UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-Q

(Mark One)
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
  
EXCHANGE ACT OF 1934 for the quarterly period ended
September 30, 2022March 31, 2023
OR
 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from ____________ to _________________
 
 Commission file number 1-13163
________________________
YUM! BRANDS, INC.
(Exact name of registrant as specified in its charter)
North Carolina13-3951308
(State or other jurisdiction of(I.R.S. Employer
incorporation or organization)Identification No.)
1441 Gardiner Lane,Louisville,Kentucky40213
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code:(502) 874-8300
Securities registered pursuant to Section 12(b) of the Act
 Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
 Common Stock, no par valueYUMNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated FilerAccelerated Filer
Non-accelerated FilerSmaller Reporting Company
Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes No x
The number of shares outstanding of the registrant’s Common Stock as of NovemberMay 3, 2022,2023, was 281,687,866280,086,983 shares.



YUM! BRANDS, INC.

INDEX
 
  Page
  No.
Part I.Financial Information 
   
 Item 1 - Financial Statements 
  
 Condensed Consolidated Statements of Income
  
Condensed Consolidated Statements of Comprehensive Income
 Condensed Consolidated Statements of Cash Flows
  
 Condensed Consolidated Balance Sheets
Condensed Consolidated Statements of Shareholders' Deficit
  
 Notes to Condensed Consolidated Financial Statements
  
 
Item 2 - Management’s Discussion and Analysis of Financial Condition
and Results of Operations
  
 Item 3 - Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4 - Controls and Procedures
  
 Report of Independent Registered Public Accounting Firm
  
Part II.Other Information and Signatures
  
 Item 1 - Legal Proceedings
  
 Item 1A - Risk Factors
  
 Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
 Item 6 - Exhibits
  
 Signatures
2


PART I - FINANCIAL INFORMATION

Item 1.Financial Statements
3


CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
YUM! BRANDS, INC. AND SUBSIDIARIESYUM! BRANDS, INC. AND SUBSIDIARIESYUM! BRANDS, INC. AND SUBSIDIARIES
(in millions, except per share data)(in millions, except per share data)(in millions, except per share data)
Quarter endedYear to date Quarter ended
RevenuesRevenues9/30/20229/30/20219/30/20229/30/2021Revenues3/31/20233/31/2022
Company salesCompany sales$479 $513 $1,448 $1,509 Company sales$474 $470 
Franchise and property revenuesFranchise and property revenues760 716 2,211 2,080 Franchise and property revenues770 714 
Franchise contributions for advertising and other servicesFranchise contributions for advertising and other services401 377 1,164 1,105 Franchise contributions for advertising and other services401 363 
Total revenuesTotal revenues1,640 1,606 4,823 4,694 Total revenues1,645 1,547 
Costs and Expenses, NetCosts and Expenses, NetCosts and Expenses, Net
Company restaurant expensesCompany restaurant expenses402 421 1,219 1,230 Company restaurant expenses403 402 
General and administrative expensesGeneral and administrative expenses261 253 768 689 General and administrative expenses282 253 
Franchise and property expensesFranchise and property expenses28 31 89 81 Franchise and property expenses36 32 
Franchise advertising and other services expenseFranchise advertising and other services expense396 375 1,153 1,090 Franchise advertising and other services expense395 361 
Refranchising (gain) lossRefranchising (gain) loss(3)(15)(21)Refranchising (gain) loss(4)(4)
Other (income) expenseOther (income) expense10 (2)— (12)Other (income) expense10 (6)
Total costs and expenses, netTotal costs and expenses, net1,094 1,079 3,214 3,057 Total costs and expenses, net1,122 1,038 
Operating ProfitOperating Profit546 527 1,609 1,637 Operating Profit523 509 
Investment (income) expense, netInvestment (income) expense, net(27)(51)(19)(52)Investment (income) expense, net24 (7)
Other pension (income) expenseOther pension (income) expenseOther pension (income) expense(2)— 
Interest expense, netInterest expense, net124 126 390 416 Interest expense, net130 118 
Income Before Income TaxesIncome Before Income Taxes447 451 1,235 1,267 Income Before Income Taxes371 398 
Income tax provision (benefit)Income tax provision (benefit)116 (77)281 22 Income tax provision (benefit)71 (1)
Net IncomeNet Income$331 $528 $954 $1,245 Net Income$300 $399 
Basic Earnings Per Common ShareBasic Earnings Per Common Share$1.16 $1.78 $3.33 $4.17 Basic Earnings Per Common Share$1.07 $1.38 
Diluted Earnings Per Common ShareDiluted Earnings Per Common Share$1.14 $1.75 $3.28 $4.10 Diluted Earnings Per Common Share$1.05 $1.36 
Dividends Declared Per Common ShareDividends Declared Per Common Share$0.57 $0.50 $1.71 $1.50 Dividends Declared Per Common Share$0.605 $0.57 
See accompanying Notes to Condensed Consolidated Financial Statements.See accompanying Notes to Condensed Consolidated Financial Statements.See accompanying Notes to Condensed Consolidated Financial Statements.

4


CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
YUM! BRANDS, INC. AND SUBSIDIARIESYUM! BRANDS, INC. AND SUBSIDIARIESYUM! BRANDS, INC. AND SUBSIDIARIES
(in millions)(in millions)(in millions)
Quarter endedYear to dateQuarter ended
9/30/20229/30/20219/30/20229/30/20213/31/20233/31/2022
Net IncomeNet Income$331 $528 $954 $1,245 Net Income$300 $399 
Other comprehensive income, net of taxOther comprehensive income, net of taxOther comprehensive income, net of tax
Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment natureTranslation adjustments and gains (losses) from intra-entity transactions of a long-term investment natureTranslation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature
Adjustments and gains (losses) arising during the periodAdjustments and gains (losses) arising during the period(55)(19)(99)(2)Adjustments and gains (losses) arising during the period(23)
(55)(19)(99)(2)(23)
Tax (expense) benefitTax (expense) benefit— — — — Tax (expense) benefit— — 
(55)(19)(99)(2)(23)
Changes in pension and post-retirement benefitsChanges in pension and post-retirement benefitsChanges in pension and post-retirement benefits
Unrealized gains (losses) arising during the periodUnrealized gains (losses) arising during the period20 20 61 Unrealized gains (losses) arising during the period— — 
Reclassification of (gains) losses into Net IncomeReclassification of (gains) losses into Net Income14 16 Reclassification of (gains) losses into Net Income— 
25 34 77 — 
Tax (expense) benefitTax (expense) benefit(6)(2)(8)(19)Tax (expense) benefit(2)(1)
19 26 58 (2)
Changes in derivative instrumentsChanges in derivative instrumentsChanges in derivative instruments
Unrealized gains (losses) arising during the periodUnrealized gains (losses) arising during the period42 114 17 Unrealized gains (losses) arising during the period(8)57 
Reclassification of (gains) losses into Net IncomeReclassification of (gains) losses into Net Income19 15 Reclassification of (gains) losses into Net Income(3)12 
43 133 32 (11)69 
Tax (expense) benefitTax (expense) benefit(11)(2)(33)(8)Tax (expense) benefit(17)
32 100 24 (8)52 
Other comprehensive income (loss), net of tax(4)(7)27 80 
Other comprehensive income, net of taxOther comprehensive income, net of tax(2)33 
Comprehensive IncomeComprehensive Income$327 $521 $981 $1,325 Comprehensive Income$298 $432 
See accompanying Notes to Condensed Consolidated Financial Statements.See accompanying Notes to Condensed Consolidated Financial Statements.See accompanying Notes to Condensed Consolidated Financial Statements.

5


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
YUM! BRANDS, INC. AND SUBSIDIARIESYUM! BRANDS, INC. AND SUBSIDIARIESYUM! BRANDS, INC. AND SUBSIDIARIES
(in millions)(in millions)(in millions)
Year to date Quarter ended
9/30/20229/30/2021 3/31/20233/31/2022
Cash Flows – Operating ActivitiesCash Flows – Operating Activities  Cash Flows – Operating Activities  
Net IncomeNet Income$954 $1,245 Net Income$300 $399 
Depreciation and amortizationDepreciation and amortization104 117 Depreciation and amortization29 37 
Refranchising (gain) lossRefranchising (gain) loss(15)(21)Refranchising (gain) loss(4)(4)
Investment (income) expense, netInvestment (income) expense, net(19)(52)Investment (income) expense, net24 (7)
Deferred income taxesDeferred income taxes(173)Deferred income taxes(4)(77)
Share-based compensation expenseShare-based compensation expense64 58 Share-based compensation expense25 26 
Changes in accounts and notes receivableChanges in accounts and notes receivable(26)— Changes in accounts and notes receivable23 29 
Changes in prepaid expenses and other current assetsChanges in prepaid expenses and other current assets(3)(5)Changes in prepaid expenses and other current assets(7)(13)
Changes in accounts payable and other current liabilitiesChanges in accounts payable and other current liabilities(149)24 Changes in accounts payable and other current liabilities(101)(176)
Changes in income taxes payableChanges in income taxes payable(3)(45)Changes in income taxes payable28 29 
Other, netOther, net65 144 Other, net36 10 
Net Cash Provided by Operating ActivitiesNet Cash Provided by Operating Activities975 1,292 Net Cash Provided by Operating Activities349 253 
Cash Flows – Investing ActivitiesCash Flows – Investing ActivitiesCash Flows – Investing Activities
Capital spendingCapital spending(158)(138)Capital spending(62)(42)
Proceeds from refranchising of restaurantsProceeds from refranchising of restaurants51 48 Proceeds from refranchising of restaurants24 
Other, netOther, net(5)(33)Other, net(11)
Net Cash Used In Investing ActivitiesNet Cash Used In Investing Activities(112)(123)Net Cash Used In Investing Activities(56)(29)
Cash Flows – Financing ActivitiesCash Flows – Financing ActivitiesCash Flows – Financing Activities
Proceeds from long-term debt999 4,150 
Repayments of long-term debtRepayments of long-term debt(678)(3,647)Repayments of long-term debt(20)(15)
Revolving credit facility, three months or less, netRevolving credit facility, three months or less, net(85)174 
Repurchase shares of Common StockRepurchase shares of Common Stock(714)(857)Repurchase shares of Common Stock(50)(343)
Dividends paid on Common StockDividends paid on Common Stock(489)(446)Dividends paid on Common Stock(169)(165)
Debt issuance costs(11)(37)
Other, netOther, net(35)(44)Other, net(10)(28)
Net Cash Used in Financing ActivitiesNet Cash Used in Financing Activities(928)(881)Net Cash Used in Financing Activities(334)(377)
Effect of Exchange Rates on Cash and Cash EquivalentsEffect of Exchange Rates on Cash and Cash Equivalents(43)(1)Effect of Exchange Rates on Cash and Cash Equivalents— 
Net Increase (Decrease) in Cash and Cash Equivalents, Restricted Cash and Restricted Cash Equivalents(108)287 
Net Decrease in Cash and Cash Equivalents, Restricted Cash and Restricted Cash EquivalentsNet Decrease in Cash and Cash Equivalents, Restricted Cash and Restricted Cash Equivalents(38)(153)
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - Beginning of PeriodCash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - Beginning of Period771 1,024 Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - Beginning of Period647 771 
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - End of PeriodCash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - End of Period$663 $1,311 Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - End of Period$609 $618 
See accompanying Notes to Condensed Consolidated Financial Statements.See accompanying Notes to Condensed Consolidated Financial Statements.  See accompanying Notes to Condensed Consolidated Financial Statements.  

6


CONDENSED CONSOLIDATED BALANCE SHEETSCONDENSED CONSOLIDATED BALANCE SHEETSCONDENSED CONSOLIDATED BALANCE SHEETS
YUM! BRANDS, INC. AND SUBSIDIARIESYUM! BRANDS, INC. AND SUBSIDIARIESYUM! BRANDS, INC. AND SUBSIDIARIES
(in millions)(in millions)(in millions)
(Unaudited) 9/30/202212/31/2021(Unaudited) 3/31/202312/31/2022
ASSETSASSETS  ASSETS  
Current AssetsCurrent Assets  Current Assets  
Cash and cash equivalentsCash and cash equivalents$410 $486 Cash and cash equivalents$349 $367 
Accounts and notes receivable, netAccounts and notes receivable, net579 596 Accounts and notes receivable, net622 648 
Prepaid expenses and other current assetsPrepaid expenses and other current assets606 450 Prepaid expenses and other current assets575 594 
Total Current AssetsTotal Current Assets1,595 1,532 Total Current Assets1,546 1,609 
Property, plant and equipment, netProperty, plant and equipment, net1,114 1,207 Property, plant and equipment, net1,162 1,171 
GoodwillGoodwill633 657 Goodwill639 638 
Intangible assets, netIntangible assets, net341 359 Intangible assets, net351 354 
Other assetsOther assets1,429 1,487 Other assets1,299 1,324 
Deferred income taxesDeferred income taxes667 724 Deferred income taxes752 750 
Total AssetsTotal Assets$5,779 $5,966 Total Assets$5,749 $5,846 
LIABILITIES AND SHAREHOLDERS’ DEFICITLIABILITIES AND SHAREHOLDERS’ DEFICIT  LIABILITIES AND SHAREHOLDERS’ DEFICIT  
Current LiabilitiesCurrent Liabilities  Current Liabilities  
Accounts payable and other current liabilitiesAccounts payable and other current liabilities$1,156 $1,334 Accounts payable and other current liabilities$1,128 $1,251 
Income taxes payableIncome taxes payable16 13 Income taxes payable29 16 
Short-term borrowingsShort-term borrowings72 68 Short-term borrowings398 398 
Total Current LiabilitiesTotal Current Liabilities1,244 1,415 Total Current Liabilities1,555 1,665 
Long-term debtLong-term debt11,517 11,178 Long-term debt11,349 11,453 
Other liabilities and deferred creditsOther liabilities and deferred credits1,560 1,746 Other liabilities and deferred credits1,619 1,604 
Total LiabilitiesTotal Liabilities14,321 14,339 Total Liabilities14,523 14,722 
Shareholders’ DeficitShareholders’ Deficit  Shareholders’ Deficit  
Common Stock, no par value, 750 shares authorized; 284 shares issued in 2022 and 289 issued in 2021— — 
Common Stock, no par value, 750 shares authorized; 280 shares issued in 2023 and 2022Common Stock, no par value, 750 shares authorized; 280 shares issued in 2023 and 2022— — 
Accumulated deficitAccumulated deficit(8,244)(8,048)Accumulated deficit(8,403)(8,507)
Accumulated other comprehensive lossAccumulated other comprehensive loss(298)(325)Accumulated other comprehensive loss(371)(369)
Total Shareholders’ DeficitTotal Shareholders’ Deficit(8,542)(8,373)Total Shareholders’ Deficit(8,774)(8,876)
Total Liabilities and Shareholders’ DeficitTotal Liabilities and Shareholders’ Deficit$5,779 $5,966 Total Liabilities and Shareholders’ Deficit$5,749 $5,846 
See accompanying Notes to Condensed Consolidated Financial Statements.See accompanying Notes to Condensed Consolidated Financial Statements.  See accompanying Notes to Condensed Consolidated Financial Statements.  
7


CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT (Unaudited)CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT (Unaudited)CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT (Unaudited)
YUM! BRANDS, INC. AND SUBSIDIARIESYUM! BRANDS, INC. AND SUBSIDIARIESYUM! BRANDS, INC. AND SUBSIDIARIES
Quarters and years to date ended September 30, 2022 and 2021
Quarters ended March 31, 2023 and 2022Quarters ended March 31, 2023 and 2022
(in millions)(in millions)(in millions)
Yum! Brands, Inc.  Yum! Brands, Inc. 
Issued Common StockAccumulated DeficitAccumulated
Other Comprehensive Loss
Total Shareholders' Deficit Issued Common StockAccumulated DeficitAccumulated
Other Comprehensive Loss
Total Shareholders' Deficit
SharesAmount SharesAmount
Balance at June 30, 2022285 $— $(8,274)$(294)$(8,568)
Balance at December 31, 2022Balance at December 31, 2022280 $— $(8,507)$(369)$(8,876)
Net IncomeNet Income331 331 Net Income300 300 
Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment natureTranslation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature(55)(55)Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature
Pension and post-retirement benefit plans (net of tax impact of $6 million)19 19 
Net gain on derivative instruments (net of tax impact of $11 million)32 32 
Pension and post-retirement benefit plans (net of tax impact of $2 million)Pension and post-retirement benefit plans (net of tax impact of $2 million)(2)(2)
Net loss on derivative instruments (net of tax impact of $3 million)Net loss on derivative instruments (net of tax impact of $3 million)(8)(8)
Comprehensive IncomeComprehensive Income327 Comprehensive Income298 
Dividends declaredDividends declared(162)(162)Dividends declared(170)(170)
Repurchase of shares of Common StockRepurchase of shares of Common Stock(1)(18)(139)(157)Repurchase of shares of Common Stock— (24)(26)(50)
Employee share-based award exercisesEmployee share-based award exercises— (3)(3)Employee share-based award exercises— (10)(10)
Share-based compensation eventsShare-based compensation events21 21 Share-based compensation events34 34 
Balance at September 30, 2022284 $— $(8,244)$(298)$(8,542)
Balance at March 31, 2023Balance at March 31, 2023280 $— $(8,403)$(371)$(8,774)
Balance at December 31, 2021Balance at December 31, 2021289 $— $(8,048)$(325)$(8,373)Balance at December 31, 2021289 $— $(8,048)$(325)$(8,373)
Net IncomeNet Income954 954 Net Income399 399 
Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment natureTranslation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature(99)(99)Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature(23)(23)
Pension and post-retirement benefit plans (net of tax impact of $8 million)26 26 
Net gain on derivative instruments (net of tax impact of $33 million)100 100 
Pension and post-retirement benefit plans (net of tax impact of $1 million)Pension and post-retirement benefit plans (net of tax impact of $1 million)
Net gain on derivative instruments (net of tax impact of $17 million)Net gain on derivative instruments (net of tax impact of $17 million)52 52 
Comprehensive IncomeComprehensive Income981 Comprehensive Income432 
Dividends declaredDividends declared(491)(491)Dividends declared(165)(165)
Repurchase of shares of Common StockRepurchase of shares of Common Stock(6)(55)(659)(714)Repurchase of shares of Common Stock(3)(22)(385)(407)
Employee share-based award exercisesEmployee share-based award exercises(24)(24)Employee share-based award exercises(16)(16)
Share-based compensation eventsShare-based compensation events79 79 Share-based compensation events38 38 
Balance at September 30, 2022284 $— $(8,244)$(298)$(8,542)
Balance at March 31, 2022Balance at March 31, 2022286 $— $(8,199)$(292)$(8,491)
Balance at June 30, 2021296 $— $(7,569)$(324)$(7,893)
Net Income528 528 
Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature(19)(19)
Pension and post-retirement benefit plans (net of tax impact of $2 million)
Net gain on derivative instruments (net of tax impact of $2 million)
Comprehensive Income521 
Dividends declared(148)(148)
Repurchase of shares of Common Stock(2)— (330)(330)
Employee share-based award exercises— (21)(5)(26)
Share-based compensation events21 21 
Balance at September 30, 2021294 $— $(7,524)$(331)$(7,855)
Balance at December 31, 2020300 $— $(7,480)$(411)$(7,891)
Net Income1,245 1,245 
Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature(2)(2)
Pension and post-retirement benefit plans (net of tax impact of $19 million)58 58 
Net gain on derivative instruments (net of tax impact of $8 million)24 24 
Comprehensive Income1,325 
Dividends declared(448)(448)
Repurchase of shares of Common Stock(7)(24)(836)(860)
Employee share-based award exercises(38)(5)(43)
Share-based compensation events62 62 
Balance at September 30, 2021294 $— $(7,524)$(331)$(7,855)
See accompanying Notes to Condensed Consolidated Financial Statements.See accompanying Notes to Condensed Consolidated Financial Statements.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, 20212022 (“20212022 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 nearly 54,000over 55,000 restaurants in more than 155 countries and territories.  As of September 30, 2022,March 31, 2023, 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 food 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, 2022,March 31, 2023, 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 including, beginning in fiscal year 2022, our Habit Burger Grill Division, 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. Our remaining international subsidiaries operate on a monthly calendar similar to that on which YUM operates.

For fiscal year 2021, our Habit Burger Grill Division operated on a weekly periodic calendar where each quarter consisted of 13 weeks. The impact of this change in reporting calendar was not significant and accordingly, prior year amounts presented in these Condensed Consolidated Financial Statements have not been restated.

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 20212022 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.

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 other items in the Financial Statements for the prior periods to be comparable with the classification for the quarter and year to date ended September 30, 2022.March 31, 2023. These reclassifications had no effect on previously reported Net Income.

Russia Invasion of Ukraine

In the first quarter of 2022, as a result of the Russian invasion of Ukraine, we suspended all investment and restaurant development in Russia. We also suspended all operations of our 70 company-owned KFC restaurants in Russia and began finalizing an agreement to suspend all Pizza Hut operations in Russia, in partnership with our master franchisee. Further, we pledged to redirect any future net profits attributable to Russia subsequent to the date of invasion to humanitarian efforts.

9


During the second quarter of 2022, we completed the transfer of ownership of the Pizza Hut Russia business to a local operator who has initiated the process of re-branding locations to a non-YUM concept. During the third quarter, we initiated the bidding process for the KFC Russia business and, as a result, those operations qualified for held-for-sale accounting at September 30, 2022. Total KFC Russia assets held-for-sale of $224 million and total KFC Russia liabilities held-for-sale of $82 million are included in Prepaid expenses and other current assets and Accounts payable and other current liabilities, respectively, in our Condensed Consolidated Balance Sheet at September 30, 2022. At September 30, 2022, we determined the carrying value of the KFC Russia asset group was recoverable based on expected sale proceeds.operator.

In October 2022,April 2023, we announced that we have entered into a sale and purchase agreementcompleted our exit from the Russian market by selling the KFC business in Russia to transfer ownership of ourSmart Service Ltd., including all Russian company-owned KFC Russia restaurants, operating system, and master franchise rights includingas well as the network of KFC franchised restaurants, to Smart Service Ltd., a business operated by one of our existing KFC franchisees in Russia.trademark for the Rostik’s brand. Under the sale and purchase agreement, the buyer will be responsible for re-branding locationshas agreed to a non-YUM conceptlead the process to rebrand KFC restaurants in Russia to Rostik's and retainingto retain the Company's employees in Russia. CompletionThe fair value of consideration received from
9


the sale is expected to approximate the carrying value of our net assets in Russia of $166 million, which includes $51 million of cumulative foreign currency translation losses, as of the transaction is subjectquarter ended March 31, 2023.

Our operating results presented herein continue to regulatoryreflect revenues from and governmental approvals, as well as other conditions. Followingexpenses to support the completionRussian operations for KFC for the entirety of the transaction,quarter ended March 31, 2023, and for both Pizza Hut and KFC for the entirety of the quarter ended March 31, 2022, within their historical financial statement line items and operating segments. However, given our decision to exit Russia and our pledge to direct any future net profits attributable to Russia subsequent to the date of invasion to humanitarian efforts, we will have ceased our corporate presencereclassed the resulting net profits or losses from the Division segment results in Russia.which they were earned to Unallocated Other income (expense).

Note 2 - Earnings Per Common Share (“EPS”)
Quarter endedYear to date Quarter ended
2022202120222021 20232022
Net IncomeNet Income$331 $528 $954 $1,245 Net Income$300 $399 
Weighted-average common shares outstanding (for basic calculation)Weighted-average common shares outstanding (for basic calculation)285 296 287 298 Weighted-average common shares outstanding (for basic calculation)281 289 
Effect of dilutive share-based employee compensationEffect of dilutive share-based employee compensationEffect of dilutive share-based employee compensation
Weighted-average common and dilutive potential common shares outstanding (for diluted calculation)Weighted-average common and dilutive potential common shares outstanding (for diluted calculation)289 302 291 304 Weighted-average common and dilutive potential common shares outstanding (for diluted calculation)285 294 
Basic EPSBasic EPS$1.16 $1.78 $3.33 $4.17 Basic EPS$1.07 $1.38 
Diluted EPSDiluted EPS$1.14 $1.75 $3.28 $4.10 Diluted EPS$1.05 $1.36 
Unexercised employee stock options and stock appreciation rights (in millions) excluded from the diluted EPS computation(a)
Unexercised employee stock options and stock appreciation rights (in millions) excluded from the diluted EPS computation(a)
2.0 0.1 1.9 1.5 
Unexercised employee stock options and stock appreciation rights (in millions) excluded from the diluted EPS computation(a)
1.5 1.2 

(a)These unexercised employee stock options and stock appreciation rights were not included in the computation of diluted EPS because to do so would have been antidilutive for the periods presented.

10


Note 3 - Shareholders' Deficit

Under the authority of our Board of Directors, we repurchased shares of our Common Stock during the years to datequarters ended September 30,March 31, 2023 and 2022 and 2021 as indicated below.  All amounts exclude applicable transaction fees. 

Shares Repurchased
(thousands)
Dollar Value of Shares
Repurchased
Remaining Dollar Value of Shares that may be Repurchased Shares Repurchased
(thousands)
Dollar Value of Shares
Repurchased
Remaining Dollar Value of Shares that may be Repurchased
Authorization DateAuthorization Date20222021202220212022Authorization Date20232022202320222023
November 2019— 

4,746 $— 

$530 $— 
May 2021May 20215,987 2,602 714 330 236 May 2021— 3,359 — 407 — 
September 2022September 2022— — — — 2,000 September 2022387 — 50 — 1,700 
TotalTotal5,987 7,348 (a)$714 $860 (a)$2,236 Total387 3,359 (a)$50 $407 (a)$1,700 

(a)    Includes2022 amount includes the effect of $14$64 million in share repurchases (0.1(0.5 million shares) with trade dates on, or prior to, September 30, 2021,March 31, 2022, but cash settlement dates subsequent to September 30, 2021, and excludes the effect of $11 million in share repurchases (0.1 million shares) with trade dates on, or prior to, DecemberMarch 31, 2020, but cash settlement dates subsequent to December 31, 2020.2022.

In May 2021, our Board of Directors authorized share repurchases from July 1, 2021 through December 31, 2022, of up to $2 billion (excluding applicable transaction fees) of our outstanding Common Stock. As of September 30, 2022, $236 million remains available under this authorization. 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. The new authorization will take effect uponAs of March 31, 2023, we have remaining capacity to repurchase up to $1.7 billion of Common Stock under the earlier of the exhaustion or expiration of the authorization approved in May 2021.September 2022 authorization.

1110


Changes in Accumulated other comprehensive loss (“AOCI”) are presented below.
Translation Adjustments and Gains (Losses) From Intra-Entity Transactions of a Long-Term NaturePension and Post-Retirement BenefitsDerivative InstrumentsTotalTranslation Adjustments and Gains (Losses) From Intra-Entity Transactions of a Long-Term NaturePension and Post-Retirement BenefitsDerivative InstrumentsTotal
Balance at June 30, 2022, net of tax$(250)$(27)$(17)$(294)
Balance at December 31, 2022, net of taxBalance at December 31, 2022, net of tax$(290)$(94)$15 $(369)
OCI, net of taxOCI, net of taxOCI, net of tax
Gains (losses) arising during the period classified into AOCI, net of taxGains (losses) arising during the period classified into AOCI, net of tax(55)15 32 (8)Gains (losses) arising during the period classified into AOCI, net of tax(2)(6)— 
(Gains) losses reclassified from AOCI, net of tax(Gains) losses reclassified from AOCI, net of tax— — (Gains) losses reclassified from AOCI, net of tax— — (2)(2)
(55)19 32 (4)(2)(8)(2)
Balance at September 30, 2022, net of tax$(305)$(8)$15 $(298)
Balance at March 31, 2023, net of taxBalance at March 31, 2023, net of tax$(282)$(96)$$(371)
Balance at December 31, 2021, net of tax$(206)$(34)$(85)$(325)
OCI, net of tax
Gains (losses) arising during the period classified into AOCI, net of tax(99)15 86 
(Gains) losses reclassified from AOCI, net of tax— 11 14 25 
(99)26 100 27 
Balance at September 30, 2022, net of tax$(305)$(8)$15 $(298)

Note 4 - Other (Income) Expense
Quarter endedYear to dateQuarter ended
9/30/20229/30/20219/30/20229/30/2021 3/31/20233/31/2022
Foreign exchange net (gain) lossForeign exchange net (gain) loss$$$(8)$Foreign exchange net (gain) loss$$(4)
Impairment and closure expenseImpairment and closure expense— Impairment and closure expense— 
OtherOther(5)(19)Other(2)
Other (income) expenseOther (income) expense$10 $(2)$— $(12)Other (income) expense$10 $(6)

Note 5 - 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.
12


9/30/202212/31/20213/31/202312/31/2022
Accounts and notes receivable, grossAccounts and notes receivable, gross$613 $632 Accounts and notes receivable, gross$661 $685 
Allowance for doubtful accountsAllowance for doubtful accounts(34)(36)Allowance for doubtful accounts(39)(37)
Accounts and notes receivable, netAccounts and notes receivable, net$579 $596 Accounts and notes receivable, net$622 $648 

Property, Plant and Equipment, net
9/30/202212/31/20213/31/202312/31/2022
Property, plant and equipment, grossProperty, plant and equipment, gross$2,376 $2,477 Property, plant and equipment, gross$2,465 $2,454 
Accumulated depreciation and amortizationAccumulated depreciation and amortization(1,262)(1,270)Accumulated depreciation and amortization(1,303)(1,283)
Property, plant and equipment, netProperty, plant and equipment, net$1,114 $1,207 Property, plant and equipment, net$1,162 $1,171 

Assets held-for-sale totaled $228$186 million and $12$190 million as of September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively, and are included in Prepaid expenses and other current assets in our Condensed Consolidated Balance Sheets. Liabilities held-for-sale totaled $82$66 million and $65 million as of September 30,March 31, 2023 and December 31, 2022, respectively, and are included in Accounts
11


payable and other current liabilities in our Condensed Consolidated Balance Sheets as of September 30, 2022.Sheets. KFC Russia assets held-for-sale accounted for $224$177 million including property, plant and equipment of $69$58 million, of the $228$186 million, while KFC Russia liabilities held-for-sale accounted for all$62 million of the $82$66 million as of September 30, 2022.March 31, 2023.

Other AssetsOther Assets9/30/202212/31/2021Other Assets3/31/202312/31/2022
Operating lease right-of-use assets(a)
Operating lease right-of-use assets(a)
$734 $809 
Operating lease right-of-use assets(a)
$753 $742 
Franchise incentivesFranchise incentives174 164 Franchise incentives178 172 
Investment in Devyani International Limited (See Note 12)Investment in Devyani International Limited (See Note 12)127 118 Investment in Devyani International Limited (See Note 12)93 116 
OtherOther394 396 Other275 294 
Other assetsOther assets$1,429 $1,487 Other assets$1,299 $1,324 

(a)    Non-current operating lease liabilities of $721$744 million and $793$731 million as of September 30, 2022March 31, 2023 and December 31, 2021,2022, 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
9/30/202212/31/20213/31/202312/31/2022
Cash and cash equivalents as presented in Condensed Consolidated Balance SheetsCash and cash equivalents as presented in Condensed Consolidated Balance Sheets$410 $486 Cash and cash equivalents as presented in Condensed Consolidated Balance Sheets$349 $367 
Restricted cash included in Prepaid expenses and other current assets(a)
Restricted cash included in Prepaid expenses and other current assets(a)
178 250 
Restricted cash included in Prepaid expenses and other current assets(a)
206 220 
Restricted cash and restricted cash equivalents included in Other assets(b)
Restricted cash and restricted cash equivalents included in Other assets(b)
34 35 
Restricted cash and restricted cash equivalents included in Other assets(b)
34 35 
Cash and restricted cash related to KFC Russia included in assets held-for-saleCash and restricted cash related to KFC Russia included in assets held-for-sale41 — Cash and restricted cash related to KFC Russia included in assets held-for-sale20 25 
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents as presented in Condensed Consolidated Statements of Cash FlowsCash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents as presented in Condensed Consolidated Statements of Cash Flows$663 $771 Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents as presented in Condensed Consolidated Statements of Cash Flows$609 $647 

(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.
13




Note 6 - Income Taxes
Quarter endedYear to date Quarter ended
2022202120222021 20232022
Income tax (benefit) provisionIncome tax (benefit) provision$116 $(77)$281 $22 Income tax (benefit) provision$71 $(1)
Effective tax rateEffective tax rate25.8 %(17.0)%22.7 %1.8 %Effective tax rate19.1 %(0.2)%

Our third quarter effective tax rate was higher than the prior year primarily due to the following:

Lapping a $152 million tax benefit recorded in the quarter ended September 30, 2021, resulting from a KFC Europe reorganization in which we concentrated management responsibility for European (excluding the United Kingdom ("UK")) KFC franchise development, support operation and management oversight in Switzerland. Concurrent with this change in management responsibility, we completed intra-entity transfers of certain KFC intellectual property rights from subsidiaries in the UK to subsidiaries in Switzerland. With the transfer of these rights, we received a step-up in amortizable tax basis to current fair value under applicable Swiss tax law which resulted in the recording of the one-time tax benefit to record the deferred tax asset.
Lower excess tax benefits on share-based compensation than those recognized in the quarter ended September 30, 2021.
Higher tax expense recognized in the quarter ended September 30, 2022, associated with adjustments related to prior year taxes.

