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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, 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 Filer
Accelerated Filer
Non-accelerated Filer
Smaller 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 November 2, 2023, was 280,308,219 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)
YUM! BRANDS, INC. AND SUBSIDIARIES
(in millions, except per share data)
 Quarter endedYear to date
Revenues9/30/20239/30/20229/30/20239/30/2022
Company sales$510 $479 $1,495 $1,448 
Franchise and property revenues796 760 2,351 2,211 
Franchise contributions for advertising and other services402 401 1,194 1,164 
Total revenues1,708 1,640 5,040 4,823 
Costs and Expenses, Net
Company restaurant expenses421 402 1,239 1,219 
General and administrative expenses267 261 840 768 
Franchise and property expenses27 28 95 89 
Franchise advertising and other services expense400 396 1,183 1,153 
Refranchising (gain) loss(19)(3)(40)(15)
Other (income) expense(1)10 14  
Total costs and expenses, net1,095 1,094 3,331 3,214 
Operating Profit613 546 1,709 1,609 
Investment (income) expense, net(16)(27)(21)(19)
Other pension (income) expense(2)2 (5)3 
Interest expense, net126 124 381 390 
Income Before Income Taxes505 447 1,354 1,235 
Income tax provision89 116 220 281 
Net Income$416 $331 $1,134 $954 
Basic Earnings Per Common Share$1.48 $1.16 $4.03 $3.33 
Diluted Earnings Per Common Share$1.46 $1.14 $3.97 $3.28 
Dividends Declared Per Common Share$0.605 $0.57 $1.815 $1.71 
See accompanying Notes to Condensed Consolidated Financial Statements.

4


CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
YUM! BRANDS, INC. AND SUBSIDIARIES
(in millions)
Quarter endedYear to date
9/30/20239/30/20229/30/20239/30/2022
Net Income$416 $331 $1,134 $954 
Other comprehensive income, net of tax
Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature
Adjustments and gains (losses) arising during the period
(20)(55)(8)(99)
Reclassification of adjustments and (gains) losses into Net Income  60  
(20)(55)52 (99)
Tax (expense) benefit
    
(20)(55)52 (99)
Changes in pension and post-retirement benefits
Unrealized gains (losses) arising during the period
 20  20 
Reclassification of (gains) losses into Net Income
 5 1 14 
 25 1 34 
Tax (expense) benefit
 (6)(2)(8)
 19 (1)26 
Changes in derivative instruments
Unrealized gains (losses) arising during the period
7 42 25 114 
Reclassification of (gains) losses into Net Income
(9)1 (20)19 
(2)43 5 133 
Tax (expense) benefit
1 (11)(1)(33)
(1)32 4 100 
Other comprehensive income (loss), net of tax
(21)(4)55 27 
Comprehensive Income$395 $327 $1,189 $981 
See accompanying Notes to Condensed Consolidated Financial Statements.

5


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
YUM! BRANDS, INC. AND SUBSIDIARIES
(in millions)
 Year to date
 9/30/20239/30/2022
Cash Flows – Operating Activities   
Net Income$1,134 $954 
Depreciation and amortization104 104 
Refranchising (gain) loss(40)(15)
Investment (income) expense, net(21)(19)
Deferred income taxes(93)3 
Share-based compensation expense69 64 
Changes in accounts and notes receivable(13)(26)
Changes in prepaid expenses and other current assets(16)(3)
Changes in accounts payable and other current liabilities(52)(149)
Changes in income taxes payable(4)(3)
Other, net87 65 
Net Cash Provided by Operating Activities 1,155 975 
Cash Flows – Investing Activities
Capital spending(179)(158)
Proceeds from sale of KFC Russia121  
Proceeds from refranchising of restaurants57 51 
Other, net(3)(5)
Net Cash Used in Investing Activities
(4)(112)
Cash Flows – Financing Activities
Proceeds from long-term debt 999 
Repayments of long-term debt(60)(678)
Revolving credit facility, three months or less, net(279) 
Repurchase shares of Common Stock(50)(714)
Dividends paid on Common Stock(508)(489)
Debt issuance costs (11)
Other, net(24)(35)
Net Cash Used in Financing Activities(921)(928)
Effect of Exchange Rates on Cash and Cash Equivalents(2)(43)
Net Increase (Decrease) in Cash, Cash Equivalents, Restricted Cash and Restricted Cash
Equivalents
228 (108)
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - Beginning of Period647 771 
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - End of Period$875 $663 
 
See accompanying Notes to Condensed Consolidated Financial Statements.  

