What changed in this filing

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Item 1. Financial Statements

2025-05-07 compared with 2024-11-07 · 152 added, 189 removed, 423 unchanged (45% of the section changed)

3 unchanged sentences

(in millions, except per share data)

Quarter ended Year to date

Quarter ended

Revenues 3/31/2025 3/31/2024

25 unchanged sentences

(in millions)

Quarter ended Year to date

Quarter ended

3/31/2025 3/31/2024

3 unchanged sentences

Adjustments and gains (losses) arising during the period

34 ( 20 ) 26 ( 8 )

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

34 ( 20 ) 26 52

Tax (expense) benefit

34 ( 20 ) 26 52

Changes in pension and post-retirement benefits

4 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

( 10 ) ( 1 ) ( 10 ) 4

Other comprehensive income (loss), net of tax

24 ( 21 ) 17 55

Comprehensive Income $ 275 $ 307

3 unchanged sentences

(in millions)

Quarter ended

3/31/2025 3/31/2024

15 unchanged sentences

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 15 11

1 unchanged sentence

Other, net ( 32 ) ( 21 )

Net Cash Used in Investing Activities

( 292 ) ( 4 )

Net Cash Provided By Investing Activities

Cash Flows – Financing Activities

Proceeds from long-term debt 237 —

Repayments of long-term debt ( 5 ) ( 10 )

4 unchanged sentences

Net Cash Used in Financing Activities

( 443 ) ( 247 )

Effect of Exchange Rates on Cash and Cash Equivalents 10 ( 7 )

37 unchanged sentences

AND SUBSIDIARIES

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

Quarters ended March 31, 2025 and 2024

(in millions)

Issued Common Stock Accumulated Deficit Accumulated

Other Comprehensive Loss Total Shareholders' Deficit

Issued Common Stock Accumulated Deficit Accumulated Other Comprehensive Loss

Total Shareholders' Deficit

Shares Amount

Balance at June 30, 2024

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

Net Income 382 382

Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature 34 34

Pension and post-retirement benefit plans — —

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

( 10 ) ( 10 )

Comprehensive Income 406

Dividends declared ( 188 ) ( 188 )

Repurchase of shares of Common Stock ( 2 ) ( 15 ) ( 262 ) ( 277 )

Employee share-based award exercises 1 — —

Share-based compensation events 15 15

Balance at September 30, 2024

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

Balance at December 31, 2024

2 unchanged sentences

Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature 25 25

Pension and post-retirement benefit plans

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

( 10 ) ( 10 )

Pension and post-retirement benefit plans (net of tax impact of less than $1 million)

Derivative instruments (net of tax impact of $ 2 million)

Comprehensive Income 275

1 unchanged sentence

Repurchase of shares of Common Stock (1)

Employee share-based award exercises 1 ( 66 ) ( 66 )

Share-based compensation events 65 65

Balance at September 30, 2024

( 2 ) — ( 229 ) ( 229 )

Balance at June 30, 2023

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

Net Income 416 416

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

Reclassification of translation adjustments into income — —

Pension and post-retirement benefit plans

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

Comprehensive Income 395

Dividends declared ( 169 ) ( 169 )

Employee share-based award exercises 1 ( 26 ) ( 3 ) ( 29 )

Share-based compensation events 26 26

Balance at September 30, 2023

Balance at March 31, 2025

278 $ — $ ( 7,434 ) $ ( 371 ) $ ( 7,804 )

3 unchanged sentences

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

Reclassification of translation adjustments into income 60 60

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

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

Pension and post-retirement benefit plans

Derivative instruments (net of tax impact of $ 1 million)

Comprehensive Income 307

3 unchanged sentences

Share-based compensation events 32 32

Balance at September 30, 2023

Balance at March 31, 2024

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

(1) Includes excise tax on share repurchases

See accompanying Notes to Condensed Consolidated Financial Statements.

6 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 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.

As of March 31, 2025, 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-inspired and pizza categories, respectively.

The Habit Burger & Grill is a fast-casual restaurant concept specializing in made-to-order chargrilled burgers, sandwiches and more.

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

As of March 31, 2025, YUM consisted of four operating segments:

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

5 unchanged sentences

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 periodic weekly calendar, 2024 will include a 53rd week.