Our year-to-date effective tax rate was also higher than the prior year due to the items discussed above, as well as the following:

Our decision to exit the Russia market is anticipated to result in a reduction in the tax basis of intellectual property rights held in Switzerland due to the expected loss of the Russian royalty income associated with such rights going forward. As a result, we have remeasured and reassessed the need for a valuation allowance on those deferred tax assets. In addition, we have reassessed certain deferred tax liabilities associated with the Russia business given the expectation that the existing basis difference will now reverse by way of sale. Primarily as a result of these items, we recorded $69 million of net tax expense in the year to date ended September 30, 2022 associated with our decision to exit the Russia market.
Lapping a $64 million tax benefit that was recorded in the quarter ended June 30, 2021, to remeasure deferred taxes necessitated by the enactment of the UK Finance Act 2021. The UK Finance Act increased the UK corporate income tax rate from 19% to 25%, beginning April 1, 2023.
The items above were partially offset by $82 million of tax benefit discretely recorded in the quarter ended March 31, 2022, from the release of a valuation allowance on foreign tax credit carryforwards. In January 2022, the U.S. Treasury published new regulations impacting foreign tax credit utilization beginning in the Company’s 2022 tax year. These regulations makemade foreign taxes paid to certain countries no longer creditable in the U.S. Accordingly,, which was expected to result in additional foreign tax credit carryforward utilization prospectively. As a result, we reversed a valuation allowance associated with existing foreign tax credit carryforwards. This valuation allowance reversal resulted in a one-time discrete tax benefit of $82 million in the quarter ended March 31, 2022. The U.S. Treasury published clarifying guidance in November 2022 which resulted in foreign taxes originally determined to be non-creditable under the January 2022 regulations to now be treated as creditable taxes. As such, the valuation allowance on foreign tax credit carryforwards that we now believe will be used to offset these now non-creditable taxeswas released in the quarter ended March 31, 2022, and future years.

14


was re-established in the quarter ended December 31, 2022.

Note 7 - 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 9/30/2022
KFC DivisionTaco Bell DivisionPizza Hut DivisionHabit Burger Grill DivisionTotal
U.S.
Company sales$16 $234 $$129 $383 
Franchise revenues47 173 65 — 285 
Property revenues10 16 
Franchise contributions for advertising and other services136 72 216 
China
Franchise revenues61 — 17 — 78 
Other
Company sales96 — — — 96 
Franchise revenues291 13 62 — 366 
Property revenues15 — — — 15 
Franchise contributions for advertising and other services167 16 — 185 
$704 $568 $237 $131 $1,640 

Quarter ended 9/30/2021
KFC DivisionTaco Bell DivisionPizza Hut DivisionHabit Burger Grill DivisionTotal
U.S.
Company sales$15 $225 $$132 $377 
Franchise revenues46 156 63 266 
Property revenues11 — 16 
Franchise contributions for advertising and other services130 70 — 207 
China
Franchise revenues61 — 16 — 77 
Other
Company sales128 — — 136 
Franchise revenues265 10 66 — 341 
Property revenues16 — — — 16 
Franchise contributions for advertising and other services151 17 — 170 
$692 $534 $247 $133 $1,606 
1512


Year to date 9/30/2022
KFC DivisionTaco Bell DivisionPizza Hut DivisionHabit Burger Grill DivisionTotal
U.S.
Company sales$47 $691 $14 $390 $1,142 
Franchise revenues139 508 193 843 
Property revenues10 31 45 
Franchise contributions for advertising and other services20 401 216 638 
China
Franchise revenues170 — 46 — 216 
Other
Company sales306 — — — 306 
Franchise revenues834 35 195 — 1,064 
Property revenues42 — — 43 
Franchise contributions for advertising and other services473 48 — 526 
$2,041 $1,671 $716 $395 $4,823 
Year to date 9/30/2021
KFC DivisionTaco Bell DivisionPizza Hut DivisionHabit Burger Grill DivisionTotal
U.S.
Company sales$45 $656 $15 $391 $1,107 
Franchise revenues138 460 197 798 
Property revenues10 31 — 45 
Franchise contributions for advertising and other services20 375 223 — 618 
China
Franchise revenues181 — 48 — 229 
Other
Company sales378 — 24 — 402 
Franchise revenues750 27 185 — 962 
Property revenues45 — — 46 
Franchise contributions for advertising and other services432 50 — 487 
$1,999 $1,554 $747 $394 $4,694 
Quarter ended 3/31/2023
KFC DivisionTaco Bell DivisionPizza Hut DivisionHabit Burger Grill DivisionTotal
U.S.
Company sales$16 $229 $$130 $380 
Franchise revenues46 178 70 295 
Property revenues10 15 
Franchise contributions for advertising and other services140 78 — 226 
China
Franchise revenues66 — 18 — 84 
Other
Company sales94 — — — 94 
Franchise revenues284 13 66 — 363 
Property revenues13 — — — 13 
Franchise contributions for advertising and other services157 16 — 175 
$687 $572 $254 $132 $1,645 

Quarter ended 3/31/2022
KFC DivisionTaco Bell DivisionPizza Hut DivisionHabit Burger Grill DivisionTotal
U.S.
Company sales$15 $214 $$125 $359 
Franchise revenues45 157 64 267 
Property revenues11 — 15 
Franchise contributions for advertising and other services123 72 — 201 
China
Franchise revenues61 — 16 — 77 
Other
Company sales111 — — — 111 
Franchise revenues260 11 70 — 341 
Property revenues14 — — — 14 
Franchise contributions for advertising and other services145 16 — 162 
$660 $517 $244 $126 $1,547 
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 20222023 is presented below.

1613


Deferred Franchise Fees
Balance at December 31, 20212022$421434 
Revenue recognized that was included in unamortized upfront fees received from franchisees at the beginning of the period(57)(24)
Increase for upfront fees associated with contracts that became effective during the period, net of amounts recognized as revenue during the period6524 
Deferred franchise fees related to KFC Russia reclassified to liabilities held-for-sale(20)
Other(a)
(5)
Balance at September 30, 2022March 31, 2023$404434 

(a)    Primarily includes 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$6371 
1 - 2 years6064 
2 - 3 years5458 
3 - 4 years4952 
4 - 5 years4345 
Thereafter135144 
Total$404434 

Note 8 - 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 endedYear to date Quarter ended
RevenuesRevenues2022202120222021Revenues20232022
KFC DivisionKFC Division$704 $692 $2,041 $1,999 KFC Division$687 $660 
Taco Bell DivisionTaco Bell Division568 534 1,671 1,554 Taco Bell Division572 517 
Pizza Hut DivisionPizza Hut Division237 247 716 747 Pizza Hut Division254 244 
Habit Burger Grill DivisionHabit Burger Grill Division131 133 395 394 Habit Burger Grill Division132 126 
$1,640 $1,606 $4,823 $4,694  $1,645 $1,547 

 Quarter endedYear to date
Operating Profit2022202120222021
KFC Division$304 $314 $888 $932 
Taco Bell Division204 184 604 560 
Pizza Hut Division92 101 287 306 
Habit Burger Grill Division(4)(14)
Corporate and unallocated G&A expenses(a)
(67)(70)(203)(183)
Unallocated Franchise and property expenses(a)
— — (4)— 
Unallocated Refranchising gain (loss)(1)15 21 
Unallocated Other income (expense)(a)
14 (2)36 (5)
Operating Profit$546 $527 $1,609 $1,637 
Investment income (expense), net(b)
27 51 19 52 
Other pension income (expense)(2)(1)(3)(6)
Interest expense, net(c)
(124)(126)(390)(416)
Income before income taxes$447 $451 $1,235 $1,267 
17


 Quarter ended
Operating Profit20232022
KFC Division$305 $291 
Taco Bell Division204 185 
Pizza Hut Division104 102 
Habit Burger Grill Division(5)(8)
Corporate and unallocated G&A expenses(a)
(84)(71)
Unallocated Franchise and property expenses(a)
(1)— 
Unallocated Refranchising gain (loss)
Unallocated Other income (expense)(a)
(4)
Operating Profit$523 $509 
Investment income (expense), net(b)
(24)
Other pension income (expense)— 
Interest expense, net(130)(118)
Income before income taxes$371 $398 

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.
14



(a)Our operating results for the year to date ended September 30, 2022, continue topresented herein reflect royalty revenues from and expenses to support the Russian operations for Pizza Hut prior to the date of transfer and for KFC for the entire quarter ended March 31, 2023, as well as for both Pizza Hut and year to dateKFC for the quarter ended March 31, 2022 (see Note 1), within their historical financial statement line items and operating segments. However, given our decision to exit Russia and our pledge to direct any future net profits attributable to Russia subsequent to the date of invasion to humanitarian efforts, we have reclassed such net operating profits and losses from the Division segment results in which they were earned to Corporate and unallocatedUnallocated Other income (expense). As a result, we reclassed net operating profitslosses of $18$1 million and $44net operating profit of $2 million from KFC and Pizza HutDivision Other income (expense) to Unallocated Other (income) expenseincome (expense) during the quarterquarters ended March 31, 2023 and year to date ended September 30, 2022, respectively.

Additionally, we have incurred certain expenses related Also, included in Unallocated Other income (expense) for the quarter ended March 31, 2022, were $5 million in foreign exchange gains attributable to fluctuations in the transfervalue of the businesses and other one-time costs related to our exit from Russia which we have recorded within Corporate and unallocated. As a result of these other costs and expenses we have incurred,Russian Ruble. Additionally, we recorded charges of $1 million to Corporate and unallocated G&A expenses and less than $1 million to Unallocated Franchise and property expenses during the quarter ended September 30, 2022. DuringMarch 31, 2023 for certain expenses related to the yeartransfer of the business and other costs related to date ended September 30, 2022, we recorded charges of $3 million to Corporate and unallocated G&A expenses and $4 million to Unallocated Franchise and property expenses.our exit from Russia.

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

(c)Includes a $23 million call premium and $5 million of unamortized debt issuance costs written off related to the redemption of the 2025 Notes (see Note 10) during the quarter ended June 30, 2022. Includes a $28 million call premium and $6 million of unamortized debt issuance costs written off related to the redemption of the $1,050 million aggregate principal amount of 5.25% Subsidiary Senior Unsecured Notes due in 2026 during the quarter ended June 30, 2021. Includes fees expensed and unamortized debt issuance costs written off totaling $12 million related to the refinancing of the Credit Agreement (as described within our 2021 Form 10-K) during the quarter ended March 31, 2021.

Note 9 - 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. TheOur two significant U.S. plans, including the Plan and our non-qualifieda 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 salaried and hourly participants.  

The components of net periodic benefit cost associated with our U.S. pension plans are as follows:

 Quarter endedYear to date
 2022202120222021
Service cost$$$$
Interest cost24 24 
Expected return on plan assets(11)(11)(34)(32)
Amortization of net loss12 
Amortization of prior service cost
Net periodic benefit cost$$$$14 
Additional loss recognized due to settlements(a)
$$— $$— 

(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.

 Quarter ended
 20232022
Service cost$$
Interest cost10 
Expected return on plan assets(12)(12)
Amortization of net loss— 
Amortization of prior service cost— 
Net periodic benefit cost$(1)$
1815


Note 10 - Short-term Borrowings and Long-term Debt

Short-term BorrowingsShort-term Borrowings9/30/202212/31/2021Short-term Borrowings3/31/202312/31/2022
Current maturities of long-term debtCurrent maturities of long-term debt$79 $75 Current maturities of long-term debt$405 $405 
Less current portion of debt issuance costs and discountsLess current portion of debt issuance costs and discounts(7)(7)Less current portion of debt issuance costs and discounts(7)(7)
Short-term borrowingsShort-term borrowings$72 $68 Short-term borrowings$398 $398 
Long-term DebtLong-term Debt  Long-term Debt  
Securitization NotesSecuritization Notes$3,782 $3,811 Securitization Notes$3,763 $3,772 
Subsidiary Senior Unsecured NotesSubsidiary Senior Unsecured Notes750 750 Subsidiary Senior Unsecured Notes750 750 
Revolving FacilityRevolving Facility194 279 
Term Loan A FacilityTerm Loan A Facility741 750 Term Loan A Facility731 736 
Term Loan B FacilityTerm Loan B Facility1,478 1,489 Term Loan B Facility1,470 1,474 
YUM Senior Unsecured NotesYUM Senior Unsecured Notes4,875 4,475 YUM Senior Unsecured Notes4,875 4,875 
Finance lease obligationsFinance lease obligations54 64 Finance lease obligations53 57 
$11,680 $11,339 $11,836 $11,943 
Less long-term portion of debt issuance costs and discountsLess long-term portion of debt issuance costs and discounts(84)(86)Less long-term portion of debt issuance costs and discounts(82)(85)
Less current maturities of long-term debtLess current maturities of long-term debt(79)(75)Less current maturities of long-term debt(405)(405)
Long-term debtLong-term debt$11,517 $11,178 Long-term debt$11,349 $11,453 

Details of our Short-term borrowings and Long-term debt as of December 31, 20212022 can be found within our 20212022 Form 10-K.

On February 23, 2022, Yum! Brands, Inc. issued a notice of redemption for the $600 million aggregate principal amount of 7.75% YUM Senior Unsecured Notes due April 1, 2025 (the “2025 Notes”). The 2025 Notes were redeemed on April 1, 2022, at an amount equal to 103.875% of the aggregate principal amount of the 2025 Notes, reflecting a $23 million call premium, plus accrued and unpaid interest to the date of redemption. We recognized the call premium and the write-off of $5 million of unamortized debt issuance costs associated with the 2025 Notes within Interest expense, net in the quarter ended June 30, 2022.

Also on April 1, 2022, Yum! Brands, Inc. issued $1 billion aggregate principal amount of 5.375% YUM Senior Unsecured Notes due April 1, 2032 (the “April 2032 Notes”). Interest on the April 2032 Notes is payable semi-annually in arrears on April 1 and October 1 of each year, beginning on October 1, 2022. The indenture governing the April 2032 Notes contains covenants and events of default that are customary for debt securities of this type, including cross-default provisions whereby the acceleration of the maturity of any of our indebtedness in a principal amount of $100 million or more or the failure to pay the principal of such indebtedness at its stated maturity will constitute an event of default under the April 2032 Notes unless such indebtedness is discharged, or the acceleration of the maturity of that indebtedness is annulled, within 30 days after notice. The Company paid debt issuance costs of $12 million in connection with the April 2032 Notes. The debt issuance costs will be amortized to Interest expense, net over the life of the April 2032 Notes using the effective interest method. We used the net proceeds from the April 2032 Notes to fund the redemption of the 2025 Notes discussed above and for general corporate purposes.

