What changed in this filing

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Item 1. Financial Statements

2024-05-07 compared with 2023-11-07 · 74 added, 184 removed, 407 unchanged (39% of the section changed)

3 unchanged sentences

(in millions, except per share data)

Quarter ended Year to date

Quarter ended

Revenues 3/31/2024 3/31/2023

25 unchanged sentences

(in millions)

Quarter ended Year to date

Quarter ended

3/31/2024 3/31/2023

3 unchanged sentences

Adjustments and gains (losses) arising during the period

( 20 ) ( 55 ) ( 8 ) ( 99 )

Reclassification of adjustments and (gains) losses into Net Income — —

( 20 ) ( 55 ) 52 ( 99 )

Tax (expense) benefit

( 20 ) ( 55 ) 52 ( 99 )

Changes in pension and post-retirement benefits

2 unchanged sentences

Tax (expense) benefit

— ( 6 ) ( 2 ) ( 8 )

— 19 ( 1 ) 26

Changes in derivative instruments

1 unchanged sentence

Reclassification of (gains) losses into Net Income

( 9 ) 1 ( 20 ) 19

( 2 ) 43 5 133

Tax (expense) benefit

1 ( 11 ) ( 1 ) ( 33 )

( 1 ) 32 4 100

Other comprehensive income (loss), net of tax

( 21 ) ( 4 ) 55 27

Comprehensive Income $ 307 $ 298

3 unchanged sentences

(in millions)

Quarter ended

3/31/2024 3/31/2023

14 unchanged sentences

Capital spending ( 49 ) ( 62 )

Proceeds from sale of KFC Russia 121 —

Proceeds from the sale of Devyani International Limited common stock 104 —

Proceeds from refranchising of restaurants 11 5

Other, net ( 21 ) 1

Net Cash Used in Investing Activities

( 4 ) ( 112 )

Net Cash Provided by (Used in) Investing Activities

Cash Flows – Financing Activities

Proceeds from long-term debt — 999

Repayments of long-term debt ( 10 ) ( 20 )

2 unchanged sentences

Dividends paid on Common Stock ( 189 ) ( 169 )

Debt issuance costs — ( 11 )

Other, net ( 48 ) ( 10 )

40 unchanged sentences

AND SUBSIDIARIES

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

Quarters ended March 31, 2024 and 2023

(in millions)

2 unchanged sentences

Shares Amount

Balance at June 30, 2023

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

Net Income 416 416

Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature ( 20 ) ( 20 )

Reclassification of translation adjustments into income — —

Pension and post-retirement benefit plans — —

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

Comprehensive Income 395

Dividends declared ( 169 ) ( 169 )

Repurchase of shares of Common Stock —

Employee share-based award exercises — ( 4 ) ( 4 )

Share-based compensation events 24 24

Balance at September 30, 2023

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

Balance at December 31, 2023

2 unchanged sentences

Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature ( 10 ) ( 10 )

Reclassification of translation adjustments into income 60 60

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

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

Comprehensive Income 1,189

Dividends declared ( 510 ) ( 510 )

Repurchase of shares of Common Stock — ( 24 ) ( 26 ) ( 50 )

Employee share-based award exercises — ( 24 ) ( 24 )

Share-based compensation events 81 81

Balance at September 30, 2023

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

Balance at June 30, 2022

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

Net Income 331 331

Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature ( 55 ) ( 55 )

Pension and post-retirement benefit plans (net of tax impact of $ 6 million)

Pension and post-retirement benefit plans — —

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

4 unchanged sentences

Share-based compensation events 32 32

Balance at September 30, 2022

Balance at March 31, 2024

281 $ 45 $ ( 7,492 ) $ ( 309 ) $ ( 7,756 )

4 unchanged sentences

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

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

Net loss on derivative instruments (net of tax impact of $ 3 million)

Comprehensive Income 298

3 unchanged sentences

Share-based compensation events 34 34

Balance at September 30, 2022

Balance at March 31, 2023

280 $ — $ ( 8,403 ) $ ( 371 ) $ ( 8,774 )

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 59,000 restaurants in more than 155 countries and territories.