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

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

3 unchanged sentences

Our results of operations, comprehensive income, cash flows and changes in shareholders' deficit for these interim periods are not necessarily indicative of the results to be expected for the full year.

In the first quarter of 2025, the Company prospectively changed its basis of presentation to round financial figures in the Financial Statements and as presented in the tabular presentations in these Notes to the nearest whole number in millions in all instances.

As a result, some totals and percentages may not recompute based on rounded figures as presented within the Financial Statements and these Notes.

Previously, amounts were presented to ensure that all numbers herein recomputed, resulting in the presentation of certain figures inconsistent with their underlying rounding.

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, 2025.

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.

The acquisition created 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 purchase price to be allocated for accounting purposes of $ 177 million consisted of cash, net of cash acquired, in the amount of $ 180 million, which included $ 174 million paid in 2024 and $ 6 million

paid in 2025, 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.

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:

During the quarter ended March 31, 2025, 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 March 31, 2025 and prior quarters were as follows:

Total Current Assets $ 2

9 unchanged sentences

Purchase price to be allocated $ 177

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.

The cumulative adjustments to the preliminary estimate of identifiable net assets acquired (as recorded in the June 30, 2024 quarter of acquisition) resulted in a corresponding $ 12 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

Increase in Property, plant and equipment, net

Increase in Required franchise rights

Increase in Operating lease right-of-use assets

Increase in Total Current Liabilities

Increase in Operating lease liabilities

Increase in Other liabilities

Increase in consideration

Total increase in Goodwill $ 12

6 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 or year to date ended September 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.

Pro forma financial information of the combined entities for the periods prior to acquisition is not presented due to the immaterial impact of the acquisition on our Condensed Consolidated Financial Statements.

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 Year to date

2024 2023 2024 2023

Quarter ended

Net Income $ 253 $ 314

5 unchanged sentences

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

1.7 1.7 1.8 1.7

(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 years to date ended September 30, 2024 and 2023 as indicated below.

All amounts exclude applicable transaction fees.

Under the authority of our Board of Directors, we repurchased shares of our Common Stock during the quarters ended March 31, 2025 and 2024 as indicated below.

All amounts exclude applicable transaction fees and excise taxes on share repurchases.

Shares Repurchased

2 unchanged sentences

Authorization Date 2025 2024 2025 2024 2025

September 2022 366 387 $ 50 $ 50 $ —

1,556 — $ 228 $ — $ 1,382

Total 1,556 —

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 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.

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

As of March 31, 2025, we have remaining capacity to repurchase up to $ 1.4 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 June 30, 2024, net of tax

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

OCI, net of tax

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 )

34 — ( 10 ) 24

Balance at September 30, 2024, net of tax

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

Balance at December 31, 2024, net of tax

5 unchanged sentences

25 2 ( 5 ) 22

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

Balance at March 31, 2025, net of tax

$ ( 213 ) $ ( 141 ) $ ( 16 ) $ ( 371 )

Note 5 - Other (Income) Expense

Quarter ended Year to date

Quarter ended

3/31/2025 3/31/2024

17 unchanged sentences

Short term investments

Other prepaid expenses and current assets

Assets held for sale

Prepaid expenses

Other current assets

Prepaid expenses and other current assets

7 unchanged sentences

Franchise incentives 161 144

Investment in Devyani International Limited (See Note 13)

Other 316 304

Other assets $ 1,366 $ 1,329

(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.

(a) Non-current operating lease liabilities of $ 869 million and $ 862 million as of March 31, 2025 and December 31, 2024, 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

7 unchanged sentences

Note 7 - Income Taxes

Quarter ended Year to date

2024 2023 2024 2023

Quarter ended

Income tax provision

$ 120 $ 89 $ 309 $ 220

Effective tax rate 41.0 % 18.0 %

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.

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

federal statutory rate of 21 %, 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 %.

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.

Additionally, in the quarter ended March 31, 2025, we have recorded the reserve as discussed below.

Our first quarter effective tax rate was higher than the prior year primarily due to the unfavorable impact of recording a $ 92 million reserve.

The reserve was the result of a change in management's judgment around a Mexican subsidiary's ability to utilize certain losses to offset recapture gains triggered by a tax deconsolidation in Mexico in 2009.

