What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-07 compared with 2023-11-07 · 124 added, 239 removed, 312 unchanged (54% of the section changed)

15 unchanged sentences

• The Habit Burger Grill Division which includes our worldwide operations of the Habit Burger Grill concept

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.

Through our Good Growth Strategy 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.

8 unchanged sentences

• Bold Restaurant Development:

Drive market and franchise expansion with strong economics and value

Drive market and franchise unit expansion with strong economics and value

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).

Same-store sales growth excludes, for subsidiaries operating on a monthly calendar, the extra day resulting from a leap year and excludes, for subsidiaries operating on a weekly periodic calendar, the last week of the year in fiscal years with 53 weeks.

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.

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.

has substantial and sustainable sales.

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

Additionally, gross unit openings and net new unit

growth are generally reflective of the economic returns to us and our franchisees from opening and operating our Concept restaurants.

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

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

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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.

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.

These units were treated similar to permanent store closures for purposes of our same-store sales calculations and thus they were removed from our same-store sales calculations beginning April 1, 2022.

In addition to the results provided in accordance with Generally Accepted Accounting Principles in the United States of America ( “ GAAP ” ), the Company provides the following non-GAAP measurements:

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

The year to date Financial Highlights table below reflects the impact of removing the system sales of all Russian units from our system sales totals as of the beginning of the second quarter of 2022.

Quarterly Financial Highlights:

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YUM +2 (3) +6 (1) +6

Year to date Financial Highlights:

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

KFC Division +14 +9 +8 +10 +14

Taco Bell Division +10 +7 +5 +9 +9

Pizza Hut Division +7 +4 +4 +2 +5

YUM +11 +7 +6 +6 +13

Additionally:

• 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.

◦ Year to date YUM and KFC Division system sales growth excluding foreign currency as shown above were each negatively impacted by 1 percentage point.

• 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.

As a result of the decline in Core Operating Profits attributable to Russia:

◦ Year to date YUM and KFC Division Core Operating Profit as shown above were each negatively impacted by 1 percentage point.

• Foreign currency translation unfavorably impacted Divisional Operating Profit by $5 million and $49 million for the quarter and year to date ended September 30, 2023, respectively.

Third Quarter

2023 2022 % Change 2023 2022 % Change

GAAP EPS $1.46 $1.14 +27 $3.97 $3.28 +21

• Foreign currency translation unfavorably impacted Divisional Operating Profit by $11 million for the quarter ended March 31, 2024.

First Quarter

2024 2023 % Change

GAAP Diluted EPS

$1.10 $1.05 +5

Less Special Items EPS

$0.02 $0.05 NM $0.06 $0.07 NM

EPS Excluding Special Items $1.44 $1.09 +32 $3.91 $3.21 +22

• In addition to the aforementioned factors impacting Operating Profit, our diluted EPS, excluding Special Items, was favorably impacted by $0.05 and $0.07 for the quarter and year to date ended September 30, 2023, respectively, and $0.08 and $0.06 for the quarter and year to date ended September 30, 2022, respectively, from mark to market adjustments from unrealized investment gains.

Foreign currency translation negatively impacted our diluted EPS, excluding Special Items, by approximately $0.01 and $0.14 for the quarter and year to date ended September 30, 2023, respectively.

$(0.05) $(0.01) NM

Diluted EPS Excluding Special Items

$1.15 $1.06 +9

• In addition to the aforementioned factors impacting Operating Profit, our diluted EPS was negatively impacted by $0.08 for the quarter ended March 31, 2024 and $0.07 for the quarter ended March 31, 2023, from after-tax investment losses.

Foreign currency translation negatively impacted our diluted EPS by approximately $0.03 for the quarter ended March 31, 2024.

• Gross unit openings for the quarter were 808 units resulting in 421 net new units.

Gross unit openings for the year to date were 2,901 units resulting in 1,914 net new units.