6


CONDENSED CONSOLIDATED BALANCE SHEETS
YUM! BRANDS, INC. AND SUBSIDIARIES
(in millions)
(Unaudited) 9/30/2023
12/31/2022
ASSETS  
Current Assets  
Cash and cash equivalents$656 $367 
Accounts and notes receivable, net647 648 
Prepaid expenses and other current assets402 594 
Total Current Assets1,705 1,609 
Property, plant and equipment, net1,157 1,171 
Goodwill638 638 
Intangible assets, net369 354 
Other assets1,360 1,324 
Deferred income taxes842 750 
Total Assets$6,071 $5,846 
LIABILITIES AND SHAREHOLDERS’ DEFICIT  
Current Liabilities  
Accounts payable and other current liabilities$1,119 $1,251 
Income taxes payable12 16 
Short-term borrowings373 398 
Total Current Liabilities1,504 1,665 
Long-term debt11,152 11,453 
Other liabilities and deferred credits1,605 1,604 
Total Liabilities14,261 14,722 
Shareholders’ Deficit  
Common Stock, no par value, 750 shares authorized; 280 shares issued in 2023 and 2022
33  
Accumulated deficit(7,909)(8,507)
Accumulated other comprehensive loss(314)(369)
Total Shareholders’ Deficit(8,190)(8,876)
Total Liabilities and Shareholders’ Deficit$6,071 $5,846 
See accompanying Notes to Condensed Consolidated Financial Statements.  
7


CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT (Unaudited)
YUM! BRANDS, INC. AND SUBSIDIARIES
Quarters and years to date ended September 30, 2023 and 2022
(in millions)
 Yum! Brands, Inc. 
 Issued Common StockAccumulated DeficitAccumulated
Other Comprehensive Loss
Total Shareholders' Deficit
 SharesAmount
Balance at June 30, 2023
280 $13 $(8,156)$(293)$(8,436)
Net Income 416 416 
Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature(20)(20)
Reclassification of translation adjustments into income  
Pension and post-retirement benefit plans  
Net loss on derivative instruments (net of tax impact of $1 million)
(1)(1)
Comprehensive Income 395 
Dividends declared(169)(169)
Repurchase of shares of Common Stock 
Employee share-based award exercises  (4)(4)
Share-based compensation events24 24 
Balance at September 30, 2023
280 $33 $(7,909)$(314)$(8,190)
Balance at December 31, 2022
280 $ $(8,507)$(369)$(8,876)
Net Income 1,134 1,134 
Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature(8)(8)
Reclassification of translation adjustments into income6060 
Pension and post-retirement benefit plans (net of tax impact of $2 million)
(1)(1)
Net gain on derivative instruments (net of tax impact of $1 million)
4 4 
Comprehensive Income 1,189 
Dividends declared(510)(510)
Repurchase of shares of Common Stock (24)(26)(50)
Employee share-based award exercises  (24)(24)
Share-based compensation events81 81 
Balance at September 30, 2023
280 $33 $(7,909)$(314)$(8,190)
Balance at June 30, 2022
285 $ $(8,274)$(294)$(8,568)
Net Income 331 331 
Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature (55)(55)
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 
Comprehensive Income 327 
Dividends declared(162)(162)
Repurchase of shares of Common Stock(1)(18)(139)(157)
Employee share-based award exercises  (3)(3)
Share-based compensation events21 21 
Balance at September 30, 2022
284 $ $(8,244)$(298)$(8,542)
Balance at December 31, 2021
289 $ $(8,048)$(325)$(8,373)
Net Income 954 954 
Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature(99)(99)
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 
Comprehensive Income 981 
Dividends declared(491)(491)
Repurchase of shares of Common Stock(6)(55)(659)(714)
Employee share-based award exercises 1 (24)(24)
Share-based compensation events79 79 
Balance at September 30, 2022
284 $ $(8,244)$(298)$(8,542)
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, 2022 (“2022 Form 10-K”).  