During the quarter ended March 31, 2025, a Mexican court ruled that such losses could not be utilized to offset the recapture gain.

The Company is appealing the decision and does not expect resolution of this matter within twelve months.

Note 8 - Revenue Recognition

13 unchanged sentences

Franchise contributions for advertising and other services 140 3 16 — 159

$ 785 $ 666 $ 238 $ 137 $ 1,826

$ 773 $ 657 $ 231 $ 128 $ 1,788 (a)

(a) Does not include a charge of $ 1 million to Unallocated Franchise revenues during the quarter ended March 31, 2025.

Quarter ended 3/31/2024

10 unchanged sentences

$ 632 $ 598 $ 238 $ 130 $ 1,598

Year to date 9/30/2024

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

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

Franchise revenues 134 608 200 5 947

Property revenues 10 27 3 2 42

Franchise contributions for advertising and other services 30 468 217 2 717

Franchise revenues 200 — 51 — 251

Company sales 443 — — — 443

Franchise revenues 842 43 191 — 1,076

Property revenues 33 — 1 — 34

Franchise contributions for advertising and other services 397 9 47 — 453

$ 2,134 $ 1,930 $ 715 $ 408 $ 5,187

Year to date 9/30/2023

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

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

Franchise revenues 143 568 200 4 915

Property revenues 10 29 3 2 44

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

Franchise revenues 193 — 52 — 245

Company sales 294 — — — 294

Franchise revenues 870 40 198 — 1,108

Property revenues 38 — 1 — 39

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

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

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 22

Balance at September 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.

Balance at March 31, 2025

(a) Primarily includes 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:

6 unchanged sentences

Note 9 - Reportable Operating Segments

We identify our operating segments based on management responsibility.

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

Quarter ended Year to date

Revenues 2024 2023 2024 2023

KFC Division $ 785 $ 700 $ 2,134 $ 2,069

Taco Bell Division 666 629 1,930 1,822

Pizza Hut Division 238 242 715 738

Habit Burger & Grill Division

The Company's operating segments maintain separate financial information, and our Chief Operating Decision Maker (“CODM”), the Company's Chief Executive Officer, evaluates the operating segments' operating results on a regular basis in deciding how to allocate resources among the segments and in assessing segment performance.

The CODM evaluates the performance of the Company's segments based on Divisional Operating Profit and is involved in determining and reviewing forecasted Divisional Operating Profit as part of the annual plan process.

Throughout the year, the CODM considers forecast to actual results and variances on a monthly and quarterly basis to allocate resources for the segments' operations.

The CODM also considers this information in determining how to prioritize capital allocation, including investments in restaurant development, technology and human capital, maintaining a strong and flexible balance sheet, offering a competitive dividend and returning excess cash to shareholders.

Our CODM manages assets on a consolidated basis.

Accordingly, segment assets are not reported to our CODM or used in his decisions to allocate resources or assess performance of the segments.

Therefore, total segment assets and long-lived assets have not been disclosed.

The significant expense categories and amounts presented in the tables below align with the segment-level information that is regularly provided to the CODM.

Quarter ended 3/31/2025

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

Company Sales (a)

$ 216 $ 263 $ 3 $ 125 $ 607

Franchise and property revenues (a)

407 234 143 2 786

Quarter ended Year to date

Operating Profit 2024 2023 2024 2023

KFC Division $ 339 $ 344 $ 986 $ 975

Taco Bell Division 251 226 709 658

Pizza Hut Division 91 97 278 292

Habit Burger & Grill Division

Franchise contributions for advertising and other services (a)

149 160 85 1 395

Corporate and unallocated G&A expenses

773 657 231 128 1,788

Unallocated Company restaurant expenses (a)

Company restaurant expenses 196 204 4 114 518

General and administrative expenses 80 49 55 13 197

Franchise and property expenses 16 6 11 1 34

Franchise advertising and other services expense 149 157 89 1 396

Other (income) expense — — ( 2 ) — ( 2 )

Division Operating Profit

$ 331 $ 241 $ 74 $ ( 1 ) $ 646

Unallocated Franchise and property income (expenses)

Unallocated amounts:

Corporate and unallocated G&A expenses (c)

Unallocated Company restaurant expenses (d)