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

As of March 31, 2024, 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 September 30, 2023, YUM consisted of four operating segments:

As of March 31, 2024, YUM consisted of four operating segments:

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

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

For subsidiaries that operate on this weekly periodic calendar, 2024 will include a 53rd week.

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

4 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 September 30, 2023.

We have reclassified certain items in the Financial Statements for the prior periods to be comparable with the classification for the quarter ended March 31, 2024.

These reclassifications had no effect on previously reported Net Income.

Russia Invasion of Ukraine

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

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

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

During the second quarter of 2022, we completed the transfer of ownership of the Pizza Hut Russia business to a local operator.

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 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.

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

Note 2 - Earnings Per Common Share (“EPS”)

Quarter ended Year to date

2023 2022 2023 2022

Quarter ended

Net Income $ 314 $ 300

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Diluted EPS $ 1.10 $ 1.05

Unexercised employee stock options and stock appreciation rights (in millions) excluded from the diluted EPS computation (a)

1.7 2.0 1.7 1.9

(a) These unexercised employee stock options and stock appreciation rights were not included in the computation of diluted EPS because to do so would have been antidilutive for the periods presented.

Unexercised employee SARs, RSUs, PSUs and stock options (in millions) excluded from the diluted EPS computation (a)

(a) These unexercised employee stock appreciation rights (“SARs”), restricted stock units (“RSUs”), performance share units (“PSUs”) and stock options were not included in the computation of diluted EPS because to do so would have been antidilutive for the periods presented.

Note 3 - Shareholders' Deficit

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.

Under the authority of our Board of Directors, we repurchased shares of our Common Stock during the quarters ended March 31, 2024 and 2023 as indicated below.

All amounts exclude applicable transaction fees.

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Authorization Date 2024 2023 2024 2023 2024

May 2021 — 5,987 — 714 —

September 2022 — 387 — 50 1,700

Total 387 5,987

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

As of March 31, 2024, 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 June 30, 2023, net of tax

Balance at December 31, 2023, net of tax

$ ( 201 ) $ ( 104 ) $ 3 $ ( 302 )

5 unchanged sentences

( 10 ) — 3 ( 7 )

Balance at September 30, 2023, net of tax

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

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

OCI, net of tax

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

( 8 ) ( 2 ) 19 9

(Gains) losses reclassified from AOCI, net of tax

60 1 ( 15 ) 46

Balance at March 31, 2024, net of tax

$ ( 211 ) $ ( 104 ) $ 6 $ ( 309 )

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

Note 4 - Other (Income) Expense

Quarter ended Year to date

Quarter ended

3/31/2024 3/31/2023

17 unchanged sentences

Property, plant and equipment, net $ 1,190 $ 1,197

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.

Other Assets 3/31/2024 12/31/2023

4 unchanged sentences

Other assets $ 1,228 $ 1,361

(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.

(a) Non-current operating lease liabilities of $ 748 million and $ 757 million as of March 31, 2024 and December 31, 2023, 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

3 unchanged sentences

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

Cash and restricted cash related to KFC Russia included in assets held-for-sale — 25

Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents as presented in Condensed Consolidated Statements of Cash Flows $ 878 $ 724

(a) Restricted cash within Prepaid expenses and other current assets reflects the cash related to advertising cooperatives which we consolidate that can only be used to settle obligations of the respective cooperatives and cash held in reserve for Taco Bell Securitization interest payments.

(a) Restricted cash within Prepaid expenses and other current assets primarily reflects the cash related to advertising cooperatives which we consolidate that can only be used to settle obligations of the respective cooperatives and cash held in reserve for Taco Bell Securitization interest payments.

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

Note 6 - Income Taxes

Quarter ended Year to date

2023 2022 2023 2022

Income tax (benefit) provision $ 89 $ 116 $ 220 $ 281

Quarter ended

Income tax provision

Effective tax rate 18.0 % 19.1 %

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.

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

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.

As a result, we reversed a valuation allowance associated with existing foreign tax credit carryforwards.

