What changed in this filing

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Item 1. Financial Statements

2023-11-07 compared with 2023-08-07 · 73 added, 60 removed, 518 unchanged (20% of the section changed)

47 unchanged sentences

— ( 6 ) ( 2 ) ( 8 )

— 19 ( 1 ) 26

Changes in derivative instruments

2 unchanged sentences

( 9 ) 1 ( 20 ) 19

( 2 ) 43 5 133

Tax (expense) benefit

1 ( 11 ) ( 1 ) ( 33 )

Other comprehensive income, net of tax 78 ( 2 ) 76 31

( 1 ) 32 4 100

Other comprehensive income (loss), net of tax

( 21 ) ( 4 ) 55 27

Comprehensive Income $ 395 $ 327 $ 1,189 $ 981

22 unchanged sentences

Other, net ( 3 ) ( 5 )

Net Cash Provided by (Used In) Investing Activities 26 ( 64 )

Net Cash Used in Investing Activities

( 4 ) ( 112 )

Cash Flows – Financing Activities

47 unchanged sentences

AND SUBSIDIARIES

Quarters and years to date ended June 30, 2023 and 2022

Quarters and years to date ended September 30, 2023 and 2022

(in millions)

2 unchanged sentences

Shares Amount

Balance at March 31, 2023

Balance at June 30, 2023

280 $ 13 $ ( 8,156 ) $ ( 293 ) $ ( 8,436 )

3 unchanged sentences

Pension and post-retirement benefit plans — —

Net gain on derivative instruments (net of tax impact of $ 5 million)

Net loss on derivative instruments (net of tax impact of $ 1 million)

Comprehensive Income 395

3 unchanged sentences

Share-based compensation events 24 24

Balance at June 30, 2023

Balance at September 30, 2023

280 $ 33 $ ( 7,909 ) $ ( 314 ) $ ( 8,190 )

11 unchanged sentences

Share-based compensation events 81 81

Balance at June 30, 2023

Balance at September 30, 2023

280 $ 33 $ ( 7,909 ) $ ( 314 ) $ ( 8,190 )

Balance at March 31, 2022

Balance at June 30, 2022

285 $ — $ ( 8,274 ) $ ( 294 ) $ ( 8,568 )

8 unchanged sentences

Share-based compensation events 21 21

Balance at June 30, 2022

Balance at September 30, 2022

284 $ — $ ( 8,244 ) $ ( 298 ) $ ( 8,542 )

10 unchanged sentences

Share-based compensation events 79 79

Balance at June 30, 2022

Balance at September 30, 2022

284 $ — $ ( 8,244 ) $ ( 298 ) $ ( 8,542 )

7 unchanged sentences

and its Subsidiaries (collectively referred to herein as the “Company,” “YUM,” “we,” “us” or “our”) franchise or operate a system of over 57,000 restaurants in more than 155 countries and territories.

As of June 30, 2023, 98 % of these restaurants were owned and operated by franchisees.

As of September 30, 2023, 98 % of these restaurants were owned and operated by franchisees.

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.

As of June 30, 2023, YUM consisted of four operating segments:

As of September 30, 2023, YUM consisted of four operating segments:

• The KFC Division which includes our worldwide operations of the KFC concept

11 unchanged sentences

Our significant interim accounting policies include the recognition of advertising and marketing costs, generally in proportion to revenue, and the recognition of income taxes using an estimated annual effective tax rate.

We have reclassified certain items in the Financial Statements for the prior periods to be comparable with the classification for the quarter and year to date ended June 30, 2023.

We have reclassified certain items in the Financial Statements for the prior periods to be comparable with the classification for the quarter and year to date ended September 30, 2023.

These reclassifications had no effect on previously reported Net Income.

5 unchanged sentences

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.

Under the sale and purchase agreement, the buyer has agreed to lead the process to rebrand KFC restaurants in Russia to Rostik's and to retain the Company's employees in Russia.

We recorded a loss in the quarter of

$ 4 million to Other income (expense) as the write-off of our net investment in KFC Russia, including the related cumulative foreign currency translation losses of $ 60 million, exceeded the consideration received from the sale which primarily included cash proceeds of $ 121 million.

Under the sale and purchase agreement, the buyer has agreed to lead the process to rebrand KFC

restaurants in Russia to Rostik's and to retain the Company's employees in Russia.