Quarter ended Year to date

2023 2022 % B/(W) 2023 2022 % B/(W)

Company sales $ 510 $ 479 6 $ 1,495 $ 1,448 3

Quarter ended

2024 2023 % B/(W)

Company sales $ 474 $ 474 Even

Franchise and property revenues 757 770 (2)

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Franchise advertising and other services expense 367 395 7

Refranchising (gain) loss (19) (3) NM (40) (15) NM

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

Refranchising (gain) loss (5) (4) NM

Other (income) expense (1) 10 NM

Total costs and expenses, net 1,078 1,122 4

Operating Profit 520 523 (1)

Investment (income) expense, net (16) (27) NM (21) (19) NM

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

Investment (income) expense, net 22 24 NM

Other pension (income) expense (2) (2) NM

Interest expense, net 117 130 10

Income before income taxes 383 371 3

Income tax provision (benefit) 89 116 22 220 281 21

Income tax provision

Net Income $ 314 $ 300 5

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Effective tax rate 18.0 % 19.1 % 1.1 ppts.

16.3 % 22.7 % 6.4 ppts.

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

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Total 59,129 55,683 6

Quarter ended Year to date

2023 2022 2023 2022

Quarter ended

Same-Store Sales Growth (Decline) %

System Sales Growth (Decline) %, reported 9 1 9 2

System Sales Growth (Decline) %, excluding FX 10 7 11 6

System Sales Growth %, reported

System Sales Growth %, excluding FX

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

Quarter ended Year to date

2023 2022 2023 2022

Quarter ended

Company sales (a)

$ 510 $ 479 $ 1,495 $ 1,448

Franchise sales 14,572 14,541

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Negative (Positive) Foreign Currency Impact (b)

148 N/A 1,177 N/A

System sales, excluding FX $ 15,325 $ 15,015

Company sales (a)

$ 117 $ 112 $ 342 $ 353

Franchise sales 8,023 7,947

1 unchanged sentence

Negative (Positive) Foreign Currency Impact (b)

133 N/A 967 N/A

System sales, excluding FX $ 8,365 $ 8,057

1 unchanged sentence

Company sales (a)

$ 256 $ 234 $ 738 $ 691

Franchise sales 3,357 3,235

1 unchanged sentence

Negative (Positive) Foreign Currency Impact (b)

(7) N/A 3 N/A

System sales, excluding FX $ 3,595 $ 3,464

1 unchanged sentence

Company sales (a)

$ 2 $ 4 $ 11 $ 14

Franchise sales 3,165 3,331

1 unchanged sentence

Negative (Positive) Foreign Currency Impact (b)

22 N/A 207 N/A

System sales, excluding FX $ 3,211 $ 3,336

1 unchanged sentence

Company sales (a)

$ 135 $ 129 $ 404 $ 390

Franchise sales 27 28

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

Quarter ended Year to date

2023 2022 2023 2022

Quarter ended

Core Operating Profit Growth %

Diluted EPS Growth (Decline) %, excluding Special Items 32 (11) 22 (7)

Diluted EPS Growth %, excluding Special Items

Effective Tax Rate excluding Special Items 19.4 % 19.3 %

Quarter ended Year to date

2023 2022 2023 2022

Quarter ended

Company restaurant profit $ 74 $ 71

Company restaurant margin % 15.6 % 14.9 %

Reconciliation of GAAP Operating Profit to Core Operating Profit Quarter ended Year to date

2023 2022 2023 2022

Reconciliation of GAAP Operating Profit to Core Operating Profit Quarter ended

GAAP Operating Profit $ 520 $ 523

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(Gain) loss associated with market-wide refranchisings (a)

(2) — (7) (2)

Operating (profit) loss impact from decision to exit Russia (b)

(2) (16) 10 (37)

Operating loss impact from decision to exit Russia (b)

Charges associated with Resource Optimization (c)

Other Special Items Expense 2 — 3 —

Special Items (Income) Expense - Operating Profit 1 (14) 19 (36)

Negative (Positive) Foreign Currency Impact on Operating Profit 5 N/A 49 N/A

Special Items Expense - Operating Profit

Negative Foreign Currency Impact on Operating Profit

Core Operating Profit $ 555 $ 526

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Other (income) expense — 1

Special Items (Income) Expense - Operating Profit $ 1 $ (14) $ 19 $ (36)

Special Items Expense - Operating Profit

GAAP Operating Profit $ 313 $ 305

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Negative (Positive) Foreign Currency Impact

(1) N/A — N/A

Core Operating Profit $ 208 $ 204

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GAAP Net Income $ 314 $ 300

Special Items (Income) Expense - Operating Profit 1 (14) 19 (36)

Special Items (Income) Expense - Interest Expense, net (d)

Special Items Tax (Benefit) (e)

(4) — (36) (12)

Special Items Expense - Operating Profit

Special Items Tax (Benefit) (d)

Net Income excluding Special Items $ 328 $ 301

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(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.