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.

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.

Our estimated effective tax rate for the full fiscal year is expected to be higher than the U.S.

federal statutory rate of 21 %, primarily due to state income taxes and U.S.

taxes on foreign earnings partially offset by taxes on income earned in foreign jurisdictions with statutory tax rates below 21 %.

The first quarter effective tax rate was lower than the prior year primarily due to favorable developments in the current quarter related to uncertain tax positions as well as favorability associated with higher tax deductions for share-based compensation, partially offset by higher taxes paid in foreign jurisdictions where our intellectual property rights are domiciled.

Note 7 - Revenue Recognition

26 unchanged sentences

$ 687 $ 572 $ 254 $ 132 $ 1,645

Year to date 9/30/2023

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

Company sales $ 48 $ 738 $ 11 $ 404 $ 1,201

Franchise revenues 143 568 200 4 915

Property revenues 10 29 3 2 44

Franchise contributions for advertising and other services 25 440 224 1 690

Franchise revenues 193 — 52 — 245

Company sales 294 — — — 294

Franchise revenues 870 40 198 — 1,108

Property revenues 38 — 1 — 39

Franchise contributions for advertising and other services 448 7 49 — 504

$ 2,069 $ 1,822 $ 738 $ 411 $ 5,040

Year to date 9/30/2022

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

Company sales $ 47 $ 691 $ 14 $ 390 $ 1,142

Franchise revenues 139 508 193 3 843

Property revenues 10 31 3 1 45

Franchise contributions for advertising and other services 20 401 216 1 638

Franchise revenues 170 — 46 — 216

Company sales 306 — — — 306

Franchise revenues 834 35 195 — 1,064

Property revenues 42 — 1 — 43

Franchise contributions for advertising and other services 473 5 48 — 526

$ 2,041 $ 1,671 $ 716 $ 395 $ 4,823

Contract Liabilities

5 unchanged sentences

Increase for upfront fees associated with contracts that became effective during the period, net of amounts recognized as revenue during the period 19

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.

Balance at March 31, 2024

(a) Primarily includes impact of foreign currency translation.

We expect to recognize contract liabilities as revenue over the remaining term of the associated franchise agreement as follows:

8 unchanged sentences

The following tables summarize Revenues and Operating Profit for each of our reportable operating segments:

Quarter ended Year to date

Quarter ended

Revenues 2024 2023

4 unchanged sentences

$ 1,598 $ 1,645

Quarter ended Year to date

Quarter ended

Operating Profit 2024 2023

3 unchanged sentences

Habit Burger Grill Division ( 5 ) ( 5 )

Corporate and unallocated G&A expenses (a)

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

Unallocated Franchise and property income (expenses) (a)

Corporate and unallocated G&A expenses

( 89 ) ( 84 )

Unallocated Franchise and property income (expenses)

Unallocated Refranchising gain (loss) 5 4

Unallocated Other income (expense) (a)

( 4 ) 14 ( 13 ) 36

Unallocated Other income (expense)

Operating Profit $ 520 $ 523

Investment income (expense), net (b)

Investment income (expense), net (a)

( 22 ) ( 24 )

Other pension income (expense) 2 2

Interest expense, net (c)

Interest expense, net

( 117 ) ( 130 )

2 unchanged sentences

As such, we do not allocate such amounts to our Divisional segments for performance reporting purposes.

(a) 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 (see Note 1), within their historical financial statement line items and operating segments.

However, given our decision to exit Russia and our pledge to direct any future net profits attributable to Russia subsequent to the date of invasion to humanitarian efforts, we reclassed such 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 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 year to date ended September 30, 2022 .

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

Note 9 - Pension Benefits

We sponsor qualified and supplemental (non-qualified) noncontributory defined benefit pension plans covering certain full-time salaried and hourly U.S.

The most significant of these plans, the YUM Retirement Plan (the “Plan”), is funded.

The most significant of these plans, the YUM Retirement Plan (the “Plan”), is qualified and funded.

We fund our other U.S.