We recorded a charge of $ 3 million to Other income (expense) during the year to date ended September 30, 2023 as the write-off of our net investment in KFC Russia, including the related cumulative foreign currency translation losses of $ 60 million, exceeded the consideration received from the sale which primarily included cash proceeds of $ 121 million.

Our operating results presented herein reflect revenues from and expenses to support the Russian operations for KFC and Pizza Hut prior to the dates of sale or transfer, within their historical financial statement line items and operating segments.

13 unchanged sentences

Note 3 - Shareholders' Deficit

Under the authority of our Board of Directors, we repurchased shares of our Common Stock during the years ended June 30, 2023 and 2022 as indicated below.

Under the authority of our Board of Directors, we repurchased shares of our Common Stock during the years ended September 30, 2023 and 2022 as indicated below.

All amounts exclude applicable transaction fees.

7 unchanged sentences

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.

As of June 30, 2023, we have remaining capacity to repurchase up to $ 1.7 billion of Common Stock under the September 2022 authorization.

As of September 30, 2023, we have remaining capacity to repurchase up to $ 1.7 billion of Common Stock under the September 2022 authorization.

Changes in Accumulated other comprehensive loss (“AOCI”) are presented below.

Translation Adjustments and Gains (Losses) From Intra-Entity Transactions of a Long-Term Nature Pension and Post-Retirement Benefits Derivative Instruments Total

Balance at March 31, 2023, net of tax

Balance at June 30, 2023, net of tax

$ ( 218 ) $ ( 95 ) $ 20 $ ( 293 )

1 unchanged sentence

Gains (losses) arising during the period classified into AOCI, net of tax

( 20 ) — 6 ( 14 )

(Gains) losses reclassified from AOCI, net of tax

— — ( 7 ) ( 7 )

Balance at June 30, 2023, net of tax

( 20 ) — ( 1 ) ( 21 )

Balance at September 30, 2023, net of tax

$ ( 238 ) $ ( 95 ) $ 19 $ ( 314 )

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

5 unchanged sentences

52 ( 1 ) 4 55

Balance at June 30, 2023, net of tax $ ( 218 ) $ ( 95 ) $ 20 $ ( 293 )

Balance at September 30, 2023, net of tax $ ( 238 ) $ ( 95 ) $ 19 $ ( 314 )

Note 4 - Other (Income) Expense

5 unchanged sentences

Other (income) expense $ ( 1 ) $ 10 $ 14 $ —

Other (income) expense includes a $4 million loss in the quarter and year to date ended June 30, 2023, related to the sale of our KFC Russia business.

Note 5 - Supplemental Balance Sheet Information

12 unchanged sentences

Property, plant and equipment, net $ 1,157 $ 1,171

Assets held-for-sale totaled $ 6 million and $ 190 million as of June 30, 2023 and December 31, 2022, respectively, and are included in Prepaid expenses and other current assets in our Condensed Consolidated Balance Sheets.

Liabilities held-for-sale totaled $ 2 million and $ 65 million as of June 30, 2023 and December 31, 2022, respectively, and are included in Accounts payable and other current liabilities in our Condensed Consolidated Balance Sheets.

Assets held-for-sale totaled $ 6 million and $ 190 million as of September 30, 2023 and December 31, 2022, respectively, and are included in Prepaid expenses and other current assets in our Condensed Consolidated Balance Sheets.

Liabilities held-for-sale totaled $ 2 million and $ 65 million as of September 30, 2023 and December 31, 2022, respectively, and are included in Accounts payable and other current liabilities in our Condensed Consolidated Balance Sheets.

Assets and liabilities held-for-sale as of December 31, 2022, primarily included the assets and liabilities of our KFC Russia business.

5 unchanged sentences

Other assets $ 1,360 $ 1,324

(a) Non-current operating lease liabilities of $ 744 million and $ 731 million as of June 30, 2023 and December 31, 2022, respectively, are included in Other liabilities and deferred credits in our Condensed Consolidated Balance Sheets.

(a) Non-current operating lease liabilities of $ 752 million and $ 731 million as of September 30, 2023 and December 31, 2022, respectively, are included in Other liabilities and deferred credits in our Condensed Consolidated Balance Sheets.

