What changed in this filing

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Item 1. Financial Statements

2024-08-08 compared with 2024-05-07 · 180 added, 63 removed, 418 unchanged (37% of the section changed)

3 unchanged sentences

(in millions, except per share data)

Quarter ended

Quarter ended Year to date

Revenues 6/30/2024 6/30/2023 6/30/2024 6/30/2023

25 unchanged sentences

(in millions)

Quarter ended

Quarter ended Year to date

6/30/2024 6/30/2023 6/30/2024 6/30/2023

4 unchanged sentences

Reclassification of adjustments and (gains) losses into Net Income — 60 — 60

2 64 ( 8 ) 72

Tax (expense) benefit

2 64 ( 8 ) 72

Changes in pension and post-retirement benefits

5 unchanged sentences

Reclassification of (gains) losses into Net Income

( 8 ) ( 8 ) ( 16 ) ( 11 )

Tax (expense) benefit

1 ( 5 ) — ( 2 )

Other comprehensive income (loss), net of tax

— 78 ( 7 ) 76

Comprehensive Income $ 367 $ 496 $ 674 $ 794

3 unchanged sentences

(in millions)

Quarter ended

6/30/2024 6/30/2023

14 unchanged sentences

Capital spending ( 99 ) ( 122 )

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

Proceeds from sale of Devyani Investment 104 —

Proceeds from sale of KFC Russia — 121

Acquisition of KFC U.K.

and Ireland restaurants

Proceeds from refranchising of restaurants 30 31

Maturities (purchases) of Short term investments, net ( 116 ) 1

Other, net 2 ( 5 )

1 unchanged sentence

Cash Flows – Financing Activities

Proceeds from long-term debt 237 —

Repayments of long-term debt ( 463 ) ( 40 )

10 unchanged sentences

See accompanying Notes to Condensed Consolidated Financial Statements.

CONDENSED CONSOLIDATED BALANCE SHEETS

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

AND SUBSIDIARIES

(in millions)

(Unaudited) 3/31/2024

Current Assets

28 unchanged sentences

AND SUBSIDIARIES

Quarters ended March 31, 2024 and 2023

Quarters and years to date ended June 30, 2024 and 2023

(in millions)

2 unchanged sentences

Shares Amount

Balance at March 31, 2024

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

Net Income 367 367

Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature 2 2

Pension and post-retirement benefit plans 1 1

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

Comprehensive Income 367

Dividends declared ( 190 ) ( 190 )

Repurchase of shares of Common Stock ( 44 ) ( 6 ) ( 50 )

Employee share-based award exercises ( 19 ) ( 19 )

Share-based compensation events 18 18

Balance at June 30, 2024

281 $ — $ ( 7,321 ) $ ( 309 ) $ ( 7,630 )

Balance at December 31, 2023

3 unchanged sentences

Pension and post-retirement benefit plans

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

Comprehensive Income 674

3 unchanged sentences

Share-based compensation events 50 50

Balance at June 30, 2024

281 $ — $ ( 7,321 ) $ ( 309 ) $ ( 7,630 )

Balance at March 31, 2023

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

Net Income 418 418

Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature 4 4

Reclassification of translation adjustments into income 60 60

Pension and post-retirement benefit plans

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

Comprehensive Income 496

Dividends declared ( 171 ) ( 171 )

Employee share-based award exercises ( 10 ) ( 10 )

Share-based compensation events 23 23

Balance at June 30, 2023

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

Balance at December 31, 2022

2 unchanged sentences

Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature 12 12

Reclassification of translation adjustments into income 60 60

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

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

Net gain on derivative instruments (net of tax impact of $ 2 million)

Comprehensive Income 794

3 unchanged sentences

Share-based compensation events 57 57

Balance at March 31, 2023

Balance at June 30, 2023

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

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 March 31, 2024, 98 % of these restaurants were owned and operated by franchisees.

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

As of June 30, 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.

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

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

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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 ended March 31, 2024.

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, 2024.

These reclassifications had no effect on previously reported Net Income.