Excluding the amounts associated with the extinguishment of the 2025 Notes discussed above, cashCash paid for interest during the year to datequarters ended September 30,March 31, 2023 and March 31, 2022, was $341 million. Excluding $12$117 million associated with the Credit Agreement refinancing and $34$90 million, associated with the extinguishment of the 2026 Notes (as discussed in our 2021 Form 10-K), cash paid for interest during the year to date ended September 30, 2021, was $328 million.respectively.

Note 11 - Derivative Instruments

We use derivative instruments to manage certain of our market risks related to fluctuations in interest rates 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

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, 2022March 31, 2023 and December 31, 2021,2022, 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
19


expected future interest payments on the related variable-rate debt. There were no other interest rate swaps outstanding as of September 30, 2022March 31, 2023 or December 31, 2021.2022.

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, 2022,March 31, 2023, the swaps were highly effective cash flow hedges.

As a result of the use of interest rate swaps, 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, 2022, all of the counterparties to our interest rate swaps had investment grade ratings according to the three major ratings agencies. To date, all counterparties have performed in accordance with their contractual obligations.
16


Gains and losses on these interest rate swaps recognized in OCI and reclassifications from AOCI into Net Income were as follows:
Quarter endedYear to date Quarter ended
Gains/(Losses) Recognized in OCI (Gains)/Losses Reclassified from AOCI into Net IncomeGains/(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
2022 2021 2022 20212022 2021 2022 2021 2023 2022 2023 2022
Interest rate swapsInterest rate swaps$40 $— $$$111 $17 $23 $17 Interest rate swaps$(7)$59 $(5)$11 
Income tax benefit/(expense)Income tax benefit/(expense)(10)(1)(1)(1)(27)(5)(6)(3)Income tax benefit/(expense)(14)(3)

As of September 30, 2022,March 31, 2023, 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 $19$24 million, based on current LIBOR interest rates.

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 September 30, 2022March 31, 2023 and December 31, 2021,2022, 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, 2023, 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 12 for the fair value of our derivative assets and liabilities.

Note 12 - Fair Value Disclosures

As of September 30, 2022,March 31, 2023, the carrying values of cash and cash equivalents, restricted cash, short-term investments, accounts receivable, short-term borrowings and 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:

20


9/30/202212/31/20213/31/202312/31/2022
Carrying ValueFair Value (Level 2)Carrying ValueFair Value (Level 2)Carrying ValueFair Value (Level 2)Carrying ValueFair Value (Level 2)
Securitization Notes(a)
Securitization Notes(a)
$3,782 $3,429 $3,811 $3,872 
Securitization Notes(a)
$3,763 $3,346 $3,772 $3,273 
Subsidiary Senior Unsecured Notes(b)
Subsidiary Senior Unsecured Notes(b)
750 708 750 784 
Subsidiary Senior Unsecured Notes(b)
750 741 750 731 
Term Loan A Facility(b)
Term Loan A Facility(b)
741 728 750 748 
Term Loan A Facility(b)
731 725 736 729 
Term Loan B Facility(b)
Term Loan B Facility(b)
1,478 1,467 1,489 1,490 
Term Loan B Facility(b)
1,470 1,468 1,474 1,459 
YUM Senior Unsecured Notes(b)
YUM Senior Unsecured Notes(b)
4,875 4,277 4,475 4,845 
YUM Senior Unsecured Notes(b)
4,875 4,644 4,875 4,473 
(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.

17


(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 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 11 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.  
Fair ValueFair Value
Condensed Consolidated Balance SheetLevel9/30/202212/31/2021Condensed Consolidated Balance SheetLevel3/31/202312/31/2022
AssetsAssetsAssets
Other InvestmentsOther assets$128 $119 
InvestmentsInvestmentsOther assets$95 $118 
Other InvestmentsOther assets
InvestmentsInvestmentsOther assets
Interest Rate SwapsInterest Rate SwapsPrepaid expenses and other current assets19— Interest Rate SwapsPrepaid expenses and other current assets2426 
Interest Rate SwapsInterest Rate SwapsOther assets23— Interest Rate SwapsOther assets616 
Liabilities
Interest Rate SwapsAccounts payable and other current liabilities— 38 
Interest Rate SwapsOther liabilities and deferred credits— 54 

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.

The other investmentsInvestments primarily include aour approximate 5% minority interest in Devyani International Limited (“Devyani”), ana franchise entity that operates KFC and Pizza Hut franchised unitsrestaurants in India, with a fair value of Indian Rupee 10.3 billion (or approximately $127 million)$93 million and Indian Rupee 8.8 billion (or approximately $118 million)$116 million at September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively. For the quarter and year to date ended September 30, 2022,March 31, 2023, we recognized pre-tax investment gainslosses of Indian Rupee 2.1 billion (or approximately $27 million) and Indian Rupee 1.6 billion (or approximately $20 million), respectively,$23 million, related to changes in fair value of our investment in Devyani.

Note 13 - 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 $740$830 million through the thirdfirst quarter of 2022.2023. The proposed underpayment relates primarily to a series of reorganizations we undertook
21


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 on multiple grounds the proposed underpayment of tax and penalties. We are awaitinghave received the IRS Examination Division’s Rebuttal to our Protest. When that Rebuttal is filed we intendWe expect the case to pursue independent review bybe transmitted to the IRS Office of Appeals.Appeals for independent review within the next several months.

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 consolidatedCondensed Consolidated Financial Statements in future periods.

18


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 September 30, 2022,March 31, 2023, 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$350 million. The present value of these potential payments discounted at our pre-tax cost of debt at September 30, 2022,March 31, 2023, was approximately $300 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 September 30, 2022,March 31, 2023, 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 $135 million. Of this amount, $130 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 that had been scheduled for March has been rescheduled to August 3, 2023. The stay order remains in effect and the next hearing in the Delhi High Court is now scheduled for January 31,May 16, 2023. 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.

22



Yum China License Fee Dispute

Yum China Holdings, Inc. (“Yum China”) is disputing license fees due on certain amounts of its gross revenue under the terms of the Master License Agreement (“MLA”) between the Company and Yum China. These license fees total approximately $7 million for the year to date ended September 30, 2022. License fees related to such revenue have historically been paid by Yum China and we believe they continue to be due under the terms of the MLA. Yum China has paid the $7 million, under protest and without any prejudice to Yum China’s position that they are not obligated to pay under the MLA.

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.
2319


Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Introduction and Overview

The following Management's Discussion and Analysis (“MD&A”), should be read in conjunction with the unaudited Condensed Consolidated Financial Statements (“Financial Statements”), the Forward-Looking Statements and our Annual Report on Form 10-K for the fiscal year ended December 31, 2021,2022, (“20212022 Form 10-K”). All Note references herein refer to the Notes to the Financial Statements.  Tabular amounts are displayed in millions of U.S. dollars except per share and unit count amounts, or as otherwise specifically identified. Percentages may not recompute due to rounding.

Yum! Brands, Inc. and its Subsidiaries (collectively referred to herein as the “Company,” “YUM,” “we,” “us” or “our”) franchise or operate a system of nearly 54,000over 55,000 restaurants in overmore than 155 countries and territories, primarily under the concepts of KFC, Taco Bell, Pizza Hut and The Habit Burger Grill (collectively, the “Concepts”).  The Company’s KFC, Taco Bell and Pizza Hut brands are global leaders of the chicken, Mexican-style and pizza food categories, respectively. The Habit Burger Grill, is a fast-casual restaurant concept specializing in made-to-order chargrilled burgers, sandwiches and more. Of the nearly 54,000over 55,000 restaurants, 98% are operated by franchisees.

YUM currently consists 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

Through our Recipe for Good Growth and Good we intend to unlock the growth potential of our Concepts and YUM, drive increased collaboration across our Concepts and geographies and consistently deliver better customer experiences, improved unit economics and higher rates of growth. Key enablers include accelerated use of technology and better leverage of our systemwide scale.

Our Recipeglobal citizenship and sustainability strategy is reflected in our Good agenda, which includes our priorities for social responsibility, risk management and sustainable stewardship of our people, food and planet.  

Our Growth agenda is based on four key drivers:
Unrivaled Culture and Talent: Leverage our culture and people capability to fuel brand performance and franchise success
Unmatched Operating Capability: Recruit and equip the best restaurant operators in the world to deliver great customer experiences
Relevant, Easy and Distinctive Brands: Innovate and elevate iconic restaurant brands people trust and champion
Bold Restaurant Development: Drive market and franchise expansion with strong economics and value

Our global citizenship and sustainability strategy, called the Recipe for Good, reflects our priorities for social responsibility, risk management and sustainable stewardship of our people, food and planet.  

We intend for this MD&A to provide the reader with information that will assist in understanding our results of operations, including performance metrics that management uses to assess the Company's performance. Throughout this MD&A, we commonly discuss the following performance metrics:

Same-store sales growth is the estimated percentage change in system sales of all restaurants that have been open and in the YUM system for one year or more, including those temporarily closed. From time-to-time restaurants may be temporarily closed due to remodeling or image enhancement, rebuilding, natural disasters, health epidemic or pandemic, landlord disputes or other issues. The system sales of restaurants we deem temporarily closed remain in our base for purposes of determining same-store sales growth and the restaurants remain in our unit count (see below). Throughout 2021 we had a significant number of restaurants that were temporarily closed including restaurants closed due to government and landlord restrictions as a result of COVID-19. We believe same-store sales growth is useful to investors because our results are heavily dependent on the results of our Concepts' existing store base. Additionally, same-store sales growth is reflective of the strength of our Brands, the effectiveness of our operational and advertising initiatives and local economic and consumer trends.

Gross unit openings reflects new openings by us and our franchisees. Net new unit growth reflects gross unit openings offset by permanent store closures, by us and our franchisees. To determine whether a restaurant meets the definition of a unit we consider whether the restaurant has operations that are ongoing and independent from another YUM unit, serves the primary product of one of our Concepts, operates under a separate franchise agreement (if operated by a franchisee) and
24


has substantial and sustainable sales. We believe gross unit openings and net new unit growth are useful to investors because we depend on new units for a significant portion of our growth. Additionally, gross unit openings and net new unit
20


growth are generally reflective of the economic returns to us and our franchisees from opening and operating our Concept restaurants.

System sales and System sales excluding the impacts of foreign currency translation (“FX”) reflect the results of all restaurants regardless of ownership, including Company-owned and franchise restaurants. Sales at franchise restaurants typically generate ongoing franchise and license fees for the Company at a rate of 3% to 6% of sales. Increasingly, customers are paying a fee to a third party to deliver or facilitate the ordering of our Concepts' products. We also include in System sales any portion of the amount customers pay these third parties for which the third party is obligated to pay us a license fee as a percentage of such amount. Franchise restaurant sales and fees paid by customers to third parties to deliver or facilitate the ordering of our Concepts' products are not included in Company sales on the Condensed Consolidated Statements of Income; however, any resulting franchise and license fees we receive are included in the Company's revenues. We believe System sales growth is useful to investors as a significant indicator of the overall strength of our business as it incorporates our primary revenue drivers, Company and franchise same-store sales as well as net unit growth.

As of the beginning of the second quarter of 2022, as a result of our progress towards exiting Russia and our decision to reclass future net operating profits attributable to Russia subsequent to the date of their invasion of Ukraine from the operatingDivision segments in which those profits were earned to Unallocated Other income (see Notes 1 and 8), we elected to remove all Russia units from our unit count as well as to excludebegin excluding those units' associated sales from our system sales totals. We removed 1,112 units and 53 units in Russia from our global KFC and Pizza Hut unit counts, respectively. These units were treated similar to permanent store closures for purposes of our same-store sales calculations and thus they were removed from our same-store sales calculations beginning April 1, 2022.

In addition to the results provided in accordance with Generally Accepted Accounting Principles in the United States of America (GAAP), the Company provides the following non-GAAP measurements:

Diluted Earnings Per Share excluding Special Items (as defined below);

Effective Tax Rate excluding Special Items;

Core Operating Profit. Core Operating Profit excludes Special Items and FX and we use Core Operating Profit for the purposes of evaluating performance internally;

Company restaurant profit and Company restaurant margin as a percentage of sales (as defined below).

These non-GAAP measurements are not intended to replace the presentation of our financial results in accordance with GAAP. Rather, the Company believes that the presentation of these non-GAAP measurements provide additional information to investors to facilitate the comparison of past and present operations.

Special Items are not included in any of our Division segment results as the Company does not believe they are indicative of our ongoing operations due to their size and/or nature. Our chief operating decision maker does not consider the impact of Special Items when assessing segment performance.

Company restaurant profit is defined as Company sales less Company restaurant expenses, both of which appear on the face of our Condensed Consolidated Statements of Income. Company restaurant expenses include those expenses incurred directly by our Company-owned restaurants in generating Company sales, including cost of food and paper, cost of restaurant-level labor, rent, depreciation and amortization of restaurant-level assets and advertising expenses incurred by and on behalf of that Company restaurant. Company restaurant margin as a percentage of sales (“Company restaurant margin %”) is defined as Company restaurant profit divided by Company sales. We use Company restaurant profit for the purposes of internally evaluating the performance of our Company-owned restaurants and we believe Company restaurant profit provides useful information to investors as to the profitability of our Company-owned restaurants. In calculating Company restaurant profit, the Company excludes revenues and expenses directly associated with our franchise operations as well as non-restaurant-level costs included in General and administrative expenses, some of which may support Company-owned restaurant operations. The Company also excludes restaurant-level asset impairment and closures expenses, which have historically not been significant, from the determination of Company restaurant profit as such expenses are not believed to be indicative of ongoing operations. Company restaurant profit and Company restaurant margin % as presented may not be comparable to other similarly titled measures of other companies in the industry.

2521


Certain performance metrics and non-GAAP measurements are presented excluding the impact of FX. These amounts are derived by translating current year results at prior year average exchange rates. We believe the elimination of the FX impact provides better year-to-year comparability without the distortion of foreign currency fluctuations.


Results of Operations

Summary  

All comparisons within this summary are versus the same period a year ago. The Quarterly and Year to date Financial Highlights tablestable below reflectreflects the impact of removing all Russian units from our unit count and their associated sales from our system sales totals as of the beginning of the second quarter.quarter of 2022.

Quarterly Financial Highlights:
% Change
System Sales, ex FXSame-Store SalesUnitsGAAP Operating ProfitCore Operating Profit
KFC Division+8+7+2(3)+7
Taco Bell Division+9+6+5+10+11
Pizza Hut Division+4+1+4(8)(3)
YUM+7+5+4+4+8
% Change
System Sales, ex FXSame-Store SalesUnitsGAAP Operating ProfitCore Operating Profit
KFC Division+11+9+2+5+12
Taco Bell Division+12+8+6+10+11
Pizza Hut Division+10+7+3+2+7
YUM+11+8+3+3+11
Year to date Financial Highlights:
% Change
System Sales, ex FXSame-Store SalesUnitsGAAP Operating ProfitCore Operating Profit
KFC Division+6+3+2(5)+2
Taco Bell Division+9+6+5+8+8
Pizza Hut Division+3Even+4(6)(3)
YUM+6+3+4(2)Even
Additionally:

As of the beginning of the second quarter of 2022, we have elected to remove 1,165 Russia units from our unit count and begin excluding their associated sales from our total system sales. We removed 1,112 units and 53 units in Russia from our KFC and Pizza Hut units counts, respectively. As a result:
YUM and KFC Division system sales growth excluding foreign currency as shown above were negatively impacted by 2 and 4 percentage points, respectively.
YUM and KFC Division year-over-year unit growth as shown above were negatively impacted by two2 and five5 percentage points, respectively.

YUM system sales growth excluding foreign currencyAlso, we elected to reclass future net profits attributable to Russia subsequent to the date of invasion from the Division segments in which those profits were earned to Unallocated Other income and reflected such profits as shown above was negatively impacted by three and one percentage points fora Special Item as they are not indicative of our ongoing results. As a result of the quarter and year to date ended September 30, 2022, respectively. YUMdecline in Core Operating Profit as shown above was negatively impacted by 3 and 2 percentage points for the quarter and yearProfits attributable to date ended September 30, 2022, respectively.Russia:
KFC Division system sales growth excluding foreign currency as shown above was negatively impacted by fourYUM and three percentage points for the quarter and year to date ended September 30, 2022, respectively. KFC Division Core Operating Profit as shown above waswere negatively impacted by five1 and four2 percentage points, respectively, for the quarter and year to date ended September 30, 2022, respectively.March 31, 2023.

