6 unchanged sentences
Percentages may not recompute due to rounding.
−Removed: and its Subsidiaries (collectively referred to herein as the “Company,” “YUM,” “we,” “us” or “our”) franchise or operate a system of nearly 54,000 restaurants in over 155 countries and territories, primarily under the concepts of KFC, Taco Bell, Pizza Hut and The Habit Burger Grill (collectively, the “Concepts”).
−Removed: The Company’s KFC, Taco Bell and Pizza Hut brands are global leaders of the chicken, Mexican-style and pizza food categories, respectively.
+Added: 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”).
+Added: The Company’s KFC, Taco Bell and Pizza Hut brands are global leaders of the chicken, Mexican-style and pizza categories, respectively.
The Habit Burger Grill, is a fast-casual restaurant concept specializing in made-to-order chargrilled burgers, sandwiches and more.
−Removed: Of the nearly 54,000 restaurants, 98% are operated by franchisees.
+Added: Of the over 55,000 restaurants, 98% are operated by franchisees.
YUM currently consists of four operating segments:
3 unchanged sentences
• The Habit Burger Grill Division which includes our worldwide operations of the Habit Burger Grill concept
−Removed: Through our Recipe for Growth and Good we intend to unlock the growth potential of our Concepts and YUM, drive increased collaboration across our Concepts and geographies and consistently deliver better customer experiences, improved unit economics and higher rates of growth.
+Added: Through our Recipe for Good Growth we intend to unlock the growth potential of our Concepts and YUM, drive increased collaboration across our Concepts and geographies and consistently deliver better customer experiences, improved unit economics and higher rates of growth.
Key enablers include accelerated use of technology and better leverage of our systemwide scale.
−Removed: Our Recipe for Growth is based on four key drivers:
+Added: Our global citizenship and sustainability strategy is reflected in our Good agenda, which includes our priorities for social responsibility, risk management and sustainable stewardship of our people, food and planet.
+Added: Our Growth agenda is based on four key drivers:
• Unrivaled Culture and Talent:
6 unchanged sentences
Drive market and franchise expansion with strong economics and value
−Removed: Our global citizenship and sustainability strategy, called the Recipe for Good, reflects our priorities for social responsibility, risk management and sustainable stewardship of our people, food and planet.
We intend for this MD&A to provide the reader with information that will assist in understanding our results of operations, including performance metrics that management uses to assess the Company's performance.
3 unchanged sentences
The system sales of restaurants we deem temporarily closed remain in our base for purposes of determining same-store sales growth and the restaurants remain in our unit count (see below).
−Removed: Throughout 2021 we had a significant number of restaurants that were temporarily closed including restaurants closed due to government and landlord restrictions as a result of COVID-19.
We believe same-store sales growth is useful to investors because our results are heavily dependent on the results of our Concepts' existing store base.
2 unchanged sentences
Net new unit growth reflects gross unit openings offset by permanent store closures, by us and our franchisees.
−Removed: To determine whether a restaurant meets the definition of a unit we consider whether the restaurant has operations that are ongoing and independent from another YUM unit, serves the primary product of one of our Concepts, operates under a separate franchise agreement (if operated by a franchisee) and
−Removed: has substantial and sustainable sales.
+Added: To determine whether a restaurant meets the definition of a unit we consider whether the restaurant has operations that are ongoing and independent from another YUM unit, serves the primary product of one of our Concepts, operates under a separate franchise agreement (if operated by a franchisee) and has substantial and sustainable sales.
We believe gross unit openings and net new unit growth are useful to investors because we depend on new units for a significant portion of our growth.
−Removed: Additionally, gross unit openings and net new unit growth are generally reflective of the economic returns to us and our franchisees from opening and operating our Concept restaurants.
+Added: Additionally, gross unit openings and net new unit
+Added: growth are generally reflective of the economic returns to us and our franchisees from opening and operating our Concept restaurants.
• System sales and System sales excluding the impacts of foreign currency translation (“FX”) reflect the results of all restaurants regardless of ownership, including Company-owned and franchise restaurants.
5 unchanged sentences
We believe System sales growth is useful to investors as a significant indicator of the overall strength of our business as it incorporates our primary revenue drivers, Company and franchise same-store sales as well as net unit growth.
−Removed: As of the beginning of the second quarter, as a result of our progress towards exiting Russia and our decision to reclass net operating profits attributable to Russia from the operating segments in which those profits were earned to Unallocated Other income (see Notes 1 and 8), we elected to remove all Russia units from our unit count as well as to exclude those units' associated sales from our system sales totals.
+Added: As of the beginning of the second quarter of 2022, as a result of our progress towards exiting Russia and our decision to reclass future net profits attributable to Russia subsequent to the date of their invasion of Ukraine from the Division segments in which those profits were earned to Unallocated Other income (see Notes 1 and 8), we elected to remove all Russia units from our unit count as well as to begin excluding those units' associated sales from our system sales totals.
We removed 1,112 units and 53 units in Russia from our global KFC and Pizza Hut unit counts, respectively.
22 unchanged sentences
All comparisons within this summary are versus the same period a year ago.
−Removed: The Quarterly and Year to date Financial Highlights tables below reflect the impact of removing all Russian units from our unit count and their associated sales from our system sales totals as of the beginning of the second quarter.
+Added: The Quarterly Financial Highlights table below reflects the impact of removing all Russian units from our unit count and their associated sales from our system sales totals as of the beginning of the second quarter of 2022.
Quarterly Financial Highlights:
4 unchanged sentences
YUM +11 +8 +3 +3 +11
−Removed: Year to date Financial Highlights:
−Removed: System Sales, ex FX Same-Store Sales Units GAAP Operating Profit Core Operating Profit
−Removed: KFC Division +6 +3 +2 (5) +2
−Removed: Taco Bell Division +9 +6 +5 +8 +8
−Removed: Pizza Hut Division +3 Even +4 (6) (3)
−Removed: YUM +6 +3 +4 (2) Even
Additionally:
−Removed: • As of the beginning of the second quarter, we have elected to remove 1,165 Russia units from our unit count and their associated sales from our total system sales.
+Added: • As of the beginning of the second quarter of 2022, we elected to remove 1,165 Russia units from our unit count and begin excluding their associated sales from our total system sales.
We removed 1,112 units and 53 units in Russia from our KFC and Pizza Hut units counts, respectively.
−Removed: ◦ YUM and KFC Division year-over-year unit growth as shown above were negatively impacted by two and five percentage points, respectively.
−Removed: ◦ YUM system sales growth excluding foreign currency as shown above was negatively impacted by three and one percentage points for the quarter and year to date ended September 30, 2022, respectively.
−Removed: YUM Core Operating Profit as shown above was negatively impacted by 3 and 2 percentage points for the quarter and year to date ended September 30, 2022, respectively.
−Removed: ◦ KFC Division system sales growth excluding foreign currency as shown above was negatively impacted by four and three percentage points for the quarter and year to date ended September 30, 2022, respectively.