Yum! Brands, Inc. and its Subsidiaries (collectively referred to herein as the “Company,” “YUM,” “we,” “us” or “our”) franchise or operate a system of over 57,000 restaurants in more than 155 countries and territories.  As of September 30, 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 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, 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 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.

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 2022 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 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, 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.

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
9


restaurants in Russia to Rostik's and to retain the Company's employees in Russia. We recorded a charge of $3 million to Other income (expense) during the year to date ended September 30, 2023 as the write-off of our net investment in KFC Russia, including the related cumulative foreign currency translation losses of $60 million, exceeded the consideration received from the sale which primarily included cash proceeds of $121 million.

Our operating results presented herein reflect revenues from and expenses to support the Russian operations for KFC and Pizza Hut prior to the dates of sale or transfer, 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 the resulting net profits or losses subsequent to that date from the Division segment results in which they were earned to Unallocated Other income (expense).

Note 2 - Earnings Per Common Share (“EPS”)
 Quarter endedYear to date
 2023202220232022
Net Income$416 $331 $1,134 $954 
Weighted-average common shares outstanding (for basic calculation)281 285 281 287 
Effect of dilutive share-based employee compensation5 4 5 4 
Weighted-average common and dilutive potential common shares outstanding (for diluted calculation)286 289 286 291 
Basic EPS$1.48 $1.16 $4.03 $3.33 
Diluted EPS$1.46 $1.14 $3.97 $3.28 
Unexercised employee stock options and stock appreciation rights (in millions) excluded from the diluted EPS computation(a)
1.7 2.0 1.7 1.9 

(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.

Note 3 - Shareholders' Deficit

Under the authority of our Board of Directors, we repurchased shares of our Common Stock during the years ended September 30, 2023 and 2022 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
Authorization Date2023202220232022
2023
May 2021 5,987 — 714  
September 2022387  50  1,700 
Total387 5,987 

$50 $714 

$1,700 

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. As of September 30, 2023, we have remaining capacity to repurchase up to $1.7 billion of Common Stock under the September 2022 authorization.

10


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 InstrumentsTotal
Balance at June 30, 2023, net of tax
$(218)$(95)$20 $(293)
OCI, net of tax
Gains (losses) arising during the period classified into AOCI, net of tax
(20) 6 (14)
(Gains) losses reclassified from AOCI, net of tax
  (7)(7)
(20) (1)(21)
Balance at September 30, 2023, net of tax
$(238)$(95)$19 $(314)
Balance at December 31, 2022, net of tax$(290)$(94)$15 $(369)
OCI, net of tax
Gains (losses) arising during the period classified into AOCI, net of tax
(8)(2)19 9 
(Gains) losses reclassified from AOCI, net of tax
60 1 (15)46 
52 (1)4 55 
Balance at September 30, 2023, net of tax$(238)$(95)$19 $(314)
Note 4 - Other (Income) Expense
Quarter endedYear to date
 9/30/20239/30/20229/30/20239/30/2022
Foreign exchange net (gain) loss$4 $4 $8 $(8)
Impairment and closure expense1 1 2  
Other(6)5 4 8 
Other (income) expense$(1)$10 $14 $ 

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.
11


9/30/202312/31/2022
Accounts and notes receivable, gross$692 $685 
Allowance for doubtful accounts(45)(37)
Accounts and notes receivable, net$647 $648 

Property, Plant and Equipment, net
9/30/202312/31/2022
Property, plant and equipment, gross$2,462 $2,454 
Accumulated depreciation and amortization(1,305)(1,283)
Property, plant and equipment, net$1,157 $1,171 

Assets held-for-sale totaled $6 million and $190 million as of September 30, 2023 and December 31, 2022, respectively, and are included in Prepaid expenses and other current assets in our Condensed Consolidated Balance Sheets. Liabilities held-for-sale totaled $2 million and $65 million as of September 30, 2023 and December 31, 2022, respectively, and are included in Accounts payable and other current liabilities in our Condensed Consolidated Balance Sheets. Assets and liabilities held-for-sale as of December 31, 2022, primarily included the assets and liabilities of our KFC Russia business.

