lived intangible asset exceeds its carrying value, then the asset’s fair value is compared to its carrying value.

Fair value is an estimate of the price a willing buyer would pay for the intangible asset and is estimated by discounting the expected future after-tax cash flows associated with the intangible asset.

Our definite-lived intangible assets that are not allocated to an individual restaurant are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of the intangible asset may not be recoverable.

Our finite-lived intangible assets that are not allocated to an individual restaurant are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of the intangible asset may not be recoverable.

An intangible asset that is deemed not recoverable on an undiscounted basis is written down to its estimated fair value, which is our estimate of the price a willing buyer would pay for the intangible asset based on discounted expected future after-tax cash flows.

For purposes of our impairment analysis, we update the cash flows that were initially used to value the definite-lived intangible asset to reflect our current estimates and assumptions over the asset’s future remaining life.

Capitalized Software.

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To mitigate the counterparty credit risk, we only enter into contracts with carefully selected major financial institutions based upon their credit ratings and other factors, and continually assess the creditworthiness of counterparties.

At December 31, 2021 and December 31, 2020, all of the counterparties to our interest rate swaps and foreign currency forwards had investment grade ratings according to the three major ratings agencies.

At December 31, 2022 and December 31, 2021, all of the counterparties to our derivative instruments had investment grade ratings according to the three major ratings agencies.

To date, all counterparties have performed in accordance with their contractual obligations.

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Accordingly, $ 1,131 million, $ 1,549 million and $ 179 million in share repurchases in 2022, 2021 and 2020, respectively, were recorded as an addition to Accumulated deficit.

Additionally, $ 18 million related to shares cancelled upon employee share-based award exercises in 2019 were recorded as an addition to Accumulated deficit.

See Note 17 for additional information on our share repurchases.

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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.

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 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 have elected to use a market-related value of plan assets to calculate the expected return on assets, net of administrative and investment fees paid from plan assets, in net periodic benefit costs.

For each individual plan we amortize into pension expense the net amounts in AOCI, as adjusted for the difference between the fair value and market-related value of plan assets, to the extent that such amounts exceed 10% of the greater of a plan’s projected benefit obligation or market-related value of assets, over the remaining service period of active participants in the plan or, for plans with no active participants, over the expected average life expectancy of the inactive participants in the plan.

For each individual plan we amortize into pension expense the net amounts in AOCI, as adjusted for the difference between the fair value and market-related value of plan assets, to the

extent that such amounts exceed 10% of the greater of a plan’s projected benefit obligation or market-related value of assets, over the remaining service period of active participants in the plan or, for plans with no active participants, over the expected average life expectancy of the inactive participants in the plan.

The market-related value of plan assets is the fair value of plan assets as of the beginning of each year adjusted for variances between actual returns and expected returns.

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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 - Acquisitions

Habit Burger Grill Acquisition

On March 18, 2020, we completed the acquisition of all of the issued and outstanding common shares of The Habit Restaurants, Inc.

As of the date of acquisition, The Habit Restaurants, Inc.

operated 245 company-owned and 31 franchised Habit Burger Grill restaurants across the U.S.

and in China, offering a flavor-forward variety of made-to-order items chargrilled over an open flame.

We expect Habit Burger Grill to benefit from the global scale and resources of YUM and that the acquisition will accelerate and diversify YUM's growth.

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

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

During the quarter ended March 31, 2021, we finalized our estimate of the fair value of the net assets acquired, which resulted in goodwill being reduced by $ 15 million compared to the initial fair value estimate recorded in the quarter ended March 31, 2020 ($ 2 million of this reduction was recorded in the quarter ended March 31, 2021).

This final allocation of consideration to the net tangible and intangible assets acquired upon the March 18, 2020 acquisition is presented in the table below.

Total Current Assets $ 11

Property, plant and equipment, net 111

Habit Burger Grill brand (included in Intangible assets, net) 96

Operating lease right-of-use assets (included in Other assets) 196

Other assets 28

Total Assets 442

Total Current Liabilities ( 68 )

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

Total Liabilities ( 238 )

Total identifiable net assets 204

Net consideration transferred $ 408

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

As a result, we performed an interim impairment test of the Habit Burger Grill reporting unit goodwill as of March 31, 2020.

This test of impairment included comparing the estimated fair value of the Habit Burger Grill reporting unit to its carrying value, including goodwill, as originally determined through our preliminary purchase price allocation.

The fair value estimate of the Habit Burger Grill reporting unit was based on the estimated price a willing buyer would pay for the reporting unit and was determined using an income approach through a discounted cash flow analysis using unobservable inputs (Level 3).

The most impactful of these inputs included future average unit volumes of Habit Burger Grill restaurants as well as restaurant unit counts.

The fair value was determined based upon a probability-weighted average of three scenarios, which included assumed recovery of Habit Burger Grill average unit volumes to a pre—COVID-19 level over periods ranging from the beginning of 2021 to the end of 2022.

Factors impacting restaurant unit counts were near-term unit closures as the result of COVID-19 as well as the pace of expected new unit development.

Unit counts assumed were correlated with the expected recoveries in average unit volumes.

Based upon this fair value estimate, we determined that the carrying value of our Habit Burger Grill reporting unit exceeded its fair value.

As a result, during the first quarter of 2020 we recorded a goodwill impairment charge of $ 139 million to Other (income) expense and a corresponding income tax benefit of $ 32 million.

As we continued to refine our preliminary purchase price allocation in the quarter ended September 30, 2020, the impairment charge was adjusted upward by $ 5 million, which resulted in a corresponding income tax benefit of $ 1 million.

Subsequent to these 2020 goodwill impairment charges and the finalization during the quarter ended March 31, 2021, of the allocation of consideration to the net assets acquired (described above), the Habit Burger Grill reporting unit goodwill was $ 60 million.

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

Recent Accounting Pronouncements.

In March 2020, the Financial Accounting Standards Board issued guidance related to reference rate reform.

This guidance was updated in December 2022.

The guidance provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from LIBOR and other interbank offered rates to alternative reference rates.

The guidance was effective upon issuance and generally can be applied to applicable contract modifications through December 31, 2024.

We adopted this guidance during fiscal year 2022.

The adoption of the new guidance did not have a material impact to our Consolidated Financial Statements.

Note 3 - Divestitures and Acquisitions

Russia Invasion of Ukraine

In the first quarter of 2022, as a result of the Russian invasion of Ukraine, we suspended all investment and restaurant development in Russia.

We also suspended all operations of our 70 company-owned KFC restaurants in Russia and began finalizing an agreement to suspend all Pizza Hut operations in Russia, in partnership with our master franchisee.