6 unchanged sentences

pension plans are as follows:

Quarter ended Year to date

2023 2022 2023 2022

Quarter ended

Service cost $ 1 $ 1

1 unchanged sentence

Expected return on plan assets ( 13 ) ( 12 )

Amortization of net (gain) / loss — 3 ( 1 ) 8

Amortization of prior service cost — 1 1 4

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

Additional loss recognized due to settlements (a)

Net periodic benefit cost (income)

$ ( 1 ) $ ( 1 )

(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, 2023 can be found within our 2023 Form 10-K.

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.

Subsequent to the first quarter, on April 26, 2024, KFC Holding Co., Pizza Hut Holdings, LLC and Taco Bell of America, LLC (collectively, the "Borrowers"), each of which is a wholly-owned subsidiary of the Company, completed the refinancing of the then outstanding $ 713 million under the Term Loan A Facility and $ 1.25 billion capacity under the Revolving Facility through the issuance of a $ 500 million term loan A facility and a $ 1.5 billion revolving facility pursuant to an amendment to the Credit Agreement (as defined in our 2023 Form 10-K).

The transaction did not add any additional net new debt to the Company's Balance Sheet.

The new term loan A facility and the revolving facility will mature on the earliest of (i) April 26, 2029, (ii) the date that is 91 days prior to the March 15, 2028 maturity of the Borrowers’ existing Term Loan B Facility if more than $250

million of such Term Loan B remains outstanding as of such date and (iii) the date that is 91 days prior to the June 1, 2027 maturity of the Borrowers’ existing Subsidiary Senior Unsecured Notes if more than $250 million of such Subsidiary Senior Unsecured Notes remains outstanding as of such date.

Further, the Amendment removes the excess cash flow mandatory prepayment requirement with respect to the new term loan A facility.

All other material provisions of the Credit Agreement remain unchanged.

Cash paid for interest during the quarter ended March 31, 2024, was $ 101 million.

Cash paid for interest during the quarter ended March 31, 2023 was $ 104 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 September 30, 2023 and December 31,

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

At both March 31, 2024 and December 31, 2023, 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 September 30, 2023 or December 31, 2022.

There were no other interest rate swaps outstanding as of March 31, 2024 or December 31, 2023.

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

Through March 31, 2024, 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:

Quarter ended Year to date

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

Quarter ended

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

2024 2023 2024 2023

1 unchanged sentence

Income tax benefit/(expense) ( 3 ) 2 2 1

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.

As of March 31, 2024, 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 $ 28 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 September 30, 2023 and December 31, 2022, was not significant.

The fair value associated with the total return swaps as of both March 31, 2024 and December 31, 2023, 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 September 30, 2023, all of the counterparties to our derivative instruments had investment grade ratings according to the three major ratings agencies.

At March 31, 2024, 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 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.

As of March 31, 2024, 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.

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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 $ 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.

Investments as of December 31, 2023, primarily included 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 $ 124 million.

During the quarter ended March 31, 2024, we sold our ownership interest in Devyani for pre-tax proceeds of $ 104 million and recognized pre-tax investment losses of $ 20 million related to changes in fair value during the quarter prior to the date of sale.

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 $940 million through the third quarter of 2023.

Additionally, interest on the underpayment is estimated to be approximately $1.2 billion through the first quarter of 2024.

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.

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

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.

As of March 31, 2024, 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 March 31, 2024, 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 September 30, 2023, was not material.

The liability recorded for our expected losses under such leases as of March 31, 2024, was not material.

Legal Proceedings

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

A hearing 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 October has been rescheduled to December 14, 2023.

A hearing with the administrative tribunal that had been scheduled for March 4, 2024 has been rescheduled to July 30, 2024.

A hearing held on March 21, 2024, before the Delhi High Court has been continued to July 4, 2024, and the stay order remains in effect.

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

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

Note 14 - Subsequent Event

and Ireland Store Acquisition

On April 29, 2024, we completed the previously announced acquisition of 216 KFC restaurants from a franchisee in the U.K.

Consideration for this acquisition consists of approximately $ 180 million in cash, subject to customary post-closing adjustments.

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