During the quarter ended September 30, 2023, we recorded net refranchising gains of $2 million, that have been reflected as a Special Item.

During the years to date ended September 30, 2023 and 2022, we recorded net refranchising gains of $7 million and $2 million, respectively, that have been reflected as Special Items.

Additionally, we recorded net refranchising gains of $17 million and $3 million during the quarters ended September 30, 2023 and 2022, respectively, that have not been reflected as Special Items.

During the years to date ended September 30, 2023 and 2022, we recorded net refranchising gains of $33 million and $13 million, respectively, that have not been reflected as Special Items.

During the quarters ended March 31, 2024 and 2023, we recorded net refranchising losses of $3 million and net refranchising gains of $3 million, respectively, that have been reflected as Special Items.

Additionally, we recorded net refranchising gains of $8 million and $1 million during the quarters ended March 31, 2024 and 2023, respectively, that have not been reflected as Special Items.

These net refranchising gains relate to refranchising of restaurants unrelated to market-wide refranchisings 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.

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 the second quarter of 2023, we completed our exit from the Russia market by selling the KFC business in Russia.

Our GAAP operating results presented herein reflect revenues from and expenses to support the Russian operations for KFC and Pizza Hut prior to the dates of transfer or sale, 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 operating profits or losses from the Division segment results in which they were earned to Unallocated Other income (expense).

Additionally, we incurred certain expenses related to the dispositions of the businesses and other one-time costs related to our exit from Russia which we recorded within Corporate and unallocated G&A and Unallocated Franchise and property expenses.

Also recorded in Unallocated Other income (expense) were foreign exchange impacts attributable to fluctuations in the value of the Russian ruble and income of $1 million and a charge of $3 million recorded during the quarter and year to date ended September 30, 2023, respectively, as a result of the completion of the sale of the KFC Russia business.

The resulting net Operating Profit of $2 million and net Operating Loss of $10 million for the quarter and year to date ended September 30, 2023, respectively, and net Operating Profit of $16 million and $37 million for the quarter and year to date ended September 30, 2022, respectively, have been reflected as Special Items.

(c) We recorded charges of $3 million and $13 million during the quarter and year to date ended September 30, 2023, respectively, and $2 million and $3 million during the quarter and year to date ended September 30, 2022, to General and administrative expenses related to a resource optimization program initiated in the third quarter of 2020.

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

(b) In April 2023, we completed our exit from the Russia market by selling the KFC business in Russia to Smart Service Ltd.

Our GAAP operating results for the quarter ended March 31, 2023 presented herein reflect revenues from and expenses to support the Russian operations for KFC prior to the date of sale, 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 of Ukraine to humanitarian efforts, we reclassed such net operating profits or losses from the KFC Division segment results to Unallocated Other income (expense).

Additionally, we incurred certain expenses related to the disposition of the business and other one-time costs related to our exit from Russia which we recorded within Corporate and unallocated G&A and Unallocated Franchise and property expenses.

The resulting net Operating Loss of $3 million for the quarter ended March 31, 2023 has been reflected as a Special Item.

(c) We recorded charges of $21 million and $3 million during the quarters ended March 31, 2024 and 2023, respectively, to General and administrative expenses related to a resource optimization program.

This program has allowed us to reallocate significant resources to accelerate our digital, technology and innovation capabilities to deliver a modern, world-class team member and customer experience and improve unit economics.

We have recently expanded the program to identify further opportunities to optimize the Company’s spending and identify additional, critical areas in which to potentially reallocate resources, both with a goal to enable the acceleration of the Company’s growth rate.

Costs incurred to date related to the program primarily include severance associated with positions that have been eliminated or relocated and consultant fees.

Due to their scope and size, these charges have been reflected as Special Items.

(d) During the year to date ended September 30, 2022, the Company redeemed $600 million aggregate principal amount of 7.75% YUM Senior Unsecured Notes due in 2025 (the "2025 Notes").