Note 2 - KFC United Kingdom ("U.K.") and Ireland Restaurant Acquisition

On April 29, 2024, we completed the acquisition of all of the issued shares of two franchisee entities that owned 216 KFC restaurants in the U.K.

The acquisition creates a significant opportunity to accelerate KFC's growth strategy in the large and growing U.K.

and Ireland chicken market.

The purchase price to be allocated for accounting purposes of $ 171 million consisted of cash, net of cash acquired, in the amount of $ 174 million offset by the settlement of a liability of $ 3 million related to our preexisting contractual relationship with the franchisee.

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

The preliminary allocation of the purchase price is based on management's analysis, including preliminary work performed by third party

valuation specialists, as of April 29, 2024.

We will continue to obtain information to assist in determining the fair value of net assets acquired during the measurement period.

The components of the preliminary purchase price allocation upon the April 29, 2024 acquisition were as follows:

Total Current Assets $ 2

Property, plant and equipment, net 88

Reacquired franchise rights (included in Intangible assets, net)

Operating lease right-of-use assets (included in Other assets) 109

Total Assets 246

Total Current Liabilities ( 18 )

Operating lease liabilities (included in Other liabilities and deferred credits) ( 102 )

Other liabilities ( 31 )

Total Liabilities ( 151 )

Total identifiable net assets 95

Purchase price to be allocated $ 171

Reacquired franchise rights, which were valued based on after-royalty cash flows expected to be earned by the acquired restaurants over the remaining term of their then-existing franchise agreements, have an estimated weighted average useful life of 5 years.

The excess of the purchase price over the preliminary estimated fair value of the net, identifiable assets acquired was recorded as goodwill.

The goodwill recognized represents expected benefits of the acquisition that do not qualify for recognition as intangible assets.

This includes value arising from cash flows expected to be earned in years subsequent to the expiration of the terms of franchise agreements existing upon acquisition.

The goodwill is expected to be partially deductible for income tax purposes and has been allocated to our KFC U.K.

reporting unit.

The financial results of the acquired restaurants have been included in our Condensed Consolidated Financial Statements since the date of the acquisition but did not significantly impact our results for the quarter ended June 30, 2024.

The pro forma impact on our results of operations if the acquisition had been completed as of the beginning of 2023 would not have been material.

The direct transaction costs associated with the acquisition were also not material and were expensed as incurred.

Note 3 - Earnings Per Common Share (“EPS”)

Quarter ended

Quarter ended Year to date

2024 2023 2024 2023

Net Income $ 367 $ 418 $ 681 $ 718

5 unchanged sentences

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

1.9 1.7 1.8 1.6

(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 4 - Shareholders' Deficit

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.

Under the authority of our Board of Directors, we repurchased shares of our Common Stock during the years to date ended June 30, 2024 and 2023 as indicated below.

All amounts exclude applicable transaction fees.

4 unchanged sentences

September 2022 366 387 50 50 —

Total 366 387

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 March 31, 2024, we have remaining capacity to repurchase up to $ 1.7 billion of Common Stock under the September 2022 authorization.

Upon its expiration on June 30, 2024, we had remaining capacity to repurchase up to $ 1.65 billion of Common Stock under the September 2022 authorization.

In May 2024, our Board of Directors authorized share repurchases of up to $ 2 billion (excluding applicable transaction fees) of our outstanding Common Stock through December 31, 2026.

The new authorization took effect on July 1, 2024 upon the expiration of the authorization approved in September 2022.

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 December 31, 2023, net of tax

Balance at March 31, 2024, net of tax

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

1 unchanged sentence

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

( 10 ) — 9 ( 1 )

(Gains) losses reclassified from AOCI, net of tax

— 1 ( 6 ) ( 5 )

Balance at June 30, 2024, net of tax

$ ( 209 ) $ ( 103 ) $ 3 $ ( 309 )

Balance at March 31, 2024, net of tax

Balance at December 31, 2023, net of tax

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

OCI, net of tax

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

(Gains) losses reclassified from AOCI, net of tax

— 1 ( 12 ) ( 11 )

( 8 ) 1 — ( 7 )

Balance at June 30, 2024, net of tax $ ( 209 ) $ ( 103 ) $ 3 $ ( 309 )

Note 5 - Other (Income) Expense

Quarter ended

Quarter ended Year to date

6/30/2024 6/30/2023 6/30/2024 6/30/2023

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Accounts and notes receivable, net $ 713 $ 737

Prepaid Expenses and Other Current Assets

6/30/2024 12/31/2023

Income tax receivable

Restricted cash

Short term investments

Other prepaid expenses and current assets

Prepaid expenses and other current assets

Property, Plant and Equipment, net

9 unchanged sentences

Other assets $ 1,335 $ 1,361

(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.