Reconciliation of Cash and Cash Equivalents for Condensed Consolidated Statements of Cash Flows

12 unchanged sentences

Effective tax rate 17.7 % 25.8 % 16.3 % 22.7 %

Our second quarter effective tax rate was lower than the prior year primarily due to the following:

• $ 71 million of net tax expense recorded in the quarter ended June 30, 2022, resulting from the Company’s decision to exit KFC Russia.

We remeasured and reassessed the need for a valuation allowance on deferred tax assets in Switzerland due to the then expected reduction in the tax basis of intellectual property rights associated with the loss of the Russian royalty income.

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

• $ 18 million tax benefit recorded in the quarter ended June 30, 2023, associated with the reversal of a reserve established in prior years due to the favorable resolution of a tax audit in a foreign jurisdiction.

• $ 10 million tax benefit recorded in the quarter ended June 30, 2023, associated with establishing additional net operating loss carryforward deferred tax assets in a foreign jurisdiction.

Our year to date effective tax rate was lower than the prior year primarily due to the items discussed above, partially offset by:

• $ 82 million of tax benefit discretely recorded in the quarter ended March 31, 2022, from the release of a valuation allowance on foreign tax credit carryforwards.

Our third quarter effective tax rate was lower than the prior year primarily due to the following:

• Tax benefit recognized in the quarter ended September 30, 2023, as compared to tax expense recognized in the quarter ended September 30, 2022, associated with adjustments related to prior year taxes.

• Higher tax benefit recognized in the quarter ended September 30, 2023, associated with U.S.

interest expense deductions and U.S.

foreign tax credits.

Our year to date effective tax rate was lower than the prior year primarily due to the items discussed above, as well as the following:

• $ 18 million tax benefit recorded in the year to date ended September 30, 2023, associated with the reversal of a reserve established in prior years due to the favorable resolution of a tax audit in a foreign jurisdiction.

• $ 10 million tax benefit recorded in the year to date ended September 30, 2023, associated with establishing additional net operating loss carryforward deferred tax assets in a foreign jurisdiction.

• $ 82 million of tax benefit recorded in the year to date ended September 30, 2022, from the release of a valuation allowance on foreign tax credit carryforwards.

In January 2022, the U.S.

4 unchanged sentences

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.

• $ 69 million of net tax expense recorded in the year to date ended September 30, 2022, resulting from the Company’s decision to exit KFC Russia.

We remeasured and reassessed the need for a valuation allowance on deferred tax assets in Switzerland due to the expected reduction in the tax basis of intellectual property rights associated with the loss of the Russian royalty income.

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

Note 7 - Revenue Recognition

57 unchanged sentences

Increase for upfront fees associated with contracts that became effective during the period, net of amounts recognized as revenue during the period 58

Balance at June 30, 2023

Balance at September 30, 2023

(a) Includes impact of foreign currency translation as well as the recognition of deferred franchise fees into Refranchising (gain) loss upon the termination of existing franchise agreements when entering into master franchise agreements.

24 unchanged sentences

( 68 ) ( 67 ) ( 238 ) ( 203 )

Unallocated Franchise and property expenses (a)

Unallocated Franchise and property income (expenses) (a)

1 — ( 1 ) ( 4 )

4 unchanged sentences

Investment income (expense), net (b)

29 ( 15 ) 5 ( 8 )

Other pension income (expense) 2 ( 2 ) 5 ( 3 )

6 unchanged sentences

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 profits and losses subsequent to that date from the Division segment results in which they were earned to Unallocated Other income (expense).

As a result, we reclassed net operating losses of $ 1 million from KFC Division Other income (expense) to Unallocated Other income (expense) during the year to date ended June 30, 2023, and net operating profit of $ 9 million and $ 11 million from Divisional Other income (expense) to Unallocated Other income (expense) during the quarter and year to date ended June 30, 2022, respectively.

Additionally, we recorded a $ 4 million loss to Unallocated Other income (expense) during the quarter and year to date ended June 30, 2023 from the sale of our KFC Russia business.

Also, included in Unallocated Other income (expense) were $ 1 million in foreign exchange losses attributable to fluctuations in the value of the Russian Ruble during the quarter and year to date ended June 30, 2023, and foreign exchange gains of $ 11 million and $ 16 million during the quarter and year to date ended June 30, 2022, respectively.