The redemption amount was equal to 103.875% of the $600 million aggregate principal amount redeemed, reflecting a $23 million "call premium".

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 as a Special Item due to their size and the fact that the amounts are not indicative of our ongoing interest expense.

(e) The below table includes the detail of Special Items Tax (Benefit) Expense:

Quarter ended Year to date

(d) The below table includes the detail of Special Items Tax (Benefit) Expense:

Quarter ended

3/31/2024 3/31/2023

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Tax (Benefit) Expense - Income tax impacts from decision to exit Russia — (2)

Tax (Benefit) - U.S.

foreign tax credit regulations issued in January 2022 — — — (82)

Tax (Benefit) - Other Income tax impacts recorded as Special (4) —

1 unchanged sentence

Tax (Benefit) Expense on Special Items Operating Profit and Interest Expense was determined by assessing the tax impact of each individual component within Special Items based upon the nature of the item and jurisdictional tax law.

Special Items Tax (Benefit) Expense includes $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.

Special Items Tax (Benefit) Expense includes a tax benefit discretely recorded in the year to date ended September 30, 2022 of $82 million.

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.

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.

The U.S 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.

Other Income Tax impacts recorded as Special in the year to date ended September 30, 2023 include benefits related to the reversal of a reserve due to the favorable resolution of a tax audit in a foreign jurisdiction.

Such reserve was established in prior years related to deferred tax assets originally recorded as a Special Item as part of an intercompany restructuring of intellectual property.

Other Income Tax impacts recorded as Special in the year to date ended September 30, 2023 also include the release of valuation allowances associated with a jurisdiction in which a market-wide refranchising event occurred.

Other Income Tax impacts recorded as Special in the quarter ended March 31, 2024 include benefits related to the reversal of a reserve due to the favorable resolution of a tax audit in a foreign jurisdiction.

Such reserve was established in prior years related to income tax liabilities originally recorded as a Special Item as part of an intercompany restructuring of intellectual property.

Reconciliation of GAAP Operating Profit to Company Restaurant Profit

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Company restaurant margin % 12.0 % 22.2 % 3.9 % 4.9 % N/A 14.9 %

Year to date 9/30/2023

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

GAAP Operating Profit (Loss) $ 975 $ 658 $ 292 $ (4) $ (212) $ 1,709

Franchise and property revenues 1,254 637 454 6 — 2,351

Franchise contributions for advertising and other services 473 447 273 1 — 1,194

General and administrative expenses 265 141 155 41 238 840

Franchise and property expenses 57 21 14 2 1 95

Franchise advertising and other services expense 470 439 273 1 — 1,183

Refranchising (gain) loss — — — — (40) (40)

Other (income) expense 7 2 (7) (1) 13 14

Company restaurant profit $ 47 $ 177 $ — $ 32 $ — $ 256

Company sales $ 342 $ 738 $ 11 $ 404 $ — $ 1,495

Company restaurant margin % 13.6 % 23.9 % 1.2 % 8.0 % N/A 17.1 %

Year to date 9/30/2022

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

GAAP Operating Profit (Loss) $ 888 $ 604 $ 287 $ (14) $ (156) $ 1,609

Franchise and property revenues 1,195 574 438 4 — 2,211

Franchise contributions for advertising and other services 493 406 264 1 — 1,164

General and administrative expenses 269 116 145 35 203 768

Franchise and property expenses 53 22 9 1 4 89

Franchise advertising and other services expense 480 406 266 1 — 1,153

Refranchising (gain) loss — — — — (15) (15)

Other (income) expense 44 (2) (6) — (36) —

Company restaurant profit $ 46 $ 166 $ (1) $ 18 $ — $ 229

Company sales $ 353 $ 691 $ 14 $ 390 $ — $ 1,448

Company restaurant margin % 13.1 % 23.9 % (4.7) % 4.8 % N/A 15.8 %

Items Impacting Reported Results and Reasonably Likely to Impact Future Results

1 unchanged sentence

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

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.

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.

During the second quarter of 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.

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.

This negatively impacted our system sales growth excluding foreign currency for YUM and KFC Division by 1 percentage point for the year to date ended September 30, 2023.

Russia units were removed from our same-store sales calculations as of the beginning of the second quarter of 2022.

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 subsequent to that date from the Division segment results in which they were earned to Unallocated Other income (expense) and reflected such net profits as a Special item.