−Removed: KFC Division Core Operating Profit as shown above was negatively impacted by five and four percentage points for the quarter and year to date ended September 30, 2022, respectively.
−Removed: • Foreign currency translation negatively impacted Divisional Operating Profit for the quarter and year to date by $39 million and $76 million, respectively.
−Removed: Third-Quarter Year-to-Date
−Removed: 2022 2021 % Change 2022 2021 % Change
+Added: ◦ YUM and KFC Division system sales growth excluding foreign currency as shown above were negatively impacted by 2 and 4 percentage points, respectively.
+Added: ◦ YUM and KFC Division year-over-year unit growth as shown above were negatively impacted by 2 and 5 percentage points, respectively.
+Added: • Also, we elected to reclass future net profits attributable to Russia subsequent to the date of invasion from the Division segments in which those profits were earned to Unallocated Other income and reflected such profits as a Special Item as they are not indicative of our ongoing results.
+Added: As a result of the decline in Core Operating Profits attributable to Russia:
+Added: ◦ YUM and KFC Division Core Operating Profit as shown above were negatively impacted by 1 and 2 percentage points, respectively, for the quarter ended March 31, 2023.
+Added: • Foreign currency translation unfavorably impacted Divisional Operating Profit by $27 million for the quarter ended March 31, 2023.
+Added: First Quarter
+Added: 2023 2022 % Change
GAAP EPS $1.05 $1.36 (23)
Special Items EPS
−Removed: $0.05 $0.53 NM $0.08 $0.66 NM
−Removed: EPS Excluding Special Items $1.09 $1.22 (11) $3.20 $3.44 (7)
−Removed: • Our diluted EPS, excluding Special Items reflects a $0.23 and $0.35 negative impact for the quarter and year to date ended September 30, 2022, respectively, from a higher current year tax rate, lower investment gains and the removal of Russia-based profits.
−Removed: Foreign currency translation also unfavorably impacted our diluted EPS, excluding Special Items, by approximately $0.10 and $0.20 for the quarter and year to date ended September 30, 2022, respectively.
+Added: $(0.01) $0.31 NM
+Added: EPS Excluding Special Items $1.06 $1.05 Even
+Added: • In addition to the aforementioned factors impacting Operating Profit, our 2023 diluted EPS, excluding Special Items, was negatively impacted by $0.07 from mark to market adjustments from unrealized investment losses and $0.08 from foreign currency translation.
• Gross unit openings for the quarter were 746 units resulting in 323 net new units.
−Removed: Gross unit openings for the year to date were 2,757 units resulting in 1,735 net new units.
−Removed: Quarter ended Year to date
−Removed: 2022 2021 % B/(W) 2022 2021 % B/(W)
+Added: Quarter ended
+Added: 2023 2022 % B/(W)
Company sales $ 474 $ 470 1
6 unchanged sentences
Franchise advertising and other services expense 395 361 (9)
−Removed: Refranchising (gain) loss (3) 1 NM (15) (21) (26)
−Removed: Other (income) expense 10 (2) NM — (12) NM
+Added: Refranchising (gain) loss (4) (4) 17
+Added: Other (income) expense 10 (6) NM
Total costs and expenses, net 1,122 1,038 (8)
Operating Profit 523 509 3
−Removed: Investment (income) expense, net (27) (51) (49) (19) (52) (64)
+Added: Investment (income) expense, net 24 (7) NM
Other pension (income) expense (2) — NM
1 unchanged sentence
Income before income taxes 371 398 (7)
−Removed: Income tax provision (benefit) 116 (77) NM 281 22 NM
+Added: Income tax provision (benefit) 71 (1) NM
Net Income $ 300 $ 399 (25)
2 unchanged sentences
Effective tax rate 19.1 % (0.2) % (19.3) ppts.
−Removed: 22.7 % 1.8 % (20.9) ppts.
(a) See Note 2 for the number of shares used in this calculation.
4 unchanged sentences
Total 55,683 54,052 3
−Removed: Quarter ended Year to date
−Removed: 2022 2021 2022 2021
+Added: Quarter ended
Same-store Sales Growth (Decline) % 8 3
2 unchanged sentences
Our system sales breakdown by Company and franchise sales was as follows:
−Removed: Quarter ended Year to date
−Removed: 2022 2021 2022 2021
+Added: Quarter ended
Company sales (a)
−Removed: $ 479 $ 513 $ 1,448 $ 1,509
Franchise sales 14,541 13,676
1 unchanged sentence
Foreign Currency Impact on System sales (b)
−Removed: (859) N/A (1,688) N/A
System sales, excluding FX $ 15,656 $ 14,146
Company sales (a)
−Removed: $ 112 $ 143 $ 353 $ 423
Franchise sales 7,947 7,607
1 unchanged sentence
Foreign Currency Impact on System sales (b)
−Removed: (677) N/A (1,332) N/A
System sales, excluding FX $ 8,561 $ 7,733
1 unchanged sentence
Company sales (a)
−Removed: $ 234 $ 225 $ 691 $ 656
Franchise sales 3,235 2,894
1 unchanged sentence
Foreign Currency Impact on System sales (b)
−Removed: (17) N/A (36) N/A
System sales, excluding FX $ 3,474 $ 3,108
1 unchanged sentence
Company sales (a)
−Removed: $ 4 $ 13 $ 14 $ 39
Franchise sales 3,331 3,155
1 unchanged sentence
Foreign Currency Impact on System sales (b)
−Removed: (165) N/A (320) N/A
System sales, excluding FX $ 3,463 $ 3,160
1 unchanged sentence
Company sales (a)
−Removed: $ 129 $ 132 $ 390 $ 391
Franchise sales 28 20
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Non-GAAP Items, along with the reconciliation to the most comparable GAAP financial measure, as presented below.
−Removed: Quarter ended Year to date
−Removed: 2022 2021 2022 2021
−Removed: Core Operating Profit Growth (Decline) % 8 3 Even 26
−Removed: Diluted EPS Growth (Decline) %, excluding Special Items (11) 21 (7) 39
+Added: Quarter ended
+Added: Core Operating Profit Growth (Decline) % 11 (5)
+Added: Diluted EPS Growth (Decline) %, excluding Special Items Even (1)
Effective Tax Rate excluding Special Items 19.3 % 20.4 %
−Removed: Quarter ended Year to date
−Removed: 2022 2021 2022 2021
+Added: Quarter ended
Company restaurant profit $ 71 $ 68
Company restaurant margin % 14.9 % 14.5 %
−Removed: Quarter ended Year to date
+Added: Quarter ended
Detail of Special Items 2023 2022
−Removed: Refranchising gain (loss) (a)
−Removed: $ 1 $ — $ 5 $ 4
+Added: Gain associated with market-wide refranchisings (a)
Operating profit impact from decision to exit Russia (b)
−Removed: Charges associated with resource optimization (c)
−Removed: (2) (4) (2) (7)
−Removed: Other Special Items Income (Expense) — 1 (1) 2
+Added: Other Special Items Expense (3) (1)
Special Items Income (Expense) - Operating Profit (3) 9
−Removed: Charges associated with resource optimization - Other pension (expense) income (c)
−Removed: Interest expense, net (d)
−Removed: — — (28) (34)
−Removed: Special Items Income (Expense) before Income Taxes 15 (3) 11 (34)
−Removed: Tax (Expense) Benefit on Special Items (e)
−Removed: (2) 11 (2) 18
−Removed: Tax Benefit - Intra-entity transfers of intellectual property (f)
−Removed: Tax Benefit - Newly issued U.S.