Additionally, we recorded charges of $ 3 million and $ 4 million to Corporate and unallocated G&A expenses and $ 1 million and $ 2 million to Unallocated Franchise and property expenses during the quarter and year to date ended June 30, 2023, respectively, for certain expenses related to the disposition of the businesses and other costs related to our exit from Russia.

We recorded similar charges of $ 2 million and $ 4 million to Corporate and Unallocated G&A expenses and Unallocated Franchise and property expenses, respectively, during the quarter and year to date ended June 30, 2022.

As a result, we reclassed net operating losses of $ 1 million from KFC Division Other income (expense) to Unallocated Other income (expense) during the year to date ended September 30, 2023, and net operating profit of $ 19 million and $ 30 million from Divisional Other income (expense) to Unallocated Other income (expense) during the quarter and year to date ended September 30, 2022, respectively.

Additionally, we recorded income of $ 1 million and a charge of $ 3 million to Unallocated Other income (expense) during the quarter and year to date ended September 30, 2023, respectively, from the sale of our KFC Russia business.

Also included in Unallocated Other income (expense) were $ 1 million in foreign exchange losses attributable to fluctuations in the value of the Russian Ruble during the year to date ended September 30, 2023, and foreign exchange losses of $ 1 million and foreign exchange gains of $ 15 million during the quarter and year to date ended September 30, 2022, respectively.

Additionally, we recorded expense of $ 4 million to Corporate and unallocated G&A expenses during the year to date ended September 30, 2023, and income of $ 1 million and expense of $ 1 million to Unallocated Franchise and property expenses during the quarter and year to date ended September 30, 2023, respectively, for certain expenses related to the disposition of the businesses and other costs related to our exit from Russia.

We recorded similar charges of $ 1 million and $ 3 million to Corporate and Unallocated G&A expenses and $ 1 million and $ 5 million to Unallocated Franchise and property expenses during the quarter and year to date ended September 30, 2022, respectively.

(b) Includes changes in the value of our investment in Devyani International Limited (see Note 12).

(c) Includes a $ 23 million call premium and $ 5 million of unamortized debt issuance costs written off related to the redemption of the 2025 Notes (as discussed in our 2022 Form 10-K) during the quarter ended June 30, 2022 .

Note 9 - Pension Benefits

17 unchanged sentences

Net periodic benefit cost $ ( 1 ) $ 3 $ ( 3 ) $ 7

Additional loss recognized due to settlements (a)

$ — $ 2 $ — $ 2

(a) Loss is a result of settlement transactions which exceeded the sum of annual service and interest costs for the applicable plan.

This loss was recorded in Other pension (income) expense.

Note 10 - Short-term Borrowings and Long-term Debt

16 unchanged sentences

Details of our Short-term borrowings and Long-term debt as of December 31, 2022 can be found within our 2022 Form 10-K.

Cash paid for interest during the year to date ended June 30, 2023, was $ 293 million.

Excluding the $ 28 million associated with the extinguishment of the 2025 Notes (as discussed in our 2022 Form 10-K), cash paid for interest during the year to date ended June 30, 2022 was $ 239 million.

Cash paid for interest during the year to date ended September 30, 2023, was $ 367 million.

Excluding the $ 28 million associated with the extinguishment of the 2025 Notes (as discussed in our 2022 Form 10-K), cash paid for interest during the year to date ended September 30, 2022 was $ 331 million.

Note 11 - Derivative Instruments

3 unchanged sentences

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 primarily under our Term Loan B Facility.

At both June 30, 2023 and December 31, 2022, we had interest rate swaps expiring in March 2025 with notional amounts of $ 1.5 billion.

At both September 30, 2023 and December 31,

2022, we had interest rate swaps expiring in March 2025 with notional amounts of $ 1.5 billion.

These interest rate swaps have been 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.

There were no other interest rate swaps outstanding as of June 30, 2023 or December 31, 2022.

There were no other interest rate swaps outstanding as of September 30, 2023 or December 31, 2022.

Gains or losses on the interest rate swaps are reported as a component of AOCI and reclassified into Interest expense, net in our Condensed Consolidated Statements of Income in the same period or periods during which the related hedged interest payments affect earnings.

Through June 30, 2023, the swaps were highly effective cash flow hedges.

Through September 30, 2023, the swaps were highly effective cash flow hedges.