Prior to the invasion, our Russian business constituted approximately 3% of our total operating profit and 2% of our total system sales.

During the year to date ended September 30, 2023, our Core Operating Profits in Russia declined versus the prior year, negatively impacting both YUM and KFC Division Core Operating Profit growth by 1 percentage point.

Middle East Conflict

During the fourth quarter of 2023, certain of our markets, principally in our KFC and Pizza Hut Divisions, began being impacted by a military conflict in the Middle East region.

While the impacts from the Middle East conflict have been scattered and difficult to measure, we believe the markets most impacted by the conflict, which include markets in the Middle East, Indonesia and Malaysia, collectively created a low single-digit headwind to YUM's overall same-store sales growth during the quarter ended March 31, 2024.

We continue to expect this impact to decrease with sales improving in the most impacted markets over the balance of 2024.

Impact of Foreign Currency Translation on Operating Profit

Changes in foreign currency exchange rates negatively impacted the translation of our foreign currency denominated Divisional Operating Profit by $5 million and $49 million for the quarter and year to date ended September 30, 2023, respectively.

This included a negative impact to our KFC Division Operating Profit of $4 million and $40 million for the quarter and year to date ended September 30, 2023, respectively.

Changes in foreign currency exchange rates negatively impacted the translation of our foreign currency denominated Divisional Operating Profit by $11 million for the quarter ended March 31, 2024.

This included a negative impact to our KFC Division Operating Profit of $10 million for the quarter ended March 31, 2024.

We currently expect changes in foreign currency to negatively impact Divisional Operating Profit by approximately $20 to $30 million on a full-year basis.

Investment in Devyani

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 pre-tax gains of $16 million and $21 million in the quarter and year to date ended September 30, 2023, respectively, and pre-tax investment income of $27 million and $20 million in the quarter and year to date ended September 30, 2022, respectively.

During the quarter ended March 31, 2024, we sold our approximate 5% minority investment in Devyani International Limited ("Devyani"), a franchise entity that operates KFC and Pizza Hut restaurants in India, for pre-tax proceeds of $104 million.

Changes in the fair value of our ownership interest in Devyani prior to the date of sale resulted in pre-tax investment losses of $20 million and $23 million in the quarters ended March 31, 2024 and 2023, respectively.

The KFC Division has 30,251 units, 87% of which are located outside the U.S.

Additionally, 99% of the KFC Division units were operated by franchisees as of September 30, 2023.

Quarter ended Year to date

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

2023 2022 Reported Ex FX 2023 2022 Reported Ex FX

Additionally, 99% of the KFC Division units were operated by franchisees as of March 31, 2024.

Quarter ended

2024 2023 Reported Ex FX

System Sales $ 8,128 $ 8,057 1 4

Same-Store Sales Growth (Decline) % 6 7 N/A N/A 9 3 N/A N/A

Same-Store Sales Growth (Decline) % (2) 9 N/A N/A

Company sales $ 105 $ 110 (4) (3)

4 unchanged sentences

Company restaurant margin % 12.2 % 12.0 % 0.2 ppts.

13.6 % 13.1 % 0.5 ppts.

G&A expenses $ 83 $ 89 7 7

8 unchanged sentences

Company sales and Company restaurant margin %

The quarterly increase in Company sales, excluding the impact of foreign currency translation, was driven by Company same-store sales growth of 5%.

The year to date increase in Company sales, excluding the impact of foreign currency translation, was driven by Company same-store sales growth of 6%, partially offset by the suspension of operations of our 70 company owned KFC restaurants in Russia.

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.

The quarterly and year to date increases in Company restaurant margin percentage were driven by Company same-store sales growth, partially offset by commodity inflation.

The quarterly decrease in Company sales, excluding the impact of foreign currency translation, was driven by a Company same-store sales decline of 4%.

The quarterly increase in Company restaurant margin percentage was driven by the impact of closing units with low restaurant margin percentages, partially offset by a Company same-store sales decline.

Franchise and property revenues

The quarterly and year to date increases in Franchise and property revenues, excluding the impacts of foreign currency translation, were driven by franchise same-store sales growth of 6% and 10%, respectively, and unit growth, partially offset by the impact of the sale of our Russia business during the quarter ended June 30, 2023.

