YUM BRANDS INC

Previous wording

•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). Same-store sales growth excludes, for subsidiaries operating on a monthly calendar, the extra day resulting from a leap year and excludes, for subsidiaries operating on a weekly periodic calendar, the last week of the year in fiscal years with 53 weeks. 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.

Current wording

•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, boycotts, social or civil unrest 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). Same-store sales growth excludes, for subsidiaries operating on a monthly calendar, the extra day resulting from a leap year and excludes, for subsidiaries operating on a weekly periodic calendar, the last week of the year in fiscal years with 53rd weeks. 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.

Previous wording

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.

Current wording

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. Further, while we generally include depreciation and amortization of restaurant-level assets within Divisional Company restaurant expenses used to derive Divisional Company restaurant profit, we record amortization of reacquired franchise rights arising from acquisition accounting within Corporate and Unallocated Company restaurant expenses as such amortization is not believed to be indicative of ongoing Divisional results as well as to enhance comparability of acquired stores' margins with those of existing restaurants. Company restaurant profit and Company restaurant margin % as presented may not be comparable to other similarly titled measures of other companies in the industry.

Previous wording

•Foreign currency translation unfavorably impacted Divisional Operating Profit by $11 million for the quarter ended March 31, 2024.

Current wording

•Foreign currency translation unfavorably impacted Divisional Operating Profit by $12 million and $23 million for the quarter and year to date ended June 30, 2024, respectively.

Previous wording

•Gross unit openings for the quarter were 808 units resulting in 421 net new units.

Current wording

•Gross unit openings for the quarter were 894 units resulting in 488 net new units. Gross unit openings for the year to date were 1,702 units resulting in 909 net new units.

Previous wording

(a) Due to their size and volatility, we have reflected as Special Items those refranchising gains and losses that were recorded in connection with market-wide refranchisings. During the quarters ended March 31, 2024 and 2023, we recorded net refranchising losses of $3 million and net refranchising gains of $3 million, respectively, that have been reflected as Special Items.

Current wording

(a) Due to their size and volatility, we have reflected as Special Items those refranchising gains and losses that were recorded in connection with market-wide refranchisings. During the quarters ended June 30, 2024 and 2023, we recorded net refranchising losses of $1 million and net refranchising gains of $2 million, respectively, that have been reflected as Special Items. During the years to date ended June 30, 2024 and 2023, we recorded net refranchising losses of $4 million and net refranchising gains of $5 million, respectively, that have been reflected as Special Items.

Previous wording

Additionally, we recorded net refranchising gains of $8 million and $1 million during the quarters ended March 31, 2024 and 2023, respectively, that have not been reflected as Special Items. These net refranchising gains relate to refranchising of restaurants unrelated to market-wide refranchisings that we believe are indicative of our expected ongoing refranchising activity.

Current wording

Additionally, we recorded net refranchising gains of $15 million during both quarters ended June 30, 2024 and 2023 that have not been reflected as Special Items. During the years to date ended June 30, 2024 and 2023, we recorded net refranchising gains of $23 million and $16 million, respectively, that have not been reflected as Special Items. These net refranchising gains relate to refranchising of restaurants unrelated to market-wide refranchisings that we believe are indicative of our expected ongoing refranchising activity.

Previous wording

(b)In April 2023, we completed our exit from the Russia market by selling the KFC business in Russia to Smart Service Ltd. Our GAAP operating results for the quarter ended March 31, 2023 presented herein reflect revenues from and expenses to support the Russian operations for KFC prior to the date of sale, 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 of Ukraine to humanitarian efforts, we reclassed such net operating profits or losses from the KFC Division segment results to Unallocated Other income (expense). Additionally, we incurred certain expenses related to the disposition of the business and other one-time costs related to our exit from Russia which we recorded within Corporate and unallocated G&A and Unallocated Franchise and property expenses. The resulting net Operating Loss of $3 million for the quarter ended March 31, 2023 has been reflected as a Special Item.

Current wording

(b)In April 2023, we completed our exit from the Russia market by selling the KFC business in Russia to Smart Service Ltd. Our GAAP operating results presented herein reflect revenues from and expenses to support the Russian operations for KFC prior to the date of sale, 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 KFC Division segment results to Unallocated Other income (expense). Additionally, we incurred certain expenses related to the dispositions of the businesses and other one-time costs related to our exit from Russia which we recorded within Corporate and unallocated G&A and Unallocated Franchise and property expenses. The resulting net Operating Loss of $9 million and $12 million for the quarter and year to date ended June 30, 2023, respectively, has been reflected as a Special Item.