Foreign currency translation negativelyunfavorably impacted Divisional Operating Profit by $27 million for the quarter and year to date by $39 million and $76 million, respectively.ended March 31, 2023.

Third-QuarterYear-to-Date
20222021% Change20222021% Change
GAAP EPS$1.14$1.75(35)$3.28$4.10(20)
Special Items EPS$0.05$0.53NM$0.08$0.66NM
EPS Excluding Special Items$1.09$1.22(11)$3.20$3.44(7)
26


First Quarter
20232022% Change
GAAP EPS$1.05$1.36(23)
Special Items EPS$(0.01)$0.31NM
EPS Excluding Special Items$1.06$1.05Even

OurIn addition to the aforementioned factors impacting Operating Profit, our 2023 diluted EPS, excluding Special Items, reflects a $0.23was negatively impacted by $0.07 from mark to market adjustments from unrealized investment losses and $0.35 negative impact for the quarter and year to date ended September 30, 2022, respectively,$0.08 from a higher current year tax rate, lower investment gains and the removal of Russia-based profits. Foreignforeign currency translation also unfavorably impacted our diluted EPS, excluding Special Items, by approximately $0.10 and $0.20 for the quarter and year to date ended September 30, 2022, respectively.translation.

Gross unit openings for the quarter were 979746 units resulting in 644 net new units. Gross unit openings for the year to date were 2,757 units resulting in 1,735323 net new units.

22


Worldwide

GAAP Results
Quarter endedYear to date Quarter ended
20222021% B/(W)20222021% B/(W) 20232022% B/(W)
Company salesCompany sales$479 $513 (7)$1,448 $1,509 (4)Company sales$474 $470 
Franchise and property revenuesFranchise and property revenues760 716 2,211 2,080 Franchise and property revenues770 714 
Franchise contributions for advertising and other servicesFranchise contributions for advertising and other services401 377 1,164 1,105 Franchise contributions for advertising and other services401 363 10 
Total revenuesTotal revenues1,640 1,606 4,823 4,694 Total revenues1,645 1,547 
Company restaurant expensesCompany restaurant expenses402 421 1,219 1,230 Company restaurant expenses403 402 — 
G&A expensesG&A expenses261 253 (3)768 689 (12)G&A expenses282 253 (11)
Franchise and property expensesFranchise and property expenses28 31 89 81 (12)Franchise and property expenses36 32 (12)
Franchise advertising and other services expenseFranchise advertising and other services expense396 375 (6)1,153 1,090 (6)Franchise advertising and other services expense395 361 (9)
Refranchising (gain) lossRefranchising (gain) loss(3)NM(15)(21)(26)Refranchising (gain) loss(4)(4)17 
Other (income) expenseOther (income) expense10 (2)NM— (12)NMOther (income) expense10 (6)NM
Total costs and expenses, netTotal costs and expenses, net1,094 1,079 (1)3,214 3,057 (5)Total costs and expenses, net1,122 1,038 (8)
Operating ProfitOperating Profit546 527 1,609 1,637 (2)Operating Profit523 509 
Investment (income) expense, netInvestment (income) expense, net(27)(51)(49)(19)(52)(64)Investment (income) expense, net24 (7)NM
Other pension (income) expenseOther pension (income) expenseNM48 Other pension (income) expense(2)— NM
Interest expense, netInterest expense, net124 126 390 416 Interest expense, net130 118 (10)
Income before income taxesIncome before income taxes447 451 (1)1,235 1,267 (3)Income before income taxes371 398 (7)
Income tax provision (benefit)Income tax provision (benefit)116 (77)NM281 22 NMIncome tax provision (benefit)71 (1)NM
Net IncomeNet Income$331 $528 (37)$954 $1,245 (23)Net Income$300 $399 (25)
Diluted EPS(a)
Diluted EPS(a)
$1.14 $1.75 (35)$3.28 $4.10 (20)
Diluted EPS(a)
$1.05 $1.36 (23)
Effective tax rateEffective tax rate25.8 %(17.0)%(42.8)ppts.22.7 %1.8 %(20.9)ppts.Effective tax rate19.1 %(0.2)%(19.3)ppts.
(a)See Note 2 for the number of shares used in this calculation.

Performance Metrics
Unit CountUnit Count9/30/20229/30/2021% Increase (Decrease)Unit Count3/31/20233/31/2022% Increase (Decrease)
FranchiseFranchise53,014 51,070 Franchise54,681 52,990 
Company-ownedCompany-owned980 1,081 (9)Company-owned1,002 1,062 (6)
TotalTotal53,994 52,151 Total55,683 54,052 

Quarter endedYear to dateQuarter ended
2022202120222021 20232022
Same-store Sales Growth (Decline) %Same-store Sales Growth (Decline) %12 Same-store Sales Growth (Decline) %
System Sales Growth (Decline) %, reportedSystem Sales Growth (Decline) %, reported11 18 System Sales Growth (Decline) %, reported
System Sales Growth (Decline) %, excluding FXSystem Sales Growth (Decline) %, excluding FX15 System Sales Growth (Decline) %, excluding FX11 

2723



Our system sales breakdown by Company and franchise sales was as follows:
Quarter endedYear to dateQuarter ended
202220212022202120232022
ConsolidatedConsolidatedConsolidated
Company sales(a)
Company sales(a)
$479 $513 $1,448 $1,509 
Company sales(a)
$474 $470 
Franchise salesFranchise sales14,064 13,828 41,197 40,341 Franchise sales14,541 13,676 
System salesSystem sales14,543 14,341 42,645 41,850 System sales15,015 14,146 
Foreign Currency Impact on System sales(b)
Foreign Currency Impact on System sales(b)
(859)N/A(1,688)N/A
Foreign Currency Impact on System sales(b)
(641)N/A
System sales, excluding FXSystem sales, excluding FX$15,402 $14,341 $44,333 $41,850 System sales, excluding FX$15,656 $14,146 
KFC DivisionKFC DivisionKFC Division
Company sales(a)
Company sales(a)
$112 $143 $353 $423 
Company sales(a)
$110 $126 
Franchise salesFranchise sales7,712 7,735 22,456 22,366 Franchise sales7,947 7,607 
System salesSystem sales7,824 7,878 22,809 22,789 System sales8,057 7,733 
Foreign Currency Impact on System sales(b)
Foreign Currency Impact on System sales(b)
(677)N/A(1,332)N/A
Foreign Currency Impact on System sales(b)
(504)N/A
System sales, excluding FXSystem sales, excluding FX$8,501 $7,878 $24,141 $22,789 System sales, excluding FX$8,561 $7,733 
Taco Bell DivisionTaco Bell DivisionTaco Bell Division
Company sales(a)
Company sales(a)
$234 $225 $691 $656 
Company sales(a)
$229 $214 
Franchise salesFranchise sales3,183 2,918 9,343 8,556 Franchise sales3,235 2,894 
System salesSystem sales3,417 3,143 10,034 9,212 System sales3,464 3,108 
Foreign Currency Impact on System sales(b)
Foreign Currency Impact on System sales(b)
(17)N/A(36)N/A
Foreign Currency Impact on System sales(b)
(10)N/A
System sales, excluding FXSystem sales, excluding FX$3,434 $3,143 $10,070 $9,212 System sales, excluding FX$3,474 $3,108 
Pizza Hut DivisionPizza Hut DivisionPizza Hut Division
Company sales(a)
Company sales(a)
$$13 $14 $39 
Company sales(a)
$$
Franchise salesFranchise sales3,142 3,157 9,331 9,370 Franchise sales3,331 3,155 
System salesSystem sales3,146 3,170 9,345 9,409 System sales3,336 3,160 
Foreign Currency Impact on System sales(b)
Foreign Currency Impact on System sales(b)
(165)N/A(320)N/A
Foreign Currency Impact on System sales(b)
(127)N/A
System sales, excluding FXSystem sales, excluding FX$3,311 $3,170 $9,665 $9,409 System sales, excluding FX$3,463 $3,160 
Habit Burger Grill DivisionHabit Burger Grill DivisionHabit Burger Grill Division
Company sales(a)
Company sales(a)
$129 $132 $390 $391 
Company sales(a)
$130 $125 
Franchise salesFranchise sales27 18 67 49 Franchise sales28 20 
System salesSystem sales156 150 457 440 System sales158 145 
Foreign Currency Impact on System sales(b)
Foreign Currency Impact on System sales(b)
— N/A— N/A
Foreign Currency Impact on System sales(b)
— N/A
System sales, excluding FXSystem sales, excluding FX$156 $150 $457 $440 System sales, excluding FX$158 $145 

(a)Company sales represents sales from our Company-operated stores as presented on our Condensed Consolidated Statements of Income.

(b)    The foreign currency impact on System sales is presented in relation only to the immediately preceding year presented. When determining applicable System sales growth percentages, the System sales excluding FX for the current year should be compared to the prior year System sales.

Non-GAAP ItemsNon-GAAP ItemsNon-GAAP Items
Non-GAAP Items, along with the reconciliation to the most comparable GAAP financial measure, as presented below.Non-GAAP Items, along with the reconciliation to the most comparable GAAP financial measure, as presented below.Non-GAAP Items, along with the reconciliation to the most comparable GAAP financial measure, as presented below.
Quarter endedYear to dateQuarter ended
202220212022202120232022
Core Operating Profit Growth (Decline) %Core Operating Profit Growth (Decline) %Even26 Core Operating Profit Growth (Decline) %11 (5)
Diluted EPS Growth (Decline) %, excluding Special ItemsDiluted EPS Growth (Decline) %, excluding Special Items(11)21 (7)39 Diluted EPS Growth (Decline) %, excluding Special ItemsEven(1)
Effective Tax Rate excluding Special ItemsEffective Tax Rate excluding Special Items26.7 %18.9 %23.8 %19.7 %Effective Tax Rate excluding Special Items19.3 %20.4 %
2824


Quarter endedYear to dateQuarter ended
202220212022202120232022
Company restaurant profitCompany restaurant profit$77 $92 $229 $279 Company restaurant profit$71 $68 
Company restaurant margin %Company restaurant margin %16.2 %17.9 %15.8 %18.5 %Company restaurant margin %14.9 %14.5 %
 Quarter endedYear to date
Detail of Special Items2022202120222021
Refranchising gain (loss)(a)
$$— $$
Operating profit impact from decision to exit Russia(b)
16 — 37 — 
Charges associated with resource optimization(c)
(2)(4)(2)(7)
Other Special Items Income (Expense)— (1)
Special Items Income (Expense) - Operating Profit15 (3)39 (1)
Charges associated with resource optimization - Other pension (expense) income(c)
— — — 
Interest expense, net(d)
— — (28)(34)
Special Items Income (Expense) before Income Taxes15 (3)11 (34)
Tax (Expense) Benefit on Special Items(e)
(2)11 (2)18 
Tax Benefit - Intra-entity transfers of intellectual property(f)
— 152 — 216 
Tax Benefit - Newly issued U.S. foreign tax credit regulations(g)
— — 82 — 
Tax (Expense) Benefit - Income tax impacts from decision to exit Russia(h)
— (69)— 
Special Items Income (Expense), net of tax$15 $160 $22 $200 
Average diluted shares outstanding289 302 291 304 
Special Items diluted EPS$0.05 $0.53 $0.08 $0.66 
 Quarter ended
Detail of Special Items20232022
Gain associated with market-wide refranchisings(a)
$$
Operating profit impact from decision to exit Russia(b)
(3)
Other Special Items Expense(3)(1)
Special Items Income (Expense) - Operating Profit(3)
Tax (Expense) Benefit on Special Items(c)
(2)
Tax Benefit - U.S. foreign tax credit regulations issued in January 2022(d)
— 82 
Special Items Income (Expense), net of tax$(1)$89 
Average diluted shares outstanding285 294 
Special Items diluted EPS$(0.01)$0.31 
(a)Due to their size and volatility, we have reflected as Special Items those refranchising gains and losses that were recorded in connection with our previously announced plans to have at least 98% franchise restaurant ownership bymarket-wide refranchisings. During both the end of 2018. As such, refranchising gainsquarters ended March 31, 2023 and losses recorded during 2022 and 2021 as Special Items are directly associated with restaurants that were refranchised prior to the end of 2018.

During the quarter ended September 30, 2022, we recorded net refranchising gains of $1 million that have been reflected as Special Items. During the years to date ended September 30, 2022 and 2021, we recorded net refranchising gains of $5 million and $4$3 million, respectively, that have been reflected as Special Items.

Additionally, we recorded net refranchising gains of $2 million and net refranchising losses of $1 million, during both the quarters ended September 30,March 31, 2023 and 2022, and 2021, respectively, that have not been reflected as Special Items. During the years to date ended September 30, 2022 and 2021, we recorded net refranchising gains of $10 million and $17 million, respectively, that have not been reflected as Special Items. These net refranchising gains and losses relate to refranchising of restaurants in 2022 and 2021 that were not part of our aforementioned plansunrelated to achieve 98% franchise ownershipmarket-wide refranchisings and that we believe are now more indicative of our expected ongoing refranchising activity.

(b)In the first quarter of 2022, as a result of the Russian invasion of Ukraine, we suspended all investment and restaurant development in Russia. We also suspended all operations of our 70 company-owned KFC restaurants in Russia and began finalizing an agreement to suspend all Pizza Hut operations in Russia, in partnership with our master franchisee. Further, we pledged to redirect any future net profits attributable to Russia subsequent to the date of invasion to humanitarian efforts. During the second quarter of 2022, we completed the transfer of ownership of the Pizza Hut Russia business to a local operator. In April 2023, we completed our exit from the Russian market by selling the KFC business in Russia to Smart Service Ltd., including all Russian company-owned KFC restaurants, operating system, and master franchise rights as well as the trademark for the Rostik’s brand. Under the sale and purchase agreement, the buyer has agreed to lead the process to rebrand KFC restaurants in Russia to Rostik's and retain the Company's employees in Russia.

Our GAAP operating results continue to reflect royalty revenues from and expenses to support the Russian operations for Pizza Hut prior to the date of transfer and for KFC for the entire quarter ended March 31, 2023, as well as for both Pizza Hut and year to dateKFC for the quarter ended September 30,March 31, 2022, within their historical financial statement line items and operating segments. However, given our decision to exit Russia and our pledge to direct any future net profits attributable to Russia subsequent to the date of invasion to humanitarian efforts, we have reclassed such net operating profits or losses from the Division segment results in which they were earned to Corporate and unallocated.Unallocated Other income (expense). Additionally, we have incurred certain expenses related to the transfer of the businesses and other one-time costs related to our exit from Russia which we have recorded within Corporate and unallocated.unallocated G&A and Unallocated Franchise and property expenses. Also recorded in Unallocated Other income (expense) were foreign exchange impacts attributable to fluctuations in the value of the Russian ruble. The resulting net Operating Profit within Corporate and unallocatedLoss of $16$3 million and $37net Operating Profit of $7 million for the
29


quarter quarters ended March 31, 2023 and year to date ended September 30, 2022, respectively, hashave been reflected as a Special Item as the amounts are not indicative of our ongoing results.

(c)During the quarter and year to date ended September 30, 2022, we recorded charges of $1 million to General and administrative expenses and $1 million to Other (income) expense related to a resource optimization program initiated in the third quarter of 2020. During the quarter ended September 30, 2021, we recorded a charge of $4 million to General and administrative expenses related to the program. During the year to date ended September 30, 2021, we recorded a charge of $7 million to General and administrative and a credit of $1 million to Other pension (income) expense related to the program. This program is part of our efforts to optimize our resources, reallocating them toward critical areas of the business that will drive future growth. These critical areas include accelerating our digital, technology and innovation capabilities to deliver a modern, world-class team member and customer experience and improve unit economics. Due to the size and scope of the resource optimization program, these charges have been reflected as Special Items.

(d)During the quarter ended June 30, 2022, the Company redeemed $600 million aggregate principal amount of 7.75% YUM Senior Unsecured Notes due in 2025 (the “2025 Notes”). The redemption amount was equal to 103.875% of the $600 million aggregate principal amount redeemed, reflecting a $23 million call premium. We recognized the call premium and the write-off of $5 million of unamortized debt issuance costs associated with the 2025 Notes within Interest expense, net.

During the quarter ended June 30, 2021, certain subsidiaries of the Company redeemed $1,050 million aggregate principal amount of 5.25% Subsidiary Senior Unsecured Notes due in 2026 (the “2026 Notes”). The redemption amount was equal to 102.625% of the $1,050 million aggregate principal amount redeemed, reflecting a $28 million call premium. We recognized the call premium and the write-off of $6 million of unamortized debt issuance costs associated with the 2026 Notes within Interest expense, net.

Due to their collective size and the fact that the amounts are not indicative of our ongoing interest expense, we reflected these charges as Special Items.

(e)    Tax (Expense) Benefit on Special Items was determined based upon the impact of the nature, as well as the jurisdiction of the respective individual components within Special Items. Additionally, during the quarter ended September 30, 2021, we recorded as a Special Item a $10 million tax benefit related to prior refranchisings for which the associated pre-tax gain or loss was recorded as Special.

(f)    During the quarter ended June 30, 2021, the United Kingdom (“UK”) Finance Act 2021 was enacted resulting in an increase in the UK corporate income tax rate from 19% to 25%. As a result, in the quarter ended June 30, 2021, we remeasured the deferred tax assets originally recorded as a Special Item as part of a fourth quarter 2019 intercompany restructuring of intellectual property (“IP”) rights into the UK, which resulted in the recognition of an additional $64 million deferred tax benefit as a Special Item.

In July 2021, we concentrated management responsibility for European (excluding the UK) KFC franchise development, support operations and management oversight in Switzerland. Concurrent with this change in management responsibility, we completed intra-entity transfers of certain KFC IP rights from subsidiaries in the UK to subsidiaries in Switzerland. With the transfer of these rights, we received a step-up in amortizable tax basis to current fair value under applicable Swiss tax law. As a result of this transfer, we recorded a net, one-time benefit of $152 million as a Special Item in the quarter ended September 30, 2021.

(g)(d)    In January 2022, the U.S. Treasury published new regulations impacting foreign tax credit utilization beginning in the Company’s 2022 tax year. These regulations makemade foreign taxes paid to certain countries no longer creditable in the U.S., which was expected to result in additional foreign tax credit carryforward utilization prospectively. As a result,
25


we reversed a valuation allowance associated with existing foreign tax credit carryforwards that we now believe will be used to offset these now non-creditable taxes in 2022 and future years.carryforwards. This valuation allowance reversal resulted in a one-time tax benefit of $82 million in the year to datequarter ended September 30,March 31, 2022 that was reflected as a Special Item. The U.S. Treasury published clarifying guidance in November 2022 which resulted in foreign taxes originally determined to be non-creditable under the January 2022 regulations to now be treated as creditable taxes. As such, the valuation allowance on foreign tax credit carryforwards that was released in the quarter ended March 31, 2022, was re-established in the quarter ended December 31, 2022.

(h)    Our decision to exit the Russia market is anticipated to result in a reduction in the tax basis of IP rights held in Switzerland due to the expected loss of the associated Russian royalty income associated with such rights going forward. As a result, we have remeasured and reassessed the need for a valuation allowance on those deferred tax assets. In addition, we have reassessed certain deferred tax liabilities associated with the Russia business given the expectation that the existing basis difference will now reverse by way of sale. Primarily as a result of these items, we
30


recorded a net tax benefit of $2 million and net tax expense of $69 million in the quarter and year to date ended September 30, 2022, respectively, that were reflected as Special Items.

Reconciliation of GAAP Operating Profit to Core Operating ProfitReconciliation of GAAP Operating Profit to Core Operating ProfitQuarter endedYear to dateReconciliation of GAAP Operating Profit to Core Operating ProfitQuarter ended
202220212022202120232022
ConsolidatedConsolidatedConsolidated
GAAP Operating ProfitGAAP Operating Profit$546 $527 $1,609 $1,637 GAAP Operating Profit$523 $509 
Special Items Income (Expense)Special Items Income (Expense)15 (3)39 (1)Special Items Income (Expense)(3)
Foreign Currency Impact on Divisional Operating Profit(a)
Foreign Currency Impact on Divisional Operating Profit(a)
(39)N/A(76)N/A
Foreign Currency Impact on Divisional Operating Profit(a)
(27)N/A
Core Operating ProfitCore Operating Profit$570 $530 $1,646 $1,638 Core Operating Profit$553 $500 
KFC DivisionKFC DivisionKFC Division
GAAP Operating ProfitGAAP Operating Profit$304 $314 $888 $932 GAAP Operating Profit$305 $291 
Foreign Currency Impact on Divisional Operating Profit(a)
Foreign Currency Impact on Divisional Operating Profit(a)
(33)N/A(64)N/A
Foreign Currency Impact on Divisional Operating Profit(a)
(21)N/A
Core Operating ProfitCore Operating Profit$337 $314 $952 $932 Core Operating Profit$326 $291 
Taco Bell DivisionTaco Bell DivisionTaco Bell Division
GAAP Operating ProfitGAAP Operating Profit$204 $184 $604 $560 GAAP Operating Profit$204 $185 
Foreign Currency Impact on Divisional Operating Profit(a)
Foreign Currency Impact on Divisional Operating Profit(a)
(1)N/A(2)N/A
Foreign Currency Impact on Divisional Operating Profit(a)
(1)N/A
Core Operating ProfitCore Operating Profit$205 $184 $606 $560 Core Operating Profit$205 $185 
Pizza Hut DivisionPizza Hut DivisionPizza Hut Division
GAAP Operating ProfitGAAP Operating Profit$92 $101 $287 $306 GAAP Operating Profit$104 $102 
Foreign Currency Impact on Divisional Operating Profit(a)
Foreign Currency Impact on Divisional Operating Profit(a)
(5)N/A(10)N/A
Foreign Currency Impact on Divisional Operating Profit(a)
(5)N/A
Core Operating ProfitCore Operating Profit$97 $101 $297 $306 Core Operating Profit$109 $102 
Habit Burger Grill DivisionHabit Burger Grill DivisionHabit Burger Grill Division
GAAP Operating Profit (Loss)$(4)$$(14)$
GAAP Operating LossGAAP Operating Loss$(5)$(8)
Foreign Currency Impact on Divisional Operating Profit(a)
Foreign Currency Impact on Divisional Operating Profit(a)
— N/A— N/A
Foreign Currency Impact on Divisional Operating Profit(a)
— N/A
Core Operating Profit (Loss)$(4)$$(14)$
Core Operating LossCore Operating Loss$(5)$(8)
Reconciliation of Diluted EPS to Diluted EPS excluding Special ItemsReconciliation of Diluted EPS to Diluted EPS excluding Special Items  Reconciliation of Diluted EPS to Diluted EPS excluding Special Items
Diluted EPSDiluted EPS$1.14 $1.75 $3.28 $4.10 Diluted EPS$1.05 $1.36 
Special Items Diluted EPSSpecial Items Diluted EPS0.05 0.53 0.08 0.66 Special Items Diluted EPS(0.01)0.31 
Diluted EPS excluding Special ItemsDiluted EPS excluding Special Items$1.09 $1.22 $3.20 $3.44 Diluted EPS excluding Special Items$1.06 $1.05 
Reconciliation of GAAP Effective Tax Rate to Effective Tax Rate excluding Special ItemsReconciliation of GAAP Effective Tax Rate to Effective Tax Rate excluding Special ItemsReconciliation of GAAP Effective Tax Rate to Effective Tax Rate excluding Special Items
GAAP Effective Tax RateGAAP Effective Tax Rate25.8 %(17.0)%22.7 %1.8 %GAAP Effective Tax Rate19.1 %(0.2)%
Impact on Tax Rate as a result of Special ItemsImpact on Tax Rate as a result of Special Items(0.9)%(35.9)%(1.1)%(17.9)%Impact on Tax Rate as a result of Special Items(0.2)%(20.6)%
Effective Tax Rate excluding Special ItemsEffective Tax Rate excluding Special Items26.7 %18.9 %23.8 %19.7 %Effective Tax Rate excluding Special Items19.3 %20.4 %

(a)    The foreign currency impact on reported Operating Profit is presented in relation only to the immediately preceding year presented. When determining applicable Core Operating Profit growth percentages, the Core Operating Profit for the current year should be compared to the prior year GAAP Operating Profit adjusted only for any prior year Special Items Income (Expense).

31
26


Reconciliation of GAAP Operating Profit to Company Restaurant ProfitReconciliation of GAAP Operating Profit to Company Restaurant ProfitReconciliation of GAAP Operating Profit to Company Restaurant Profit
Quarter ended 9/30/2022Quarter ended 3/31/2023
KFC DivisionTaco Bell DivisionPizza Hut DivisionHabit Burger Grill DivisionCorporate and UnallocatedConsolidatedKFC DivisionTaco Bell DivisionPizza Hut DivisionHabit Burger Grill DivisionCorporate and UnallocatedConsolidated
GAAP Operating Profit (Loss)GAAP Operating Profit (Loss)$304 $204 $92 $(4)$(50)$546 GAAP Operating Profit (Loss)$305 $204 $104 $(5)$(85)$523 
Less:Less:Less:
Franchise and property revenuesFranchise and property revenues418 196 145 — 760 Franchise and property revenues412 201 155 — 770 
Franchise contributions for advertising and other servicesFranchise contributions for advertising and other services174 138 88 — 401 Franchise contributions for advertising and other services165 142 94 — — 401 
Add:Add:Add:
General and administrative expensesGeneral and administrative expenses96 41 45 12 67 261 General and administrative expenses89 45 51 13 84 282 
Franchise and property expensesFranchise and property expenses15 — — 28 Franchise and property expenses26 36 
Franchise advertising and other services expenseFranchise advertising and other services expense166 139 91 — — 396 Franchise advertising and other services expense164 138 93 — — 395 
Refranchising (gain) lossRefranchising (gain) loss— — — — (3)(3)Refranchising (gain) loss— — — — (4)(4)
Other (income) expenseOther (income) expense26 (1)(1)— (14)10 Other (income) expense(2)— 10 
Company restaurant profitCompany restaurant profit$15 $57 $(1)$$— $77 Company restaurant profit$14 $50 $— $$— $71 
Company salesCompany sales$112 $234 $$129 $— $479 Company sales$110 $229 $$130 $— $474 
Company restaurant margin %Company restaurant margin %13.6 %23.9 %(5.4)%5.2 %N/A16.2 %Company restaurant margin %12.0 %22.2 %3.9 %4.9 %N/A14.9 %

Quarter ended 9/30/2021Quarter ended 3/31/2022
KFC DivisionTaco Bell DivisionPizza Hut DivisionHabit Burger Grill DivisionCorporate and UnallocatedConsolidatedKFC DivisionTaco Bell DivisionPizza Hut DivisionHabit Burger Grill DivisionCorporate and UnallocatedConsolidated
GAAP Operating Profit (Loss)GAAP Operating Profit (Loss)$314 $184 $101 $$(73)$527 GAAP Operating Profit (Loss)$291 $185 $102 $(8)$(61)$509 
Less:Less:Less:
Franchise and property revenuesFranchise and property revenues391 177 147 — 716 Franchise and property revenues383 179 151 — 714 
Franchise contributions for advertising and other servicesFranchise contributions for advertising and other services158 132 87 — — 377 Franchise contributions for advertising and other services151 124 88 — — 363 
Add:Add:Add:
General and administrative expensesGeneral and administrative expenses86 40 45 12 70 253 General and administrative expenses84 36 50 12 71 253 
Franchise and property expensesFranchise and property expenses20 — — 31 Franchise and property expenses24 — — 32 
Franchise advertising and other services expenseFranchise advertising and other services expense154 131 90 — — 375 Franchise advertising and other services expense151 123 87 — — 361 
Refranchising (gain) lossRefranchising (gain) loss— — — — Refranchising (gain) loss— — — — (4)(4)
Other (income) expenseOther (income) expense(2)(3)— (2)Other (income) expense— (2)— (6)(6)
Company restaurant profitCompany restaurant profit$26 $53 $$12 $— $92 Company restaurant profit$18 $47 $— $$— $68 
Company salesCompany sales$143 $225 $13 $132 $— $513 Company sales$126 $214 $$125 $— $470 
Company restaurant margin %Company restaurant margin %18.9 %23.4 %6.0 %8.6 %N/A17.9 %Company restaurant margin %14.1 %21.9 %(0.7)%3.0 %N/A14.5 %

3227


Year to date 9/30/2022
KFC DivisionTaco Bell DivisionPizza Hut DivisionHabit Burger Grill DivisionCorporate and UnallocatedConsolidated
GAAP Operating Profit (Loss)$888 $604 $287 $(14)$(156)$1,609 
Less:
Franchise and property revenues1,195 574 438 — 2,211 
Franchise contributions for advertising and other services493 406 264 — 1,164 
Add:
General and administrative expenses269 116 145 35 203 768 
Franchise and property expenses53 22 89 
Franchise advertising and other services expense480 406 266 — 1,153 
Refranchising (gain) loss— — — — (15)(15)
Other (income) expense44 (2)(6)— (36)— 
Company restaurant profit$46 $166 $(1)$18 $— $229 
Company sales$353 $691 $14 $390 $— $1,448 
Company restaurant margin %13.1 %23.9 %(4.7)%4.8 %N/A15.8 %
Year to date 9/30/2021
KFC DivisionTaco Bell DivisionPizza Hut DivisionHabit Burger Grill DivisionCorporate and UnallocatedConsolidated
GAAP Operating Profit (Loss)$932 $560 $306 $$(167)$1,637 
Less:
Franchise and property revenues1,124 518 435 — 2,080 
Franchise contributions for advertising and other services452 380 273 — — 1,105 
Add:
General and administrative expenses239 104 128 35 183 689 
Franchise and property expenses49 23 — — 81 
Franchise advertising and other services expense438 377 275 — — 1,090 
Refranchising (gain) loss— — — — (21)(21)
Other (income) expense(5)(5)(7)— (12)
Company restaurant profit$77 $161 $$38 $— $279 
Company sales$423 $656 $39 $391 $— $1,509 
Company restaurant margin %18.3 %24.5 %6.9 %9.7 %N/A18.5 %

Items Impacting Reported Results and Reasonably Likely to Impact Future Results

The following items impacted reported results in 20222023 and/or 20212022 and/or are reasonably likely to impact future results. See also the Detail of Special Items section of this MD&A for other items similarly impacting results.

Russia Invasion of Ukraine

In the first quarter of 2022, as a result of the Russian invasion of Ukraine, we suspended all investment and restaurant development in Russia. We also suspended all operations of our 70 company-owned KFC restaurants in Russia and began finalizing an agreement to suspend all Pizza Hut operations in Russia, in partnership with our master franchisee. Further, we pledged to redirect any future net profits attributable to Russia subsequent to the date of invasion to humanitarian efforts.

33


During the second quarter of 2022, we completed the transfer of ownership of the Pizza Hut Russia business to a local operator who has initiatedoperator. In April 2023, we completed our exit from the process of re-branding locationsRussian market by selling the KFC business in Russia to a non-YUM concept.

In October 2022, we announced that we have entered into a sale and purchase agreement to transfer ownership of ourSmart Service Ltd., including all Russian company-owned KFC Russia restaurants, operating system, and master franchise rights includingas well as the network of KFC franchised restaurants, to Smart Service Ltd., a business operated by one of our existing KFC franchisees in Russia.trademark for the Rostik’s brand. Under the sale and purchase agreement, the buyer will be responsible for re-branding locationshas agreed to a non-YUM conceptlead the process to rebrand KFC restaurants in Russia to Rostik's and retainingretain the Company's employees in Russia. Completion of the transaction is subject to regulatory and governmental approvals, as well as other conditions. FollowingWith the completion of thethis transaction we will have now ceased our corporate presence in Russia.