−Removed: foreign tax credit regulations (g)
−Removed: Tax (Expense) Benefit - Income tax impacts from decision to exit Russia (h)
+Added: Tax (Expense) Benefit on Special Items (c)
+Added: Tax Benefit - U.S.
+Added: foreign tax credit regulations issued in January 2022 (d)
Special Items Income (Expense), net of tax $ (1) $ 89
1 unchanged sentence
Special Items diluted EPS $ (0.01) $ 0.31
−Removed: (a) Due to their size and volatility, we have reflected as Special Items those refranchising gains and losses that were recorded in connection with our previously announced plans to have at least 98% franchise restaurant ownership by the end of 2018.
−Removed: As such, refranchising gains and losses recorded during 2022 and 2021 as Special Items are directly associated with restaurants that were refranchised prior to the end of 2018.
−Removed: During the quarter ended September 30, 2022, we recorded net refranchising gains of $1 million that have been reflected as Special Items.
−Removed: During the years to date ended September 30, 2022 and 2021, we recorded net refranchising gains of $5 million and $4 million, respectively, that have been reflected as Special Items.
−Removed: Additionally, we recorded net refranchising gains of $2 million and net refranchising losses of $1 million during the quarters ended September 30, 2022 and 2021, respectively, that have not been reflected as Special Items.
−Removed: During the years to date ended September 30, 2022 and 2021, we recorded net refranchising gains of $10 million and $17 million, respectively, that have not been reflected as Special Items.
−Removed: These net refranchising gains and losses relate to refranchising of restaurants in 2022 and 2021 that were not part of our aforementioned plans to achieve 98% franchise ownership and that we believe are now more indicative of our expected ongoing refranchising activity.
+Added: (a) Due to their size and volatility, we have reflected as Special Items those refranchising gains and losses that were recorded in connection with market-wide refranchisings.
+Added: During both the quarters ended March 31, 2023 and 2022, we recorded net refranchising gains of $3 million, respectively, that have been reflected as Special Items.
+Added: Additionally, we recorded net refranchising gains of $1 million, during both the quarters ended March 31, 2023 and 2022, respectively, that have not been reflected as Special Items.
+Added: These net refranchising gains relate to refranchising of restaurants unrelated to market-wide refranchisings and that we believe are indicative of our expected ongoing refranchising activity.
(b) 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.
−Removed: Further, we pledged to redirect any future net profits attributable to Russia to humanitarian efforts.
−Removed: Our GAAP operating results continue to reflect royalty revenues and expenses to support the Russian operations for Pizza Hut prior to the date of transfer and for KFC for the entire quarter and year to date ended September 30, 2022 within their historical financial statement line items and operating segments.
−Removed: 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 Corporate and unallocated.
−Removed: Additionally, we have incurred certain expenses related to the transfer of the businesses and other one-time costs related to our exit from Russia which we have recorded within Corporate and unallocated.
−Removed: The resulting net Operating Profit within Corporate and unallocated of $16 million and $37 million for the
−Removed: quarter and year to date ended September 30, 2022, respectively, has been reflected as a Special Item as the amounts are not indicative of our ongoing results.
−Removed: (c) During the quarter and year to date ended September 30, 2022, we recorded charges of $1 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.
−Removed: During the quarter ended September 30, 2021, we recorded a charge of $4 million to General and administrative expenses related to the program.
−Removed: During the year to date ended September 30, 2021, we recorded a charge of $7 million to General and administrative and a credit of $1 million to Other pension (income) expense related to the program.
−Removed: This program is part of our efforts to optimize our resources, reallocating them toward critical areas of the business that will drive future growth.
−Removed: 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.
−Removed: Due to the size and scope of the resource optimization program, these charges have been reflected as Special Items.
−Removed: (d) During the quarter ended June 30, 2022, the Company redeemed $600 million aggregate principal amount of 7.75% YUM Senior Unsecured Notes due in 2025 (the “2025 Notes”).
−Removed: The redemption amount was equal to 103.875% of the $600 million aggregate principal amount redeemed, reflecting a $23 million call premium.
−Removed: 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.
−Removed: During the quarter ended June 30, 2021, certain subsidiaries of the Company redeemed $1,050 million aggregate principal amount of 5.25% Subsidiary Senior Unsecured Notes due in 2026 (the “2026 Notes”).
−Removed: The redemption amount was equal to 102.625% of the $1,050 million aggregate principal amount redeemed, reflecting a $28 million call premium.
−Removed: 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.
−Removed: Due to their collective size and the fact that the amounts are not indicative of our ongoing interest expense, we reflected these charges as Special Items.
−Removed: (e) Tax (Expense) Benefit on Special Items was determined based upon the impact of the nature, as well as the jurisdiction of the respective individual components within Special Items.
−Removed: Additionally, during the quarter ended September 30, 2021, we recorded as a Special Item a $10 million tax benefit related to prior refranchisings for which the associated pre-tax gain or loss was recorded as Special.
−Removed: (f) During the quarter ended June 30, 2021, the United Kingdom (“UK”) Finance Act 2021 was enacted resulting in an increase in the UK corporate income tax rate from 19% to 25%.
−Removed: As a result, in the quarter ended June 30, 2021, we remeasured the deferred tax assets originally recorded as a Special Item as part of a fourth quarter 2019 intercompany restructuring of intellectual property (“IP”) rights into the UK, which resulted in the recognition of an additional $64 million deferred tax benefit as a Special Item.
−Removed: In July 2021, we concentrated management responsibility for European (excluding the UK) KFC franchise development, support operations and management oversight in Switzerland.
−Removed: 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.
−Removed: With the transfer of these rights, we received a step-up in amortizable tax basis to current fair value under applicable Swiss tax law.
−Removed: As a result of this transfer, we recorded a net, one-time benefit of $152 million as a Special Item in the quarter ended September 30, 2021.
−Removed: (g) In January 2022, the U.S.
+Added: Further, we pledged to redirect any future net profits attributable to Russia subsequent to the date of invasion to humanitarian efforts.
+Added: During the second quarter of 2022, we completed the transfer of ownership of the Pizza Hut Russia business to a local operator.
+Added: In April 2023, we completed our exit from the Russian market by selling the KFC business in Russia to Smart Service Ltd., including all Russian company-owned KFC restaurants, operating system, and master franchise rights as well as the trademark for the Rostik’s brand.
+Added: Under the sale and purchase agreement, the buyer has agreed to lead the process to rebrand KFC restaurants in Russia to Rostik's and retain the Company's employees in Russia.