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

4 unchanged sentences

Income tax benefit/(expense) ( 1 ) ( 10 ) 2 ( 1 ) ( 6 ) ( 27 ) 5 ( 6 )

As of June 30, 2023, the estimated net gain included in AOCI related to our cash flow hedges that will be reclassified into earnings in the next 12 months is $ 33 million, based on current SOFR interest rates.

As of September 30, 2023, the estimated net gain included in AOCI related to our cash flow hedges that will be reclassified into earnings in the next 12 months is $ 31 million, based on current Secured Overnight Financing Rate ("SOFR") interest rates.

Total Return Swaps

2 unchanged sentences

As a result, the changes in the fair value of these derivatives are recognized immediately in earnings within General and administrative expenses in our Condensed Consolidated Statements of Income largely offsetting the changes in the associated EID liabilities.

The fair value associated with the total return swaps as of both June 30, 2023 and December 31, 2022, was not significant.

The fair value associated with the total return swaps as of both September 30, 2023 and December 31, 2022, 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.

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 June 30, 2023, all of the counterparties to our derivative instruments had investment grade ratings according to the three major ratings agencies.

At September 30, 2023, 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.

1 unchanged sentence

Note 12 - Fair Value Disclosures

As of June 30, 2023, the carrying values of cash and cash equivalents, restricted cash, short-term investments, accounts receivable, short-term borrowings and accounts payable and borrowings under our Revolving Facility approximated their fair values because of the short-term nature of these instruments.

As of September 30, 2023, 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.

The fair value of our notes receivable, net of allowances, and lease guarantees, less reserves for expected losses, approximates their carrying value.

24 unchanged sentences

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 primarily include our approximate 5 % minority interest in Devyani International Limited (“Devyani”), a franchise entity that operates KFC and Pizza Hut restaurants in India, with a fair value of $ 122 million and $ 116 million at June 30, 2023 and December 31, 2022, respectively.

For the quarter and year to date ended June 30, 2023, we recognized pre-tax investment gains of $ 28 million and $ 5 million, respectively, related to changes in fair value of our investment in Devyani.

Investments primarily include our approximate 5 % minority interest in Devyani International Limited (“Devyani”), a franchise entity that operates KFC and Pizza Hut restaurants in India, with a fair value of $ 137 million and $ 116 million at September 30, 2023 and December 31, 2022, respectively.

For the quarter and year to date ended September 30, 2023, we recognized pre-tax investment gains of $ 16 million and $ 21 million, respectively, related to changes in fair value of our investment in Devyani.

Note 13 - Contingencies

1 unchanged sentence

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 $880 million through the second quarter of 2023.

Additionally, interest on the underpayment is estimated to be approximately $940 million through the third quarter of 2023.

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.

10 unchanged sentences

These leases have varying terms, the latest of which expires in 2065 .

As of June 30, 2023, the potential amount of undiscounted payments we could be required to make in the event of non-payment by the primary lessee was approximately $ 400 million.

The present value of these potential payments discounted at our pre-tax cost of debt at June 30, 2023, was approximately $ 325 million.

As of September 30, 2023, the potential amount of undiscounted payments we could be required to make in the event of non-payment by the primary lessee was approximately $ 375 million.

The present value of these potential payments discounted at our pre-tax cost of debt at September 30, 2023, was approximately $ 300 million.

Our franchisees are the primary lessees under the vast majority of these leases.

1 unchanged sentence

We believe these cross-default provisions significantly reduce the risk that we will be required to make payments under these leases, although such risk may not be reduced in the context of a bankruptcy or other similar restructuring of a large franchisee or group of franchisees.

The liability recorded for our expected losses under such leases as of June 30, 2023, was not material.

The liability recorded for our expected losses under such leases as of September 30, 2023, was not material.

Legal Proceedings

14 unchanged sentences

A hearing with the administrative tribunal that had been scheduled for August has been rescheduled to December 4, 2023.

The stay order remains in effect and the next hearing in the Delhi High Court that had been scheduled for May has been rescheduled to October 5, 2023.

The stay order remains in effect and the next hearing in the Delhi High Court that had been scheduled for October has been rescheduled to December 14, 2023.

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

2 unchanged sentences

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 Condensed Consolidated Financial Statements.

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 Condensed Consolidated Financial Statements.

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

What changed 10-Q

Item 1. Financial Statements