YUM BRANDS INC 10-Q

Item 1. Financial Statements 3 CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) YUM! BRANDS, INC. AND SUBSIDIARIES (in millions, except per share data) Quarter ended Revenues 3/31/2025 3/31/2024 Company sales $ 607 $ 474 Franchise and property revenues 785 757 Franchise contributions for advertising and other services 395 367 Total revenues 1,787 1,598 Costs and Expenses, Net Company restaurant expenses 520 400 General and administrative expenses 302 286 Franchise and property expenses 34 31 Franchise advertising and other services expense 396 367 Refranchising (gain) loss ( 5 ) ( 5 ) Other (income) expense ( 8 ) ( 1 ) Total costs and expenses, net 1,239 1,078 Operating Profit 548 520 Investment (income) expense, net ( 1 ) 22 Other pension (income) expense — ( 2 ) Interest expense, net 120 117 Income Before Income Taxes 429 383 Income tax provision 176 69 Net Income $ 253 $ 314 Basic Earnings Per Common Share $ 0.91 $ 1.11 Diluted Earnings Per Common Share $ 0.90 $ 1.10 Dividends Declared Per Common Share $ 0.71 $ 0.67 See accompanying Notes to Condensed Consolidated Financial Statements. 4 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) YUM! BRANDS, INC. AND SUBSIDIARIES (in millions) Quarter ended 3/31/2025 3/31/2024 Net Income $ 253 $ 314 Other comprehensive income, net of tax Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature Adjustments and gains (losses) arising during the period 25 ( 10 ) Reclassification of adjustments and (gains) losses into Net Income — — 25 ( 10 ) Tax (expense) benefit — — 25 ( 10 ) Changes in pension and post-retirement benefits Unrealized gains (losses) arising during the period — — Reclassification of (gains) losses into Net Income 2 — 2 — Tax (expense) benefit — — 2 — Changes in derivative instruments Unrealized gains (losses) arising during the period 1 12 Reclassification of (gains) losses into Net Income ( 8 ) ( 8 ) ( 7 ) 4 Tax (expense) benefit 2 ( 1 ) ( 5 ) 3 Other comprehensive income (loss), net of tax 22 ( 7 ) Comprehensive Income $ 275 $ 307 See accompanying Notes to Condensed Consolidated Financial Statements. 5 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) YUM! BRANDS, INC. AND SUBSIDIARIES (in millions) Quarter ended 3/31/2025 3/31/2024 Cash Flows – Operating Activities Net Income $ 253 $ 314 Depreciation and amortization 45 35 Refranchising (gain) loss ( 5 ) ( 5 ) Investment (income) expense, net ( 1 ) 22 Deferred income taxes 8 21 Share-based compensation expense 21 23 Changes in accounts and notes receivable 71 44 Changes in prepaid expenses and other current assets ( 57 ) ( 32 ) Changes in accounts payable and other current liabilities ( 32 ) ( 66 ) Changes in income taxes payable 3 ( 26 ) Other, net 98 33 Net Cash Provided by Operating Activities 404 363 Cash Flows – Investing Activities Capital spending ( 71 ) ( 49 ) Proceeds from sale of Devyani Investment — 104 Proceeds from refranchising of restaurants 15 11 Maturities (purchases) of Short term investments, net 90 — Other, net ( 32 ) ( 21 ) Net Cash Provided By Investing Activities 2 45 Cash Flows – Financing Activities Repayments of long-term debt ( 5 ) ( 10 ) Revolving credit facility, three months or less, net 24 — Repurchase shares of Common Stock ( 229 ) — Dividends paid on Common Stock ( 198 ) ( 189 ) Other, net ( 35 ) ( 48 ) Net Cash Used in Financing Activities ( 443 ) ( 247 ) Effect of Exchange Rates on Cash and Cash Equivalents 10 ( 7 ) Net Increase (Decrease) in Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents ( 25 ) 154 Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - Beginning of Period 807 724 Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - End of Period $ 782 $ 878 See accompanying Notes to Condensed Consolidated Financial Statements. 6 CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) YUM! BRANDS, INC. AND SUBSIDIARIES (in millions) 3/31/2025 12/31/2024 ASSETS Current Assets Cash and cash equivalents $ 607 $ 616 Accounts and notes receivable, net 712 775 Prepaid expenses and other current assets 408 480 Total Current Assets 1,727 1,871 Property, plant and equipment, net 1,338 1,304 Goodwill 746 736 Intangible assets, net 418 416 Other assets 1,366 1,329 Deferred income taxes 1,065 1,071 Total Assets $ 6,659 $ 6,727 LIABILITIES AND SHAREHOLDERS’ DEFICIT Current Liabilities Accounts payable and other current liabilities $ 1,179 $ 1,211 Income taxes payable 21 31 Short-term borrowings 30 27 Total Current Liabilities 1,231 1,269 Long-term debt 11,327 11,306 Other liabilities and deferred credits 1,906 1,800 Total Liabilities 14,463 14,375 Shareholders’ Deficit Common Stock, no par value, 750 shares authorized; 278 shares issued in 2025 and 279 shares issued in 2024 — — Accumulated deficit ( 7,434 ) ( 7,256 ) Accumulated other comprehensive loss ( 371 ) ( 392 ) Total Shareholders’ Deficit ( 7,804 ) ( 7,648 ) Total Liabilities and Shareholders’ Deficit $ 6,659 $ 6,727 See accompanying Notes to Condensed Consolidated Financial Statements. 