+Added: Our GAAP operating results continue to reflect revenues from and expenses to support the Russian operations for KFC for the quarter ended March 31, 2023, as well as for both Pizza Hut and KFC for the quarter ended March 31, 2022, within their historical financial statement line items and operating segments.
+Added: 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 or losses from the Division segment results in which they were earned to Unallocated Other income (expense).
+Added: Additionally, we have incurred certain expenses related to the transfer of the businesses and other one-time costs related to our exit from Russia which we have recorded within Corporate and unallocated G&A and Unallocated Franchise and property expenses.
+Added: Also recorded in Unallocated Other income (expense) were foreign exchange impacts attributable to fluctuations in the value of the Russian ruble.
+Added: The resulting net Operating Loss of $3 million and net Operating Profit of $7 million for the quarters ended March 31, 2023 and 2022, respectively, have been reflected as a Special Item as the amounts are not indicative of our ongoing results.
+Added: (c) Tax (Expense) Benefit on Special Items was determined based upon the impact of the nature, as well as the jurisdiction of the respective individual components within Special Items.
+Added: (d) In January 2022, the U.S.
Treasury published new regulations impacting foreign tax credit utilization beginning in the Company’s 2022 tax year.
−Removed: These regulations make foreign taxes paid to certain countries no longer creditable in the U.S.
−Removed: As a result, we reversed a valuation allowance associated with existing foreign tax credit carryforwards that we now believe will be used to offset these now non-creditable taxes in 2022 and future years.
−Removed: This valuation allowance reversal resulted in a one-time tax benefit of $82 million in the year to date ended September 30, 2022 that was reflected as a Special Item.
−Removed: (h) Our decision to exit the Russia market is anticipated to result in a reduction in the tax basis of IP rights held in Switzerland due to the expected loss of the associated Russian royalty income associated with such rights going forward.
−Removed: As a result, we have remeasured and reassessed the need for a valuation allowance on those deferred tax assets.
−Removed: In addition, we have 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.
−Removed: Primarily as a result of these items, we
−Removed: recorded a net tax benefit of $2 million and net tax expense of $69 million in the quarter and year to date ended September 30, 2022, respectively, that were reflected as Special Items.
−Removed: Reconciliation of GAAP Operating Profit to Core Operating Profit Quarter ended Year to date
−Removed: 2022 2021 2022 2021
+Added: These regulations made foreign taxes paid to certain countries no longer creditable in the U.S., which was expected to result in additional foreign tax credit carryforward utilization prospectively.
+Added: we reversed a valuation allowance associated with existing foreign tax credit carryforwards.
+Added: This valuation allowance reversal resulted in a one-time tax benefit of $82 million in the quarter ended March 31, 2022 that was reflected as a Special Item.
+Added: Treasury published clarifying guidance in November 2022 which resulted in foreign taxes originally determined to be non-creditable under the January 2022 regulations to now be treated as creditable taxes.
+Added: As such, the valuation allowance on foreign tax credit carryforwards that was released in the quarter ended March 31, 2022, was re-established in the quarter ended December 31, 2022.
+Added: Reconciliation of GAAP Operating Profit to Core Operating Profit Quarter ended
GAAP Operating Profit $ 523 $ 509
1 unchanged sentence
Foreign Currency Impact on Divisional Operating Profit (a)
−Removed: (39) N/A (76) N/A
Core Operating Profit $ 553 $ 500
1 unchanged sentence
Foreign Currency Impact on Divisional Operating Profit (a)
−Removed: (33) N/A (64) N/A
Core Operating Profit $ 326 $ 291
2 unchanged sentences
Foreign Currency Impact on Divisional Operating Profit (a)
−Removed: (1) N/A (2) N/A
Core Operating Profit $ 205 $ 185
2 unchanged sentences
Foreign Currency Impact on Divisional Operating Profit (a)
−Removed: (5) N/A (10) N/A
Core Operating Profit $ 109 $ 102
Habit Burger Grill Division
−Removed: GAAP Operating Profit (Loss) $ (4) $ 1 $ (14) $ 6
+Added: GAAP Operating Loss $ (5) $ (8)
Foreign Currency Impact on Divisional Operating Profit (a)
−Removed: Core Operating Profit (Loss) $ (4) $ 1 $ (14) $ 6
+Added: Core Operating Loss $ (5) $ (8)
Reconciliation of Diluted EPS to Diluted EPS excluding Special Items
35 unchanged sentences
Company restaurant margin % 14.1 % 21.9 % (0.7) % 3.0 % N/A 14.5 %
−Removed: Year to date 9/30/2022
−Removed: KFC Division Taco Bell Division Pizza Hut Division Habit Burger Grill Division Corporate and Unallocated Consolidated
−Removed: GAAP Operating Profit (Loss) $ 888 $ 604 $ 287 $ (14) $ (156) $ 1,609
−Removed: Franchise and property revenues 1,195 574 438 4 — 2,211
−Removed: Franchise contributions for advertising and other services 493 406 264 1 — 1,164
−Removed: General and administrative expenses 269 116 145 35 203 768
−Removed: Franchise and property expenses 53 22 9 1 4 89
−Removed: Franchise advertising and other services expense 480 406 266 1 — 1,153
−Removed: Refranchising (gain) loss — — — — (15) (15)
−Removed: Other (income) expense 44 (2) (6) — (36) —
−Removed: Company restaurant profit $ 46 $ 166 $ (1) $ 18 $ — $ 229
−Removed: Company sales $ 353 $ 691 $ 14 $ 390 $ — $ 1,448
−Removed: Company restaurant margin % 13.1 % 23.9 % (4.7) % 4.8 % N/A 15.8 %
−Removed: Year to date 9/30/2021
−Removed: KFC Division Taco Bell Division Pizza Hut Division Habit Burger Grill Division Corporate and Unallocated Consolidated
−Removed: GAAP Operating Profit (Loss) $ 932 $ 560 $ 306 $ 6 $ (167) $ 1,637
−Removed: Franchise and property revenues 1,124 518 435 3 — 2,080
−Removed: Franchise contributions for advertising and other services 452 380 273 — — 1,105
−Removed: General and administrative expenses 239 104 128 35 183 689
−Removed: Franchise and property expenses 49 23 9 — — 81
−Removed: Franchise advertising and other services expense 438 377 275 — — 1,090
−Removed: Refranchising (gain) loss — — — — (21) (21)
−Removed: Other (income) expense (5) (5) (7) — 5 (12)
−Removed: Company restaurant profit $ 77 $ 161 $ 3 $ 38 $ — $ 279
−Removed: Company sales $ 423 $ 656 $ 39 $ 391 $ — $ 1,509
−Removed: Company restaurant margin % 18.3 % 24.5 % 6.9 % 9.7 % N/A 18.5 %
Items Impacting Reported Results and Reasonably Likely to Impact Future Results
5 unchanged sentences
Further, we pledged to redirect any future net profits attributable to Russia subsequent to the date of invasion to humanitarian efforts.
−Removed: 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.
−Removed: In October 2022, we announced that we have 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 franchised restaurants, to Smart Service Ltd., a business operated by one of our existing KFC franchisees in Russia.