As of the beginning of the second quarter of 2022, we elected to remove all Russia units from our unit count and their associated sales from our total system sales. We removed 1,112 units and 53 units in Russia from our global KFC and Pizza Hut units counts, respectively. This negatively impacted YUM and KFC Division year-over-year unit growth by two2 and five5 percentage points, respectively at September 30, 2022.March 31, 2023. This also negatively impacted our system sales growth excluding foreign currency for YUM and KFC Division by three2 and four4 percentage points, respectively, during the quarter ended September 30, 2022, and negatively impacted our system sales growth for YUM and KFC Division by one and three percentage points, respectively, for the year to date September 30, 2022.March 31, 2023. Russia units were removed from our same-store sales calculations as of the beginning of the second quarter.quarter of 2022.

Our GAAP operating results continue to reflect revenues from and expenses to support the Russian operations for KFC for the quarter ended March 31, 2023, as well as for both Pizza Hut and KFC for the quarter ended March 31, 2022, within their historical financial statement line items and operating segments. However, given our decision to exit Russia and our pledge to direct any future net profits attributable to Russia subsequent to the date of invasion to humanitarian efforts, we reclassed such net operating profits or losses from the Division segment results in which they were earned to Unallocated Other income (expense) and reflected such net profits as a Special Item. Additionally, we have incurred certain expenses related to the transfer of the businesses and other costs related to our exit from Russia which we have recorded within Corporate and unallocated G&A and Unallocated Franchise and property expenses. The resulting net Operating Loss of $3 million and net Operating Profit of $7 million for the quarters ended March 31, 2023 and 2022, respectively, have been reflected as a Special Item as the amounts are not indicative of our ongoing results.

Historically, our Russian business has constituted approximately 3% of our total operating profit and 2% of our total system sales. During the quarter ended September 30, 2022,March 31, 2023, our Core Operating Profits in Russia declined versus the thirdfirst quarter of last year, negatively impacting YUM and KFC Division Core Operating Profit growth by three1 and five percentage points. During the year to date ended September 30, 2022, our Core Operating Profits in Russia declined versus the prior year, negatively impacting YUM and KFC Division Core Operating Profit growth by two and four2 percentage points, respectively.

See Note 1 for a discussion regarding our net asset base in Russia.

Impact of Foreign Currency Translation on Operating Profit

Changes in foreign currency exchange rates negatively impacted the translation of our foreign currency denominated Divisional Operating Profit by $39 million and $76$27 million for the quarter and year to date ended September 30, 2022, respectively.March 31, 2023. This included a negative impact to our KFC Division Operating Profit of $33 million and $64 million for the quarter and year to date ended September 30, 2022, respectively.$21 million. For the full year 2022second quarter of 2023, we currently expect changes in foreign currency to negatively impact Divisional Operating Profit by approximately $100$10 to $20 million.

COVID-19

In late 2019, a novel strain of coronavirus, COVID-19, was first detected and in March 2020, the World Health Organization declared COVID-19 a global pandemic. As a result of COVID-19, governmental authorities around the world implemented measures to reduce the spread of COVID-19, some of which remain in place today. These measures have included and in some instances continue to include restrictions on travel outside the home and other limitations on business and other activities as well as encouraging social distancing. As a result of COVID-19, we and our franchisees have experienced store closures and instances of reduced store-level operations, including reduced operating hours and dining-room closures. The impact on our sales in each of our markets has been dependent on the timing, severity and duration of the outbreak, measures implemented by government authorities to reduce the spread of COVID-19, as well as our reliance on dine-in sales in the market.

Throughout 2022, COVID-19 outbreaks and resulting government restrictions limiting mobility have continued to impact sales in a few key markets, primarily in China. Excluding China, our YUM same-store sales growth was 7% and our KFC Division same-store sales growth was 9% for the quarter ended September 30, 2022. Excluding China, our YUM same-store sales growth was 6% and our KFC Division same-store sales growth was 9% for the year to date ended September 30, 2022.

The COVID-19 situation is ongoing, and its dynamic nature makes it difficult to forecast any impacts on the Company's results for the balance of 2022.

34


Investment in Devyani

In 2020, we received aChanges in the fair value of our approximate 5% minority interestinvestment in Devyani International Limited (“Devyani”("Devyani"), ana franchise entity that operates KFC and Pizza Hut franchised units in India. The minority interest was received in lieu of cash proceeds upon the refranchising of approximately 60 KFC restaurants in India. At the timeIndia, resulted in a pre-tax loss of the refranchisings, the fair value of this minority interest was estimated to be approximately $31 million. On August 16, 2021, Devyani executed an initial public offering and subsequently the fair value of this investment became readily determinable. As a result, concurrent with the initial public offering we began recording changes in fair value in Investment (income) expense, net in our Condensed Consolidated Statements of Income and recognized pre-tax investment income of $27$23 million and $20a pre-tax gain of $7 million in the quarterquarters ended March 31, 2023 and year to date ended September 30, 2022, respectively, and pre-tax investment income of $52 million in both the quarter and year to date ended September 30, 2021.respectively.

28


KFC Division

The KFC Division has 26,87228,003 units, 85%86% of which are located outside the U.S. Additionally, 99% of the KFC Division units were operated by franchisees as of September 30, 2022.March 31, 2023.

Quarter endedYear to dateQuarter ended
% B/(W)% B/(W)% B/(W)
20222021ReportedEx FX20222021ReportedEx FX20232022ReportedEx FX
System SalesSystem Sales$7,824 $7,878 (1)$22,809 $22,789 EvenSystem Sales$8,057 $7,733 11 
Same-Store Sales Growth (Decline) %Same-Store Sales Growth (Decline) %N/AN/A14 N/AN/ASame-Store Sales Growth (Decline) %N/AN/A
Company salesCompany sales$112 $143 (22)(14)$353 $423 (17)(11)Company sales$110 $126 (13)(6)
Franchise and property revenuesFranchise and property revenues418 391 15 1,195 1,124 12 Franchise and property revenues412 383 14 
Franchise contributions for advertising and other servicesFranchise contributions for advertising and other services174 158 10 16 493 452 15 Franchise contributions for advertising and other services165 151 12 
Total revenuesTotal revenues$704 $692 $2,041 $1,999 Total revenues$687 $660 10 
Company restaurant profitCompany restaurant profit$15 $26 (44)(38)$46 $77 (40)(35)Company restaurant profit$14 $18 (26)(20)
Company restaurant margin %Company restaurant margin %13.6 %18.9 %(5.3)ppts.(5.2)ppts.13.1 %18.3 %(5.2)ppts.(5.0)ppts.Company restaurant margin %12.0 %14.1 %(2.1)ppts.(2.0)ppts.
G&A expensesG&A expenses$96 $86 (10)(13)$269 $239 (12)(15)G&A expenses$89 $84 (6)(8)
Franchise and property expensesFranchise and property expenses15 20 27 19 53 49 (8)(18)Franchise and property expenses26 24 (11)(19)
Franchise advertising and other services expenseFranchise advertising and other services expense166 154 (8)(14)480 438 (10)(15)Franchise advertising and other services expense164 151 (9)(12)
Operating ProfitOperating Profit$304 $314 (3)$888 $932 (5)Operating Profit$305 $291 12 
% Increase (Decrease)% Increase (Decrease)
Unit CountUnit Count9/30/20229/30/2021Unit Count3/31/20233/31/2022
FranchiseFranchise26,652 25,932 Franchise27,785 27,081 
Company-ownedCompany-owned220 290 (24)Company-owned218 291 (25)
TotalTotal26,872 26,222 Total28,003 27,372 

Company sales and Company restaurant margin %

The quarterly and year to date decreasesdecrease in Company sales, excluding the impacts of foreign currency translation, werewas driven by the suspension of operations of our 70 company-ownedcompany owned KFC restaurants in Russia.Russia during the quarter ended March 31, 2022, partially offset by Company same-store sales grew 2% and
35


were flat for the quarter and year to date, respectively.growth of 6%. As discussed in the Introduction and Overview section of this MD&A, all units in Russia, both Company and franchised, were removed from our same-store sales calculations beginning April 1, 2022.

The quarterly and year to date decreasesdecrease in Company restaurant margin percentage werewas driven by commodity and wage inflation.

Franchise and property revenues

The quarterly and year to date increasesincrease in Franchise and property revenues, excluding the impacts of foreign currency translation, werewas driven by franchise same-store sales growth of 7% and 3%, respectively,9% and unit growth.

As discussed in the Introduction and Overview section of this MD&A, all units in Russia, both Company and franchised, were removed from our same-store sales calculations beginning April 1, 2022.

G&A

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

The year to date increase in G&A, excluding the impact of foreign currency translation, was driven by higher headcount and salaries, higher travel related costs and higher professional fees, partially offset by lower expenses related to our annual incentive compensation program.
29


Operating Profit

The quarterly increase in Operating Profit, excluding the impact of foreign currency translation, was driven by same-store sales growth and unit growth, partially offset by higher restaurant operating costs, higher G&A, and the negative impact of 52 percentage points on year-over-year operating profit growth as a result of lower profits in Russia, higher G&A and higher restaurant operating costs.

The year to date increase in Operating Profit, excluding the impact of foreign currency translation, was driven by same-store sales growth and unit growth, partially offset by higher G&A, the negative impact of 4 percentage points on year-over-year operating profit growth as a result of lower profits in Russia and higher restaurant operating costs.Russia.

Taco Bell Division

The Taco Bell Division has 7,9748,276 units, 89%87% of which are in the U.S. The Company owned 7% of the Taco Bell units in the U.S. as of September 30, 2022.March 31, 2023.

36


Quarter endedYear to dateQuarter ended
% B/(W)% B/(W)% B/(W)
20222021ReportedEx FX20222021ReportedEx FX20232022ReportedEx FX
System SalesSystem Sales$3,417 $3,143 $10,034 $9,212 System Sales$3,464 $3,108 11 12 
Same-Store Sales Growth %Same-Store Sales Growth %N/AN/A12 N/AN/ASame-Store Sales Growth %N/AN/A
Company salesCompany sales$234 $225 $691 $656 Company sales$229 $214 
Franchise and property revenuesFranchise and property revenues196 177 11 11 574 518 11 11 Franchise and property revenues201 179 12 12 
Franchise contributions for advertising and other servicesFranchise contributions for advertising and other services138 132 406 380 Franchise contributions for advertising and other services142 124 14 14 
Total revenuesTotal revenues$568 $534 $1,671 $1,554 Total revenues$572 $517 11 11 
Company restaurant profitCompany restaurant profit$57 $53 $166 $161 Company restaurant profit$50 $47 
Company restaurant margin %Company restaurant margin %23.9 %23.4 %0.5 ppts.0.5 ppts.23.9 %24.5 %(0.6)ppts.(0.6)ppts.Company restaurant margin %22.2 %21.9 %0.3 ppts.0.3 ppts.
G&A expensesG&A expenses$41 $40 (2)(3)$116 $104 (11)(12)G&A expenses$45 $36 (25)(25)
Franchise and property expensesFranchise and property expenses10 10 22 23 Franchise and property expenses14 16 
Franchise advertising and other services expenseFranchise advertising and other services expense139 131 (6)(6)406 377 (8)(8)Franchise advertising and other services expense138 123 (12)(12)
Operating ProfitOperating Profit$204 $184 1011$604 $560 Operating Profit$204 $185 1011

% Increase (Decrease)% Increase (Decrease)
Unit CountUnit Count9/30/20229/30/2021Unit Count3/31/20233/31/2022
FranchiseFranchise7,510 7,143 Franchise7,806 7,367 
Company-ownedCompany-owned464 476 (3)Company-owned470 464 
TotalTotal7,974 7,619 Total8,276 7,831 

Company sales and Company restaurant margin %

The quarterly and year to date increasesincrease in Company sales werewas driven by company same-store sales growth of 6% and 8% for the quarter and year to date, respectively,7% and unit growth partially offset by refranchising.

The quarterly increase in Company restaurant margin percentage was driven by Company same-store sales growth partially offset by commodity inflation and wage inflation.

The year to date decrease in Company restaurant margin percentage was driven by commodity and wage inflation partially offset by Company same-store sales growth.higher labor costs.

Franchise and property revenues

The quarterly and year to date increases in Franchise and property revenues werewas driven by franchise same-store sales growth of 6% for both the quarter and year to date9% and unit growth.
3730



G&A

The quarterly increase in G&A, excluding the impacts of foreign currency translation, was driven by higher digital and technology expenses, higher headcount and salaries and higher travel related costs partially offset by lower professional fees.

The year to date increase in G&A was driven by higher headcount and salaries and higher travel related costs.expenses.

Operating Profit

The quarterly and year to date increasesincrease in Operating Profit werewas driven by same-store sales growth and unit growth partially offset by higher restaurant operating costs and higher G&A costs.&A.

Pizza Hut Division

The Pizza Hut Division has 18,80719,046 units, 65%66% of which are located outside the U.S. The Pizza Hut Division uses multiple distribution channels including delivery, dine-in and express (e.g. airports) and includes units operating under both the Pizza Hut and Telepizza brands. Additionally, over 99% of the Pizza Hut Division units were operated by franchisees as of September 30, 2022.March 31, 2023.

Quarter endedYear to dateQuarter ended
% B/(W)% B/(W)% B/(W)
20222021ReportedEx FX20222021ReportedEx FX20232022ReportedEx FX
System SalesSystem Sales$3,146 $3,170 (1)$9,345 $9,409 (1)System Sales$3,336 $3,160 10 
Same-Store Sales Growth (Decline) %Same-Store Sales Growth (Decline) %N/AN/AEvenN/AN/ASame-Store Sales Growth (Decline) %EvenN/AN/A
Company salesCompany sales$$13 (63)(63)$14 $39 (64)(64)Company sales$$
Franchise and property revenuesFranchise and property revenues145 147 (2)438 435 Franchise and property revenues155 151 
Franchise contributions for advertising and other servicesFranchise contributions for advertising and other services88 87 — 264 273 (3)(2)Franchise contributions for advertising and other services94 88 
Total revenuesTotal revenues$237 $247 (4)(1)$716 $747 (4)(2)Total revenues$254 $244 
Company restaurant profitCompany restaurant profit$(1)$NMNM$(1)$NMNMCompany restaurant profit$— $— NMNM
Company restaurant margin %Company restaurant margin %(5.4)%6.0 %(11.4)ppts.(11.4)ppts.(4.7)%6.9 %(11.6)ppts.(11.6)ppts.Company restaurant margin %3.9 %(0.7)%4.6 ppts.4.6 ppts.
G&A expensesG&A expenses$45 $45 (2)(4)$145 $128 (13)(15)G&A expenses$51 $50 (3)(5)
Franchise and property expensesFranchise and property expenses(103)(133)(7)Franchise and property expenses(30)(8)
Franchise advertising and other services expenseFranchise advertising and other services expense91 90 (1)(3)266 275 Franchise advertising and other services expense93 87 (7)(8)
Operating ProfitOperating Profit$92 $101 (8)(3)$287 $306 (6)(3)Operating Profit$104 $102 

% Increase (Decrease)
Unit Count9/30/20229/30/2021
Franchise18,786 17,954 
Company-owned21 53 (60)
Total18,807 18,007 
38


% Increase (Decrease)
Unit Count3/31/20233/31/2022
Franchise19,025 18,496 
Company-owned21 22 (5)
Total19,046 18,518 

Company sales

The quarterly and year to date decreasesincrease in Company sales, excluding the impacts of foreign currency translation, werewas driven by the refranchisingcompany same-store sales growth of stores in the United Kingdom.6%.

31


Franchise and property revenues

The quarterly increase in Franchise and property revenues, excluding the impacts of foreign currency translation, was driven by unit growth and franchise same-store sales growth of 1%.

The year to date increase in Franchise7% and property revenues, excluding the impacts of foreign currency translation, was driven by unit growth, andpartially offset by lapping the prior year recognition of franchise fees related to unexercised development rights arising from a master franchise agreement.

G&A

The quarterly and year to date increasesincrease in G&A, excluding the impacts of foreign currency translation, werewas driven by higher headcount and salaries and higher travel related expenses.expenses, partially offset by lower legal fees.

Operating Profit

The quarterly decreaseincrease in Operating Profit, excluding the impacts of foreign currency translation, was driven by current year net bad debt expense lapping prior year net bad debt recoveriessame-store sales growth and higher G&Aunit growth, partially offset by unit growth.