Previous wording

(c)We recorded charges of $21 million and $3 million during the quarters ended March 31, 2024 and 2023, respectively, to General and administrative expenses related to a resource optimization program. This program has allowed us to reallocate significant resources to accelerate our digital, technology and innovation capabilities to deliver a modern, world-class team member and customer experience and improve unit economics. We have recently expanded the program to identify further opportunities to optimize the Company’s spending and identify additional, critical areas in which to potentially reallocate resources, both with a goal to enable the acceleration of the Company’s growth rate. Costs incurred to date related to the program primarily include severance associated with positions that have been eliminated or relocated and consultant fees. Due to their scope and size, these charges have been reflected as Special Items.

Current wording

(c)We recorded charges of $25 million and $46 million during the quarter and year to date ended June 30, 2024, respectively, and $8 million and $10 million during the quarter and year to date ended June 30, 2023, respectively, to General and administrative expenses related to a resource optimization program. This program has allowed us to reallocate significant resources to accelerate our digital, technology and innovation capabilities to deliver a modern, world-class team member and customer experience and improve unit economics. We recently expanded the program to identify further opportunities to optimize the Company’s spending and identify additional, critical areas in which to potentially reallocate resources, both with a goal to enable the acceleration of the Company’s growth rate. Costs incurred to date related to the program include severance associated with positions that have been eliminated or relocated and consultant fees. Due to their scope and size, these charges have been reflected as Special Items.

Previous wording

(d)The below table includes the detail of Special Items Tax (Benefit) Expense:

Current wording

(d)The below table includes the detail of Special Items Tax Benefit:

Previous wording

Tax (Benefit) Expense on Special Items Operating Profit and Interest Expense was determined by assessing the tax impact of each individual component within Special Items based upon the nature of the item and jurisdictional tax law.

Current wording

Tax Benefit on Special Items Operating Profit was determined by assessing the tax impact of each individual component within Special Items based upon the nature of the item and jurisdictional tax law.

Previous wording

Other Income Tax impacts recorded as Special in the quarter ended March 31, 2024 include benefits related to the reversal of a reserve due to the favorable resolution of a tax audit in a foreign jurisdiction. Such reserve was established in prior years related to income tax liabilities originally recorded as a Special Item as part of an intercompany restructuring of intellectual property.

Current wording

Other Income Tax impacts recorded as Special in the year to date ended June 30, 2024 and the quarter and year to date ended June 30, 2023 include benefits related to the reversal of reserves due to the favorable resolutions of tax audits in foreign jurisdictions. Such reserves were established in prior years related to income tax liabilities and deferred tax assets originally recorded as Special Items as part of intercompany restructurings of intellectual property. Other Income Tax impacts recorded as Special in the quarter and year to date ended June 30, 2023 also include the release of valuation allowances associated with a jurisdiction in which a market-wide refranchising event occurred.

Previous wording

During the fourth quarter of 2023, certain of our markets, principally in our KFC and Pizza Hut Divisions, began being impacted by a military conflict in the Middle East region. While the impacts from the Middle East conflict have been scattered and difficult to measure, we believe the markets most impacted by the conflict, which include markets in the Middle East, Indonesia and Malaysia, collectively created a low single-digit headwind to YUM's overall same-store sales growth during the quarter ended March 31, 2024. We continue to expect this impact to decrease with sales improving in the most impacted markets over the balance of 2024.

Current wording

During the fourth quarter of 2023, certain of our markets, principally in our KFC and Pizza Hut Divisions, began being impacted by a military conflict in the Middle East region. Our sales continue to be impacted significantly in markets across the Middle East, Malaysia and Indonesia, and the recovery trajectory we observed in these markets in the quarter ended March 31, 2024 flattened during the quarter ended June 30, 2024. The impact in the Middle East, Malaysia and Indonesia represented a low single-digit headwind to YUM's overall same-store sales growth in both the quarter and year to date ended June 30, 2024.

Previous wording

Changes in foreign currency exchange rates negatively impacted the translation of our foreign currency denominated Divisional Operating Profit by $11 million for the quarter ended March 31, 2024. This included a negative impact to our KFC Division Operating Profit of $10 million for the quarter ended March 31, 2024. We currently expect changes in foreign currency to negatively impact Divisional Operating Profit by approximately $20 to $30 million on a full-year basis.

Current wording

Changes in foreign currency exchange rates negatively impacted the translation of our foreign currency denominated Divisional Operating Profit by $12 million and $23 million for the quarter and year to date ended June 30, 2024, respectively. This included a negative impact to our KFC Division Operating Profit of $10 million and $20 million for the quarter and year to date ended June 30, 2024, respectively. We currently expect changes in foreign currency to negatively impact Divisional Operating Profit by approximately $25 to $35 million on a full-year basis.