−Removed: 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.
−Removed: Completion of the transaction is subject to regulatory and governmental approvals, as well as other conditions.
−Removed: Following the completion of the transaction, we will have ceased our corporate presence in Russia.
−Removed: As of the beginning of the second quarter, we elected to remove all Russia units from our unit count and their associated sales from our total system sales.
+Added: During the second quarter of 2022, we completed the transfer of ownership of the Pizza Hut Russia business to a local operator.
+Added: In April 2023, we completed our exit from the Russian market by selling the KFC business in Russia to Smart Service Ltd., including all Russian company-owned KFC restaurants, operating system, and master franchise rights as well as the trademark for the Rostik’s brand.
+Added: Under the sale and purchase agreement, the buyer has agreed to lead the process to rebrand KFC restaurants in Russia to Rostik's and retain the Company's employees in Russia.
+Added: With the completion of this transaction we have now ceased our corporate presence in Russia.
+Added: As of the beginning of the second quarter of 2022, we elected to remove all Russia units from our unit count and their associated sales from our total system sales.
We removed 1,112 units and 53 units in Russia from our global KFC and Pizza Hut units counts, respectively.
−Removed: This negatively impacted YUM and KFC Division year-over-year unit growth by two and five percentage points, respectively at September 30, 2022.
−Removed: This also negatively impacted our system sales growth for YUM and KFC Division by three and four percentage points, respectively, during the quarter ended September 30, 2022, and negatively impacted our system sales growth for YUM and KFC Division by one and three percentage points, respectively, for the year to date September 30, 2022.
−Removed: Russia units were removed from our same-store sales calculations as of the beginning of the second quarter.
+Added: This negatively impacted YUM and KFC Division year-over-year unit growth by 2 and 5 percentage points, respectively at March 31, 2023.
+Added: This also negatively impacted our system sales growth excluding foreign currency for YUM and KFC Division by 2 and 4 percentage points, respectively, during the quarter ended March 31, 2023.
+Added: Russia units were removed from our same-store sales calculations as of the beginning of the second quarter of 2022.
+Added: Our GAAP operating results continue to reflect revenues from and expenses to support the Russian operations for KFC for the quarter ended March 31, 2023, as well as for both Pizza Hut and KFC for the quarter ended March 31, 2022, within their historical financial statement line items and operating segments.
+Added: 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 net operating profits or losses from the Division segment results in which they were earned to Unallocated Other income (expense) and reflected such net profits as a Special Item.
+Added: Additionally, we have incurred certain expenses related to the transfer of the businesses and other costs related to our exit from Russia which we have recorded within Corporate and unallocated G&A and Unallocated Franchise and property expenses.
+Added: The resulting net Operating Loss of $3 million and net Operating Profit of $7 million for the quarters ended March 31, 2023 and 2022, respectively, have been reflected as a Special Item as the amounts are not indicative of our ongoing results.
Historically, our Russian business has constituted approximately 3% of our total operating profit and 2% of our total system sales.
−Removed: During the quarter ended September 30, 2022, our Core Operating Profits in Russia declined versus the third quarter of last year, negatively impacting YUM and KFC Division Core Operating Profit growth by three and five percentage points.
−Removed: During the year to date ended September 30, 2022, our Core Operating Profits in Russia declined versus the prior year, negatively impacting YUM and KFC Division Core Operating Profit growth by two and four percentage points, respectively.
+Added: During the quarter ended March 31, 2023, our Core Operating Profits in Russia declined versus the first quarter of last year, negatively impacting YUM and KFC Division Core Operating Profit growth by 1 and 2 percentage points, respectively.
See Note 1 for a discussion regarding our net asset base in Russia.
Impact of Foreign Currency Translation on Operating Profit
−Removed: Changes in foreign currency exchange rates negatively impacted the translation of our foreign currency denominated Divisional Operating Profit by $39 million and $76 million for the quarter and year to date ended September 30, 2022, respectively.
−Removed: This included a negative impact to our KFC Division Operating Profit of $33 million and $64 million for the quarter and year to date ended September 30, 2022, respectively.
−Removed: For the full year 2022 we currently expect changes in foreign currency to negatively impact Divisional Operating Profit by approximately $100 million.
−Removed: In late 2019, a novel strain of coronavirus, COVID-19, was first detected and in March 2020, the World Health Organization declared COVID-19 a global pandemic.
−Removed: As a result of COVID-19, governmental authorities around the world implemented measures to reduce the spread of COVID-19, some of which remain in place today.
−Removed: These measures have included and in some instances continue to include restrictions on travel outside the home and other limitations on business and other activities as well as encouraging social distancing.
−Removed: As a result of COVID-19, we and our franchisees have experienced store closures and instances of reduced store-level operations, including reduced operating hours and dining-room closures.
−Removed: The impact on our sales in each of our markets has been dependent on the timing, severity and duration of the outbreak, measures implemented by government authorities to reduce the spread of COVID-19, as well as our reliance on dine-in sales in the market.
−Removed: Throughout 2022, COVID-19 outbreaks and resulting government restrictions limiting mobility have continued to impact sales in a few key markets, primarily in China.
−Removed: Excluding China, our YUM same-store sales growth was 7% and our KFC Division same-store sales growth was 9% for the quarter ended September 30, 2022.
−Removed: Excluding China, our YUM same-store sales growth was 6% and our KFC Division same-store sales growth was 9% for the year to date ended September 30, 2022.
−Removed: The COVID-19 situation is ongoing, and its dynamic nature makes it difficult to forecast any impacts on the Company's results for the balance of 2022.
+Added: Changes in foreign currency exchange rates negatively impacted the translation of our foreign currency denominated Divisional Operating Profit by $27 million for the quarter ended March 31, 2023.
+Added: This included a negative impact to our KFC Division Operating Profit of $21 million.
+Added: For the second quarter of 2023, we currently expect changes in foreign currency to negatively impact Divisional Operating Profit by approximately $10 to $20 million.
Investment in Devyani
−Removed: In 2020, we received a minority interest in Devyani International Limited (“Devyani”), an entity that operates KFC and Pizza Hut franchised units in India.
−Removed: The minority interest was received in lieu of cash proceeds upon the refranchising of approximately 60 KFC restaurants in India.
−Removed: At the time of the refranchisings, the fair value of this minority interest was estimated to be approximately $31 million.
−Removed: On August 16, 2021, Devyani executed an initial public offering and subsequently the fair value of this investment became readily determinable.
−Removed: As a result, concurrent with the initial public offering we began recording changes in fair value in Investment (income) expense, net in our Condensed Consolidated Statements of Income and recognized pre-tax investment income of $27 million and $20 million, in the quarter and year to date ended September 30, 2022, respectively, and pre-tax investment income of $52 million in both the quarter and year to date ended September 30, 2021.
+Added: Changes in the fair value of our approximate 5% minority investment in Devyani International Limited ("Devyani"), a franchise entity that operates KFC and Pizza Hut restaurants in India, resulted in a pre-tax loss of $23 million and a pre-tax gain of $7 million in the quarters ended March 31, 2023 and 2022, respectively.