Unallocated Franchise and property revenues

Unallocated Refranchising gain (loss) 5

Unallocated Other income (expense)

Consolidated Operating Profit 548

Investment income (expense), net 1

Other pension income (expense) —

Interest expense, net ( 120 )

Income before income taxes $ 429

Other Segment Disclosures

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

Depreciation and Amortization (e)

$ 11 $ 16 $ 4 $ 7 $ 7 $ 45

Operating Profit $ 619 $ 613 $ 1,746 $ 1,709

Investment income (expense), net (b)

Capital Spending 18 31 5 6 11 71

Quarter ended 3/31/2024

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

Company Sales (a)

$ 105 $ 240 $ 2 $ 127 $ 474

Franchise and property revenues (a)

397 210 148 2 757

Franchise contributions for advertising and other services (a)

130 148 88 1 367

632 598 238 130 1,598

Company restaurant expenses 92 186 2 120 400

General and administrative expenses 83 49 52 13 197

Franchise and property expenses 17 8 5 1 31

Franchise advertising and other services expense 129 147 90 1 367

Other (income) expense ( 2 ) — ( 4 ) — ( 6 )

Division Operating Profit

$ 313 $ 208 $ 93 $ ( 5 ) $ 609

Unallocated amounts:

Corporate and unallocated G&A expenses (c)

Unallocated Refranchising gain (loss) 5

Unallocated Other income (expense)

Consolidated Operating Profit 520

Investment income (expense), net (f)

Other pension income (expense) 2

Interest expense, net ( 117 )

( 120 ) ( 126 ) ( 358 ) ( 381 )

Income before income taxes $ 383

Our chief operating decision maker ( “ CODM ” ) does not consider the impact of Corporate and unallocated amounts when assessing Divisional segment performance.

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

(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).

Other Segment Disclosures

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

Depreciation and Amortization (e)

$ 2 $ 15 $ 3 $ 7 $ 8 $ 35

Capital Spending

8 21 3 9 8 49

revenues included in the combined KFC, Taco Bell, Pizza Hut and Habit Burger & Grill Divisions totaled $ 1.0 billion and $ 0.9 billion in the quarters ended March 31, 2025 and 2024, respectively.

(b) Amounts have not been allocated to any segment for performance reporting purposes.

(c) Corporate and unallocated G&A expenses include charges of $ 17 million and $ 21 million in the quarters ended March 31, 2025 and 2024, respectively, related to our resource optimization program and $ 7 million in the quarter ended March 31, 2025 related to our brand headquarters consolidation.

(d) Unallocated Company restaurant expenses include amortization of reacquired franchise rights.

(e) The amounts of depreciation and amortization disclosed by reportable segment are primarily included within the segment expense captions of Company restaurant expenses and G&A expenses .

(f) Investment income (expense), net includes $ 20 million of pre-tax investment losses related to the sale of our approximate 5% minority interest in Devyani International Limited during the quarter ended March 31, 2024.

Note 10 - Pension Benefits

9 unchanged sentences

pension plans are as follows:

Quarter ended Year to date

2024 2023 2024 2023

Quarter ended

Service cost $ 1 $ 1

1 unchanged sentence

Expected return on plan assets ( 13 ) ( 13 )

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

Amortization of prior service cost — — 1 1

Net periodic benefit cost (income)

$ ( 1 ) $ ( 1 )

Additional loss recognized due to settlements (a)

(a) Loss is a result of settlement transactions which exceeded the sum of annual service and interest costs for the applicable plan.

This loss was recorded in Other pension (income) expense .

Note 11 - Short-term Borrowings and Long-term Debt

16 unchanged sentences

Details of our Short-term borrowings and Long-term debt as of December 31, 2024 can be found within our 2024 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 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.

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.

Cash paid for interest during the quarters ended March 31, 2025 and 2024, was $ 102 million and $ 101 million, respectively.

Note 12 - Derivative Instruments

2 unchanged sentences

Interest Rate Swaps

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

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

These interest rate swaps have been designated cash flow hedges as the changes in the future cash flows of the swaps are expected to offset changes in expected future interest payments on the related variable-rate debt.

There were no other interest rate swaps outstanding as of September 30, 2024 or December 31, 2023.

In March 2025, interest rate swaps which reduced our historical exposure to interest rate risk for $ 1.5 billion of our variable-rate debt interest payments primarily under our Term Loan B Facility expired.

Through their expiration in March 2025, these interest rate swaps were highly effective cash flow hedges.

Subsequent to the end of the first quarter, on April 4, 2025, we entered into new interest rate swaps ("2025 interest rate swaps") to fix the interest rate on $ 1.5 billion of borrowings, primarily under our Term Loan B Facility, from April 2025 to March 2028.

Like the expired interest rate swaps, the 2025 interest rate swaps were 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.

The 2025 interest rate swaps will result in a fixed rate of 5.09 % on the swapped portion of the Term Loan B Facility (excluding debt issuance costs).

Gains or losses on the interest rate swaps are reported as a component of AOCI and reclassified into Interest expense, net in our Condensed Consolidated Statements of Income in the same period or periods during which the related hedged interest payments affect earnings.

Through September 30, 2024, the swaps were highly effective cash flow hedges.

Gains and losses on these interest rate swaps recognized in OCI and reclassifications from AOCI into Net Income were as follows:

Quarter ended Year to date

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

Quarter ended

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

2025 2024 2025 2024

1 unchanged sentence

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

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 September 30, 2024 and December 31, 2023, was not significant.

The fair value associated with the total return swaps as of both March 31, 2025 and December 31, 2024, was not significant.

As a result of the use of derivative instruments, the Company is exposed to risk that the counterparties will fail to meet their contractual obligations.

To mitigate the counterparty credit risk, we only enter into contracts with major financial institutions carefully selected based upon their credit ratings and other factors, and continually assess the creditworthiness of counterparties.

At September 30, 2024, all of the counterparties to our derivative instruments had investment grade ratings according to the three major ratings agencies.

At March 31, 2025, 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.

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Note 13 - Fair Value Disclosures

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.

As of March 31, 2025, the carrying values of cash and cash equivalents, restricted cash, 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.

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Recurring Fair Value Measurements

The Company has interest rate swaps and other investments, all of which are required to be measured at fair value on a recurring basis (see Note 12 for discussion regarding derivative instruments).

The following table presents fair values for those assets and liabilities measured at fair value on a recurring basis and the level within the fair value hierarchy in which the measurements fall.

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Interest Rate Swaps Prepaid expenses and other current assets 2 $ — 5

Interest Rate Swaps Other assets 2 — 2

The fair value of the Company’s interest rate swaps were determined based on the present value of expected future cash flows considering the risks involved, including nonperformance risk, and using discount rates appropriate for the duration based on observable inputs.

Investments 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 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

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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 $1.3 billion

through the third quarter of 2024.

Additionally, interest on the underpayment is estimated to be approximately $1.5 billion through the first quarter of 2025.

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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We disagree with the IRS’s position as asserted in the RAR and intend to contest that position vigorously.

In September 2022, we filed a Protest with the IRS Examination Division disputing on multiple grounds the proposed underpayment of tax and penalties.

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.

In September 2022, we filed a Protest with the IRS Examination Division disputing the proposed underpayment of tax and penalties, and our matter was referred to the IRS Office of Appeals.

Upon conclusion of the proceedings with the IRS Office of Appeals without resolution, we received an IRS Notice of Deficiency in March 2025.

We expect to file a petition in the United States Tax Court in the second quarter of 2025 disputing the IRS Notice of Deficiency.

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

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

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.

As of March 31, 2025, 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 March 31, 2025, was approximately $ 275 million.

Our franchisees are the primary lessees under the vast majority of these leases.

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We believe these cross-default provisions significantly reduce the risk that we will be required to make payments under these leases, although such risk may not be reduced in the context of a bankruptcy or other similar restructuring of a large franchisee or group of franchisees.

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

The liability recorded for our expected losses under such leases as of March 31, 2025, was not material.

Legal Proceedings

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

A hearing with the administrative tribunal that had been scheduled for 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.

A hearing with the administrative tribunal scheduled for March 18, 2025 has been rescheduled to July 9, 2025.

A hearing scheduled for April 29, 2025, before the Delhi High Court has been continued to August 19, 2025, and the stay order remains in effect.

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

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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 1. Financial Statements