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.

The quarterly decrease in G&A, excluding the impact of foreign currency translation, was driven by the impact of the sale of our Russia business during the quarter ended June 30, 2023 and lower professional fees, partially offset by higher expenses related to our annual incentive compensation programs and higher headcount and salaries.

G&A was flat year to date, excluding the impact of foreign currency translation, as the impact of the sale of our Russia business during the quarter ended June 30, 2023 and lower professional fees were offset by higher expenses related to our annual incentive compensation programs, higher headcount and salaries, and higher travel related costs.

The quarterly decrease in Franchise and property revenues, excluding the impacts of foreign currency translation, was driven by a 3% negative impact from the sale of our KFC Russia business and a franchise same-store sales decline of 2%, partially offset by unit growth.

The quarterly decrease in G&A, excluding the impact of foreign currency translation, was driven by the impact of the sale of the KFC Russia business.

Operating Profit

The quarterly increase in Operating Profit, excluding the impact of foreign currency translation, was driven by same-store sales growth and unit growth, partially offset by higher restaurant operating costs.

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 restaurant operating costs and the negative impact of 1 percentage point on operating profit growth as a result of lower profits in Russia.

The quarterly increase in Operating Profit, excluding the impact of foreign currency translation, was driven by unit growth and lower Franchise and property expenses, primarily due to lapping global franchise convention expenses in the prior year, partially offset by a same-store sales decline.

Taco Bell Division

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

as of September 30, 2023.

Quarter ended Year to date

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

2023 2022 Reported Ex FX 2023 2022 Reported Ex FX

as of March 31, 2024.

Quarter ended

2024 2023 Reported Ex FX

System Sales $ 3,597 $ 3,464 4 4

Same-Store Sales Growth % 8 6 N/A N/A 7 6 N/A N/A

Same-Store Sales Growth % 1 8 N/A N/A

Company sales $ 240 $ 229 5 5

4 unchanged sentences

Company restaurant margin % 22.5 % 22.2 % 0.3 ppts.

23.9 % 23.9 % Even Even

G&A expenses $ 49 $ 45 (8) (8)

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Company sales and Company restaurant margin %

The quarterly and year to date increases in Company sales were driven by company same-store sales growth of 8% and 6% for the quarter and year to date, respectively, and unit growth partially offset by refranchising.

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

Company restaurant margin percentage for the year to date was flat with prior year, as same-store sales growth was offset by higher labor costs, commodity inflation and an increase in other restaurant operating costs.

The quarterly increase in Company sales was driven by unit growth and Company same-store sales growth of 2%.

The quarterly increase in Company restaurant margin percentage was driven by same-store sales growth partially offset by higher labor and other restaurant operating costs.

Franchise and property revenues

The quarterly and year to date increases in Franchise and property revenues were driven by franchise same-store sales growth of 8% and 7% for the quarter and year to date, respectively, and unit growth.

The quarterly and year to date increase in G&A, excluding the impacts of foreign currency translation, were driven by higher digital and technology expenses, higher headcount and salaries and higher share-based compensation offset partially by lower expenses related to our annual incentive compensation programs.

The quarterly increase in Franchise and property revenues was driven by unit growth and franchise same-store sales growth of 1%.

The quarterly increase in G&A was driven by increased legal costs, higher digital and technology expenses and higher headcount and salaries partially offset by lower share-based compensation.

Operating Profit

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.

The quarterly increase in Operating Profit was driven by unit growth and same-store sales growth partially offset by higher restaurant operating costs, higher Franchise advertising and other service expense primarily related to digital and technology expenses, higher bad debt expense lapping prior year net bad debt recoveries for past due franchise receivables and increased G&A.

Pizza Hut Division

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

Additionally, over 99% of the Pizza Hut Division units were operated by franchisees as of September 30, 2023.

Quarter ended Year to date

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

2023 2022 Reported Ex FX 2023 2022 Reported Ex FX

Additionally, over 99% of the Pizza Hut Division units were operated by franchisees as of March 31, 2024.