Other Assets9/30/202312/31/2022
Operating lease right-of-use assets(a)
$763 $742 
Franchise incentives182 172 
Investment in Devyani International Limited (See Note 12)
137 116 
Other278 294 
Other assets$1,360 $1,324 

(a)    Non-current operating lease liabilities of $752 million and $731 million as of September 30, 2023 and December 31, 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
9/30/202312/31/2022
Cash and cash equivalents as presented in Condensed Consolidated Balance Sheets$656 $367 
Restricted cash included in Prepaid expenses and other current assets(a)
185 220 
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-sale  25 
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents as presented in Condensed Consolidated Statements of Cash Flows$875 $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.

Note 6 - Income Taxes
 Quarter endedYear to date
 2023202220232022
Income tax (benefit) provision$89 $116 $220 $281 
Effective tax rate17.7 %25.8 %16.3 %22.7 %

Our third quarter effective tax rate was lower than the prior year primarily due to the following:
12



Tax benefit recognized in the quarter ended September 30, 2023, as compared to tax expense recognized in the quarter ended September 30, 2022, associated with adjustments related to prior year taxes.

Higher tax benefit recognized in the quarter ended September 30, 2023, associated with U.S. interest expense deductions and U.S. foreign tax credits.

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

$18 million tax benefit recorded in the year to date ended September 30, 2023, associated with the reversal of a reserve established in prior years due to the favorable resolution of a tax audit in a foreign jurisdiction.

$10 million tax benefit recorded in the year to date ended September 30, 2023, associated with establishing additional net operating loss carryforward deferred tax assets in a foreign jurisdiction.

$82 million of tax benefit recorded in the year to date ended September 30, 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 made 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, we reversed a valuation allowance associated with existing foreign tax credit carryforwards. 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.

$69 million of net tax expense recorded in the year to date ended September 30, 2022, resulting from the Company’s decision to exit KFC Russia. We remeasured and reassessed the need for a valuation allowance on deferred tax assets in Switzerland due to the expected reduction in the tax basis of intellectual property rights associated with the loss of the Russian royalty income. In addition, we reassessed certain deferred tax liabilities associated with the Russia business given the expectation that the existing basis difference would reverse by way of sale.

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.

13


Quarter ended 9/30/2023
KFC DivisionTaco Bell DivisionPizza Hut DivisionHabit Burger Grill DivisionTotal
U.S.
Company sales$15 $256 $2 $135 $408 
Franchise revenues48 196 64 1 309 
Property revenues4 9 1 1 15 
Franchise contributions for advertising and other services9 152 72  233 
China
Franchise revenues66  18  84 
Other
Company sales102    102 
Franchise revenues296 13 67  376 
Property revenues12    12 
Franchise contributions for advertising and other services148 3 18  169 
$700 $629 $242 $137 $1,708 

Quarter ended 9/30/2022
KFC DivisionTaco Bell DivisionPizza Hut DivisionHabit Burger Grill DivisionTotal
U.S.
Company sales$16 $234 $4 $129 $383 
Franchise revenues47 173 65  285 
Property revenues4 10 1 1 16 
Franchise contributions for advertising and other services7 136 72 1 216 
China
Franchise revenues61  17  78 
Other
Company sales96    96 
Franchise revenues291 13 62  366 
Property revenues15    15 
Franchise contributions for advertising and other services167 2 16  185 
$704 $568 $237 $131 $1,640 

