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	June 30, 2024
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 Carolina				13-3951308
(State or other jurisdiction of				(I.R.S. Employer
incorporation or organization)				Identification No.)
1441 Gardiner Lane,	Louisville,	Kentucky		40213
(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 Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
	Common Stock, no par value	YUM	New 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 August 2, 2024, was 281,165,002 shares.

YUM! BRANDS, INC.

INDEX

		Page
		No.
Part I.	Financial Information
	Item 1 - Financial Statements
	Condensed Consolidated Statements of Income	4
	Condensed Consolidated Statements of Comprehensive Income	5
	Condensed Consolidated Statements of Cash Flows	6
	Condensed Consolidated Balance Sheets	7
	Condensed Consolidated Statements of Shareholders' Deficit	8
	Notes to Condensed Consolidated Financial Statements	9
	Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
	Item 3 - Quantitative and Qualitative Disclosures About Market Risk	37
	Item 4 - Controls and Procedures	38
	Report of Independent Registered Public Accounting Firm	39
Part II.	Other Information and Signatures
	Item 1 - Legal Proceedings	40
	Item 1A - Risk Factors	40
	Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds	40
	Item 5 - Other Information	40
	Item 6 - Exhibits	42
	Signatures	43

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 ended				Year to date
Revenues	6/30/2024		6/30/2023		6/30/2024		6/30/2023
Company sales	$	572	$	511	$	1,046	$	985
Franchise and property revenues	789		785		1,546		1,555
Franchise contributions for advertising and other services	402		391		769		792
Total revenues	1,763		1,687		3,361		3,332
Costs and Expenses, Net
Company restaurant expenses	470		415		870		818
General and administrative expenses	281		291		567		573
Franchise and property expenses	23		32		54		68
Franchise advertising and other services expense	401		388		768		783
Refranchising (gain) loss	(14)		(17)		(19)		(21)
Other (income) expense	(5)		5		(6)		15
Total costs and expenses, net	1,156		1,114		2,234		2,236
Operating Profit	607		573		1,127		1,096
Investment (income) expense, net	—		(29)		22		(5)
Other pension (income) expense	(1)		(1)		(3)		(3)
Interest expense, net	121		125		238		255
Income Before Income Taxes	487		478		870		849
Income tax provision	120		60		189		131
Net Income	$	367	$	418	$	681	$	718
Basic Earnings Per Common Share	$	1.30	$	1.49	$	2.41	$	2.55
Diluted Earnings Per Common Share	$	1.28	$	1.46	$	2.38	$	2.51
Dividends Declared Per Common Share	$	0.67	$	0.605	$	1.34	$	1.21
See accompanying Notes to Condensed Consolidated Financial Statements.

4

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
YUM! BRANDS, INC. AND SUBSIDIARIES
(in millions)
	Quarter ended				Year to date
	6/30/2024		6/30/2023		6/30/2024		6/30/2023
Net Income	$	367	$	418	$	681	$	718
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	2		4		(8)		12
Reclassification of adjustments and (gains) losses into Net Income	—		60		—		60
	2		64		(8)		72
Tax (expense) benefit	—		—		—		—
	2		64		(8)		72
Changes in pension and post-retirement benefits
Unrealized gains (losses) arising during the period	—		—		—		—
Reclassification of (gains) losses into Net Income	1		1		1		1
	1		1		1		1
Tax (expense) benefit	—		—		—		(2)
	1		1		1		(1)
Changes in derivative instruments
Unrealized gains (losses) arising during the period	4		26		16		18
Reclassification of (gains) losses into Net Income	(8)		(8)		(16)		(11)
	(4)		18		—		7
Tax (expense) benefit	1		(5)		—		(2)
	(3)		13		—		5
Other comprehensive income (loss), net of tax	—		78		(7)		76
Comprehensive Income	$	367	$	496	$	674	$	794
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
	6/30/2024		6/30/2023
Cash Flows – Operating Activities
Net Income	$	681	$	718
Depreciation and amortization	76		67
Refranchising (gain) loss	(19)		(21)
Investment (income) expense, net	22		(5)
Deferred income taxes	12		(73)
Share-based compensation expense	38		47
Changes in accounts and notes receivable	15		(21)
Changes in prepaid expenses and other current assets	(36)		(19)
Changes in accounts payable and other current liabilities	(78)		(107)
Changes in income taxes payable	(46)		19
Other, net	40		73
Net Cash Provided by Operating Activities	705		678
Cash Flows – Investing Activities
Capital spending	(99)		(122)
Proceeds from sale of Devyani Investment	104		—
Proceeds from sale of KFC Russia	—		121
Acquisition of KFC U.K. and Ireland restaurants	(174)		—
Proceeds from refranchising of restaurants	30		31
Maturities (purchases) of Short term investments, net	(116)		1
Other, net	2		(5)
Net Cash Provided by (Used in) Investing Activities	(253)		26
Cash Flows – Financing Activities
Proceeds from long-term debt	237		—
Repayments of long-term debt	(463)		(40)
Revolving credit facility, three months or less, net	175		(249)
Repurchase shares of Common Stock	(50)		(50)
Dividends paid on Common Stock	(377)		(339)
Other, net	(69)		(20)
Net Cash Used in Financing Activities	(547)		(698)
Effect of Exchange Rates on Cash and Cash Equivalents	(6)		6
Net Increase (Decrease) in Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents	(101)		12
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - Beginning of Period	724		647
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - End of Period	$	623	$	659
See accompanying Notes to Condensed Consolidated Financial Statements.

6

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
YUM! BRANDS, INC. AND SUBSIDIARIES
(in millions)
	6/30/2024		12/31/2023
ASSETS
Current Assets
Cash and cash equivalents	$	404	$	512
Accounts and notes receivable, net	713		737
Prepaid expenses and other current assets	518		360
Total Current Assets	1,635		1,609
Property, plant and equipment, net	1,272		1,197
Goodwill	718		642
Intangible assets, net	417		377
Other assets	1,335		1,361
Deferred income taxes	1,018		1,045
Total Assets	$	6,395	$	6,231
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current Liabilities
Accounts payable and other current liabilities	$	1,098	$	1,169
Income taxes payable	14		55
Short-term borrowings	24		53
Total Current Liabilities	1,136		1,277
Long-term debt	11,140		11,142
Other liabilities and deferred credits	1,749		1,670
Total Liabilities	14,025		14,089
Shareholders’ Deficit
Common Stock, no par value, 750 shares authorized; 281 shares issued in 2024 and 2023	—		60
Accumulated deficit	(7,321)		(7,616)
Accumulated other comprehensive loss	(309)		(302)
Total Shareholders’ Deficit	(7,630)		(7,858)
Total Liabilities and Shareholders’ Deficit	$	6,395	$	6,231
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 June 30, 2024 and 2023
(in millions)
	Yum! Brands, Inc.
	Issued Common Stock			Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Shareholders' Deficit
	Shares	Amount
Balance at March 31, 2024	281	$	45	$	(7,492)	$	(309)	$	(7,756)
Net Income				367				367
Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature						2		2
Pension and post-retirement benefit plans						1		1
Net loss on derivative instruments (net of tax impact of $1 million)						(3)		(3)
Comprehensive Income								367
Dividends declared				(190)				(190)
Repurchase of shares of Common Stock		(44)		(6)				(50)
Employee share-based award exercises		(19)						(19)
Share-based compensation events		18						18
Balance at June 30, 2024	281	$	—	$	(7,321)	$	(309)	$	(7,630)
Balance at December 31, 2023	281	$	60	$	(7,616)	$	(302)	$	(7,858)
Net Income				681				681
Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature						(8)		(8)
Pension and post-retirement benefit plans						1		1
Comprehensive Income								674
Dividends declared				(380)				(380)
Repurchase of shares of Common Stock		(44)		(6)				(50)
Employee share-based award exercises		(66)						(66)
Share-based compensation events		50						50
Balance at June 30, 2024	281	$	—	$	(7,321)	$	(309)	$	(7,630)
Balance at March 31, 2023	280	$	—	$	(8,403)	$	(371)	$	(8,774)
Net Income				418				418
Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature						4		4
Reclassification of translation adjustments into income						60		60
Pension and post-retirement benefit plans						1		1
Net gain on derivative instruments (net of tax impact of $5 million)						13		13
Comprehensive Income								496
Dividends declared				(171)				(171)
Employee share-based award exercises		(10)						(10)
Share-based compensation events		23						23
Balance at June 30, 2023	280	$	13	$	(8,156)	$	(293)	$	(8,436)
Balance at December 31, 2022	280	$	—	$	(8,507)	$	(369)	$	(8,876)
Net Income				718				718
Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature						12		12
Reclassification of translation adjustments into income						60		60
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 $2 million)						5		5
Comprehensive Income								794
Dividends declared				(341)				(341)
Repurchase of shares of Common Stock		(24)		(26)				(50)
Employee share-based award exercises		(20)						(20)
Share-based compensation events		57						57
Balance at June 30, 2023	280	$	13	$	(8,156)	$	(293)	$	(8,436)
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, 2023 (“2023 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 59,000 restaurants in more than 155 countries and territories.  As of June 30, 2024, 98% of these restaurants were owned and operated by franchisees.  The Company’s KFC, Taco Bell and Pizza Hut brands are global leaders of the chicken, Mexican-style and pizza categories, respectively. The Habit Burger Grill is a fast-casual restaurant concept specializing in made-to-order chargrilled burgers, sandwiches and more.

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

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

•The Taco Bell Division which includes our worldwide operations of the Taco Bell concept

•The Pizza Hut Division which includes our worldwide operations of the Pizza Hut concept

•The Habit Burger Grill Division which includes our worldwide operations of the Habit Burger Grill concept

YUM's fiscal year begins on January 1 and ends December 31 of each year, with each quarter comprised of three months. The majority of our U.S. subsidiaries and certain international subsidiaries operate on a weekly periodic calendar where the first three quarters of each fiscal year consist of 12 weeks and the fourth quarter consists of 16 weeks in fiscal years with 52 weeks and 17 weeks in fiscal years with 53 weeks. For subsidiaries that operate on this periodic weekly calendar, 2024 will include a 53rd week. Our remaining international subsidiaries operate on a monthly calendar similar to that on which YUM operates.

Our preparation of the accompanying Financial Statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the Financial Statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from these estimates.

The accompanying Financial Statements include all normal and recurring adjustments considered necessary to present fairly, when read in conjunction with our 2023 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 June 30, 2024. These reclassifications had no effect on previously reported Net Income.

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

On April 29, 2024, we completed the acquisition of all of the issued shares of two franchisee entities that owned 216 KFC restaurants in the U.K. and Ireland. The acquisition creates a significant opportunity to accelerate KFC's growth strategy in the large and growing U.K. and Ireland chicken market. The purchase price to be allocated for accounting purposes of $171 million consisted of cash, net of cash acquired, in the amount of $174 million offset by the settlement of a liability of $3 million related to our preexisting contractual relationship with the franchisee.

The acquisition was accounted for as a business combination using the acquisition method of accounting. The preliminary allocation of the purchase price is based on management's analysis, including preliminary work performed by third party

9

valuation specialists, as of April 29, 2024. We will continue to obtain information to assist in determining the fair value of net assets acquired during the measurement period.

The components of the preliminary purchase price allocation upon the April 29, 2024 acquisition were as follows:

Total Current Assets	$	2
Property, plant and equipment, net	88
Reacquired franchise rights (included in Intangible assets, net)	47
Operating lease right-of-use assets (included in Other assets)	109
Total Assets	246
Total Current Liabilities	(18)
Operating lease liabilities (included in Other liabilities and deferred credits)	(102)
Other liabilities	(31)
Total Liabilities	(151)
Total identifiable net assets	95
Goodwill	76
Purchase price to be allocated	$	171

Reacquired franchise rights, which were valued based on after-royalty cash flows expected to be earned by the acquired restaurants over the remaining term of their then-existing franchise agreements, have an estimated weighted average useful life of 5 years. The excess of the purchase price over the preliminary estimated fair value of the net, identifiable assets acquired was recorded as goodwill. The goodwill recognized represents expected benefits of the acquisition that do not qualify for recognition as intangible assets. This includes value arising from cash flows expected to be earned in years subsequent to the expiration of the terms of franchise agreements existing upon acquisition. The goodwill is expected to be partially deductible for income tax purposes and has been allocated to our KFC U.K. reporting unit.

The financial results of the acquired restaurants have been included in our Condensed Consolidated Financial Statements since the date of the acquisition but did not significantly impact our results for the quarter ended June 30, 2024. The pro forma impact on our results of operations if the acquisition had been completed as of the beginning of 2023 would not have been material. The direct transaction costs associated with the acquisition were also not material and were expensed as incurred.

Note 3 - Earnings Per Common Share (“EPS”)

	Quarter ended				Year to date
	2024		2023		2024		2023
Net Income	$	367	$	418	$	681	$	718
Weighted-average common shares outstanding (for basic calculation)	282		281		282		281
Effect of dilutive share-based employee compensation	4		5		4		5
Weighted-average common and dilutive potential common shares outstanding (for diluted calculation)	286		286		286		286
Basic EPS	$	1.30	$	1.49	$	2.41	$	2.55
Diluted EPS	$	1.28	$	1.46	$	2.38	$	2.51
Unexercised employee SARs, RSUs, PSUs and stock options (in millions) excluded from the diluted EPS computation(a)	1.9		1.7		1.8		1.6

(a)These unexercised employee stock appreciation rights (“SARs”), restricted stock units (“RSUs”), performance share units (“PSUs”) and stock options were not included in the computation of diluted EPS because to do so would have been antidilutive for the periods presented.

10

Note 4 - Shareholders' Deficit

Under the authority of our Board of Directors, we repurchased shares of our Common Stock during the years to date ended June 30, 2024 and 2023 as indicated below.  All amounts exclude applicable transaction fees. 

	Shares Repurchased (thousands)		Dollar Value of Shares Repurchased				Remaining Dollar Value of Shares that may be Repurchased
Authorization Date	2024	2023	2024		2023		2024
September 2022	366	387	50		50		—
Total	366	387	$	50	$	50	$	—

In September 2022, our Board of Directors authorized share repurchases of up to $2 billion (excluding applicable transaction fees) of our outstanding Common Stock through June 30, 2024. Upon its expiration on June 30, 2024, we had remaining capacity to repurchase up to $1.65 billion of Common Stock under the September 2022 authorization. In May 2024, our Board of Directors authorized share repurchases of up to $2 billion (excluding applicable transaction fees) of our outstanding Common Stock through December 31, 2026. The new authorization took effect on July 1, 2024 upon the expiration of the authorization approved in September 2022.

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

	Translation Adjustments and Gains (Losses) From Intra-Entity Transactions of a Long-Term Nature		Pension and Post-Retirement Benefits		Derivative Instruments		Total
Balance at March 31, 2024, net of tax	$	(211)	$	(104)	$	6	$	(309)
OCI, net of tax
Gains (losses) arising during the period classified into AOCI, net of tax	2		—		3		5
(Gains) losses reclassified from AOCI, net of tax	—		1		(6)		(5)
	2		1		(3)		—
Balance at June 30, 2024, net of tax	$	(209)	$	(103)	$	3	$	(309)
Balance at December 31, 2023, net of tax	$	(201)	$	(104)	$	3	$	(302)
OCI, net of tax
Gains (losses) arising during the period classified into AOCI, net of tax	(8)		—		12		4
(Gains) losses reclassified from AOCI, net of tax	—		1		(12)		(11)
	(8)		1		—		(7)
Balance at June 30, 2024, net of tax	$	(209)	$	(103)	$	3	$	(309)

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Note 5 - Other (Income) Expense

	Quarter ended				Year to date
	6/30/2024		6/30/2023		6/30/2024		6/30/2023
Foreign exchange net (gain) loss	$	—	$	1	$	5	$	4
Impairment and closure expense	—		—		—		1
Other	(5)		4		(11)		10
Other (income) expense	$	(5)	$	5	$	(6)	$	15

Note 6 - Supplemental Balance Sheet Information

Accounts and Notes Receivable, net

The Company’s receivables are primarily generated from ongoing business relationships with our franchisees as a result of franchise and lease agreements. Trade receivables consisting of royalties from franchisees are generally due within 30 days of the period in which the corresponding sales occur and are classified as Accounts and notes receivable, net in our Condensed Consolidated Balance Sheets. Accounts and notes receivable, net also includes receivables generated from advertising cooperatives that we consolidate.

	6/30/2024		12/31/2023
Accounts and notes receivable, gross	$	762	$	776
Allowance for doubtful accounts	(49)		(39)
Accounts and notes receivable, net	$	713	$	737

Prepaid Expenses and Other Current Assets

	6/30/2024		12/31/2023
Income tax receivable	$	20	$	20
Restricted cash	183		177
Short term investments	116		—
Other prepaid expenses and current assets	199		163
Prepaid expenses and other current assets	$	518	$	360

Property, Plant and Equipment, net

	6/30/2024		12/31/2023
Property, plant and equipment, gross	$	2,633	$	2,529
Accumulated depreciation and amortization	(1,361)		(1,332)
Property, plant and equipment, net	$	1,272	$	1,197

Other Assets	6/30/2024		12/31/2023
Operating lease right-of-use assets(a)	$	865	$	764
Franchise incentives	178		175
Investment in Devyani International Limited (See Note 13)	—		124
Other	292		298
Other assets	$	1,335	$	1,361

(a)    Non-current operating lease liabilities of $848 million and $757 million as of June 30, 2024 and December 31, 2023, respectively, are included in Other liabilities and deferred credits in our Condensed Consolidated Balance Sheets.

12

Reconciliation of Cash and Cash Equivalents for Condensed Consolidated Statements of Cash Flows

	6/30/2024		12/31/2023
Cash and cash equivalents as presented in Condensed Consolidated Balance Sheets	$	404	$	512
Restricted cash included in Prepaid expenses and other current assets(a)	183		177
Restricted cash and restricted cash equivalents included in Other assets(b)	36		35
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents as presented in Condensed Consolidated Statements of Cash Flows	$	623	$	724

(a)    Restricted cash within Prepaid expenses and other current assets reflects the cash related to advertising cooperatives which we consolidate that can only be used to settle obligations of the respective cooperatives and cash held in reserve for Taco Bell Securitization interest payments.

(b)    Primarily trust accounts related to our self-insurance program.

Note 7 - Income Taxes

	Quarter ended						Year to date
	2024			2023			2024			2023
Income tax provision	$	120		$	60		$	189		$	131
Effective tax rate	24.7		%	12.6		%	21.8		%	15.4		%

Our estimated effective tax rate on income for the full fiscal year is expected to be higher than the U.S. federal statutory rate of 21%, primarily due to state income taxes and U.S. taxes on foreign earnings partially offset by taxes on income earned in foreign jurisdictions with statutory tax rates below 21%.

Our second quarter and year to date effective tax rate is higher than the prior year primarily due to the lapping of higher foreign tax benefits recorded in the quarter ended June 30, 2023, associated with the favorable resolutions of tax audits and the establishment of additional net operating loss carryforward deferred tax assets in foreign jurisdictions, as well as higher taxes paid in foreign jurisdictions where our intellectual property rights are domiciled and higher current U.S. tax expense on foreign earnings. These unfavorable items were partially offset by current quarter and year to date favorability associated with tax deductions for share-based compensation.

Note 8 - Revenue Recognition

Disaggregation of Total Revenues

The following tables disaggregate revenue by Concept, for our two most significant markets based on Operating Profit and for all other markets. We believe this disaggregation best reflects the extent to which the nature, amount, timing and uncertainty of our revenues and cash flows are impacted by economic factors.

13

	Quarter ended 6/30/2024
		KFC Division		Taco Bell Division		Pizza Hut Division		Habit Burger Grill Division		Total
U.S.
Company sales		$	14	$	268	$	2	$	139	$	423
Franchise revenues		47		209		66		2		324
Property revenues		3		10		1		—		14
Franchise contributions for advertising and other services		10		161		73		—		244
China
Franchise revenues		62		—		17		—		79
Other
Company sales		149		—		—		—		149
Franchise revenues		282		15		63		—		360
Property revenues		11		—		1		—		12
Franchise contributions for advertising and other services		139		3		16		—		158
		$	717	$	666	$	239	$	141	$	1,763

	Quarter ended 6/30/2023
	KFC Division		Taco Bell Division		Pizza Hut Division		Habit Burger Grill Division		Total
U.S.
Company sales	$	17	$	253	$	4	$	139	$	413
Franchise revenues	49		194		66		2		311
Property revenues	3		10		1		—		14
Franchise contributions for advertising and other services	8		148		74		1		231
China
Franchise revenues	61		—		16		—		77
Other
Company sales	98		—		—		—		98
Franchise revenues	290		14		65		—		369
Property revenues	13		—		1		—		14
Franchise contributions for advertising and other services	143		2		15		—		160
	$	682	$	621	$	242	$	142	$	1,687

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	Year to date 6/30/2024
		KFC Division		Taco Bell Division		Pizza Hut Division		Habit Burger Grill Division		Total
U.S.
Company sales		$	28	$	508	$	4	$	266	$	806
Franchise revenues		90		397		134		3		624
Property revenues		6		19		2		1		28
Franchise contributions for advertising and other services		20		307		146		1		474
China
Franchise revenues		130		—		34		—		164
Other
Company sales		240		—		—		—		240
Franchise revenues		554		28		125		—		707
Property revenues		22		—		1		—		23
Franchise contributions for advertising and other services		259		5		31		—		295
		$	1,349	$	1,264	$	477	$	271	$	3,361

	Year to date 6/30/2023
		KFC Division		Taco Bell Division		Pizza Hut Division		Habit Burger Grill Division		Total
U.S.
Company sales		$	33	$	482	$	9	$	269	$	793
Franchise revenues		95		372		136		3		606
Property revenues		6		20		2		1		29
Franchise contributions for advertising and other services		16		288		152		1		457
China
Franchise revenues		127		—		34		—		161
Other
Company sales		192		—		—		—		192
Franchise revenues		574		27		131		—		732
Property revenues		26		—		1		—		27
Franchise contributions for advertising and other services		300		4		31		—		335
		$	1,369	$	1,193	$	496	$	274	$	3,332

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 2024 is presented below.

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	Deferred Franchise Fees
Balance at December 31, 2023	$	444
Revenue recognized that was included in unamortized upfront fees received from franchisees at the beginning of the period	(40)
Increase for upfront fees associated with contracts that became effective during the period, net of amounts recognized as revenue during the period	36
Other(a)	(5)
Balance at June 30, 2024	$	435

(a)    Primarily includes the settlement of a preexisting contractual relationship related to the KFC U.K. and Ireland restaurant acquisition (see Note 2) and the impact of foreign currency translation.

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

Less than 1 year	$	73
1 - 2 years	65
2 - 3 years	59
3 - 4 years	52
4 - 5 years	44
Thereafter	142
Total	$	435

Note 9 - Reportable Operating Segments

We identify our operating segments based on management responsibility. The following tables summarize Revenues and Operating Profit for each of our reportable operating segments:

	Quarter ended				Year to date
Revenues	2024		2023		2024		2023
KFC Division	$	717	$	682	$	1,349	$	1,369
Taco Bell Division	666		621		1,264		1,193
Pizza Hut Division	239		242		477		496
Habit Burger Grill Division	141		142		271		274
	$	1,763	$	1,687	$	3,361	$	3,332

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	Quarter ended				Year to date
Operating Profit	2024		2023		2024		2023
KFC Division	$	334	$	326	$	647	$	631
Taco Bell Division	250		228		458		432
Pizza Hut Division	94		91		187		195
Habit Burger Grill Division	2		3		(3)		(2)
Corporate and unallocated G&A expenses	(86)		(86)		(175)		(170)
Unallocated Company restaurant expenses(a)	(1)		—		(1)		—
Unallocated Franchise and property income (expenses)	—		(1)		—		(2)
Unallocated Refranchising gain (loss)	14		17		19		21
Unallocated Other income (expense)	—		(5)		(5)		(9)
Operating Profit	$	607	$	573	$	1,127	$	1,096
Investment income (expense), net(b)	—		29		(22)		5
Other pension income (expense)	1		1		3		3
Interest expense, net	(121)		(125)		(238)		(255)
Income before income taxes	$	487	$	478	$	870	$	849

Our chief operating decision maker (“CODM”) does not consider the impact of Corporate and unallocated amounts when assessing Divisional segment performance. As such, we do not allocate such amounts to our Divisional segments for performance reporting purposes.

(a)Unallocated Company restaurant expenses include amortization of reacquired franchise rights (see Note 2).

(b)Includes changes in the value of our investment in Devyani International Limited (see Note 13).

Note 10 - Pension Benefits

We sponsor qualified and supplemental (non-qualified) noncontributory defined benefit pension plans covering certain full-time salaried and hourly U.S. employees. The most significant of these plans, the YUM Retirement Plan (the “Plan”), is funded. We fund our other U.S. plans as benefits are paid. Our two significant U.S. plans, including the Plan and a supplemental plan, were previously amended such that any salaried employee hired or rehired by YUM after September 30, 2001, is not eligible to participate in those plans. Additionally, these two plans in the U.S. are currently closed to new hourly participants.  

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

	Quarter ended				Year to date
	2024		2023		2024		2023
Service cost	$	1	$	1	$	2	$	2
Interest cost	10		11		21		21
Expected return on plan assets	(13)		(13)		(26)		(25)
Amortization of net (gain) / loss	1		(1)		1		(1)
Amortization of prior service cost	1		1		1		1
Net periodic benefit cost (income)	$	—	$	(1)	$	(1)	$	(2)

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

Short-term Borrowings	6/30/2024		12/31/2023
Current maturities of long-term debt	$	26	$	56
Less current portion of debt issuance costs and discounts	(2)		(3)
Short-term borrowings	$	24	$	53
Long-term Debt
Securitization Notes	$	3,743	$	3,743
Subsidiary Senior Unsecured Notes	750		750
Revolving Facility	180		—
Term Loan A Facility	500		717
Term Loan B Facility	1,451		1,459
YUM Senior Unsecured Notes	4,550		4,550
Finance lease obligations	68		50
	$	11,242	$	11,269
Less long-term portion of debt issuance costs and discounts	(76)		(71)
Less current maturities of long-term debt	(26)		(56)
Long-term debt	$	11,140	$	11,142

Details of our Short-term borrowings and Long-term debt as of December 31, 2023 can be found within our 2023 Form 10-K.

On April 26, 2024, KFC Holding Co, Pizza Hut Holdings, LLC and Taco Bell of America, LLC (collectively, the "Borrowers"), each of which is a wholly-owned subsidiary of the Company, completed the refinancing of the then outstanding $713 million under the term loan A facility and $1.25 billion capacity under the revolving facility through the issuance of a new $500 million term loan A facility (the "Term Loan A Facility") and a $1.5 billion revolving facility (the "Revolving Facility") pursuant to an amendment to the Credit Agreement (as defined in our 2023 Form 10-K). The transaction did not add any additional net new debt to the Company's Balance Sheet. The Term Loan A Facility and the Revolving Facility will mature on the earliest of (i) April 26, 2029, (ii) the date that is 91 days prior to the March 15, 2028 maturity of the Borrowers' existing Term Loan B Facility if more than $250 million of such Term Loan B remains outstanding as of such date or (iii) the date that is 91 days prior to the June 1, 2027 maturity of the Borrowers' existing Subsidiary Senior Unsecured Notes if more than $250 million of such Subsidiary Senior Unsecured Notes remains outstanding as of such date. The amendment also removed the excess cash flow mandatory prepayment requirement with respect to the Term Loan A Facility.

The refinanced Term Loan A Facility is subject to quarterly amortization payments in an amount equal to 0.625% of the principal amount of the facility as of the refinance date now beginning with the third quarter of 2025. The Term Loan A Facility quarterly amortization payments increase to 1.25% of the principal amount of the facility as of the refinance date beginning with the third quarter of 2027. All other material provisions of the Credit Agreement remain unchanged.

As a result of this refinancing, $8 million of fees were capitalized as debt issuance costs, $6 million of which were paid directly to lenders, and are presented within Long-term debt on our Condensed Consolidated Balance Sheet as of June 30, 2024. During the quarter ended June 30, 2024, previously recorded unamortized debt issuance costs of $1 million were written off and recognized within Interest expense, net due to this refinancing.

Cash paid for interest during the year to date ended June 30, 2024, was $254 million. Cash paid for interest during the year to date ended June 30, 2023 was $266 million.

Note 12 - Derivative Instruments

We use derivative instruments to manage certain of our market risks related to fluctuations in interest rates, equity prices and foreign currency exchange rates. Our use of foreign currency contracts to manage foreign currency exchange rates associated with certain foreign currency denominated intercompany receivables and payables is currently not significant.

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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 June 30, 2024 and December 31, 2023, we had interest rate swaps expiring in March 2025 with notional amounts of $1.5 billion. These interest rate swaps have been designated cash flow hedges as the changes in the future cash flows of the swaps are expected to offset changes in expected future interest payments on the related variable-rate debt. There were no other interest rate swaps outstanding as of June 30, 2024 or December 31, 2023.

Gains or losses on the interest rate swaps are reported as a component of AOCI and reclassified into Interest expense, net in our Condensed Consolidated Statements of Income in the same period or periods during which the related hedged interest payments affect earnings. Through June 30, 2024, the swaps were highly effective cash flow hedges.

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

	Quarter ended								Year to date
	Gains/(Losses) Recognized in OCI				(Gains)/Losses Reclassified from AOCI into Net Income				Gains/(Losses) Recognized in OCI				(Gains)/Losses Reclassified from AOCI into Net Income
	2024		2023		2024		2023		2024		2023		2024		2023
Interest rate swaps	$	3	$	24	$	(8)	$	(7)	$	14	$	17	$	(17)	$	(12)
Income tax benefit/(expense)	(1)		(7)		2		2		(4)		(5)		4		3

As of June 30, 2024, the estimated net gain included in AOCI related to our cash flow hedges that will be reclassified into earnings in the next 12 months is $23 million, based on current Secured Overnight Financing Rate ("SOFR") interest rates.

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

As a result of the use of derivative instruments, the Company is exposed to risk that the counterparties will fail to meet their contractual obligations. To mitigate the counterparty credit risk, we only enter into contracts with major financial institutions carefully selected based upon their credit ratings and other factors, and continually assess the creditworthiness of counterparties. At June 30, 2024, all of the counterparties to our derivative instruments had investment grade ratings according to the three major ratings agencies. To date, all counterparties have performed in accordance with their contractual obligations.

See Note 13 for the fair value of our derivative assets and liabilities.

Note 13 - Fair Value Disclosures

As of June 30, 2024, the carrying values of cash and cash equivalents, restricted cash, short-term investments, accounts receivable, short-term borrowings, accounts payable and borrowings under our Revolving Facility approximated their fair values because of the short-term nature of these instruments. 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:

19

	6/30/2024				12/31/2023
	Carrying Value		Fair Value (Level 2)		Carrying Value		Fair Value (Level 2)
Securitization Notes(a)	$	3,743	$	3,423	$	3,743	$	3,391
Subsidiary Senior Unsecured Notes(b)	750		737		750		742
Term Loan A Facility(b)	500		494		717		716
Term Loan B Facility(b)	1,451		1,457		1,459		1,466
YUM Senior Unsecured Notes(b)	4,550		4,337		4,550		4,439

(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 12 for discussion regarding derivative instruments). The following table presents fair values for those assets and liabilities measured at fair value on a recurring basis and the level within the fair value hierarchy in which the measurements fall.  

			Fair Value
	Condensed Consolidated Balance Sheet	Level	6/30/2024		12/31/2023
Assets
Investments	Other assets	1	$	1	$	125
Investments	Other assets	3	7		7
Interest Rate Swaps	Prepaid expenses and other current assets	2	23		24
Interest Rate Swaps	Other assets	2	—		2

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

Investments as of December 31, 2023, primarily included our approximate 5% minority interest in Devyani International Limited (“Devyani”), a franchise entity that operates KFC and Pizza Hut restaurants in India, with a fair value of $124 million. During the quarter ended March 31, 2024, we sold our ownership interest in Devyani for net proceeds of $104 million and recognized pre-tax investment losses of $20 million related to changes in fair value prior to the date of sale.

Note 14 - Contingencies

Internal Revenue Service Proposed Adjustment

As a result of an audit by the Internal Revenue Service (“IRS”) for fiscal years 2013 through 2015, in August 2022, we received a Revenue Agent’s Report (“RAR”) from the IRS asserting an underpayment of tax of $2.1 billion plus $418 million in penalties for the 2014 fiscal year. Additionally, interest on the underpayment is estimated to be approximately $1.2 billion through the second quarter of 2024. The proposed underpayment relates primarily to a series of reorganizations we undertook during that year in connection with the business realignment of our corporate and management reporting structure along brand lines. 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. In March 2023, we received the IRS Examination Division’s Rebuttal to our Protest and the matter is proceeding with the IRS Office of Appeals.

20

The Company does not expect resolution of this matter within twelve months and cannot predict with certainty the timing of such resolution. The Company believes that it is more likely than not the Company’s tax position will be sustained; therefore, no reserve is recorded with respect to this matter.

An unfavorable resolution of this matter could have a material, adverse impact on our Condensed Consolidated Financial Statements in future periods.

Lease Guarantees

As a result of having assigned our interest in obligations under real estate leases as a condition to the refranchising of certain Company-owned restaurants, and guaranteeing certain other leases, we are frequently secondarily liable on lease agreements.  These leases have varying terms, the latest of which expires in 2065.  As of June 30, 2024, the potential amount of undiscounted payments we could be required to make in the event of non-payment by the primary lessee was approximately $375 million. The present value of these potential payments discounted at our pre-tax cost of debt at June 30, 2024, was approximately $300 million.  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 June 30, 2024, 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 July 30, 2024 has been rescheduled to October 8, 2024. A hearing held on August 1, 2024, before the Delhi High Court has been continued to September 17, 2024, and the stay order remains in effect. We deny liability and intend to continue vigorously defending this matter. We do not consider the risk of any significant loss arising from this order to be probable.

Other Matters

We are currently engaged in various other legal proceedings and have certain unresolved claims pending, the ultimate liability for which, if any, cannot be determined at this time. However, based upon consultation with legal counsel, we are of the opinion that such proceedings and claims are not expected to have a material adverse effect, individually or in the aggregate, on our Condensed Consolidated Financial Statements.

21

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, 2023, (“2023 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 over 59,000 restaurants in more than 155 countries and territories, primarily under the concepts of KFC, Taco Bell, Pizza Hut and The Habit Burger Grill (collectively, the