7 CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT (Unaudited) YUM! BRANDS, INC. AND SUBSIDIARIES Quarters ended March 31, 2025 and 2024 (in millions) Yum! Brands, Inc. Issued Common Stock Accumulated Deficit Accumulated Other Comprehensive Loss Total Shareholders' Deficit Shares Amount Balance at December 31, 2024 279 $ — $ ( 7,256 ) $ ( 392 ) $ ( 7,648 ) Net Income 253 253 Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature 25 25 Pension and post-retirement benefit plans (net of tax impact of less than $1 million) 2 2 Derivative instruments (net of tax impact of $ 2 million) ( 5 ) ( 5 ) Comprehensive Income 275 Dividends declared ( 199 ) ( 199 ) Repurchase of shares of Common Stock (1) ( 2 ) — ( 229 ) ( 229 ) Employee share-based award exercises 1 ( 26 ) ( 3 ) ( 29 ) Share-based compensation events 26 26 Balance at March 31, 2025 278 $ — $ ( 7,434 ) $ ( 371 ) $ ( 7,804 ) Balance at December 31, 2023 281 $ 60 $ ( 7,616 ) $ ( 302 ) $ ( 7,858 ) Net Income 314 314 Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature ( 10 ) ( 10 ) Pension and post-retirement benefit plans — — Derivative instruments (net of tax impact of $ 1 million) 3 3 Comprehensive Income 307 Dividends declared ( 190 ) ( 190 ) Repurchase of shares of Common Stock — — — — Employee share-based award exercises — ( 47 ) ( 47 ) Share-based compensation events 32 32 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. 8 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Tabular amounts in millions, except per share data) Note 1 - Financial Statement Presentation We have prepared our accompanying unaudited Condensed Consolidated Financial Statements (“Financial Statements”) in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by Generally Accepted Accounting Principles in the United States (“GAAP”) for complete financial statements. Therefore, we suggest that the accompanying Financial Statements be read in conjunction with the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024 (“2024 Form 10-K”). Yum! Brands, Inc. 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 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 March 31, 2025, YUM consisted of four operating segments: • The KFC Division which includes our worldwide operations of the KFC concept • The Taco Bell Division which includes our worldwide operations of the Taco Bell concept • The Pizza Hut Division which includes our worldwide operations of the Pizza Hut concept • The Habit Burger & Grill Division which includes our worldwide operations of the Habit Burger & Grill concept YUM's fiscal year begins on January 1 and ends December 31 of each year, with each quarter comprised of three months. The majority of our U.S. 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 included a 53rd week. Our remaining international subsidiaries operate on a monthly calendar similar to that on which YUM operates. Our preparation of the accompanying Financial Statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. The accompanying Financial Statements include all normal and recurring adjustments considered necessary to present fairly, when read in conjunction with our 2024 Form 10-K, the results of the interim periods presented. 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. and Ireland. 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 $ 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 9 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 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 Property, plant and equipment, net 99 Reacquired franchise rights (included in Intangible assets, net) 48 Operating lease right-of-use assets (included in Other assets) 124 Total Identifiable Assets 273 Total Current Liabilities ( 30 ) Operating lease liabilities (included in Other liabilities and deferred credits) ( 115 ) Other liabilities ( 39 ) Total Liabilities Assumed ( 184 ) Total identifiable net assets 89 Goodwill 88 Purchase price to be allocated $ 177 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 Increase in Property, plant and equipment, net $ ( 11 ) Increase in Required