14


Year to date 9/30/2023
KFC DivisionTaco Bell DivisionPizza Hut DivisionHabit Burger Grill DivisionTotal
U.S.
Company sales$48 $738 $11 $404 $1,201 
Franchise revenues143 568 200 4 915 
Property revenues10 29 3 2 44 
Franchise contributions for advertising and other services25 440 224 1 690 
China
Franchise revenues193  52  245 
Other
Company sales294    294 
Franchise revenues870 40 198  1,108 
Property revenues38  1  39 
Franchise contributions for advertising and other services448 7 49  504 
$2,069 $1,822 $738 $411 $5,040 

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 3 843 
Property revenues10 31 3 1 45 
Franchise contributions for advertising and other services20 401 216 1 638 
China
Franchise revenues170  46  216 
Other
Company sales306    306 
Franchise revenues834 35 195  1,064 
Property revenues42  1  43 
Franchise contributions for advertising and other services473 5 48  526 
$2,041 $1,671 $716 $395 $4,823 

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 2023 is presented below.

15


Deferred Franchise Fees
Balance at December 31, 2022
$434 
Revenue recognized that was included in unamortized upfront fees received from franchisees at the beginning of the period(62)
Increase for upfront fees associated with contracts that became effective during the period, net of amounts recognized as revenue during the period58 
Other(a)
(14)
Balance at September 30, 2023
$416 

(a)    Includes impact of foreign currency translation as well as the recognition of deferred franchise fees into Refranchising (gain) loss upon the termination of existing franchise agreements when entering into master franchise agreements.

We expect to recognize contract liabilities as revenue over the remaining term of the associated franchise agreement as follows:

Less than 1 year$71 
1 - 2 years61 
2 - 3 years56 
3 - 4 years50 
4 - 5 years42 
Thereafter136 
Total$416 

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
Revenues2023202220232022
KFC Division$700 $704 $2,069 $2,041 
Taco Bell Division629 568 1,822 1,671 
Pizza Hut Division242 237 738 716 
Habit Burger Grill Division137 131 411 395 
 $1,708 $1,640 $5,040 $4,823 

 Quarter endedYear to date
Operating Profit 2023202220232022
KFC Division$344 $304 $975 $888 
Taco Bell Division226 204 658 604 
Pizza Hut Division97 92 292 287 
Habit Burger Grill Division(2)(4)(4)(14)
Corporate and unallocated G&A expenses(a)
(68)(67)(238)(203)
Unallocated Franchise and property income (expenses)(a)
1  (1)(4)
Unallocated Refranchising gain (loss)19 3 40 15 
Unallocated Other income (expense)(a)
(4)14 (13)36 
Operating Profit$613 $546 $1,709 $1,609 
Investment income (expense), net(b)
16 27 21 19 
Other pension income (expense)2 (2)5 (3)
Interest expense, net(c)
(126)(124)(381)(390)
Income before income taxes$505 $447 $1,354 $1,235 
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Our chief operating decision maker (CODM) does not consider the impact of Corporate and unallocated amounts when assessing Divisional segment performance. As such, we do not allocate such amounts to our Divisional segments for performance reporting purposes.

(a)Our operating results presented herein reflect revenues from and expenses to support the Russian operations for KFC and Pizza Hut prior to the dates of sale or transfer (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 reclassed such net profits and losses subsequent to that date from the Division segment results in which they were earned to Unallocated Other income (expense). As a result, we reclassed net operating losses of $1 million from KFC Division Other income (expense) to Unallocated Other income (expense) during the year to date ended September 30, 2023, and net operating profit of $19 million and $30 million from Divisional Other income (expense) to Unallocated Other income (expense) during the quarter and year to date ended September 30, 2022, respectively. Additionally, we recorded income of $1 million and a charge of $3 million to Unallocated Other income (expense) during the quarter and year to date ended September 30, 2023, respectively, from the sale of our KFC Russia business.

Also included in Unallocated Other income (expense) were $1 million in foreign exchange losses attributable to fluctuations in the value of the Russian Ruble during the year to date ended September 30, 2023, and foreign exchange losses of $1 million and foreign exchange gains of $15 million during the quarter and year to date ended September 30, 2022, respectively. Additionally, we recorded expense of $4 million to Corporate and unallocated G&A expenses during the year to date ended September 30, 2023, and income of $1 million and expense of $1 million to Unallocated Franchise and property expenses during the quarter and year to date ended September 30, 2023, respectively, for certain expenses related to the disposition of the businesses and other costs related to our exit from Russia. We recorded similar charges of $1 million and $3 million to Corporate and Unallocated G&A expenses and $1 million and $5 million to Unallocated Franchise and property expenses during the quarter and year to date ended September 30, 2022, respectively.