Quarter ended

2024 2023 Reported Ex FX

System Sales $ 3,167 $ 3,336 (5) (4)

Same-Store Sales Growth (Decline) % 1 1 N/A N/A 4 Even N/A N/A

Same-Store Sales Growth (Decline) % (7) 7 N/A N/A

Company sales $ 2 $ 5 (64) (64)

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Total revenues $ 238 $ 254 (6) (6)

Company restaurant profit $ — $ (1) 24 24 $ — $ (1) NM NM

Company restaurant profit $ — $ — (82) (82)

Company restaurant margin % 1.9 % 3.9 % (2.0) ppts.

1.2 % (4.7) % 5.9 ppts.

G&A expenses $ 52 $ 51 (2) (2)

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Franchise and property revenues

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 2%.

The year to date increase in Franchise and property revenues, excluding the impacts of foreign currency translation, was driven by franchise same-store sales growth of 4% and unit growth, partially offset by lapping the prior year recognition of franchise fees related to unexercised development rights arising from a master franchise agreement.

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

The year to date increase in G&A, excluding the impacts of foreign currency translation, was driven by higher headcount and salaries, higher professional fees and higher travel related expenses.

The quarterly decrease in Franchise and property revenues, excluding the impacts of foreign currency translation, was driven by a franchise same-store sales decline of 7%, partially offset by unit growth.

G&A, excluding the impacts of foreign currency translation, was largely flat.

Operating Profit

The quarterly increase in Operating Profit, excluding the impacts of foreign currency translation, was driven by unit growth and same-store sales growth, partially offset by higher G&A.

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

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

Habit Burger Grill Division

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The Company owned 84% of the Habit Burger Grill units in the U.S.

as of September 30, 2023.

Quarter ended Year to date

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

2023 2022 Reported 2023 2022 Reported

as of March 31, 2024.

Quarter ended

2024 2023 Reported

System Sales $ 154 $ 158 (2)

Same-Store Sales Growth % (5) (1) N/A (2) (1) N/A

Same-Store Sales Growth % (8) — N/A

Total revenues $ 130 $ 132 (2)

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Corporate & Unallocated

Quarter ended Year to date

(Expense) / Income 2023 2022 % B/(W) 2023 2022 % B/(W)

Quarter ended

(Expense) / Income 2024 2023 % B/(W)

Corporate and unallocated G&A $ ( 89 ) $ ( 84 ) (7)

Unallocated Franchise and property income (expenses) (See Note 8)

1 — NM ( 1 ) ( 4 ) NM

Unallocated Refranchising gain (loss) 19 3 NM 40 15 NM

Unallocated Other income (expense) (See Note 8)

( 4 ) 14 NM ( 13 ) 36 NM

Investment income (expense), net (See Note 8) 16 27 NM 21 19 NM

Unallocated Franchise and property income (expenses)

Unallocated Refranchising gain (loss) 5 4 NM

Unallocated Other income (expense)

( 5 ) ( 4 ) NM

Investment income (expense), net (See Note 8) ( 22 ) ( 24 ) NM

Other pension income (expense) (See Note 9)

2 ( 2 ) NM 5 ( 3 ) NM

Interest expense, net ( 117 ) ( 130 ) 10

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Effective tax rate (See Note 6) 18.0 % 19.1 % 1.1 ppts.

16.3 % 22.7 % 6.4 ppts.

Corporate and unallocated G&A

The quarterly increase in Corporate and Unallocated G&A expense was driven by higher current year expenses related to our annual incentive compensation programs, partially offset by actions taken to mitigate the negative G&A impacts of the previously disclosed January 2023 ransomware attack.

The year to date increase in Corporate and Unallocated G&A expense was driven by higher current year expenses related to our annual incentive compensation programs and costs associated with the previously disclosed January 2023 ransomware attack.

The quarterly increase in Corporate and Unallocated G&A expense was driven by costs associated with our resource optimization program, partially offset by lapping costs related to the prior year ransomware attack.

Interest expense, net

The quarterly increase in Interest expense, net was primarily driven by a higher weighted average interest rate, partially offset by higher interest income.

The year to date decrease in Interest expense, net was primarily driven by lapping of $28 million of expense in the prior year relating to the call premium and unamortized debt issuance costs written-off associated with the redemption of the 2025 Notes (as discussed in our 2022 Form 10-K) and higher interest income.

This was partially offset by a higher weighted average interest rate.

The quarterly decrease in Interest expense, net was primarily driven by lower borrowings and higher interest income, partially offset by a higher weighted-average interest rate.