The KFC Division has 28,003 units, 86% of which are located outside the U.S.
−Removed: Additionally, 99% of the KFC Division units were operated by franchisees as of September 30, 2022.
−Removed: Quarter ended Year to date
−Removed: % B/(W) % B/(W)
−Removed: 2022 2021 Reported Ex FX 2022 2021 Reported Ex FX
−Removed: System Sales $ 7,824 $ 7,878 (1) 8 $ 22,809 $ 22,789 Even 6
−Removed: Same-Store Sales Growth (Decline) % 7 6 N/A N/A 3 14 N/A N/A
+Added: Additionally, 99% of the KFC Division units were operated by franchisees as of March 31, 2023.
+Added: Quarter ended
+Added: 2023 2022 Reported Ex FX
+Added: System Sales $ 8,057 $ 7,733 4 11
+Added: Same-Store Sales Growth (Decline) % 9 3 N/A N/A
Company sales $ 110 $ 126 (13) (6)
4 unchanged sentences
Company restaurant margin % 12.0 % 14.1 % (2.1) ppts.
−Removed: 13.1 % 18.3 % (5.2) ppts.
G&A expenses $ 89 $ 84 (6) (8)
8 unchanged sentences
Company sales and Company restaurant margin %
−Removed: The quarterly and year to date decreases in Company sales, excluding the impacts of foreign currency translation, were driven by the suspension of operations of our 70 company-owned KFC restaurants in Russia.
−Removed: Company same-store sales grew 2% and
−Removed: were flat for the quarter and year to date, respectively.
+Added: The quarterly decrease in Company sales, excluding the impacts of foreign currency translation, was driven by the suspension of operations of our 70 company owned KFC restaurants in Russia during the quarter ended March 31, 2022, partially offset by Company same-store sales growth of 6%.
As discussed in the Introduction and Overview section of this MD&A, all units in Russia, both Company and franchised, were removed from our same-store sales calculations beginning April 1, 2022.
−Removed: The quarterly and year to date decreases in Company restaurant margin percentage were driven by commodity and wage inflation.
+Added: The quarterly decrease in Company restaurant margin percentage was driven by commodity inflation.
Franchise and property revenues
−Removed: The quarterly and year to date increases in Franchise and property revenues, excluding the impacts of foreign currency translation, were driven by franchise same-store sales growth of 7% and 3%, respectively, and unit growth.
+Added: The quarterly increase in Franchise and property revenues, excluding the impacts of foreign currency translation, was driven by franchise same-store sales growth of 9% and unit growth.
As discussed in the Introduction and Overview section of this MD&A, all units in Russia, both Company and franchised, were removed from our same-store sales calculations beginning April 1, 2022.
−Removed: The quarterly increase in G&A, excluding the impact of foreign currency translation, was driven by higher headcount and salaries and higher travel related costs, partially offset by lower expenses related to our annual incentive compensation program.
−Removed: The year to date increase in G&A, excluding the impact of foreign currency translation, was driven by higher headcount and salaries, higher travel related costs and higher professional fees, partially offset by lower expenses related to our annual incentive compensation program.
+Added: The quarterly increase in G&A, excluding the impact of foreign currency translation, was driven by higher headcount and salaries and higher travel related costs.
Operating Profit
−Removed: The quarterly increase in Operating Profit, excluding the impact of foreign currency translation, was driven by same-store sales growth and unit growth, partially offset by the negative impact of 5 percentage points on year-over-year operating profit growth as a result of lower profits in Russia, higher G&A and higher restaurant operating costs.
−Removed: The year to date increase in Operating Profit, excluding the impact of foreign currency translation, was driven by same-store sales growth and unit growth, partially offset by higher G&A, the negative impact of 4 percentage points on year-over-year operating profit growth as a result of lower profits in Russia and higher restaurant operating costs.
+Added: The quarterly increase in Operating Profit, excluding the impact of foreign currency translation, was driven by same-store sales growth and unit growth, partially offset by higher restaurant operating costs, higher G&A, and the negative impact of 2 percentage points on year-over-year operating profit growth as a result of lower profits in Russia.
Taco Bell Division
1 unchanged sentence
The Company owned 7% of the Taco Bell units in the U.S.
−Removed: as of September 30, 2022.
−Removed: Quarter ended Year to date
−Removed: % B/(W) % B/(W)
−Removed: 2022 2021 Reported Ex FX 2022 2021 Reported Ex FX
+Added: as of March 31, 2023.
+Added: Quarter ended
+Added: 2023 2022 Reported Ex FX
System Sales $ 3,464 $ 3,108 11 12
−Removed: Same-Store Sales Growth % 6 5 N/A N/A 6 12 N/A N/A
+Added: Same-Store Sales Growth % 8 5 N/A N/A
Company sales $ 229 $ 214 7 7
4 unchanged sentences
Company restaurant margin % 22.2 % 21.9 % 0.3 ppts.
−Removed: 23.9 % 24.5 % (0.6) ppts.
G&A expenses $ 45 $ 36 (25) (25)
8 unchanged sentences
Company sales and Company restaurant margin %
−Removed: The quarterly and year to date increases in Company sales were driven by same-store sales growth of 6% and 8% for the quarter and year to date, respectively, and unit growth partially offset by refranchising.
−Removed: The quarterly increase in Company restaurant margin percentage was driven by Company same-store sales growth partially offset by commodity and wage inflation.
−Removed: The year to date decrease in Company restaurant margin percentage was driven by commodity and wage inflation partially offset by Company same-store sales growth.
+Added: The quarterly increase in Company sales was driven by company same-store sales growth of 7% and unit growth partially offset by refranchising.
+Added: The quarterly increase in Company restaurant margin percentage was driven by same-store sales growth partially offset by commodity inflation and higher labor costs.
Franchise and property revenues
−Removed: The quarterly and year to date increases in Franchise and property revenues were driven by franchise same-store sales growth of 6% for both the quarter and year to date and unit growth.
−Removed: The quarterly increase in G&A was driven by higher headcount and salaries and higher travel related costs partially offset by lower professional fees.
−Removed: The year to date increase in G&A was driven by higher headcount and salaries and higher travel related costs.
+Added: The quarterly increases in Franchise and property revenues was driven by franchise same-store sales growth of 9% and unit growth.
+Added: The quarterly increase in G&A, excluding the impacts of foreign currency translation, was driven by higher digital and technology expenses, higher headcount and salaries and higher travel related expenses.
Operating Profit
−Removed: The quarterly and year to date increases in Operating Profit were driven by same-store sales growth and unit growth partially offset by higher restaurant operating costs and higher G&A costs.
+Added: The quarterly increase in Operating Profit was driven by same-store sales growth and unit growth partially offset by higher restaurant operating costs and higher G&A.
Pizza Hut Division
2 unchanged sentences
airports) and includes units operating under both the Pizza Hut and Telepizza brands.
−Removed: Additionally, over 99% of the Pizza Hut Division units were operated by franchisees as of September 30, 2022.