(a) Non-current operating lease liabilities of $ 848 million and $ 757 million as of June 30, 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

4 unchanged sentences

Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents as presented in Condensed Consolidated Statements of Cash Flows $ 623 $ 724

(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.

(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.

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

Note 7 - Income Taxes

Quarter ended

Quarter ended Year to date

2024 2023 2024 2023

Income tax provision

$ 120 $ 60 $ 189 $ 131

Effective tax rate 24.7 % 12.6 % 21.8 % 15.4 %

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

Our estimated effective tax rate on income 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.

Our second quarter and year to date effective tax rate is higher than the prior year primarily due to the lapping of higher foreign tax benefits recorded in the quarter ended June 30, 2023, associated with the favorable resolutions of tax audits and the establishment of additional net operating loss carryforward deferred tax assets in foreign jurisdictions, as well as higher taxes paid in foreign jurisdictions where our intellectual property rights are domiciled and higher current U.S.

tax expense on foreign earnings.

These unfavorable items were partially offset by current quarter and year to date favorability associated with tax deductions for share-based compensation.

Note 8 - Revenue Recognition

26 unchanged sentences

$ 682 $ 621 $ 242 $ 142 $ 1,687

Year to date 6/30/2024

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

Company sales $ 28 $ 508 $ 4 $ 266 $ 806

Franchise revenues 90 397 134 3 624

Property revenues 6 19 2 1 28

Franchise contributions for advertising and other services 20 307 146 1 474

Franchise revenues 130 — 34 — 164

Company sales 240 — — — 240

Franchise revenues 554 28 125 — 707

Property revenues 22 — 1 — 23

Franchise contributions for advertising and other services 259 5 31 — 295

$ 1,349 $ 1,264 $ 477 $ 271 $ 3,361

Year to date 6/30/2023

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

Company sales $ 33 $ 482 $ 9 $ 269 $ 793

Franchise revenues 95 372 136 3 606

Property revenues 6 20 2 1 29

Franchise contributions for advertising and other services 16 288 152 1 457

Franchise revenues 127 — 34 — 161

Company sales 192 — — — 192

Franchise revenues 574 27 131 — 732

Property revenues 26 — 1 — 27

Franchise contributions for advertising and other services 300 4 31 — 335

$ 1,369 $ 1,193 $ 496 $ 274 $ 3,332

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 36

Balance at March 31, 2024

(a) Primarily includes impact of foreign currency translation.

Balance at June 30, 2024

(a) Primarily includes the settlement of a preexisting contractual relationship related to the KFC U.K.

and Ireland restaurant acquisition (see Note 2) and the 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

Quarter ended Year to date

Revenues 2024 2023 2024 2023

4 unchanged sentences

$ 1,763 $ 1,687 $ 3,361 $ 3,332

Quarter ended

Quarter ended Year to date

Operating Profit 2024 2023 2024 2023

5 unchanged sentences

( 86 ) ( 86 ) ( 175 ) ( 170 )

Unallocated Company restaurant expenses (a)

( 1 ) — ( 1 ) —

Unallocated Franchise and property income (expenses)

— ( 1 ) — ( 2 )

Unallocated Refranchising gain (loss) 14 17 19 21

Unallocated Other income (expense)

— ( 5 ) ( 5 ) ( 9 )

Operating Profit $ 607 $ 573 $ 1,127 $ 1,096

Investment income (expense), net (a)

Investment income (expense), net (b)

— 29 ( 22 ) 5

5 unchanged sentences

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

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

(a) Unallocated Company restaurant expenses include amortization of reacquired franchise rights (see Note 2).