franchise rights ( 1 ) Increase in Operating lease right-of-use assets ( 15 ) Increase in Total Current Liabilities 12 Increase in Operating lease liabilities 13 Increase in Other liabilities 8 Increase in consideration 6 Total increase in Goodwill $ 12 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. The excess of the purchase price over the preliminary estimated fair value of the net, identifiable assets acquired was recorded as goodwill. The goodwill recognized represents expected benefits of the acquisition that do not qualify for recognition as intangible assets. This includes value arising from cash flows expected to be earned in years subsequent to the expiration of the terms of franchise agreements existing upon acquisition. The goodwill is expected to be partially deductible for income tax purposes and has been allocated to our KFC U.K. reporting unit. 10 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 March 31, 2025. 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 2025 2024 Net Income $ 253 $ 314 Weighted-average common shares outstanding (for basic calculation) 280 282 Effect of dilutive share-based employee compensation 2 4 Weighted-average common and dilutive potential common shares outstanding (for diluted calculation) 282 286 Basic EPS $ 0.91 $ 1.11 Diluted EPS $ 0.90 $ 1.10 Unexercised employee SARs, RSUs, PSUs and stock options (in millions) excluded from the diluted EPS computation (a) 1.5 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 quarters ended March 31, 2025 and 2024 as indicated below. All amounts exclude applicable transaction fees and excise taxes on share repurchases. Shares Repurchased (thousands) Dollar Value of Shares Repurchased Remaining Dollar Value of Shares that may be Repurchased Authorization Date 2025 2024 2025 2024 2025 May 2024 1,556 — $ 228 $ — $ 1,382 Total 1,556 — $ 228 $ — $ 1,382 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. 11 Changes in Accumulated other comprehensive loss (“AOCI”) are presented below. Translation Adjustments and Gains (Losses) From Intra-Entity Transactions of a Long-Term Nature Pension and Post-Retirement Benefits Derivative Instruments Total Balance at December 31, 2024, net of tax $ ( 238 ) $ ( 143 ) $ ( 11 ) $ ( 392 ) OCI, net of tax Gains (losses) arising during the period classified into AOCI, net of tax 25 — 1 26 (Gains) losses reclassified from AOCI, net of tax — 2 ( 6 ) ( 4 ) 25 2 ( 5 ) 22 Balance at March 31, 2025, net of tax $ ( 213 ) $ ( 141 ) $ ( 16 ) $ ( 371 ) Note 5 - Other (Income) Expense Quarter ended 3/31/2025 3/31/2024 Foreign exchange net (gain) loss $ ( 3 ) $ 5 Impairment and closure expense 1 — Other ( 5 ) ( 6 ) Other (income) expense $ ( 8 ) $ ( 1 ) Note 6 - Supplemental Balance Sheet Information Accounts and Notes Receivable, net The Company’s receivables are primarily generated from ongoing business relationships with our franchisees as a result of franchise and lease agreements. Trade receivables consisting of royalties from franchisees are generally due within 30 days of the period in which the corresponding sales occur and are classified as Accounts and notes receivable, net in our Condensed Consolidated Balance Sheets. Accounts and notes receivable, net also includes receivables generated from advertising cooperatives that we consolidate. 3/31/2025 12/31/2024 Accounts and notes receivable, gross $ 786 $ 849 Allowance for doubtful accounts ( 74 ) ( 74 ) Accounts and notes receivable, net $ 712 $ 775 12 Prepaid Expenses and Other Current Assets 3/31/2025 12/31/2024 Income tax receivable $ 49 $ 55 Restricted cash 141 155 Short term investments — 91 Assets held for sale 8 21 Prepaid expenses 155 100 Other current assets 55 58 Prepaid expenses and other current assets $ 408 $ 480 Property, Plant and Equipment, net 3/31/2025 12/31/2024 Property, plant and equipment, gross $ 2,757 $ 2,688 Accumulated depreciation and amortization ( 1,419 ) ( 1,384 ) Property, plant and equipment, net $ 1,338 $ 1,304 Other Assets 3/31/2025 12/31/2024 Operating lease right-of-use assets (a) $ 889 $ 881 Franchise incentives 161 144 Other 316 304 Other assets $ 1,366 $ 1,329 (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 3/31/2025 12/31/2024 Cash and cash equivalents as presented in Condensed Consolidated Balance Sheets $ 607 $ 616 Restricted cash included in Prepaid expenses and other current assets (a) 141 155 Restricted cash and restricted cash equivalents included in Other assets (b) 34 36 Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents as presented in Condensed Consolidated Statements of Cash Flows $ 782 $ 807 (a) Restricted cash within Prepaid expenses and other current assets reflects the cash related to advertising cooperatives which we consolidate that can only be used to settle obligations of the respective cooperatives and cash held in reserve for Taco Bell Securitization interest payments. (b) Primarily trust accounts related to our self-insurance program. Note 7 - Income Taxes Quarter ended 2025 2024 Income tax provision $ 176 $ 69 Effective tax rate 41.0 % 18.0 % 13 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 %. 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 Disaggregation of Total Revenues The following tables disaggregate revenue by Concept, for our two most significant markets based on Operating Profit and for all other markets. We believe this disaggregation best reflects the extent to which the nature, amount, timing and uncertainty of our revenues and cash flows are impacted by economic factors. Quarter ended 3/31/2025 KFC Division Taco Bell Division Pizza Hut Division Habit Burger & Grill Division Total U.S. Company sales $ 23 $ 261 $ 3 $ 125 $ 412 Franchise revenues 42 211 63 2 318 Property revenues 3 9 1 1 14 Franchise contributions for advertising and other services 9 157 69 1 236 China Franchise revenues 69 — 17 — 86 Other Company sales 193 2 — — 195 Franchise revenues 283 14 61 — 358 Property revenues 10 — — — 10 Franchise contributions for advertising and other services 140 3 16 — 159 $ 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. 14 Quarter ended 3/31/2024 KFC Division Taco Bell Division Pizza Hut Division Habit Burger & Grill Division Total U.S. Company sales $ 14 $ 240 $ 2 $ 127 $ 383 Franchise revenues 43 188 68 1 300 Property revenues 3 9 1 1 14 Franchise contributions for advertising and other services 10 146 73 1 230 China Franchise revenues 68 — 17 — 85 Other Company sales 91 — — — 91 Franchise revenues 272 13 62 — 347 Property revenues 11 — — — 11 Franchise contributions for advertising and other services 120 2 15 — 137 $ 632 $ 598 $ 238 $ 130 $ 1,598 Contract Liabilities Our contract liabilities are comprised of unamortized upfront fees received from franchisees and are presented within Accounts payable and other current liabilities and Other liabilities and deferred credits in our Condensed Consolidated Balance Sheets. A summary of significant changes to the contract liability balance during 2025 is presented below. Deferred Franchise Fees Balance at December 31, 2024 $ 438 Revenue recognized that was included in unamortized upfront fees received from franchisees at the beginning of the period ( 20 ) Increase for upfront fees associated with contracts that became effective during the period, net of amounts recognized as revenue during the period 22 Other (a) 2 Balance at March 31, 2025 $ 442 (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: Less than 1 year $ 70 1 - 2 years 66 2 - 3 years 59 3 - 4 years 51 4 - 5 years 44 Thereafter 151 Total $ 442 15 Note 9 - Reportable Operating Segments 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 Franchise contributions for advertising and other services (a) 149 160 85 1 395 773 657 231 128 1,788 Less: 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 amounts: (b) Corporate and unallocated G&A expenses (c) $ ( 105 ) Unallocated Company restaurant expenses (d) ( 3 ) Unallocated Franchise and property revenues ( 1 ) Unallocated Refranchising gain (loss) 5 Unallocated Other income (expense) 6 Consolidated Operating Profit 548 Investment income (expense), net 1 Other pension income (expense) — Interest expense, net ( 120 ) Income before income taxes $ 429 16 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 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 Less: 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: (b) Corporate and unallocated G&A expenses (c) $ ( 89 ) Unallocated Refranchising gain (loss) 5 Unallocated Other income (expense) ( 5 ) Consolidated Operating Profit 520 Investment income (expense), net (f) ( 22 ) Other pension income (expense) 2 Interest expense, net ( 117 ) Income before income taxes $ 383 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 (a) U.S. 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. 17 (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 We sponsor qualified and supplemental (non-qualified) noncontributory defined benefit pension plans covering certain full-time salaried and hourly U.S. employees. The most significant of these plans, the YUM Retirement Plan (the “Plan”), is funded. We fund our other U.S. plans as benefits are paid. Our two significant U.S. plans, including the Plan and a supplemental plan, were previously amended such that any salaried employee hired or rehired by YUM after September 30, 2001, is not eligible to participate in those plans. Additionally, these two plans in the U.S. are currently closed to new hourly participants. The components of net periodic benefit cost associated with our U.S. pension plans are as follows: Quarter ended 2025 2024 Service cost $ 1 $ 1 Interest cost 11 11 Expected return on plan assets ( 13 ) ( 13 ) Net periodic benefit cost (income) $ ( 1 ) $ ( 1 ) Additional loss recognized due to settlements (a) $ 1 $ — (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 Short-term Borrowings 3/31/2025 12/31/2024 Current maturities of long-term debt $ 32 $ 29 Less current portion of debt issuance costs and discounts ( 2 ) ( 2 ) Short-term borrowings $ 30 $ 27 Long-term Debt Securitization Notes $ 3,743 $ 3,743 Subsidiary Senior Unsecured Notes 750 750 Revolving Facility 374 350 Term Loan A Facility 500 500 Term Loan B Facility 1,440 1,444 YUM Senior Unsecured Notes 4,550 4,550 Finance lease obligations 67 67 $ 11,424 $ 11,404 Less long-term portion of debt issuance costs and discounts ( 66 ) ( 69 ) Less current maturities of long-term debt ( 32 ) ( 29 ) Long-term debt $ 11,327 $ 11,306 Details of our Short-term borrowings and Long-term debt as of December 31, 2024 can be found within our 2024 Form 10-K. Cash paid for interest during the quarters ended March 31, 2025 and 2024, was $ 102 million and $ 101 million, respectively. 18 Note 12 - Derivative Instruments We use derivative instruments to manage certain of our market risks related to fluctuations in interest rates, equity prices and foreign currency exchange rates. Our use of foreign currency contracts to manage foreign currency exchange rates associated with certain foreign currency denominated intercompany receivables and payables is currently not significant. Interest Rate Swaps 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. Gains and losses on these interest rate swaps recognized in OCI and reclassifications from AOCI into Net Income were as follows: Quarter ended Gains/(Losses) Recognized in OCI (Gains)/Losses Reclassified from AOCI into Net Income 2025 2024 2025 2024 Interest rate swaps $ — $ 11 $ ( 5 ) $ ( 9 ) Income tax benefit/(expense) — ( 3 ) 1 2 Total Return Swaps We have entered into total return swap derivative contracts, with the objective of reducing our exposure to market-driven changes in certain of the liabilities associated with compensation deferrals into our Executive Income Deferral (“EID”) plan. While these total return swaps represent economic hedges, we have not designated them as hedges for accounting purposes. As a result, the changes in the fair value of these derivatives are recognized immediately in earnings within General and administrative expenses in our Condensed Consolidated Statements of Income largely offsetting the changes in the associated EID liabilities. The fair value associated with the total return swaps as of both March 31, 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 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. See Note 13 for the fair value of our derivative assets and liabilities. 19 Note 13 - Fair Value Disclosures 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. The following table presents the carrying value and estimated fair value of the Company’s debt obligations: 3/31/2025 12/31/2024 Carrying Value Fair Value (Level 2) Carrying Value Fair Value (Level 2) Securitization Notes (a) $ 3,743 $ 3,521 $ 3,743 $ 3,561 Subsidiary Senior Unsecured Notes (b) 750 752 750 739 Term Loan A Facility (b) 500 496 500 496 Term Loan B Facility (b) 1,440 1,450 1,444 1,451 YUM Senior Unsecured Notes (b) 4,550 4,395 4,550 4,368 (a) We estimated the fair value of the Securitization Notes using market quotes and calculations. The markets in which the Securitization Notes trade are not considered active markets. (b) We estimated the fair value of the YUM and Subsidiary Senior Unsecured Notes, Term Loan A Facility and Term Loan B Facility using market quotes and calculations based on market rates. Recurring Fair Value Measurements 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. Fair Value Condensed Consolidated Balance Sheet Level 3/31/2025 12/31/2024 Assets Investments Other assets 1 $ 1 $ 1 Investments Other assets 3 7 7 Interest Rate Swaps Prepaid expenses and other current assets 2 $ — 5 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. Note 14 - Contingencies Internal Revenue Service Proposed Adjustment 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 $1.5 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. The IRS asserts that these transactions resulted in taxable distributions of approximately $6.0 billion. 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 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. 20 The Company does not expect resolution of this matter within twelve months and cannot predict with certainty the timing of such resolution. The Company believes that it is more likely than not the Company’s tax position will be sustained; therefore, no reserve is recorded with respect to this matter. An unfavorable resolution of this matter could have a material, adverse impact on our Condensed Consolidated Financial Statements in future periods. Lease Guarantees As a result of having assigned our interest in obligations under real estate leases as a condition to the refranchising of certain Company-owned restaurants, and guaranteeing certain other leases, we are frequently secondarily liable on lease agreements. These leases have varying terms, the latest of which expires in 2065 . 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. We generally have cross-default provisions with these franchisees that would put them in default of their franchise agreement in the event of non-payment under the lease. We believe these cross-default provisions significantly reduce the risk that we will be required to make payments under these leases, although such risk may not be reduced in the context of a bankruptcy or other similar restructuring of a large franchisee or group of franchisees. The liability recorded for our expected losses under such leases as of March 31, 2025, was not material. Legal Proceedings We are subject to various claims and contingencies related to lawsuits, real estate, environmental and other matters arising in the normal course of business. An accrual is recorded with respect to claims or contingencies for which a loss is determined to be probable and reasonably estimable. India Regulatory Matter Yum! Restaurants India Private Limited (“YRIPL”), a YUM subsidiary that operates KFC and Pizza Hut restaurants in India, is the subject of a regulatory enforcement action in India (the “Action”). The Action alleges, among other things, that KFC International Holdings, Inc. and Pizza Hut International failed to satisfy certain conditions imposed by the Secretariat for Industrial Approval in 1993 and 1994 when those companies were granted permission for foreign investment and operation in India. The conditions at issue include an alleged minimum investment commitment and store build requirements as well as limitations on the remittance of fees outside of India. The Action originated with a complaint and show cause notice filed in 2009 against YRIPL by the Deputy Director of the Directorate of Enforcement (“DOE”) of the Indian Ministry of Finance following an income tax audit for the years 2002 and 2003. The matter was argued at various hearings in 2015, but no order was issued. Following a change in the incumbent official holding the position of Special Director of DOE (the “Special Director”), the matter resumed in 2018 and several additional hearings were conducted. On January 29, 2020, the Special Director issued an order imposing a penalty on YRIPL and certain former directors of approximately Indian Rupee 11 billion, or approximately $130 million. Of this amount, $125 million relates to the alleged failure to invest a total of $80 million in India within an initial seven-year period. We have been advised by external counsel that the order is flawed and have filed a writ petition with the Delhi High Court, which granted an interim stay of the penalty order on March 5, 2020. 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 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. We do not consider the risk of any significant loss arising from this order to be probable. Other Matters We are currently engaged in various other legal proceedings and have certain unresolved claims pending, the ultimate liability for which, if any, cannot be determined at this time. However, based upon consultation with legal counsel, we are of the opinion that such proceedings and claims are not expected to have a material adverse effect, individually or in the aggregate, on our Condensed Consolidated Financial Statements. 21