Further, we pledged to redirect any future net profits attributable to Russia subsequent to the date of invasion to humanitarian efforts.

During the second quarter, we completed the transfer of ownership of the Pizza Hut Russia business to a local operator who has initiated the process of re-branding locations to a non-YUM concept.

In October 2022, we announced that we entered into a sale and purchase agreement to transfer ownership of our KFC Russia restaurants, operating system and master franchise rights, including the network of KFC Russia franchised restaurants, to Smart Service Ltd., a business operated by one of our existing KFC franchisees in Russia.

Under the agreement, the buyer will be responsible for re-branding locations to a non-YUM concept and retaining the Company’s employees in Russia.

Completion of the transaction is subject to regulatory and governmental approvals, as well as other conditions agreed to by the parties.

Following the completion of the transaction, we will have ceased our corporate presence in Russia.

Total KFC Russia assets held for sale of $ 185 million and total KFC Russia liabilities held for sale of $ 65 million are included in Prepaid expenses and other current assets and Accounts payable and other current liabilities, respectively, in our Consolidated Balance Sheet at December 31, 2022.

At December 31, 2022, we determined the carrying value of the KFC Russia asset group was recoverable based on expected sale proceeds.

Our GAAP operating results presented herein reflect revenues from and expenses to support the Russian operations for Pizza Hut, prior to the date of transfer, and KFC, for the entirety of the year ended December 31, 2022, within their historical financial statement line items and operating segments.

However, given our decision to exit Russia and our pledge to direct any future net profits attributable to Russia subsequent to the date of invasion to humanitarian efforts, we reclassed such resulting net profits from the Division segment results in which they were earned to Unallocated Other income.

Dragontail Systems Acquisition

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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.

This net consideration was 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.

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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.

Habit Burger Grill Acquisition

On March 18, 2020, we completed the acquisition of all of the issued and outstanding common shares of The Habit Restaurants, Inc.

As of the date of acquisition, The Habit Restaurants, Inc.

operated 245 company-owned and 31 franchised Habit Burger Grill restaurants across the U.S.

and in China, offering a flavor-forward variety of made-to-order items chargrilled over an open flame.

We expect Habit Burger Grill to benefit from the global scale and resources of YUM and that the acquisition will accelerate and diversify YUM’s growth.

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

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

Goodwill of $ 204 million was recorded as a result of the acquisition.

See Note 5 for discussion of a subsequent Habit Burger Grill goodwill impairment.

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.

Note 4 – Earnings Per Common Share (“EPS”)

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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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Worldwide $ ( 27 ) $ ( 35 ) $ ( 34 )

Unlocking Opportunity Initiative

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 second quarter of 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 the associated General and administrative expense was not allocated to any of our segment operating results for performance reporting purposes.

COVID-19 Relief

During the year ended December 31, 2020, we recorded a charge of $ 25 million related to a contribution made to Yum!

Brands Foundation, Inc.

expected to fund past and anticipated payments for COVID-19 relief provided to restaurant-level employees within the YUM system diagnosed with COVID-19 or acting as the primary caregiver for someone diagnosed with COVID-19.

Resource Optimization

During the year ended December 31, 2021, we recorded charges of $ 7 million to General and administrative expenses and $ 2 million to Other (income) expense and we recorded a credit of $ 1 million to Other pension (income) expense related to a resource optimization program initiated in the third quarter of 2020.

During the year ended December 31, 2022, we recorded charges of $ 10 million to General and administrative expenses and $ 1 million to Other (income) expense related to a resource optimization program initiated in the third quarter of 2020.

During the year ended December 31, 2020, we recorded charges of $ 36 million to General and administrative expenses and $ 2 million to Other pension (income) expense related to this resource optimization program.

The charges incurred as a result of this program were primarily associated with a voluntary retirement program offered to our U.S.

based employees and a worldwide severance program.

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

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

The charges incurred as a result of this program have primarily resulted from severance associated with positions that have been eliminated or relocated and, in 2020, a voluntary retirement program offered to our U.S.

based employees.

Due to their scope and size, these costs were not allocated to any of our segment operating results for performance reporting purposes.

Investment in Devyani

In 2020, we received an approximate 5 % minority interest in Devyani, an entity that operates KFC and Pizza Hut franchised units in India.

In 2020, we received an approximate 5 % minority interest in Devyani, an entity that owns our KFC India and Pizza Hut India master franchisee rights.

The minority interest was received in lieu of cash proceeds upon the refranchising of approximately 60 KFC restaurants in India.

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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.

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 $ 11 million and $ 87 million, in the years ended December 31, 2022 and 2021, respectively (see Note 14).

Long-term Debt Redemptions

On February 23, 2022, the Company issued a notice of redemption for April 1, 2022, for $ 600 million aggregate principal amount of 7.75 % YUM Senior Unsecured Notes due in 2025.

The redemption amount was equal to 103.875 % of the $ 600 million aggregate principal amount redeemed, reflecting a $ 23 million call premium, plus accrued and unpaid interest to the date of redemption.

We recognized the call premium and the write-off of $ 5 million of unamortized debt issuance costs associated with the notes 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.

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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.

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

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

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

For the years ended December 31, 2020 and 2019, we recognized pre-tax investment income of $ 69 million and pre-tax investment expense of $ 77 million, respectively.

See Note 11 for further discussion of the YUM and Subsidiary Senior Unsecured Notes.

Income Tax Matters

In December of 2019, we completed intra-entity transfers of certain intellectual property (“IP”) rights.

As a result of the transfer of certain of these rights, largely to subsidiaries in the United Kingdom (“UK”), we received a step-up in tax basis to current fair value under applicable tax law.

To the extent this step-up in tax basis was amortizable against future taxable income, we recognized a one-time deferred tax benefit of $ 226 million in the quarter ended December 31, 2019.

Additionally, we recognized a related deferred tax benefit of $ 3 million in the year ended December 31, 2020.

On July 22, 2020, the UK Finance Act 2020 was enacted resulting in an increase in the UK corporate tax rate from 17 % to 19 %.

As a result, in the year ended December 31, 2020, we remeasured the related deferred tax assets originally recorded as described above and recognized an additional $ 25 million deferred tax benefit.

On July 22, 2020, the United Kingdom (“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 part of a 2019 intercompany restructuring of certain intellectual property (“IP”) rights into the UK.

Those deferred tax assets originally arose as a result of a step-up in amortizable tax basis of those IP rights to current fair value under applicable UK law and we recognized a $ 25 million deferred tax benefit upon remeasurement.

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 %.

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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.

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 transfers of these rights, we received a step-up in amortizable tax basis of those IP rights 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.

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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.

With the transfers of these additional IP rights, we received a step-up in amortizable tax basis to current fair value of those IP rights 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.

The above referenced matters contributed to effective tax rates of 5.9 % and 11.4 % for the years ended December 31, 2021 and 2020, respectively.

Unlocking Opportunity Initiative

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 following five years to fight inequality by unlocking opportunities for employees, restaurant team members and communities.

The Company contributed $ 50 million in the second quarter of 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.

Habit Burger Grill Impairment

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

As a result, we performed an interim impairment test of the Habit Burger Grill reporting unit goodwill as of March 31, 2020.

The most impactful of these inputs included future average unit volumes of Habit Burger Grill restaurants as well as restaurant unit counts.

2021 to the end of 2022.

Factors impacting restaurant unit counts were near-term unit closures as the result of COVID-19 as well as the pace of expected new unit development.

Unit counts assumed were correlated with the expected recoveries in average unit volumes.

Based upon this fair value estimate, we determined that the carrying value of our Habit Burger Grill reporting unit exceeded its fair value.

As a result, during 2020 we recorded a goodwill impairment charge of $ 144 million to Other (income) expense and a corresponding income tax benefit of $ 33 million.

As a result of its size and nature, this impairment charge was not allocated to any of our segment operating results for performance reporting purposes and was recorded to Unallocated Other expense.

COVID-19 Relief

During the year ended December 31, 2020, we recorded a charge of $ 25 million related to a contribution made to Yum!

Brands Foundation, Inc.

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 Consolidated Statements of Income.

For the year ended December 31, 2020, we recognized pre-tax investment income of $ 69 million.

Note 6 – Revenue Recognition

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

KFC Division Taco Bell Division Pizza Hut 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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Increase for upfront fees associated with contracts that became effective during the period, net of amounts recognized as revenue during the period 112

Deferred franchise fees related to KFC Russia reclassified to liabilities held for sale (see Note 3)

Balance at December 31, 2022

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

Cash and restricted cash related to KFC Russia included in assets held for sale (see Note 3)

Cash, Cash Equivalents and Restricted Cash as presented in Consolidated Statements of Cash Flows $ 647 $ 771 $ 1,024

(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.

(a) Amounts exclude payments of $ 23 million in 2022 and $ 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 owns our KFC India and Pizza Hut India master franchisee rights (see Note 5).

(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.

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

Note 8 – Other (Income) Expense

2022 2021 2020

Foreign exchange net (gain) loss and other (a)

$ ( 14 ) $ ( 18 ) $ ( 1 )

Impairment and closure expense (b)

Foreign exchange net (gain) loss $ ( 9 ) $ 8 $ 6

Impairment and closure expense (a)

Other 8 ( 22 ) ( 24 )

Other (income) expense $ 7 $ 2 $ 154

(a) The year ended December 31, 2019, includes a charge of $ 8 million for the settlement of contingent consideration associated with our 2013 acquisition of the KFC Turkey and Pizza Hut Turkey businesses.

(b) The year ended December 31, 2020, includes a charge of $ 144 million related to the impairment of Habit Burger Grill goodwill (see Note 3).

The year ended December 31, 2020, also includes charges of $ 12 million related to the impairment of restaurant-level assets and charges of $ 11 million related to the write-off of software no longer being used.

(a) The year ended December 31, 2020, includes a charge of $ 144 million related to the impairment of Habit Burger Grill goodwill (see Note 5).

Note 9 – Supplemental Balance Sheet Information

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Accrued interest 83 78

Liabilities held for sale (a)

Other current liabilities 360 420

Accounts payable and other current liabilities $ 1,251 $ 1,334

(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.

(a) Assets and liabilities held for sale reflect the carrying value of restaurants we have offered for sale to franchisees, excess properties that we do not intend to use for restaurant operations in the future and, at December 31, 2022, the assets and liabilities of KFC Russia (see Note 3).

KFC Russia assets held for sale accounted for $ 185 million, including property, plant and equipment of $ 59 million, of the $ 190 million, while KFC Russia liabilities held for sale accounted for all of the $ 65 million as of December 31, 2022.

Note 10 – Goodwill and Intangible Assets

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$ 235 $ 98 $ 202 $ 62 $ 597

Acquisitions — — — 10 10

Disposals and other, net (b)

Habit Burger Grill acquisition and impairment (See Note 3)

( 3 ) — ( 2 ) ( 2 ) ( 7 )

Dragontail Systems acquisition (See Note 3)

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

$ 232 $ 98 $ 257 $ 70 $ 657

Acquisitions — — — 10 10

Disposals and other, net (b)

( 7 ) — ( 8 ) ( 4 ) ( 19 )

Dragontail Systems acquisition (See Note 3)

Goodwill, net as of December 31, 2022 (a)

$ 225 $ 98 $ 249 $ 66 $ 638

(a) Goodwill, net includes $ 144 million of accumulated impairment loss recorded in the year ended December 31, 2020, related to our Habit Burger Grill segment and $ 17 million of accumulated impairment losses for each year presented related to our Pizza Hut segment.

(a) Goodwill, net includes $ 144 million of accumulated impairment losses related to our Habit Burger Grill segment and $ 17 million of accumulated impairment losses related to our Pizza Hut segment for each year presented.

(b) Disposals and other, net includes the impact of foreign currency translation on existing balances and goodwill write-offs associated with refranchising.

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Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization

Definite-lived intangible assets

Finite-lived intangible assets

Capitalized software costs $ 469 $ ( 263 ) $ 409 $ ( 214 )

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Habit Burger Grill brand asset 96 96

Amortization expense for all definite-lived intangible assets was $ 76 million in 2021, $ 63 million in 2020 and $ 52 million in 2019.

Amortization expense for definite-lived intangible assets is expected to approximate $ 82 million in 2022, $ 60 million in 2023, $ 46 million in 2024, $ 21 million in 2025 and $ 11 million in 2026.

Amortization expense for all finite-lived intangible assets was $ 68 million in 2022, $ 76 million in 2021 and $ 63 million in 2020.

Amortization expense for finite-lived intangible assets is expected to approximate $ 83 million in 2023, $ 63 million in 2024, $ 48 million in 2025, $ 18 million in 2026 and $ 8 million in 2027.

At December 31, 2022, KFC Russia finite-lived intangible assets of $ 23 million have been classified as held for sale and are included in Prepaid expenses and other current assets in our Consolidated Balance Sheet (see Note 3) and thus are not included in the table above.

Note 11 – Short-term Borrowings and Long-term Debt

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Subsidiary Senior Unsecured Notes 750 750

Revolving Facility 279 —

Term Loan A Facility 736 750

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$ 11,943 $ 11,339

Less debt issuance costs and discounts ( 86 ) ( 78 )

Less long-term portion of debt issuance costs and discounts ( 85 ) ( 86 )

Less current maturities of long-term debt ( 405 ) ( 75 )

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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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In general, no amortization of principal of the Securitization Notes is required prior to their anticipated repayment dates unless as of any quarterly measurement date the consolidated leverage ratio (the ratio of total debt to Net Cash Flow (as defined in the related indenture)) for the preceding four fiscal quarters of either the Company and its subsidiaries or the Issuer and its subsidiaries exceeds 5.0:1, in which case amortization payments of 1% per year of the outstanding principal as of the closing of the Securitization Notes are required.

As of the most recent quarterly measurement date the consolidated leverage ratio for both the Company and its subsidiaries as well as the Issuer and its subsidiaries exceeded 5.0:1 and, as a result, amortization payments are required.

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.

As of the most recent quarterly measurement date the consolidated leverage ratio for the Issuer and its subsidiaries exceeded 5.0:1 and, as a result, amortization payments are required.

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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The indenture requires a certain amount of securitization cash flow collections to be allocated on a weekly basis and maintained in a cash reserve account.

As of December 31, 2021, the Company had restricted cash of $ 84 million primarily related to required interest reserves included in Prepaid expenses and other current assets on the Consolidated Balance Sheets.

As of December 31, 2022, the Company had restricted cash of $ 85 million primarily related to required interest reserves included in Prepaid expenses and other current assets on the

Consolidated Balance Sheets.

Once the required obligations are satisfied, there are no further restrictions, including payment of dividends, on the cash flows of the Securitization Entities.

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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 $ 1.25

billion revolving facility (the Revolving Facility").

KFC Holding Co., Pizza Hut Holdings, LLC, and TBA, each of which is a wholly-owned subsidiary of the Company, as co-borrowers (the “Borrowers”) have entered into a credit agreement providing for senior secured credit facilities and a $ 1.25 billion revolving facility maturing March 15, 2026 (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 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.

There are no outstanding borrowings under the Revolving Facility and $ 2.1 million of letters of credit outstanding as of December 31, 2021.

The following table summarizes borrowings outstanding under the Credit Agreement, excluding the Revolving Facility, as well as our Subsidiary Senior Unsecured Notes as of December 31, 2022.

There were $ 279 million in outstanding borrowings under the Revolving Facility and $ 2 million of letters of credit outstanding as of December 31, 2022.

Interest Rate

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Term Loan B Facility March 2021 March 2028 $ 1,474 (a) 4.99 %

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

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

Subsidiary Senior Unsecured Notes 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 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, 2022, the interest rate spreads on the LIBOR and Base Rate applicable to our Term Loan A Facility were 1.00 % and 0.00 %, respectively.

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(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 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 effective rates related to our Term Loan A and B Facilities are based on LIBOR-based interest rates at December 31, 2022.

The 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 issuance date of $ 750 million.

These quarterly amortization payments increase to 1.25 % of this principal amount 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 principal amount of the facility as of the issuance date of $ 1.5 billion, with the balance payable at maturity on March 15, 2028.

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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September 2019 January 2030 $ 800 4.75 % 4.90 %

April 2020 April 2025 $ 600 7.75 % 8.05 %

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

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

April 2022 April 2032 $ 1,000 5.38 % 5.53 %

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

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and (3) gain or loss upon settlement of related treasury locks and forward starting interest rate swaps utilized to hedge the interest rate risk prior to debt issuance.

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”).

Interest on the 2032 Notes is payable semi-annually in arrears on April 1 and October 1 of each year, beginning on October 1, 2021.

The Company paid debt issuance costs of $ 13 million in connection with the 2032 Notes.

The debt issuance costs will be amortized to Interest expense, net over the life of the 2032 Notes using the effective interest method.

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

On June 30, 2021, Yum!

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.

On February 23, 2022, Yum!

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

The 2025 Notes were redeemed 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.

We recognized the call premium and the write-off of $ 5 million of unamortized debt issuance costs associated with the 2025 Notes within Interest expense, net in the quarter ended June 30, 2022.

Also on April 1, 2022, Yum!

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

Interest on the April 2032 Notes is payable semi-annually in arrears on April 1 and October 1 of each year, beginning on October 1, 2022.

The indenture governing the April 2032 Notes contains 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 of $100 million or more or the failure to pay the principal of such indebtedness at its stated maturity will constitute an event of default under the April 2032 Notes unless such indebtedness is discharged, or the acceleration of the maturity of that indebtedness is annulled, within 30 days after notice .

The Company paid debt issuance costs of $ 12 million in connection with the April 2032 Notes.

The debt issuance costs will be amortized to Interest expense, net over the life of the April 2032 Notes using the effective interest method.

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

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.

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Note 12 – Lease Accounting

Components of Lease Expense

Components of Lease Cost

2022 2021 2020

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

(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.

Supplemental Balance Sheet Information

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These amounts primarily related to Taco Bell U.S.

and the Habit Burger Grill including leases related to Company-operated restaurants, leases related to franchise-operated restaurants we sublease and the Taco Bell restaurant support center.

and the Habit Burger Grill including leases related to Company-operated restaurants, leases related to franchise-operated restaurants we sublease and the Taco Bell and Habit Burger Grill restaurant support center.

At December 31, 2022, KFC Russia operating and finance lease right-of-use assets of $ 25 million and $ 3 million , respectively, have been classified as held for sale and are included in Prepaid expenses and other current assets in our Consolidated Balance Sheet (see Note 3).

The associated KFC Russia operating and finance lease liabilities of $ 25 million and $ 3 million , respectively, have also been classified as held for sale and are included in Accounts payable and other current liabilities in our Consolidated Balance Sheet.

Such amounts are not reflected in the Supplemental Balance Sheet Information above.

Maturity of Lease Payments and Receivables

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Note 13 - Derivative Instruments

We use derivative instruments to manage certain of our market risks related to fluctuations in interest rates and foreign currency exchange rates.

We use derivative instruments to manage certain of our market risks related to fluctuations in interest rates, deferred compensation liabilities and foreign currency exchange rates.

Our use of foreign currency contracts to manage foreign currency exchange rates associated with certain foreign currency denominated intercompany receivables and payables is currently not significant.

Interest Rate Swaps

We have entered into interest rate swaps with the objective of reducing our exposure to interest rate risk for a portion of our variable-rate debt interest payments.

On July 25, 2016, we agreed with multiple counterparties to swap the variable LIBOR-based component of the interest payments related to $ 1.55 billion of borrowings under our Term Loan B Facility.

These interest rate swaps expired in July 2021.

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

The interest rate swaps executed in May 2018 result in fixed rates of 3.81 % and 4.81 % on the swapped portion of the Term Loan A and Term Loan B Facilities, respectively, from July 2021 through March 2025.

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 July 2021 through March 2025.

These interest rate swaps result in fixed rates of 4.06 % and 4.81 % on the swapped portion of the Term Loan A and Term Loan B Facilities, respectively.

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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Through December 31, 2022, the swaps were highly effective cash flow hedges.

Foreign Currency Contracts

We have entered into foreign currency forward and swap contracts with the objective of reducing our exposure to earnings volatility arising from foreign currency fluctuations associated with certain foreign currency denominated intercompany receivables and payables.

The notional amount, maturity date, and currency of these contracts match those of the underlying intercompany receivables or payables.

Our foreign currency contracts are designated cash flow hedges as the future cash flows of the contracts are expected to offset changes in intercompany receivables and payables due to foreign currency exchange rate fluctuations.

Gains or losses on the foreign currency contracts are reported as a component of AOCI.

Amounts are reclassified from AOCI each quarter to offset foreign currency transaction gains or losses recorded within Other (income) expense when the related intercompany receivables and payables affect earnings due to their functional currency remeasurements.

Through December

31, 2021, all foreign currency contracts related to intercompany receivables and payables were highly effective cash flow hedges.

As of December 31, 2021 and 2020, foreign currency contracts outstanding related to intercompany receivables and payables had total notional amounts of $ 28 million and $ 39 million, respectively.

Our foreign currency forward contracts all have durations that expire in 2022.

As a result of the use of interest rate swaps and foreign currency contracts, the Company is exposed to risk that the counterparties will fail to meet their contractual obligations.

To mitigate the counterparty credit risk, we only enter into contracts with major financial institutions carefully selected based upon their credit ratings and other factors, and continually assess the creditworthiness of counterparties.

At December 31, 2021, all of the counterparties to our interest rate swaps and foreign currency contracts had investment grade ratings according to the three major ratings agencies.

To date, all counterparties have performed in accordance with their contractual obligations.

Gains and losses on derivative instruments designated as cash flow hedges recognized in OCI and reclassifications from AOCI into Net Income:

Gains and losses on these interest rate swaps recognized in OCI and reclassifiied from AOCI into Net Income were as follows:

Gains/(Losses) Recognized in OCI (Gains)/Losses Reclassified from AOCI into Net Income

Interest rate swaps $ 115 $ 34 $ ( 103 ) $ 21 $ 29 $ 10

Foreign currency contracts — 4 20 ( 1 ) ( 4 ) ( 8 )

Income tax benefit/(expense) ( 30 ) ( 8 ) 25 ( 4 ) ( 6 ) ( 2 )

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.

As of December 31, 2022, the estimated net gain included in AOCI related to our interest rate swaps that will be reclassified into earnings in the next 12 months is $ 26 million, based on current LIBOR interest rates.

Total Return Swaps

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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.

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.

We historically used investments in mutual funds 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.

Upon entering into the total return swaps, 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.

The fair value associated with the total return swaps as of both December 31, 2022 and 2021, was not significant.

As a result of the use of derivative instruments, the Company is exposed to risk that the counterparties will fail to meet their contractual obligations.

At December 31, 2022, all of the counterparties to our derivative instruments had investment grade ratings according to the three major ratings agencies.

To date, all counterparties have performed in accordance with their contractual obligations.

See Note 14 for the fair value of our derivative assets and liabilities.

Note 14 – Fair Value Disclosures

As of December 31, 2021, the carrying values of cash and cash equivalents, restricted cash, short-term investments, accounts receivable, short-term borrowings and accounts payable approximated their fair values because of the short-term nature of these instruments.

As of December 31, 2022, the carrying values of cash and cash equivalents, restricted cash, short-term investments, accounts receivable, short-term borrowings, accounts payable and borrowings under our Revolving Facility approximated their fair values because of the short-term nature of these instruments.

The fair value of notes receivable net of allowances and lease guarantees less subsequent amortization approximates their carrying value.

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Recurring Fair Value Measurements

The Company has interest rate swaps, foreign currency contracts and other investments, all of which are required to be measured at fair value on a recurring basis (see Note 13 for discussion regarding derivative instruments).

The Company has interest rate swaps and investments, all of which are required to be measured at fair value on a recurring basis (see Note 13 for discussion regarding derivative instruments).

The following table presents fair values for those assets and liabilities measured at fair value on a recurring basis and the level within the fair value hierarchy in which the measurements fall.

Consolidated Balance Sheet Level 2022

Foreign Currency Contracts

Prepaid expenses and other current assets 2 — 1

Other Investments

Other assets 1 119 45

Other Investments Other assets 3 5 —

Investments Other assets 1 $ 118 $ 119

Investments Other assets 3 5 5

Interest Rate Swaps Prepaid expenses and other current assets 2 26 —

Interest Rate Swaps Other assets 2 16 —

Interest Rate Swaps

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Interest Rate Swaps Other liabilities and deferred credits 2 — 54

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

The other investments as of December 31, 2021, primarily include our approximate 5 % minority interest in Devyani with a fair value of $ 118 million.

The fair value of the Company’s 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.

Investments as of December 31, 2022 and 2021, primarily include our approximate 5 % minority interest in Devyani with a fair value of $ 116 million and $ 118 million, respectively.

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

During the year ended December 31, 2021, we recognized non-recurring fair value measurements of $ 6 million related to refranchising related impairment.

Refranchising related impairment results from writing down the assets of restaurants or restaurant groups offered for refranchising, including certain instances where a decision has been made to refranchise restaurants that are deemed to be impaired.

The fair value measurements used in our impairment evaluation were based on actual bids received from potential buyers (Level 2).

The remaining net book value of these restaurants at December 31, 2021, was approximately $ 6 million.

During the years ended December 31, 2021 and 2020, we recognized non-recurring fair value measurements of $ 4 million and $ 12 million, respectively, related to restaurant-level impairment.

During the years ended December 31, 2022, 2021 and 2020, we recognized non-recurring fair value measurements of $ 9 million , $ 4 million and $ 12 million , respectively, related to restaurant-level impairment.

Restaurant-level impairment charges are recorded in Other (income) expense and resulted primarily from our impairment evaluation of long-lived assets of individual restaurants that were being operated at the time of impairment and had not been offered for refranchising.

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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 years ended December 31, 2021 and 2020,

was $ 16 million and $ 11 million, respectively.

The remaining net book value of restaurant assets measured at fair value during the years ended December 31, 2022 and 2021, was $ 20 million and $ 16 million, respectively.

During the year ended December 31, 2020, we also recognized impairment charges related to our Habit Burger Grill reporting unit.

During the year ended December 31, 2021, we recognized non-recurring fair value measurements of $ 6 million related to refranchising related impairment.

The fair value measurements used in our impairment evaluation were based on actual bids received from potential buyers (Level 2).

The remaining net book value of these restaurants at December 31, 2021, was approximately $ 6 million.

Note 15 – Pension, Retiree Medical and Retiree Savings Plans

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We do not expect to make any significant contributions to the Plan in 2023.

Our two significant U.S.

two significant U.S.

plans, including the Plan and a supplemental plan, were previously amended such that any salaried employee hired or rehired by YUM after September 30, 2001, is not eligible to participate in those plans.

Additionally, these two significant U.S.

plans are currently closed to new hourly participants.

We do not anticipate any plan assets being returned to the Company during 2023 for any U.S.

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Plan amendments

Special termination benefits — 2

Benefits paid ( 29 ) ( 33 )

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Benefit obligation at end of year $ 755 $ 1,069

A significant component of the overall decrease in the Company’s benefit obligation for the year ended December 31, 2022, was due to an actuarial gain, which was primarily due to an increase in the discount rate used to measure our benefit obligation from 3.00 % at December 31, 2021 to 5.60 % at December 31, 2022.

A significant component of the overall decrease in the Company’s benefit obligation for the year ended December 31, 2021, was due to settlement payments, which were primarily related to a resource optimization program initiated in the third quarter of 2020 (see Note 5).

A significant component of the overall increase in the Company's benefit obligation for the year ended December 31, 2020, was due to an actuarial loss, which was primarily due to a decrease in the discount rate used to measure our benefit obligation from 3.50 % at December 31, 2019, to 2.80 % at December 31, 2020.

Change in plan assets:

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Net actuarial gain (loss) ( 54 ) 49

Curtailments — 1

Amortization of net loss 11 14

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Prior service cost — ( 1 )

Settlement charges 6 —

End of year $ ( 74 ) $ ( 43 )

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Corporate (b)

Equity Securities - U.S.

Equity Securities - Non-U.S.

Fixed Income Securities - U.S.

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Investments measured at net asset value (e)

Fixed Income 146 —

Equity Securities 179 456

Real Assets 192 —

Total fair value of plan assets (f)

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To achieve these objectives, we are using a combination of active and passive investment strategies.

As of December 31, 2021, the Plan's assets were in the process of being transitioned to the weighted-average target allocation summarized as follows:

As of December 31, 2022, the Plan’s assets consist of the weighted-average target allocation summarized as follows:

Asset Category Target Allocation

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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.

In addition to allocation differences between target percentages and actual plan assets at December 31, 2022, 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, 2022, 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.

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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 $ 0.1 million and $ 0.2 million at December 31, 2022 and 2021, respectively, (less than 1 % of total plan assets in each instance).

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Total actuarial pre-tax losses related to the UK plans of $ 64 million and $ 5 million were recognized in AOCI at the end of 2022 and 2021, respectively.

The total net periodic benefit income recorded was less than $ 1 million in both 2021 and 2020, and $ 2 million in 2019.

The total net periodic benefit income recorded was $ 2 million in 2022 and was less than $ 1 million in both 2021 and 2020.

The funding rules for our pension plans outside of the U.S.

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Actuarial pre-tax gains of $ 16 million and $ 6 million were recognized in AOCI at the end of 2022 and 2021, respectively.

The net periodic benefit cost recorded was $ 1 million in each of 2021, 2020 and 2019, the majority of which is

interest cost on the accumulated post-retirement benefit obligation.

The net periodic benefit cost recorded was $ 1 million in each of 2022, 2021 and 2020, 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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Our EID plan also allows certain participants to defer incentive compensation to purchase phantom shares of our Common Stock and receive a 33 % Company match on the amount deferred.

Deferrals receiving a match are similar to an RSU award in that participants will generally forfeit both the match and incentive compensation amounts deferred if they voluntarily separate from employment during a vesting period that is two years from the date of deferral.

is two years from the date of deferral.

We expense the intrinsic value of the match and the incentive compensation amount over the requisite service period which includes the vesting period.

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The weighted-average grant-date fair value of stock options and SARs granted during 2022, 2021 and 2020 was $ 26.65 , $ 21.32 and $ 18.83 , respectively.

The total intrinsic value of stock options and SARs exercised during the years ended December 31, 2021, December 31, 2020 and December 31, 2019, was $ 234 million, $ 170 million and $ 204 million, respectively.

The total intrinsic value of stock options and SARs exercised during the years ended December 31, 2022, 2021 and 2020, was $ 105 million, $ 234 million and $ 170 million, respectively.

As of December 31, 2022, $ 34 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 1.6 years.

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.

The total fair value at grant date of awards held by YUM employees that vested during 2022, 2021 and 2020 (including Yum China awards that became fully vested in 2020) was $ 31 million, $ 35 million and $ 70 million, respectively.

RSUs and PSUs

As of December 31, 2022, there was $ 70 million of unrecognized compensation cost related to 1.5 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 2022, 2021 and 2020 was $ 20 million, $ 20 million and $ 15 million, respectively.

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Authorization Date 2022 2021 2020 2022 2021 2020

September 2022 1,967 — — $ 250 $ — $ —

May 2021 8,116 8,235 — 950 1,050 —

November 2019 — 4,746 2,419 — 530 250

August 2018 — — 7,788 — — 810

Total 10,083 12,981 (a)

$ 1,200 $ 1,580 (a)

(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.

In September 2022, our Board of Directors authorized share repurchases of up to $ 2 billion (excluding applicable transaction fees) of our outstanding Common Stock through June 30, 2024.

The new authorization took effect during the fourth quarter of 2022 upon the exhaustion of a prior authorization approved in May 2021.

As of December 31, 2022, we have remaining capacity to repurchase up to $ 1.75 billion of Common Stock under the September 2022 authorization.

Changes in AOCI are presented below.

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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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Balance at December 31, 2022, net of tax $ ( 290 ) $ ( 94 ) $ 15 $ ( 369 )

(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.

(a) Amounts reclassified from AOCI for pension and post-retirement benefit plans losses during 2022 include amortization of net losses of $ 22 million , amortization of prior service cost of $ 5 million, settlement charges of $ 7 million and related income tax benefit of $ 6 million.

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.

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Change in valuation allowances ( 0.5 ) ( 0.8 ) ( 2.5 )

Intercompany restructuring ( 11.3 ) ( 0.3 ) ( 16.6 )

Impact of Russia Exit 4.3 — —

Intercompany restructuring and Valuations of Intellectual Property ( 4.9 ) ( 11.3 ) ( 0.3 )

Nondeductible interest — 1.4 —

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In 2022, 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).

In 2021, this item was favorably impacted by the ongoing effects of the KFC Europe Reorganization (as described below) partially offset by the unfavorable impact of recording deferred tax liabilities associated with unremitted foreign earnings.

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 2022, this item was unfavorably impacted by $ 17 million of

adjustments made to current and deferred tax accounts in various jurisdictions to align with balances supported by 2021 and prior tax filings.

Additionally, in 2022 this item was unfavorably impacted by $ 9 million of reserves established associated with prior year filing positions in various jurisdictions.

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.

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Additionally, in 2020 this item was favorably impacted by a $ 6 million tax benefit associated with a state settlement.

In 2019, this item was unfavorably impacted by $ 34 million in reserves related to taxes recorded associated with a prior year divestiture and $ 18 million of tax expense related to the establishment of reserves associated with the inclusion of stock based compensation in cost sharing arrangements as well as other matters.

This unfavorable impact was partially offset by the reversal of a $ 20 million reserve established in 2018 due to the favorable resolution of an income tax rate dispute in a foreign jurisdiction.

Excess tax benefits from stock-based awards.

2021, 2020 and 2019 includes $ 46 million, $ 35 million and $ 49 million, respectively, of excess federal tax benefit related to share-based compensation.

Change in valuation allowances.

This item relates to changes for deferred tax assets generated or utilized during the current year and changes in our judgment regarding the likelihood of using deferred tax assets that existed at the beginning of the year.

In 2022, this item was favorably impacted by $ 13 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 deferred tax assets 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.

In 2020, this item was favorably impacted by $ 22 million of tax benefit associated with a valuation allowance release in a foreign jurisdiction resulting from a change in management’s judgement as to realizability of indefinite lived tax loss carryforwards in that jurisdiction.

Intercompany Restructuring.

KFC Europe Reorganization - In July 2021, we concentrated management responsibility for European (excluding the UK) KFC franchise development, support operations and management oversight in Switzerland.

Concurrent with this change in management responsibility, we have completed intra-entity transfers of certain KFC IP rights from subsidiaries in the UK to subsidiaries in Switzerland.

Impact of Russia Exit.

Our decision to exit the Russia market resulted in a reduction in the tax basis of KFC IP rights held in Switzerland due to the expected loss of the Russia royalty income associated with such rights going forward.

As a result, we remeasured and reassessed the need for a valuation allowance on the associated deferred tax assets.

In addition, we reassessed certain deferred tax liabilities associated with the Russia business given the expectation that the existing basis difference will now reverse by way of sale.

Primarily as a result of these items, we recorded a net tax expense of $ 72 million in 2022.

Intercompany Restructuring and Valuations of Intellectual Property.

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 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.

As a result of this transfer, we recorded a one-time net deferred tax benefit of $ 152 million in 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.

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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 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.

As a result of this transfer, we recorded a net one-time tax benefit of $ 35 million in 2021.

In the quarter ended December 31, 2022, we performed an annual valuation under Swiss laws of these Swiss IP rights, incorporating current assumptions around the expected future cash flows attributable to the IP.

This valuation supported an increase to tax basis of Swiss IP rights associated with parts of our business that will continue to use these IP rights due to expected royalty growth assumptions in those parts of the business that largely offset the loss of Russia royalty income described above.

Based on the valuation as well as future forecasting of taxable income, we remeasured and reassessed the need for a valuation allowance on the deferred tax assets in Switzerland.

As a result, we recorded a net tax benefit of $ 75 million in the quarter ended December 31, 2022.

Nondeductible Interest.

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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.

Earnings Before Interest, Taxes, Depreciation and Amortization.

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.

interest expense is limited to 30% of U.S.

Earnings Before Interest and Taxes.

Although the disallowed interest can be carried forward indefinitely, in management’s judgment interest carried forward will not be realizable in the future.

In 2021, the Company recorded $ 23 million of tax expense while in 2020 and 2022, the Company did not record any tax expense associated with disallowed U.S.

interest expense.

Impact of Tax Law Changes.

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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 .

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

tax credits, and other individually insignificant items impacting income tax expense.

Companies subject to the Global Intangible Low-Taxed Income provision (GILTI) have the option to account for the GILTI tax as a period cost if and when incurred, or to recognize deferred taxes for outside basis temporary differences expected to reverse as GILTI.

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Accrued liabilities and other 40 52

Derivative instruments — 50

Intangible assets 520 560

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Deferred income 103 87

Capitalized Research & Development Costs 35 —

Gross deferred tax assets 1,558 1,541

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Net deferred tax assets $ 1,100 $ 1,079

Intangible assets, including goodwill $ ( 3 ) $ ( 1 )

Property, plant and equipment $ ( 79 ) $ ( 85 )

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Employee benefits ( 7 ) ( 24 )

Derivative Instruments ( 27 ) ( 5 )

Other ( 35 ) ( 49 )

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Net deferred tax assets (liabilities) $ 749 $ 716

The details of the 2021 valuation allowance activity are set forth below:

The details of the 2022 and 2021 valuation allowance activity are set forth below:

Beginning of Year $ ( 462 ) $ ( 789 )

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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 state and foreign income and withholding taxes upon repatriation.

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.

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Reductions for settlements — ( 3 )

Reductions due to statute expiration — —

Foreign currency translation adjustment — —

End of Year $ 128 $ 116

The Company believes it is reasonably possible that its unrecognized tax benefits as of December 31, 2022, may decrease by approximately $ 1 million in the next 12 months due to settlements or statute of limitations expirations.

During 2021, 2020, and 2019 the Company recognized $ 4 million, $ 2 million and $ 13 million of net expense, respectively, for interest 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.

During 2022, 2021, and 2020 the Company recognized less than $ 1 million, $ 4 million, and $ 2 million of net expense, respectively, for interest and penalties in our Consolidated Statements of Income as components of its Income tax provision.

At both December 31, 2022, and 2021, the Company has recorded $ 3 million of net tax receivables, associated with interest and penalties.

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

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The Company has settled audits with the IRS through fiscal year 2012 and is currently under IRS examination for 2013-2018.

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.

Our operations in certain foreign jurisdictions are currently under audit and remain subject to examination for tax years as far back as 1999.

See Note 20 for discussion of an Internal Revenue Service Proposed Adjustment.

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Habit Burger Grill Division ( 24 ) 2 ( 22 )

Corporate and unallocated G&A expenses (b)(c)

Corporate and unallocated G&A expenses (b)(c)(d)

( 297 ) ( 260 ) ( 312 )

Unallocated Franchise and property expenses (b)(d)

Unallocated Franchise and property expenses (b)(c)

( 6 ) 1 ( 4 )

Unallocated Refranchising gain (loss) (b)

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

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

52 ( 14 ) ( 146 )

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(b) Amounts have not been allocated to any segment for performance reporting purposes.

(c) Our operating results reflect revenues from and expenses to support the Russian operations for Pizza Hut, prior to the date of transfer, and KFC, for the entirety of the year ended December 31, 2022 (see Note 3) within their historical financial statement line items and operating segments.

However, given our decision to exit Russia and our pledge to direct any future net profits attributable to Russia subsequent to the date of invasion to humanitarian efforts, we have reclassed such net operating profits from the Division segment results in which they were earned to Unallocated Other income (expense).

As a result, we reclassed net operating profits of $ 44 million from KFC and Pizza Hut Division Other income (expense) to Unallocated Other income (expense) during the year ended December 31, 2022.

Also, included in Unallocated Other income (expense) were $ 13 million in foreign exchange gains attributable to fluctuations in the value of the Russian ruble.

Additionally, we recorded charges of $ 7 million to Corporate and unallocated G&A expenses and $ 6 million to Unallocated Franchise and property expenses during the year ended December 31, 2022 for certain expenses related to the transfer of the businesses and other one-time costs related to our exit from Russia.

(d) Amounts in 2020 include charitable contributions to Yum!

Brands Foundation, Inc.

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Additionally, 2020 includes $ 36 million for charges associated with resource optimization (see Note 5).

(d) Represents costs related to an agreement executed in May 2017 with our Pizza Hut U.S.

franchisees to improve brand marketing alignment, accelerate enhancements in operations and technology and that included a permanent commitment to incremental advertising as well as digital and technology contributions by franchisees (the “Pizza Hut U.S.

Transformation Agreement”).

(e) Unallocated Other income (expense) in 2020 includes a charge of $ 144 million related to the impairment of Habit Burger Grill goodwill (see Note 5).

(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.

identifiable assets included in the combined Corporate and KFC, Taco Bell, Pizza Hut, and Habit Burger Grill Divisions totaled $ 2.8 billion at both 2022 and 2021.

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

Excludes KFC Russia long-lived assets of $ 108 million as of December 31, 2022 which are classified as held for sale and are included in Prepaid expenses and other current assets in our Consolidated Balance Sheet (see Note3).

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;

As a result of an audit by the Internal Revenue Service (“IRS”) for fiscal years 2013 through 2015, in August 2022, we received a Revenue Agent’s Report (“RAR”) from the IRS asserting an underpayment of tax of $2.1 billion plus $418 million in penalties for the 2014 fiscal year.

Additionally, interest on the underpayment is estimated to be approximately $780 million through December 31, 2022.

The proposed underpayment relates primarily 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 transactions resulted in taxable distributions of approximately $6.0 billion.

We disagree with the IRS’s position as asserted in the RAR and intend to contest that position vigorously.

In September 2022, we filed a Protest with the IRS Examination Division disputing on multiple grounds the proposed underpayment of tax and penalties.

We are awaiting the IRS Examination Division’s Rebuttal to our Protest.

When that Rebuttal is filed, we intend to pursue independent review by the IRS Office of Appeals.

The Company does not expect resolution of this matter within twelve months and cannot predict with certainty the timing of such resolution.

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.

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The following table summarizes the 2022 and 2021 activity related to our net self-insured property and casualty reserves as of December 31, 2022.

Beginning Balance Habit Acquisition (a)

Expense Payments Ending Balance

Beginning Balance Expense Payments Ending Balance

2022 Activity $ 48 28 ( 26 ) $ 50

2021 Activity $ 50 23 ( 25 ) $ 48

(a) Represents self-insurance liabilities assumed as part of our acquisition of Habit Burger Grill.

Due to the inherent volatility of actuarially determined property and casualty loss estimates, it is reasonably possible that we could experience changes in estimated losses which could be material to our growth in quarterly and annual Net Income.

We believe that we have recorded reserves for property and casualty losses at a level which has substantially mitigated the potential negative impact of adverse developments and/or volatility.

Due to the inherent volatility of actuarially determined property and casualty loss estimates, it is reasonably possible that we could experience changes in estimated losses which could be material.

We believe that we have recorded reserves for property

and casualty losses at a level which has substantially mitigated the potential negative impact of adverse developments and/or volatility.

and in certain other countries, we are also self-insured for healthcare claims and long-term disability for eligible participating employees subject to certain deductibles and limitations.

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An accrual is recorded with respect to claims or contingencies for which a loss is determined to be probable and reasonably estimable.

India Regulatory Matter

Restaurants India Private Limited (“YRIPL”), a Yum subsidiary that operates KFC and Pizza Hut restaurants in India, is the subject of a regulatory enforcement action in India (the “Action”).

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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 now scheduled for March 4, 2022.

In November 2022, YRIPL was notified that an administrative tribunal bench had been constituted to hear an appeal by DOE of certain findings of the January 2020 order, including claims that certain charges had been wrongly dropped and that an insufficient amount of penalty had been imposed.

A hearing has been scheduled with the administrative tribunal on March 14, 2023.

The stay order remains in effect, and the next hearing in the Delhi High Court is scheduled for May 16, 2023 .

We deny liability and intend to continue vigorously defending this matter.

We do not consider the risk of any significant loss arising from this order to be probable.

Yum China License Fee Dispute

In December 2022, the Company resolved the previously disclosed dispute regarding license fees due on certain amounts of gross revenue under the terms of the Master License Agreement between the Company and Yum China.

Other Matters

We are currently engaged in various other legal proceedings and have certain unresolved claims pending, the ultimate liability for which, if any, cannot be determined at this time.

However, based upon consultation with legal counsel, we are of the opinion that such proceedings and claims are not expected to have a material adverse effect, individually or in the aggregate, on our Consolidated Financial Statements.

Note 21 – Subsequent Event

In January 2022, the U.S.

Treasury published new regulations impacting foreign tax credit utilization beginning in the Company’s 2022 tax year.

These regulations make foreign taxes paid to certain countries no longer creditable in the U.S.

As discussed in Note 18, we currently have foreign tax credit carryforwards of $ 187 million, on which there is a $ 172 million valuation allowance.

We anticipate that these regulations will result in the utilization of some amount of our existing prior year foreign tax credit carryforwards and that a corresponding amount of the existing valuation allowance will be released in the first quarter of 2022.

While our determination of which foreign taxes that will no longer be creditable is not yet complete, we anticipate that the amount of valuation allowance to be released could be significant.

Further, we anticipate that these regulations will result in additional cash tax due in the U.S.

in future years once all existing foreign tax credit carryforwards have either been utilized or have expired.

Subject to finalizing our review, we estimate we could be subject to incremental cash taxes as early as 2028.

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