−Removed: Quarter ended Year to date
−Removed: % B/(W) % B/(W)
−Removed: 2022 2021 Reported Ex FX 2022 2021 Reported Ex FX
+Added: Additionally, over 99% of the Pizza Hut Division units were operated by franchisees as of March 31, 2023.
+Added: Quarter ended
+Added: 2023 2022 Reported Ex FX
System Sales $ 3,336 $ 3,160 6 10
−Removed: Same-Store Sales Growth (Decline) % 1 4 N/A N/A Even 9 N/A N/A
+Added: Same-Store Sales Growth (Decline) % 7 Even N/A N/A
Company sales $ 5 $ 5 2 2
2 unchanged sentences
Total revenues $ 254 $ 244 4 7
−Removed: Company restaurant profit $ (1) $ 1 NM NM $ (1) $ 3 NM NM
+Added: Company restaurant profit $ — $ — NM NM
Company restaurant margin % 3.9 % (0.7) % 4.6 ppts.
−Removed: (4.7) % 6.9 % (11.6) ppts.
G&A expenses $ 51 $ 50 (3) (5)
8 unchanged sentences
Company sales
−Removed: The quarterly and year to date decreases in Company sales, excluding the impacts of foreign currency translation, were driven by the refranchising of stores in the United Kingdom.
+Added: The quarterly increase in Company sales, excluding the impacts of foreign currency translation, was driven by company same-store sales growth of 6%.
Franchise and property revenues
−Removed: The quarterly increase in Franchise and property revenues, excluding the impacts of foreign currency translation, was driven by unit growth and franchise same-store sales growth of 1%.
−Removed: The year to date increase in Franchise and property revenues, excluding the impacts of foreign currency translation, was driven by unit growth and the recognition of franchise fees related to unexercised development rights arising from a master franchise agreement.
−Removed: The quarterly and year to date increases in G&A, excluding the impacts of foreign currency translation, were driven by higher headcount and salaries and higher travel related expenses.
+Added: The quarterly increase in Franchise and property revenues, excluding the impacts of foreign currency translation, was driven by franchise same-store sales growth of 7% and unit growth, partially offset by lapping the prior year recognition of franchise fees related to unexercised development rights arising from a master franchise agreement.
+Added: The quarterly increase in G&A, excluding the impacts of foreign currency translation, was driven by higher headcount and salaries and higher travel related expenses, partially offset by lower legal fees.
Operating Profit
−Removed: The quarterly decrease in Operating Profit, excluding the impacts of foreign currency translation, was driven by current year net bad debt expense lapping prior year net bad debt recoveries and higher G&A partially offset by unit growth.
−Removed: The year to date decrease in Operating Profit, excluding the impacts of foreign currency translation, was driven by higher G&A partially offset by unit growth.
+Added: The quarterly increase in Operating Profit, excluding the impacts of foreign currency translation, was driven by same-store sales growth and unit growth, partially offset by lapping the upfront recognition of franchise fees related to unexercised development rights arising from a master franchise agreement.
Habit Burger Grill Division
1 unchanged sentence
The Company owned 85% of the Habit Burger Grill units in the U.S.
−Removed: as of September 30, 2022.
−Removed: Quarter ended Year to date
−Removed: % B/(W) % B/(W)
−Removed: 2022 2021 Reported 2022 2021 Reported
−Removed: System Sales (a)
−Removed: $ 156 $ 150 4 $ 457 $ 440 4
−Removed: Same-Store Sales Growth % (1) 11 N/A (1) 18 N/A
+Added: as of March 31, 2023.
+Added: Quarter ended
+Added: 2023 2022 Reported
+Added: System Sales $ 158 $ 145 8
+Added: Same-Store Sales Growth % — 3 N/A
Total revenues $ 132 $ 126 4
−Removed: Operating Profit (Loss) $ (4) $ 1 NM $ (14) $ 6 NM
−Removed: (a) Beginning with the quarter ended March 31, 2022, our Habit Burger Grill Division adopted a reporting calendar change as discussed in Note 1.
−Removed: The impact of this change in reporting calendar was not significant, and accordingly, prior year amounts in these Condensed Consolidated Financial Statements and accompanying Management's Discussion and Analysis have not been restated.
−Removed: System sales growth, excluding the impact of the reporting calendar change, was 12% and 13% for the quarter and year to date ended September 30, 2022, respectively.
+Added: Operating Profit (Loss) $ (5) $ (8) 35
Unit Count 3/31/2023 3/31/2022 % Increase (Decrease)
3 unchanged sentences
Corporate & Unallocated
−Removed: Quarter ended Year to date
−Removed: (Expense) / Income 2022 2021 % B/(W) 2022 2021 % B/(W)
+Added: Quarter ended
+Added: (Expense) / Income 2023 2022 % B/(W)
Corporate and unallocated G&A $ ( 84 ) $ ( 71 ) (17)
Unallocated Franchise and property expenses (See Note 8)
−Removed: — — NM ( 4 ) — NM
−Removed: Unallocated Refranchising gain (loss) 3 ( 1 ) NM 15 21 (26)
+Added: Unallocated Refranchising gain (loss) 4 4 17
Unallocated Other income (expense) (See Note 8)
−Removed: 14 ( 2 ) NM 36 ( 5 ) NM
−Removed: Investment income (expense), net (See Note 8) 27 51 (49) 19 52 (64)
+Added: Investment income (expense), net (See Note 8) ( 24 ) 7 NM
Other pension income (expense) (See Note 9)
−Removed: ( 2 ) ( 1 ) NM ( 3 ) ( 6 ) 48
Interest expense, net ( 130 ) ( 118 ) (10)
−Removed: Income tax benefit (provision) (See Note 6) (116) 77 NM (281) (22) NM
+Added: Income tax benefit (provision) (See Note 6) (71) 1 NM
Effective tax rate (See Note 6) 19.1 % ( 0.2 ) % (19.3) ppts.
−Removed: 22.7 % 1.8 % (20.9) ppts.
Corporate and unallocated G&A
−Removed: The quarterly decrease in Corporate and Unallocated G&A expense was driven by lower current year expenses related to our annual incentive compensation programs and lower professional fees, offset by higher software costs and amortization, higher headcount and salaries including personnel associated with our 2021 investments in digital and technology companies and higher travel costs.
−Removed: The year-to-date increase in Corporate and Unallocated G&A expense was driven by higher headcount and salaries including personnel associated with our 2021 investments in digital and technology companies, higher software costs and amortization, higher meeting costs, and higher travel costs, offset by lower current year expenses related to our annual incentive compensation programs.
+Added: The quarterly increase in Corporate and Unallocated G&A expense was driven by costs associated with the previously disclosed ransomware attack.
Interest expense, net
−Removed: The quarterly decrease in Interest expense, net was primarily driven by a lower weighted average interest rate offset by higher borrowings.
