What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-08-08 compared with 2024-05-07 · 189 added, 105 removed, 331 unchanged (47% of the section changed)

30 unchanged sentences

• Same-store sales growth is the estimated percentage change in system sales of all restaurants that have been open and in the YUM system for one year or more, including those temporarily closed.

From time-to-time restaurants may be temporarily closed due to remodeling or image enhancement, rebuilding, natural disasters, health epidemic or pandemic, landlord disputes or other issues.

From time-to-time restaurants may be temporarily closed due to remodeling or image enhancement, rebuilding, natural disasters, health epidemic or pandemic, landlord disputes, boycotts, social or civil unrest or other issues.

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.

29 unchanged sentences

The Company also excludes restaurant-level asset impairment and closures expenses, which have historically not been significant, from the determination of Company restaurant profit as such expenses are not believed to be indicative of ongoing operations.

Further, while we generally include depreciation and amortization of restaurant-level assets within Divisional Company restaurant expenses used to derive Divisional Company restaurant profit, we record amortization of reacquired franchise rights arising from acquisition accounting within Corporate and Unallocated Company restaurant expenses as such amortization is not believed to be indicative of ongoing Divisional results as well as to enhance comparability of acquired stores' margins with those of existing restaurants.

Company restaurant profit and Company restaurant margin % as presented may not be comparable to other similarly titled measures of other companies in the industry.

8 unchanged sentences

Taco Bell Division +7 +5 +3 +10 +10

Pizza Hut Division Even (3) +3 +4 +6

YUM +3 (1) +5 +6 +10

Year to date Financial Highlights:

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

KFC Division +3 (3) +8 +3 +6

Taco Bell Division +5 +3 +3 +6 +6

Pizza Hut Division (2) (5) +3 (4) (2)

1 unchanged sentence

Additionally:

• 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

• Foreign currency translation unfavorably impacted Divisional Operating Profit by $12 million and $23 million for the quarter and year to date ended June 30, 2024, respectively.

Second Quarter

2024 2023 % Change 2024 2023 % Change

GAAP EPS $1.28 $1.46 (12) $2.38 $2.51 (5)

Less Special Items EPS

$(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.

$(0.07) $0.05 NM $(0.12) $0.05 NM

EPS Excluding Special Items $1.35 $1.41 (4) $2.50 $2.46 +1

• On a year-over-year basis, our diluted EPS, excluding Special Items, reflects a $0.20 and $0.19 negative impact for the quarter and year to date ended June 30, 2024, respectively, from a higher current year tax rate and unfavorability in after-tax investment gains and losses.

Foreign currency translation negatively impacted our diluted EPS, excluding Special Items, by approximately $0.03 and $0.06 for the quarter and year to date ended June 30, 2024, respectively.

• Gross unit openings for the quarter were 894 units resulting in 488 net new units.

Quarter ended

2024 2023 % B/(W)

Company sales $ 474 $ 474 Even

Franchise and property revenues 757 770 (2)

Gross unit openings for the year to date were 1,702 units resulting in 909 net new units.

Quarter ended Year to date

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

Company sales $ 572 $ 511 12 $ 1,046 $ 985 6

Franchise and property revenues 789 785 Even 1,546 1,555 (1)

Franchise contributions for advertising and other services 402 391 3 769 792 (3)

4 unchanged sentences

Franchise advertising and other services expense 401 388 (3) 768 783 2

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

Other (income) expense (1) 10 NM

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

Refranchising (gain) loss (14) (17) NM (19) (21) NM

Other (income) expense (5) 5 NM (6) 15 NM

Total costs and expenses, net 1,156 1,114 (4) 2,234 2,236 Even

Operating Profit 607 573 6 1,127 1,096 3

Investment (income) expense, net 22 24 NM

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

Investment (income) expense, net — (29) NM 22 (5) NM

Other pension (income) expense (1) (1) NM (3) (3) NM

Interest expense, net 121 125 4 238 255 7

Income before income taxes 487 478 2 870 849 3

Income tax provision

Income tax provision (benefit) 120 60 (101) 189 131 (44)

Net Income $ 367 $ 418 (12) $ 681 $ 718 (5)

2 unchanged sentences

Effective tax rate 24.7 % 12.6 % (12.1) ppts.

21.8 % 15.4 % (6.4) ppts.

(a) See Note 3 for the number of shares used in this calculation.

4 unchanged sentences

Total 59,498 56,425 5

Quarter ended

Quarter ended Year to date

2024 2023 2024 2023

Same-store Sales Growth (Decline) % (1) 9 (2) 8

2 unchanged sentences

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

Quarter ended

Quarter ended Year to date

2024 2023 2024 2023

Company sales (a)

$ 572 $ 511 $ 1,046 $ 985

Franchise sales 14,979 14,916 29,551 29,457

1 unchanged sentence

Negative (Positive) Foreign Currency Impact (b)

277 N/A 556 N/A

System sales, excluding FX $ 15,828 $ 15,427 $ 31,153 $ 30,442

Company sales (a)

$ 163 $ 115 $ 268 $ 225

Franchise sales 8,063 8,183 16,086 16,130

1 unchanged sentence

Negative (Positive) Foreign Currency Impact (b)

222 N/A 459 N/A

System sales, excluding FX $ 8,448 $ 8,298 $ 16,813 $ 16,355

1 unchanged sentence

Company sales (a)

$ 268 $ 253 $ 508 $ 482

Franchise sales 3,749 3,507 7,106 6,742

4 unchanged sentences

Company sales (a)

$ 2 $ 4 $ 4 $ 9

Franchise sales 3,138 3,197 6,303 6,528

1 unchanged sentence

Negative (Positive) Foreign Currency Impact (b)

53 N/A 97 N/A

System sales, excluding FX $ 3,193 $ 3,201 $ 6,404 $ 6,537

1 unchanged sentence

Company sales (a)

$ 139 $ 139 $ 266 $ 269

Franchise sales 29 29 56 57

7 unchanged sentences

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

Quarter ended

Quarter ended Year to date

2024 2023 2024 2023

Core Operating Profit Growth %

Diluted EPS Growth %, excluding Special Items

Diluted EPS Growth (Decline) %, excluding Special Items (4) 33 1 17

Effective Tax Rate excluding Special Items 24.7 % 18.2 % 22.4 % 18.7 %

Quarter ended

Quarter ended Year to date

2024 2023 2024 2023

Company restaurant profit $ 102 $ 96 $ 176 $ 167

Company restaurant margin % 17.8 % 18.9 % 16.8 % 17.0 %

Reconciliation of GAAP Operating Profit to Core Operating Profit Quarter ended

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

2024 2023 2024 2023

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

1 unchanged sentence

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

Operating loss impact from decision to exit Russia (b)

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

Charges associated with Resource Optimization (c)

Other Special Items Expense — — — 1

Special Items Expense - Operating Profit

Negative Foreign Currency Impact on Operating Profit

12 N/A 23 N/A

Core Operating Profit $ 645 $ 588 $ 1,200 $ 1,114

6 unchanged sentences

Special Items Expense - Operating Profit

$ 26 $ 15 $ 50 $ 18

GAAP Operating Profit $ 334 $ 326 $ 647 $ 631

Negative (Positive) Foreign Currency Impact

10 N/A 20 N/A

Core Operating Profit $ 344 $ 326 $ 667 $ 631

15 unchanged sentences

Special Items Tax Benefit (d)

(7) (30) (17) (32)

Net Income excluding Special Items $ 386 $ 403 $ 714 $ 704

8 unchanged sentences

(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 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.

During the quarters ended June 30, 2024 and 2023, we recorded net refranchising losses of $1 million and net refranchising gains of $2 million, respectively, that have been reflected as Special Items.

During the years to date ended June 30, 2024 and 2023, we recorded net refranchising losses of $4 million and net refranchising gains of $5 million, respectively, that have been reflected as Special Items.

Additionally, we recorded net refranchising gains of $15 million during both quarters ended June 30, 2024 and 2023 that have not been reflected as Special Items.

During the years to date ended June 30, 2024 and 2023, we recorded net refranchising gains of $23 million and $16 million, 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 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.

Our GAAP operating results 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 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 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.

The resulting net Operating Loss of $9 million and $12 million for the quarter and year to date ended June 30, 2023, respectively, has been reflected as a Special Item.

(c) We recorded charges of $25 million and $46 million during the quarter and year to date ended June 30, 2024, respectively, and $8 million and $10 million during the quarter and year to date ended June 30, 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.

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

Quarter ended

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

Quarter ended Year to date

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

Tax (Benefit) Expense on Special Items Operating Profit and Interest Expense $ (6) $ —

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

Tax Benefit on Special Items Operating Profit

$ (7) $ (2) $ (13) $ (2)

Tax Benefit - Income tax impacts from decision to exit Russia

Tax Benefit - Other Income tax impacts recorded as Special

Special Items Tax (Benefit) Expense $ (10) $ (2)

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.

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.

— (22) (4) (22)

Special Items Tax Benefit

$ (7) $ (30) $ (17) $ (32)

Tax Benefit on Special Items Operating Profit 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.

Other Income Tax impacts recorded as Special in the year to date ended June 30, 2024 and the quarter and year to date ended June 30, 2023 include benefits related to the reversal of reserves due to the favorable resolutions of tax audits in foreign jurisdictions.

Such reserves were established in prior years related to income tax liabilities and deferred tax assets originally recorded as Special Items as part of intercompany restructurings of intellectual property.

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

Reconciliation of GAAP Operating Profit to Company Restaurant Profit

25 unchanged sentences

Company restaurant margin % 14.3 % 25.6 % 3.2 % 11.1 % N/A 18.9 %

Year to date 6/30/2024

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

GAAP Operating Profit (Loss) $ 647 $ 458 $ 187 $ (3) $ (162) $ 1,127

Franchise and property revenues 802 444 296 4 — 1,546

Franchise contributions for advertising and other services 279 312 177 1 — 769

General and administrative expenses 167 96 102 27 175 567

Franchise and property expenses 26 16 10 2 — 54

Franchise advertising and other services expense 276 310 181 1 — 768

Refranchising (gain) loss — — — — (19) (19)

Other (income) expense (3) (1) (7) — 5 (6)

Company restaurant profit $ 32 $ 123 $ — $ 22 $ (1) $ 176

Company sales $ 268 $ 508 $ 4 $ 266 $ — $ 1,046

Company restaurant margin % 12.0 % 24.2 % (0.1) % 8.2 % N/A 16.8 %

Year to date 6/30/2023

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

GAAP Operating Profit (Loss) $ 631 $ 432 $ 195 $ (2) $ (160) $ 1,096

Franchise and property revenues 828 419 304 4 — 1,555

Franchise contributions for advertising and other services 316 292 183 1 — 792

General and administrative expenses 179 94 104 26 170 573

Franchise and property expenses 42 14 9 1 2 68

Franchise advertising and other services expense 314 286 182 1 — 783

Refranchising (gain) loss — — — — (21) (21)

Other (income) expense 8 1 (3) — 9 15

Company restaurant profit $ 30 $ 116 $ — $ 21 $ — $ 167

Company sales $ 225 $ 482 $ 9 $ 269 $ — $ 985

Company restaurant margin % 13.2 % 24.0 % 3.6 % 8.2 % N/A 17.0 %

Items Impacting Reported Results and Reasonably Likely to Impact Future Results

3 unchanged sentences

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.

Our sales continue to be impacted significantly in markets across the Middle East, Malaysia and Indonesia, and the recovery trajectory we observed in these markets in the quarter ended March 31, 2024 flattened during the quarter ended June 30, 2024.

The impact in the Middle East, Malaysia and Indonesia represented a low single-digit headwind to YUM's overall same-store sales growth in both the quarter and year to date ended June 30, 2024.

Additionally, we believe we have experienced conflict-related impacts in a broader set of markets, though such amounts are difficult to precisely quantify.

The Middle East conflict is ongoing, and its dynamic nature makes it difficult to forecast any impacts on the Company’s balance of year 2024 revenues, operating profit and unit count with any certainty.

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 $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.

Changes in foreign currency exchange rates negatively impacted the translation of our foreign currency denominated Divisional Operating Profit by $12 million and $23 million for the quarter and year to date ended June 30, 2024, respectively.

This included a negative impact to our KFC Division Operating Profit of $10 million and $20 million for the quarter and year to date ended June 30, 2024, respectively.

We currently expect changes in foreign currency to negatively impact Divisional Operating Profit by approximately $25 to $35 million on a full-year basis.

1 unchanged sentence

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.

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 in the year to date ended June 30, 2024 and pre-tax gains of $28 million and $5 million in the quarter and year to date ended June 30, 2023, respectively.

The KFC Division has 30,689 units, 88% of which are located outside the U.S.

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) % (2) 9 N/A N/A

Additionally, 99% of the KFC Division units were operated by franchisees as of June 30, 2024.

Quarter ended Year to date

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

2024 2023 Reported Ex FX 2024 2023 Reported Ex FX

System Sales $ 8,226 $ 8,298 (1) 2 $ 16,354 $ 16,355 Even 3

Same-Store Sales Growth (Decline) % (3) 13 N/A N/A (3) 11 N/A N/A

Company sales $ 163 $ 115 41 41 $ 268 $ 225 19 19

Franchise and property revenues 397 412 (4) (1)

Franchise and property revenues 405 416 (3) Even 802 828 (3) (1)

Franchise contributions for advertising and other services 149 151 (2) (1) 279 316 (12) (11)

2 unchanged sentences

Company restaurant margin % 11.9 % 14.3 % (2.4) ppts.

12.0 % 13.2 % (1.2) ppts.

G&A expenses $ 84 $ 90 6 6 $ 167 $ 179 7 7

8 unchanged sentences

Company sales and Company restaurant margin %

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.

The quarterly and year to date increase in Company sales, excluding the impact of foreign currency translation, was driven by the KFC U.K.

and Ireland restaurant acquisition (see Note 2) in the quarter ended June 30, 2024, partially offset by Company same-store sales declines of 4%.

The quarterly and year to date decreases in Company restaurant margin percentage were driven by higher restaurant operating costs and Company same-store sales declines.

Franchise and property revenues

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.

Franchise and property revenues, excluding the impacts of foreign currency translation, were flat during the quarter, driven by a franchise same-store sales decline of 3% and a 1% negative impact from the KFC U.K.

and Ireland restaurant acquisition, partially offset by unit growth.

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

The quarterly decrease in G&A, excluding the impact of foreign currency translation, was driven by lower expenses related to our annual incentive compensation programs and lower travel related costs, partially offset by higher professional fees.

The year to date decrease in G&A, excluding the impact of foreign currency translation, was driven by lower expenses related to our annual incentive compensation programs, the impact of the sale of our KFC Russia business and lower travel related costs, partially offset by higher professional fees.

Operating Profit

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.

The quarterly and year to date increases in Operating Profit, excluding the impact of foreign currency translation, were driven by unit growth, lower bad debt expense and lower G&A, partially offset by same-store sales declines.

Taco Bell Division

1 unchanged sentence

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

as of March 31, 2024.

Quarter ended

2024 2023 Reported Ex FX

as of June 30, 2024.

Quarter ended Year to date

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

2024 2023 Reported Ex FX 2024 2023 Reported Ex FX

System Sales $ 4,017 $ 3,760 7 7 $ 7,614 $ 7,224 5 5

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

Same-Store Sales Growth % 5 4 N/A N/A 3 6 N/A N/A

Company sales $ 268 $ 253 6 6 $ 508 $ 482 5 5

3 unchanged sentences

Company restaurant profit $ 69 $ 66 6 6 $ 123 $ 116 6 6

Company restaurant margin % 22.5 % 22.2 % 0.3 ppts.

Company restaurant margin % 25.6 % 25.6 % Even Even 24.2 % 24.0 % 0.2 0.2

G&A expenses $ 47 $ 49 5 5 $ 96 $ 94 (1) (1)

8 unchanged sentences

Company sales and Company restaurant margin %

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.

The quarterly and year to date increases in Company sales were driven by Company same-store sales growth of 4% and 3% for the quarter and year to date, respectively, and unit growth.

Company restaurant margin percentage for the quarter was flat with prior year as same-store sales growth was offset by higher labor and other restaurant operating costs.

The year to date 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 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.

The quarterly and year to date increases in Franchise and property revenues were driven by franchise same-store sales growth of 5% and 3% for the quarter and year to date, respectively, and unit growth.

The quarterly decrease in G&A was driven by lower share-based compensation partially offset by higher digital and technology expenses.

The year to date increase in G&A was driven by higher digital and technology expenses and higher headcount and salaries partially offset by lower share-based compensation.

Operating Profit

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.

The quarterly increase in Operating Profit 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 was driven by same-store sales growth and unit growth partially offset by higher restaurant operating costs and higher Franchise advertising and other service expense primarily related to digital and technology expenses.

Pizza Hut Division

2 unchanged sentences

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 March 31, 2024.

Quarter ended

2024 2023 Reported Ex FX

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

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

Additionally, over 99% of the Pizza Hut Division units were operated by franchisees as of June 30, 2024.

Quarter ended Year to date

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

2024 2023 Reported Ex FX 2024 2023 Reported Ex FX

System Sales $ 3,140 $ 3,201 (2) Even $ 6,307 $ 6,537 (4) (2)

Same-Store Sales Growth (Decline) % (3) 4 N/A N/A (5) 5 N/A N/A

Company sales $ 2 $ 4 (62) (62) $ 4 $ 9 (63) (63)

Franchise and property revenues 148 155 (5) (4)

Franchise contributions for advertising and other services 88 94 (6) (6)

Franchise and property revenues 148 149 Even 1 296 304 (3) (1)

Franchise contributions for advertising and other services 89 89 (1) Even 177 183 (3) (3)

Total revenues $ 239 $ 242 (2) (1) $ 477 $ 496 (4) (3)

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

Company restaurant profit $ — $ — NM NM $ — $ — NM NM

Company restaurant margin % (2.2) % 3.2 % (5.4) ppts.

(0.1) % 3.6 % (3.7) ppts.

G&A expenses $ 50 $ 53 4 4 $ 102 $ 104 1 1

8 unchanged sentences

Franchise and property revenues

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.

The quarterly increase in Franchise and property revenues, excluding the impacts of foreign currency translation, was driven by unit growth, offset by a franchise same-store sales decline of 3%.

The year to date decrease in Franchise and property revenues, excluding the impacts of foreign currency translation, was driven by a franchise same-store sales decline of 5%, partially offset by unit growth.

The quarterly decrease in G&A, excluding the impacts of foreign currency translation, was driven by lower expenses related to our annual incentive compensation programs.

On a year to date basis, G&A, excluding the impacts of foreign currency translation, was largely flat.

Operating Profit

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.

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

The year to date decrease in Operating Profit, excluding the impacts of foreign currency translation, was driven by a same-store sales decline partially offset by unit growth.

Habit Burger Grill Division

1 unchanged sentence

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

as of March 31, 2024.

Quarter ended

2024 2023 Reported

as of June 30, 2024.

Quarter ended Year to date

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

2024 2023 Reported Ex FX 2024 2023 Reported Ex FX

System Sales $ 168 $ 168 (1) (1) $ 322 $ 326 (1) (1)

Same-Store Sales Growth % (8) — N/A

Same-Store Sales Growth % (6) Even N/A N/A (7) Even N/A N/A

Total revenues $ 141 $ 142 — — $ 271 $ 274 (1) (1)

5 unchanged sentences

Corporate & Unallocated

Quarter ended

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

Quarter ended Year to date

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

Corporate and unallocated G&A $ ( 86 ) $ ( 86 ) — $ ( 175 ) $ ( 170 ) (4)

Unallocated Franchise and property income (expenses)

Unallocated Refranchising gain (loss) 5 4 NM

Unallocated Company restaurant expenses (See Note 9)

( 1 ) — NM ( 1 ) — NM

Unallocated Franchise and property expenses

— ( 1 ) NM — ( 2 ) NM

Unallocated Refranchising gain (loss) 14 17 NM 19 21 NM

Unallocated Other income (expense)

( 5 ) ( 4 ) NM

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

— ( 5 ) NM ( 5 ) ( 9 ) NM

Investment income (expense), net (See Note 9) — 29 NM ( 22 ) 5 NM

Other pension income (expense) (See Note 10)

1 1 NM 3 3 NM

Interest expense, net ( 121 ) ( 125 ) 4 ( 238 ) ( 255 ) 7

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Effective tax rate (See Note 7) 24.7 % 12.6 % (12.1) ppts.

21.8 % 15.4 % (6.4) ppts.

Corporate and unallocated G&A

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.

Corporate and unallocated G&A was flat during the quarter, as higher costs associated with our resource optimization program were offset by lower current year expenses related to our annual incentive compensation programs and lapping costs related to the prior year ransomware attack.

The year to date increases in Corporate and Unallocated G&A expense was driven by higher costs associated with our resource optimization program, partially offset by lapping costs related to the prior year ransomware attack and lower current year expenses related to our annual incentive compensation programs.

Interest expense, net

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.

The quarterly decrease in Interest expense, net was primarily driven by lower borrowings.

The year to date decrease in Interest expense, net was primarily driven by lower borrowings and higher interest income.

Consolidated Cash Flows

Net cash provided by operating activities was $705 million in 2024 versus $678 million in 2023.

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.

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

Net cash used in investing activities was $253 million in 2024 compared to net cash provided by investing activities of $26 million in 2023.

The change was primarily driven by outflows in the current year related to the KFC U.K.

and Ireland restaurant acquisition and lapping proceeds from the prior year sale of KFC Russia.

Current year proceeds arising from the sale of our approximate 5% minority investment in Devyani were primarily offset with higher current year purchases of short-term investments.

Net cash used in financing activities was $547 million in 2024 versus $698 million in 2023.

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

The change was primarily driven by lower current year net debt repayments.

Liquidity and Capital Resources

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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 March 31, 2024.

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.

To the extent operating cash flows plus other sources of cash do not cover our anticipated cash needs, we maintain a $1.5 billion Revolving Facility under our Credit Agreement which had $180 million outstanding as of June 30, 2024.

We believe that our ongoing cash from operations, cash on hand, which was approximately $400 million at June 30, 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 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%.

As of June 30, 2024, approximately 96%, including the impact of interest rate swaps, of our $11 billion of total debt outstanding, excluding the Revolving Facility balance, finance leases and debt issuance costs and discounts, is fixed with an effective overall interest rate of approximately 4.5%.

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

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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.

The following table summarizes the future maturities of our outstanding long-term debt, excluding finance leases and debt issuance costs and discounts, as of June 30, 2024.

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

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Credit Agreement $ 8 $ 21 27 34 1,424 437 1,951

Revolving Facility 180 180

Subsidiary Senior Unsecured Notes 750 750

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Total $ 8 $ 21 $ 965 $ 1,668 $ 2,019 $ 1,206 $ 800 $ 1,787 $ 2,100 $ 325 $ 275 $ 11,174

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

See Note 11 for details on the Securitization Notes, the Credit Agreement, Revolving Facility, Subsidiary Senior Unsecured Notes and YUM Senior Unsecured Notes, including a refinancing of the Credit Agreement that took place in April 2024.

New Accounting Pronouncements Not Yet Adopted

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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