(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 (as discussed in our 2022 Form 10-K) during the year to date ended September 30, 2022.

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. Our two significant U.S. plans, including the Plan and a supplemental plan, were previously amended such that any salaried employee hired or rehired by YUM after September 30, 2001, is not eligible to participate in those plans. Additionally, these two plans in the U.S. are currently closed to new hourly participants.  

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

 Quarter endedYear to date
 2023202220232022
Service cost$1 $2 $3 $5 
Interest cost10 8 31 24 
Expected return on plan assets(12)(11)(37)(34)
Amortization of net (gain) / loss 3 (1)8 
Amortization of prior service cost 1 1 4 
Net periodic benefit cost$(1)$3 $(3)$7 
Additional loss recognized due to settlements(a)
$ $2 $ $2 

(a)    Loss is a result of settlement transactions which exceeded the sum of annual service and interest costs for the applicable plan. This loss was recorded in Other pension (income) expense.

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

Short-term Borrowings9/30/202312/31/2022
Current maturities of long-term debt$376 $405 
Less current portion of debt issuance costs and discounts(3)(7)
Short-term borrowings$373 $398 
Long-term Debt  
Securitization Notes$3,743 $3,772 
Subsidiary Senior Unsecured Notes750 750 
Revolving Facility 279 
Term Loan A Facility722 736 
Term Loan B Facility1,463 1,474 
YUM Senior Unsecured Notes4,875 4,875 
Finance lease obligations50 57 
$11,603 $11,943 
Less long-term portion of debt issuance costs and discounts(75)(85)
Less current maturities of long-term debt(376)(405)
Long-term debt$11,152 $11,453 

Details of our Short-term borrowings and Long-term debt as of December 31, 2022 can be found within our 2022 Form 10-K.

Cash paid for interest during the year to date ended September 30, 2023, was $367 million. Excluding the $28 million associated with the extinguishment of the 2025 Notes (as discussed in our 2022 Form 10-K), cash paid for interest during the year to date ended September 30, 2022 was $331 million.

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, 2023 and December 31,
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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 expected future interest payments on the related variable-rate debt. There were no other interest rate swaps outstanding as of September 30, 2023 or December 31, 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, 2023, the swaps were highly effective cash flow hedges.

Gains and losses on these interest rate swaps recognized in OCI and reclassifications from AOCI into Net Income were as follows:
 Quarter endedYear to date
 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
 2023 2022 2023 20222023 2022 2023 2022
Interest rate swaps$6 $40 $(8)$3 $23 $111 $(20)$23 
Income tax benefit/(expense)(1)(10)2 (1)(6)(27)5 (6)

As of September 30, 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 $31 million, based on current Secured Overnight Financing Rate ("SOFR") 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, 2023 and December 31, 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 September 30, 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, 2023, the carrying values of cash and cash equivalents, restricted cash, short-term investments, accounts receivable, short-term borrowings and accounts payable 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:

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9/30/202312/31/2022
Carrying ValueFair Value (Level 2)Carrying ValueFair Value (Level 2)
Securitization Notes(a)
$3,743 $3,266 $3,772 $3,273 
Subsidiary Senior Unsecured Notes(b)
750 724 750 731 
Term Loan A Facility(b)
722 719 736 729 
Term Loan B Facility(b)
1,463 1,467 1,474 1,459 
YUM Senior Unsecured Notes(b)
4,875 4,423 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.

(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 Value
Condensed Consolidated Balance SheetLevel9/30/202312/31/2022
Assets
InvestmentsOther assets$139 $118 
InvestmentsOther assets5 5 
Interest Rate SwapsPrepaid expenses and other current assets3126 
Interest Rate SwapsOther assets1416 

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 i