Consolidated Cash Flows

Net cash provided by operating activities was $363 million in 2024 versus $349 million in 2023.

The increase was primarily driven by an increase in Operating profit and a decrease in incentive compensation payments, partially offset by higher interest payments.

Net cash used in investing activities was $4 million in 2023 versus $112 million in 2022.

The change was primarily driven by proceeds from the current year sale of KFC Russia, partially offset by higher current year capital spending.

The increase was primarily driven by an increase in Operating Profit before Special Items and timing of spending on advertising, partially offset by higher income tax payments.

Net cash provided by investing activities was $45 million in 2024 compared to net cash used in investing activities of $56 million in 2023.

The change was primarily driven by proceeds from the sale of our approximate 5% minority investment in Devyani in 2024.

Net cash used in financing activities was $247 million in 2024 versus $334 million in 2023.

The change was primarily driven by lower current year share repurchases, partially offset by lower net borrowings.

The change was primarily driven by lower net debt repayments and lapping prior year share repurchases.

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.

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.

Our annual operating cash flows have been in excess of $1.3 billion in each of the past five years and we expect that to continue to be the case in 2024.

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

To the extent operating cash flows plus other sources of cash do not cover our anticipated cash needs, we maintain a $1.25 billion Revolving Facility under our Credit Agreement that was undrawn as of September 30, 2023.

We believe that our ongoing cash from operations, cash on hand, which was approximately $650 million at September 30, 2023, and availability under our Revolving Facility will be sufficient to fund our cash requirements over the next twelve months.

The borrowing capacity under our Revolving Facility was increased to $1.5 billion as part of the April 2024 refinancing of the Credit Agreement as discussed in Note 10.

We believe that our ongoing cash from operations, cash on hand, which was approximately $650 million at March 31, 2024, 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 2023 Form 10-K regarding our material cash requirements.

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Debt Instruments

As of September 30, 2023, approximately 94%, including the impact of interest rate swaps, of our $11.6 billion of total debt outstanding, excluding finance leases and debt issuance costs and discounts, is fixed with an effective overall interest rate of approximately 4.6%.

As of March 31, 2024, approximately 94%, including the impact of interest rate swaps, of our $11.2 billion of total debt outstanding, excluding finance leases and debt issuance costs and discounts, is fixed with an effective overall interest rate of approximately 4.6%.

We ended the quarter with a consolidated net leverage ratio of 4.1x EBITDA.

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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.

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, 2023.

We have credit ratings of BB+ (Standard & Poor's)/Ba2 (Moody's).

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, 2024.

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

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Total $ 40 $ 53 $ 1,599 $ 1,649 $ 1,994 $ 589 $ 800 $ 1,787 $ 2,100 $ 325 $ 275 $ 11,211

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

Ransomware Attack

On January 18, 2023, the Company announced a ransomware attack that impacted certain Information Technology (“IT”) systems.

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.

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.

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.

We have incurred, and may continue to incur, certain expenses related to this attack, including expenses to respond to, remediate and investigate this matter.

In addition, several separate putative class actions have been filed in U.S.

federal and state court by current and/or former employees alleging violations of privacy and other rights in connection with the ransomware incident.

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

There were no material changes during the quarter ended September 30, 2023, to the disclosures made in Item 7A of the Company’s 2022 Form 10-K.

See Note 10 for a discussion of the refinancing of the Credit Agreement that took place in April 2024.

New Accounting Pronouncements Not Yet Adopted

In November 2023, the Financial Accounting Standards Board ("FASB") issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, which updates reportable segment disclosure requirements through enhanced disclosures about significant segment expenses.

The standard is effective for the Company's Annual Report on Form 10-K for fiscal 2024, and subsequent interim periods, with early adoption permitted.

The amendments should be applied retrospectively to all prior periods presented in the financial statements.

We are currently evaluating the impact of the standard on our disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures, which updates income tax disclosure requirements related to the income tax rate reconciliation and requires disclosure of income taxes paid by jurisdiction.

The standard is effective for the Company's Annual Report on Form 10-K for fiscal 2025 with early adoption permitted.

The amendments should be applied prospectively;

however, retrospective application is permitted.

We are currently evaluating the impact of the standard on our disclosures.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis