What changed in this filing

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Item 1. Financial Statements

2024-11-07 compared with 2024-08-08 · 69 added, 55 removed, 543 unchanged (19% of the section changed)

37 unchanged sentences

Adjustments and gains (losses) arising during the period

34 ( 20 ) 26 ( 8 )

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

8 unchanged sentences

Unrealized gains (losses) arising during the period

( 4 ) 7 12 25

Reclassification of (gains) losses into Net Income

( 9 ) ( 9 ) ( 25 ) ( 20 )

( 13 ) ( 2 ) ( 13 ) 5

Tax (expense) benefit

30 unchanged sentences

Other, net ( 28 ) ( 3 )

Net Cash Provided by (Used in) Investing Activities

Net Cash Used in Investing Activities

( 292 ) ( 4 )

Cash Flows – Financing Activities

37 unchanged sentences

Common Stock, no par value, 750 shares authorized;

281 shares issued in 2024 and 2023

280 shares issued in 2024 and 281 shares issued in 2023

Accumulated deficit ( 7,389 ) ( 7,616 )

5 unchanged sentences

AND SUBSIDIARIES

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

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

(in millions)

2 unchanged sentences

Shares Amount

Balance at March 31, 2024

Balance at June 30, 2024

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

3 unchanged sentences

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

( 10 ) ( 10 )

Comprehensive Income 406

3 unchanged sentences

Share-based compensation events 15 15

Balance at June 30, 2024

Balance at September 30, 2024

280 $ — $ ( 7,389 ) $ ( 285 ) $ ( 7,674 )

4 unchanged sentences

Pension and post-retirement benefit plans

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

( 10 ) ( 10 )

Comprehensive Income 1,080

3 unchanged sentences

Share-based compensation events 65 65

Balance at June 30, 2024

Balance at September 30, 2024

280 $ — $ ( 7,389 ) $ ( 285 ) $ ( 7,674 )

Balance at March 31, 2023

Balance at June 30, 2023

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

3 unchanged sentences

Pension and post-retirement benefit plans

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

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

Comprehensive Income 395

2 unchanged sentences

Share-based compensation events 24 24

Balance at June 30, 2023

Balance at September 30, 2023

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

11 unchanged sentences

Share-based compensation events 81 81

Balance at June 30, 2023

Balance at September 30, 2023

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

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 60,000 restaurants in more than 155 countries and territories.

As of June 30, 2024, 98 % of these restaurants were owned and operated by franchisees.

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

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

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

12 unchanged sentences

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

We have reclassified certain items in the Financial Statements for the prior periods to be comparable with the classification for the quarter and year to date ended June 30, 2024.

These reclassifications had no effect on previously reported Net Income.

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

4 unchanged sentences

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:

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.

During the quarter ended September 30, 2024, we adjusted our preliminary estimate of the fair value of net assets acquired.

The components of the preliminary purchase price allocation, subsequent to the adjustments to the allocation in the quarter ended September 30, 2024, were as follows:

Total Current Assets $ 2

2 unchanged sentences

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

Total Assets 246

Total Identifiable Assets

Total Current Liabilities ( 18 )

1 unchanged sentence

Other liabilities ( 31 )

Total Liabilities ( 151 )

Total Liabilities Assumed

Total identifiable net assets 92

Purchase price to be allocated $ 171

The adjustments to the preliminary estimate of identifiable net assets acquired as recorded on June 30, 2024 resulted in a corresponding $ 3 million increase in estimated goodwill due to the following changes to the preliminary purchase price allocation.

Increase (Decrease) in Goodwill

Decrease in Property, plant and equipment, net

Total increase in Goodwill $ 3

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

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.

4 unchanged sentences

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.

13 unchanged sentences

Note 4 - Shareholders' Deficit

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.

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

All amounts exclude applicable transaction fees.

4 unchanged sentences

September 2022 366 387 $ 50 $ 50 $ —

2,068 — 277 — 1,723

Total 2,434 387

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.

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.

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

As of September 30, 2024, we have remaining capacity to repurchase up to $ 1.7 billion of Common Stock under the May 2024 authorization.

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

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

Balance at March 31, 2024, net of tax

Balance at June 30, 2024, net of tax

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

1 unchanged sentence

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

34 — ( 3 ) 31

(Gains) losses reclassified from AOCI, net of tax

— — ( 7 ) ( 7 )

Balance at June 30, 2024, net of tax

34 — ( 10 ) 24

Balance at September 30, 2024, net of tax

$ ( 175 ) $ ( 103 ) $ ( 7 ) $ ( 285 )

Balance at December 31, 2023, net of tax

5 unchanged sentences

26 1 ( 10 ) 17

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

Balance at September 30, 2024, net of tax $ ( 175 ) $ ( 103 ) $ ( 7 ) $ ( 285 )

Note 5 - Other (Income) Expense

32 unchanged sentences

Other assets $ 1,352 $ 1,361

(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.

(a) Non-current operating lease liabilities of $ 868 million and $ 757 million as of September 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

15 unchanged sentences

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

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.

Our third quarter and year to date effective tax rate is higher than the prior year primarily due to higher taxes paid in foreign jurisdictions where our intellectual property rights are domiciled, higher U.S.

current tax expense on foreign earnings, and tax expense recognized in the quarter ended September 30, 2024 as compared to tax benefit recognized in the quarter ended September 30, 2023 associated with adjustments related to prior year taxes.

In addition, our year to date effective tax rate is higher than the prior year due to the lapping of higher foreign tax benefits associated with the favorable resolutions of tax audits and the establishment of additional net operating loss carryforward deferred tax assets in foreign jurisdictions in the quarter ended June 30, 2023.

Note 8 - Revenue Recognition

3 unchanged sentences

Quarter ended 9/30/2024

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

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

Company sales $ 17 $ 267 $ 1 $ 133 $ 418

9 unchanged sentences

Quarter ended 9/30/2023

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

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

Company sales $ 15 $ 256 $ 2 $ 135 $ 408

9 unchanged sentences

Year to date 9/30/2024

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

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

Company sales $ 45 $ 775 $ 5 $ 399 $ 1,224

9 unchanged sentences

Year to date 9/30/2023

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

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

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

15 unchanged sentences

Increase for upfront fees associated with contracts that became effective during the period, net of amounts recognized as revenue during the period 49

Balance at June 30, 2024

Balance at September 30, 2024

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

17 unchanged sentences

137 137 408 411

$ 1,826 $ 1,708 $ 5,187 $ 5,040

Quarter ended Year to date

4 unchanged sentences

Habit Burger & Grill Division

1 ( 2 ) ( 2 ) ( 4 )

Corporate and unallocated G&A expenses

3 unchanged sentences

Unallocated Franchise and property income (expenses)

— ( 1 ) — ( 2 )

Unallocated Refranchising gain (loss) 12 19 31 40

57 unchanged sentences

All other material provisions of the Credit Agreement remain unchanged.

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.

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.

During the year to date ended September 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 September 30, 2024 and 2023, was $ 356 million and $ 367 million, respectively.

Note 12 - Derivative Instruments

3 unchanged sentences

We have entered into interest rate swaps, with the objective of reducing our exposure to interest rate risk for a portion of our variable-rate debt interest payments primarily under our Term Loan B Facility.

At both June 30, 2024 and December 31, 2023, we had interest rate swaps expiring in March 2025 with notional amounts of $ 1.5 billion.

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

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

Through September 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:

4 unchanged sentences

Income tax benefit/(expense) 1 ( 1 ) 2 2 ( 3 ) ( 6 ) 6 5

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.

As of September 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 $ 9 million, based on current Secured Overnight Financing Rate ("SOFR") interest rates.

Total Return Swaps

2 unchanged sentences

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

The fair value associated with the total return swaps as of both June 30, 2024 and December 31, 2023, was not significant.

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

At September 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 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.

As of September 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.

29 unchanged sentences

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 second quarter of 2024.

Additionally, interest on the underpayment is estimated to be approximately $1.3 billion

through the third 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.

10 unchanged sentences

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

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.

As of September 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 $ 350 million.

The present value of these potential payments discounted at our pre-tax cost of debt at September 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 June 30, 2024, was not material.

The liability recorded for our expected losses under such leases as of September 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 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.

A hearing with the administrative tribunal that had been scheduled for October 8, 2024 has been rescheduled to January 21, 2025.

A hearing held on October 16, 2024, before the Delhi

High Court has been continued to February 4, 2025, and the stay order remains in effect.

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

4 unchanged sentences

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