(b) Includes changes in the value of our investment in Devyani International Limited (see Note 13).

Note 10 - 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 qualified and funded.

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

We fund our other U.S.

6 unchanged sentences

pension plans are as follows:

Quarter ended

Quarter ended Year to date

2024 2023 2024 2023

Service cost $ 1 $ 1 $ 2 $ 2

1 unchanged sentence

Expected return on plan assets ( 13 ) ( 13 ) ( 26 ) ( 25 )

Amortization of net (gain) / loss 1 ( 1 ) 1 ( 1 )

Amortization of prior service cost 1 1 1 1

Net periodic benefit cost (income)

18 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.

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).

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 new $ 500 million term loan A facility (the "Term Loan A Facility") and a $ 1.5 billion revolving facility (the "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.

The 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 or (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.

The amendment also removed the excess cash flow mandatory prepayment requirement with respect to the Term Loan A Facility.

The refinanced Term Loan A Facility is subject to quarterly amortization payments in an amount equal to 0.625 % of the principal amount of the facility as of the refinance date now beginning with the third quarter of 2025.

The Term Loan A Facility quarterly amortization payments increase to 1.25 % of the principal amount of the facility as of the refinance date beginning with the third quarter of 2027.

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.

As a result of this refinancing, $ 8 million of fees were capitalized as debt issuance costs, $ 6 million of which were paid directly to lenders, and are presented within Long-term debt on our Condensed Consolidated Balance Sheet as of June 30, 2024.

During the quarter ended June 30, 2024, previously recorded unamortized debt issuance costs of $ 1 million were written off and recognized within Interest expense, net due to this refinancing.

Cash paid for interest during the year to date ended June 30, 2024, was $ 254 million.

Cash paid for interest during the year to date ended June 30, 2023 was $ 266 million.

Note 12 - Derivative Instruments

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

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

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

1 unchanged sentence

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 March 31, 2024 and December 31, 2023, we had interest rate swaps expiring in March 2025 with notional amounts of $ 1.5 billion.

At both June 30, 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 March 31, 2024 or December 31, 2023.

There were no other interest rate swaps outstanding as of June 30, 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 March 31, 2024, the swaps were highly effective cash flow hedges.

Through June 30, 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

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

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

2024 2023 2024 2023 2024 2023 2024 2023

1 unchanged sentence

Income tax benefit/(expense) ( 1 ) ( 7 ) 2 2 ( 4 ) ( 5 ) 4 3

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.

As of June 30, 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 $ 23 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 March 31, 2024 and December 31, 2023, was not significant.

The fair value associated with the total return swaps as of both June 30, 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 March 31, 2024, all of the counterparties to our derivative instruments had investment grade ratings

according to the three major ratings agencies.

At June 30, 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 13 - Fair Value Disclosures

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.

As of June 30, 2024, the carrying values of cash and cash equivalents, restricted cash, short-term investments, accounts receivable, short-term borrowings, accounts payable and borrowings under our Revolving Facility approximated their fair values because of the short-term nature of these instruments.

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

25 unchanged sentences

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.

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

Note 14 - 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 $1.2 billion through the first quarter of 2024.

Additionally, interest on the underpayment is estimated to be approximately $1.2 billion through the second 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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In September 2022, we filed a Protest with the IRS Examination Division disputing on multiple grounds the proposed underpayment of tax and penalties.

We have received the IRS Examination Division’s Rebuttal to our Protest and the case has been accepted by the IRS Office of Appeals.

In March 2023, we received the IRS Examination Division’s Rebuttal to our Protest and the matter is proceeding with the IRS Office of Appeals.

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

5 unchanged sentences

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

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.

As of June 30, 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 June 30, 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 March 31, 2024, was not material.

The liability recorded for our expected losses under such leases as of June 30, 2024, was not material.

Legal Proceedings

13 unchanged sentences

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 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.

A hearing with the administrative tribunal that had been scheduled for July 30, 2024 has been rescheduled to October 8, 2024.

A hearing held on August 1, 2024, before the Delhi High Court has been continued to September 17, 2024, and the stay order remains in effect.

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

3 unchanged sentences

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