−Removed: The year to date decrease in Interest expense, net was primarily driven by $12 million of previously unamortized debt issuance costs written-off in the prior year due to the refinancing of our Credit Agreement and $6 million lower expense in the current year relating to the call premium and unamortized debt issuance costs written-off associated with the redemption of the 2025 Notes as compared to the call premium and unamortized debt costs written-off associated with the redemption of the 2026 Notes (as discussed in our 2021 Form 10-K) in the prior year.
+Added: The quarterly increase in Interest expense, net was primarily driven by a higher weighted average interest rate.
Consolidated Cash Flows
Net cash provided by operating activities was $349 million in 2023 versus $253 million in 2022.
−Removed: The decrease was primarily driven by an increase in incentive compensation payments, timing of spending on advertising and a decrease in Operating profit before Special Items, which includes the impact of foreign currency translation.
+Added: The increase was primarily driven by a decrease in incentive compensation payments, an increase in Operating profit before Special Items and timing of spending on advertising, partially offset by higher interest payments.
Net cash used in investing activities was $56 million in 2023 versus $29 million in 2022.
−Removed: The change was primarily driven by the lapping of our prior year acquisition of Dragontail Systems Limited, partially offset by the lapping of our prior year sale of certain mutual fund investments and higher current year capital spending.
+Added: The change was primarily driven by higher current year capital spending and lower refranchising proceeds.
Net cash used in financing activities was $334 million in 2023 versus $377 million in 2022.
−Removed: The change was primarily driven by lower current year net borrowings and higher dividends paid, partially offset by lower share repurchases.
+Added: The change was primarily driven by lower current year share repurchases, partially offset by lower net borrowings.
Liquidity and Capital Resources
We have historically generated substantial cash flows from our extensive franchise operations, which require a limited YUM investment, and from the operations of our Company-owned stores.
−Removed: Our annual operating cash flows have been in excess of $1.3 billion in each of the past three years and we expect that to continue to be the case in 2022.
+Added: Our annual operating cash flows have been in excess of $1.3 billion in each of the past four years and we expect that to continue to be the case in 2023.
It is our intent to use these operating cash flows to continue to invest in growing our business and pay a competitive dividend, with any remaining excess then returned to shareholders through share repurchases.
−Removed: To the extent operating cash flows plus other sources of cash do not cover our anticipated cash needs, we maintain a $1.25 billion Revolving Facility under our Credit Agreement that was undrawn as of September 30, 2022.
−Removed: We believe that our ongoing cash from operations, cash on hand, which was approximately $400 million at September 30, 2022, and availability under our Revolving Facility will be sufficient to fund our cash requirements over the next twelve months.
+Added: To the extent operating cash flows plus other sources of cash do not cover our anticipated cash needs, we maintain a $1.25 billion Revolving Facility under our Credit Agreement which had $194 million outstanding as of March 31, 2023.
+Added: We believe that our ongoing cash from operations, cash on hand, which was approximately $350 million at March 31, 2023, and availability under our Revolving Facility will be sufficient to fund our cash requirements over the next twelve months.
There have been no material changes to the disclosures made in Item 7 of the Company's 2022 Form 10-K regarding our material cash requirements.
1 unchanged sentence
Debt Instruments
−Removed: As of September 30, 2022, approximately 94%, including the impact of interest rate swaps, of our $11.6 billion of total debt outstanding, excluding finance leases, is fixed.
−Removed: Our total debt outstanding currently has an effective overall interest rate of approximately 4.4%.
−Removed: We are managing a capital structure which reflects consolidated leverage, net of available cash, in-line with our target of ~5.0x EBITDA, and which we believe provides an attractive balance between optimized interest rates, duration and flexibility with diversified sources of liquidity and maturities spread over multiple years.
+Added: As of March 31, 2023, approximately 94%, including the impact of interest rate swaps, of our $11.6 billion of total debt outstanding, excluding the Revolving Facility balances, finance leases and debt issuance costs and discounts, is fixed with an effective overall interest rate of approximately 4.5%.
+Added: We ended the quarter with a consolidated net leverage ratio of 4.9x EBITDA.
+Added: We continually reassess our optimal leverage ratio to maximize shareholder returns.
+Added: We target a capital structure which we believe provides an attractive balance between optimized interest rates, duration and flexibility with diversified sources of liquidity and maturities spread over multiple years.
We have credit ratings of BB+ (Standard & Poor's)/Ba2 (Moody's) with a balance sheet consistent with highly-levered peer restaurant franchise companies.
−Removed: The following table summarizes the future maturities of our outstanding long-term debt, excluding finance leases and debt issuance costs and discounts, as of September 30, 2022.
+Added: The following table summarizes the future maturities of our outstanding long-term debt, excluding finance leases and debt issuance costs and discounts, as of March 31, 2023.
2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2037 2043 Total
1 unchanged sentence
Credit Agreement 25 48 53 662 15 1,398 2,201
+Added: Revolving Facility 194 194
Subsidiary Senior Unsecured Notes 750 750
2 unchanged sentences
See Note 10 for details on the Securitization Notes, the Credit Agreement, Subsidiary Senior Unsecured Notes and YUM Senior Unsecured Notes.
−Removed: New Accounting Pronouncements Not Yet Adopted
−Removed: In March 2020, the FASB issued guidance related to reference rate reform.
−Removed: The pronouncement provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from LIBOR and other interbank offered rates to alternative reference rates.
−Removed: The guidance was effective upon issuance and generally can be applied to applicable contract modifications through December 31, 2022.
−Removed: We are currently evaluating the impact of the transition from LIBOR to alternative reference rates, including the impact on our interest rate swaps with notional amounts of $1.5 billion expiring in March 2025.
−Removed: These interest rate swaps are designated cash flow hedges.
−Removed: We do not anticipate the impact of adopting this standard will be material to our Financial Statements.
+Added: Ransomware Attack
+Added: On January 18, 2023, the Company announced a ransomware attack that impacted certain Information Technology (“IT”) systems.
+Added: Promptly upon the detection of the incident, the Company initiated response protocols and an investigation, engaged the services of industry-leading cybersecurity and forensics professionals and consulted Federal law enforcement.
+Added: This incident resulted in the closure of fewer than 300 restaurants in one market for one day, and certain of the Company’s IT systems and data were affected.
+Added: In addition, although data was taken from our network, with our forensic investigation complete we have concluded that the affected data was limited to certain personal information of former and current employees, and there continues to be no evidence that customer databases were accessed.
+Added: We have incurred, and may continue to incur, certain expenses related to this attack, including expenses to respond to, remediate and investigate this matter.
+Added: In addition, in April 2023, several separate putative class actions were filed in U.S.
+Added: federal and state court by current and/or former employees alleging violations of privacy and other rights in connection with the ransomware incident.
+Added: We do not believe the impact of the incident or the aforementioned matters will ultimately have a material adverse effect on our business, results of operations or financial condition.
Quantitative and Qualitative Disclosures About Market Risk
−Removed: There were no material changes during the quarter ended September 30, 2022, to the disclosures made in Item 7A of the Company’s 2021 Form 10-K.
+Added: There were no material changes during the quarter ended March 31, 2023, to the disclosures made in Item 7A of the Company’s 2022 Form 10-K.
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.