The yearlapping the upfront recognition of franchise fees related to date decrease in Operating Profit, excluding the impacts of foreign currency translation, was driven by higher G&A partially offset by unit growth.unexercised development rights arising from a master franchise agreement.

Habit Burger Grill Division

The Habit Burger Grill Division has 341358 units, the vast majority of which are in the U.S. The Company owned 84%85% of the Habit Burger Grill units in the U.S. as of September 30, 2022.March 31, 2023. 

Quarter endedYear to dateQuarter ended
% B/(W)% B/(W)% B/(W)
20222021Reported20222021Reported20232022Reported
System Sales(a)
System Sales(a)
$156 $150 $457 $440 
System Sales(a)
$158 $145 
Same-Store Sales Growth %Same-Store Sales Growth %(1)11 N/A(1)18 N/ASame-Store Sales Growth %— N/A
Total revenuesTotal revenues$131 $133 (1)$395 $394 — Total revenues$132 $126 
Operating Profit (Loss)Operating Profit (Loss)$(4)$NM$(14)$NMOperating Profit (Loss)$(5)$(8)35 

(a)    Beginning with the quarter ended March 31, 2022, our Habit Burger Grill Division adopted a reporting calendar change as discussed in Note 1. The impact of this change in reporting calendar was not significant, and accordingly, prior year amounts in these Condensed Consolidated Financial Statements and accompanying Management's Discussion and Analysis have not been restated. System sales growth, excluding the impact of the reporting calendar change, was 12% and 13% for the quarter and year to date ended September 30, 2022, respectively.
Unit Count3/31/20233/31/2022% Increase (Decrease)
Franchise65 46 41 
Company-owned293 285 
Total358 331 

Unit Count9/30/20229/30/2021% Increase (Decrease)
Franchise66 41 61 
Company-owned275 262 
Total341 303 13 

39


Corporate & Unallocated
Quarter endedYear to dateQuarter ended
(Expense) / Income(Expense) / Income20222021% B/(W)20222021% B/(W)(Expense) / Income20232022% B/(W)
Corporate and unallocated G&ACorporate and unallocated G&A$(67)$(70)$(203)$(183)(11)Corporate and unallocated G&A$(84)$(71)(17)
Unallocated Franchise and property expenses (See Note 8)Unallocated Franchise and property expenses (See Note 8)— — NM(4)— NMUnallocated Franchise and property expenses (See Note 8)(1)— NM
Unallocated Refranchising gain (loss)Unallocated Refranchising gain (loss)(1)NM15 21 (26)Unallocated Refranchising gain (loss)17 
Unallocated Other income (expense) (See Note 8)Unallocated Other income (expense) (See Note 8)14 (2)NM36 (5)NMUnallocated Other income (expense) (See Note 8)(4)NM
Investment income (expense), net (See Note 8)Investment income (expense), net (See Note 8)27 51 (49)19 52 (64)Investment income (expense), net (See Note 8)(24)NM
Other pension income (expense) (See Note 9)Other pension income (expense) (See Note 9)(2)(1)NM(3)(6)48 Other pension income (expense) (See Note 9)— NM
Interest expense, netInterest expense, net(124)(126)1(390)(416)Interest expense, net(130)(118)(10)
Income tax benefit (provision) (See Note 6)Income tax benefit (provision) (See Note 6)(116)77 NM(281)(22)NMIncome tax benefit (provision) (See Note 6)(71)NM
Effective tax rate (See Note 6)Effective tax rate (See Note 6)25.8 %(17.0)%(42.8)ppts.22.7 %1.8 %(20.9)ppts.Effective tax rate (See Note 6)19.1 %(0.2)%(19.3)ppts.

Corporate and unallocated G&A

The quarterly decrease in Corporate and Unallocated G&A expense was driven by lower current year expenses related to our annual incentive compensation programs and lower professional fees, offset by higher software costs and amortization, higher headcount and salaries including personnel associated with our 2021 investments in digital and technology companies and higher travel costs.

The year-to-date increase in Corporate and Unallocated G&A expense was driven by higher headcount and salaries including personnelcosts associated with our 2021 investments in digital and technology companies, higher software costs and amortization, higher meeting costs, and higher travel costs, offset by lower current year expenses related to our annual incentive compensation programs.the previously disclosed ransomware attack.

32


Interest expense, net

The quarterly decreaseincrease in Interest expense, net was primarily driven by a lowerhigher weighted average interest rate offset by higher borrowings.

The year to date decrease in Interest expense, net was primarily driven by $12 million of previously unamortized debt issuance costs written-off in the prior year due to the refinancing of our Credit Agreement and $6 million lower expense in the current year relating to the call premium and unamortized debt issuance costs written-off associated with the redemption of the 2025 Notes as compared to the call premium and unamortized debt costs written-off associated with the redemption of the 2026 Notes (as discussed in our 2021 Form 10-K) in the prior year.rate.

Consolidated Cash Flows

Net cash provided by operating activities was $975$349 million in 20222023 versus $1,292$253 million in 2021.2022. The decreaseincrease was primarily driven by an increasea decrease in incentive compensation payments, timing of spending on advertising and a decreasean increase in Operating profit before Special Items which includes the impactand timing of foreign currency translation.spending on advertising, partially offset by higher interest payments.

Net cash used in investing activities was $112$56 million in 20222023 versus $123$29 million in 2021.2022. The change was primarily driven by the lapping of our prior year acquisition of Dragontail Systems Limited, partially offset by the lapping of our prior year sale of certain mutual fund investments and higher current year capital spending.spending and lower refranchising proceeds.

Net cash used in financing activities was $928$334 million in 20222023 versus $881$377 million in 2021.2022. The change was primarily driven by lower current year net borrowings and higher dividends paid,share repurchases, partially offset by lower share repurchases.net borrowings.

40


Liquidity and Capital Resources

We have historically generated substantial cash flows from our extensive franchise operations, which require a limited YUM investment, and from the operations of our Company-owned stores. Our annual operating cash flows have been in excess of $1.3 billion in each of the past threefour years and we expect that to continue to be the case in 2022.2023. It is our intent to use these operating cash flows to continue to invest in growing our business and pay a competitive dividend, with any remaining excess then returned to shareholders through share repurchases. To the extent operating cash flows plus other sources of cash do not cover our anticipated cash needs, we maintain a $1.25 billion Revolving Facility under our Credit Agreement that was undrawnwhich had $194 million outstanding as of September 30, 2022.March 31, 2023. We believe that our ongoing cash from operations, cash on hand, which was approximately $400$350 million at September 30, 2022,March 31, 2023, and availability under our Revolving Facility will be sufficient to fund our cash requirements over the next twelve months.

There have been no material changes to the disclosures made in Item 7 of the Company's 20212022 Form 10-K regarding our material cash requirements. Due to the ongoing significance of our debt obligations, we are providing the update below.

Debt Instruments

As of September 30, 2022,March 31, 2023, approximately 94%, including the impact of interest rate swaps, of our $11.6 billion of total debt outstanding, excluding the Revolving Facility balances, finance leases and debt issuance costs and discounts, is fixed. Our total debt outstanding currently hasfixed with an effective overall interest rate of approximately 4.4%4.5%. We are managingended the quarter with a consolidated net leverage ratio of 4.9x EBITDA. We continually reassess our optimal leverage ratio to maximize shareholder returns. We target a capital structure which reflects consolidated leverage, net of available cash, in-line with our target of ~5.0x EBITDA, and which we believe provides an attractive balance between optimized interest rates, duration and flexibility with diversified sources of liquidity and maturities spread over multiple years. We have credit ratings of BB+ (Standard & Poor's)/Ba2 (Moody's) with a balance sheet consistent with highly-levered peer restaurant franchise companies.

The following table summarizes the future maturities of our outstanding long-term debt, excluding finance leases and debt issuance costs and discounts, as of September 30, 2022.March 31, 2023.

2022202320242025202620272028202920302031203220372043Total202320242025202620272028202920302031203220372043Total
Securitization NotesSecuritization Notes$10 $39 $39 $39 $944 $875 $582 $565 $$682 $3,782 Securitization Notes$29 $39 $39 $944 $875 $582 $565 $$683 $3,763 
Credit AgreementCredit Agreement34 48 53 662151,398 2,219 Credit Agreement25 48 53 662151,398 2,201 
Revolving FacilityRevolving Facility194 194 
Subsidiary Senior Unsecured NotesSubsidiary Senior Unsecured Notes750 750 Subsidiary Senior Unsecured Notes750 750 
YUM Senior Unsecured NotesYUM Senior Unsecured Notes325 800 1,050 $2,100 $325 $275 4,875 YUM Senior Unsecured Notes325 800 1,050 $2,100 $325 $275 4,875 
TotalTotal$19 $398 $87 $92 $1,606 $1,640 $1,980 $565 $807 $1,732 $2,100 $325 $275 $11,626 Total$379 $87 $92 $1,800 $1,640 $1,980 $565 $807 $1,733 $2,100 $325 $275 $11,783 

See Note 10 for details on the Securitization Notes, the Credit Agreement, Subsidiary Senior Unsecured Notes and YUM Senior Unsecured Notes.

New Accounting Pronouncements Not Yet Adopted
33


Ransomware Attack

On January 18, 2023, the Company announced a ransomware attack that impacted certain Information Technology (“IT”) systems. Promptly upon the detection of the incident, the Company initiated response protocols and an investigation, engaged the services of industry-leading cybersecurity and forensics professionals and consulted Federal law enforcement. This incident resulted in the closure of fewer than 300 restaurants in one market for one day, and certain of the Company’s IT systems and data were affected. In March 2020,addition, although data was taken from our network, with our forensic investigation complete we have concluded that the FASB issued guidanceaffected data was limited to certain personal information of former and current employees, and there continues to be no evidence that customer databases were accessed.

We have incurred, and may continue to incur, certain expenses related to reference rate reform. The pronouncement provides temporary optional expedientsthis attack, including expenses to respond to, remediate and exceptions to theinvestigate this matter. In addition, in April 2023, several separate putative class actions were filed in U.S. federal and state court by current guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from LIBORand/or former employees alleging violations of privacy and other interbank offered rates to alternative reference rates. The guidance was effective upon issuance and generally can be applied to applicable contract modifications through December 31, 2022.rights in connection with the ransomware incident. We are currently evaluatingdo not believe the impact of the transition from LIBOR to alternative reference rates, includingincident or the impactaforementioned matters will ultimately have a material adverse effect on our interest rate swaps with notional amountsbusiness, results of $1.5 billion expiring in March 2025. These interest rate swaps are designated cash flow hedges. We do not anticipate the impact of adopting this standard will be material to our Financial Statements.
operations or financial condition.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There were no material changes during the quarter ended September 30, 2022,March 31, 2023, to the disclosures made in Item 7A of the Company’s 20212022 Form 10-K.

41


Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 as of the end of the period covered by this report.  Based on the evaluation, performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (the “CEO”) and the Chief Financial Officer (the “CFO”), the Company’s management, including the CEO and CFO, concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by the report.

Changes in Internal Control

There were no changes with respect to the Company’s internal control over financial reporting or in other factors that materially affected, or are reasonably likely to materially affect, internal control over financial reporting during the quarter ended September 30, 2022.March 31, 2023.

Forward-Looking Statements

Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and by the use of forward-looking words such as “expect,” “expectation,” “believe,” “anticipate,” “may,” “could,” “intend,” “belief,” “plan,” “estimate,” “target,” “predict,” “likely,” “seek,” “project,” “model,” “ongoing,” “will,” “should,” “forecast,” “outlook” or similar terminology. Forward-looking statements are based on our current expectations, estimates, assumptions and/or projections, our perception of historical trends and current conditions, as well as other factors that we believe are appropriate and reasonable under the circumstances. Forward-looking statements are neither predictions nor guarantees of future events, circumstances or performance and are inherently subject to known and unknown risks, uncertainties and assumptions that could cause our actual results to differ materially from those indicated by those statements. There can be no assurance that our expectations, estimates, assumptions and/or projections will be achieved. Factors that could cause actual results and events to differ materially from our expectations and forward-looking statements include (i) the factors described in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Part I, Item 2 of this report, (ii) any risks and uncertainties described in the Risk Factors included in Part II, Item 1A of this report, (iii) the factors described in the Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Part II, Item 7 of our Form 10-K for the year ended December 31, 2021,2022, and (iv) the risks and uncertainties described in the Risk Factors included in Part I, Item 1A of our Form 10-K for the year ended December 31, 2021.2022. You should not place undue reliance on forward-looking statements, which speak only as of the date hereof. We are not undertaking to update any of these statements.
4234



Report of Independent Registered Public Accounting Firm


To the Shareholders and Board of Directors
Yum! Brands, Inc.:

Results of Review of Interim Financial Information

We have reviewed the condensed consolidated balance sheet of Yum! Brands, Inc. and Subsidiaries (YUM) as of September 30, 2022,March 31, 2023, the related condensed consolidated statements of income, comprehensive income, cash flows and shareholders’ deficit for the three-month and nine-month periods ended September 30,March 31, 2023 and 2022, and 2021, the related condensed consolidated statements of cash flows for the nine-month periods ended September 30, 2022 and 2021, and the related notes (collectively, the consolidated interim financial information). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial information for it to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of YUM as of December 31, 2021,2022, and the related consolidated statements of income, comprehensive income, shareholders’ deficit, and cash flows for the year then ended (not presented herein); and in our report dated February 22, 2022,24, 2023, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2021,2022 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

This consolidated interim financial information is the responsibility of YUM’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to YUM in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our reviews in accordance with the standards of the PCAOB. A review of consolidated interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.



/s/ KPMG LLP


Louisville, Kentucky
NovemberMay 8, 20222023

4335


PART II – OTHER INFORMATION AND SIGNATURES

Item 1. Legal Proceedings

Information regarding legal proceedings is incorporated by reference from Note 13 to the Company’s Condensed Consolidated Financial Statements set forth in Part I of this report.

Item 1A. Risk Factors

We face a variety of risks that are inherent in our business and our industry, including operational, legal, regulatory and product risks. Such risks could cause our actual results to differ materially from our forward-looking statements, expectations and historical trends. There have been no material changes from the risk factors disclosed in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, except for those as updated in Part II, Item 1A “Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2022.

44



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information as of September 30, 2022,March 31, 2023, with respect to shares of Common Stock repurchased by the Company during the quarter then ended:

Fiscal PeriodsTotal number of shares purchased
(thousands)
Average price paid per shareTotal number of shares purchased as part of publicly announced plans or programs
(thousands)
Approximate dollar value of shares that may yet be purchased under the plans or programs
(millions)
7/1/22-7/31/22402$118.28402$345
8/1/22-8/31/22725$115.29725$262
9/1/22-9/30/22225$114.51225$2,236
Total1,352$116.051,352
Fiscal PeriodsTotal number of shares purchased
(thousands)
Average price paid per shareTotal number of shares purchased as part of publicly announced plans or programs
(thousands)
Approximate dollar value of shares that may yet be purchased under the plans or programs
(millions)
1/1/23-1/31/23$—$1,750
2/1/23-2/28/23233$130.17233$1,720
3/1/23-3/31/23154$127.60154$1,700
Total387$129.15387$1,700

In May 2021, our Board of Directors authorized share repurchases from July 1, 2021 through December 31, 2022, of up to $2 billion (excluding applicable transaction fees) of our outstanding Common Stock. All shares repurchased above were made pursuant to that authorization. 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. The new authorization will take effect upon the earlier of the exhaustion or expiration of the authorization approved in May 2021.All shares repurchased above were made pursuant to that authorization.

4536



Item 6. Exhibits
(a)Exhibit Index
Exhibit No.Exhibit Description
15
31.1
31.2
 
32.1
 
32.2
 
101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
 
101.SCHXBRL Taxonomy Extension Schema Document
 
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
 
101.LABXBRL Taxonomy Extension Label Linkbase Document
 
101.PREXBRL Taxonomy Extension Presentation Linkbase Document
 
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
Indicates a management contract or compensatory plan.

4637


SIGNATURES

Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, duly authorized officer of the registrant.


 YUM! BRANDS, INC.
 (Registrant)



Date:NovemberMay 8, 20222023/s/ David E. Russell
  Senior Vice President, Finance and Corporate Controller
  (Principal Accounting Officer)
4738