Previous wording

During the quarter ended March 31, 2024, we sold our approximate 5% minority investment in Devyani International Limited ("Devyani"), a franchise entity that operates KFC and Pizza Hut restaurants in India, for pre-tax proceeds of $104 million. Changes in the fair value of our ownership interest in Devyani prior to the date of sale resulted in pre-tax investment losses of $20 million and $23 million in the quarters ended March 31, 2024 and 2023, respectively.

Current wording

During the quarter ended March 31, 2024, we sold our approximate 5% minority investment in Devyani International Limited ("Devyani"), a franchise entity that operates KFC and Pizza Hut restaurants in India, for pre-tax proceeds of $104 million. Changes in the fair value of our ownership interest in Devyani prior to the date of sale resulted in pre-tax investment losses of $20 million in the year to date ended June 30, 2024 and pre-tax gains of $28 million and $5 million in the quarter and year to date ended June 30, 2023, respectively.

Previous wording

The KFC Division has 30,251 units, 87% of which are located outside the U.S. Additionally, 99% of the KFC Division units were operated by franchisees as of March 31, 2024.

Current wording

The KFC Division has 30,689 units, 88% of which are located outside the U.S. Additionally, 99% of the KFC Division units were operated by franchisees as of June 30, 2024.

Previous wording

The quarterly decrease in Company sales, excluding the impact of foreign currency translation, was driven by a Company same-store sales decline of 4%.

Current wording

The quarterly and year to date increase in Company sales, excluding the impact of foreign currency translation, was driven by the KFC U.K. and Ireland restaurant acquisition (see Note 2) in the quarter ended June 30, 2024, partially offset by Company same-store sales declines of 4%.

Previous wording

The quarterly decrease in Franchise and property revenues, excluding the impacts of foreign currency translation, was driven by a 3% negative impact from the sale of our KFC Russia business and a franchise same-store sales decline of 2%, partially offset by unit growth.

Current wording

The year to date decrease in Franchise and property revenues, excluding the impacts of foreign currency translation, was driven by franchise same-store sales decline of 3% and a 2% negative impact from the sale of our KFC Russia business, partially offset by unit growth.

Previous wording

The quarterly decrease in G&A, excluding the impact of foreign currency translation, was driven by the impact of the sale of the KFC Russia business.

Current wording

The year to date decrease in G&A, excluding the impact of foreign currency translation, was driven by lower expenses related to our annual incentive compensation programs, the impact of the sale of our KFC Russia business and lower travel related costs, partially offset by higher professional fees.

Previous wording

The Taco Bell Division has 8,555 units, 87% of which are in the U.S. The Company owned 7% of the Taco Bell units in the U.S. as of March 31, 2024.

Current wording

The Taco Bell Division has 8,565 units, 87% of which are in the U.S. The Company owned 7% of the Taco Bell units in the U.S. as of June 30, 2024.

Previous wording

The quarterly increase in Company restaurant margin percentage was driven by same-store sales growth partially offset by higher labor and other restaurant operating costs.

Current wording

The year to date increase in Company restaurant margin percentage was driven by same-store sales growth partially offset by higher labor and other restaurant operating costs.

Previous wording

The quarterly increase in G&A was driven by increased legal costs, higher digital and technology expenses and higher headcount and salaries partially offset by lower share-based compensation.

Current wording

The year to date increase in G&A was driven by higher digital and technology expenses and higher headcount and salaries partially offset by lower share-based compensation.

Previous wording

The quarterly increase in Operating Profit was driven by unit growth and same-store sales growth partially offset by higher restaurant operating costs, higher Franchise advertising and other service expense primarily related to digital and technology expenses, higher bad debt expense lapping prior year net bad debt recoveries for past due franchise receivables and increased G&A.

Current wording

The year to date increase in Operating Profit was driven by same-store sales growth and unit growth partially offset by higher restaurant operating costs and higher Franchise advertising and other service expense primarily related to digital and technology expenses.

Previous wording

The Pizza Hut Division has 19,942 units, 67% 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 March 31, 2024.

Current wording

The Pizza Hut Division has 19,864 units, 67% 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 June 30, 2024.

Previous wording

G&A, excluding the impacts of foreign currency translation, was largely flat.

Current wording

On a year to date basis, G&A, excluding the impacts of foreign currency translation, was largely flat.

Previous wording

The quarterly increase in Operating Profit, excluding the impact of foreign currency translation, was driven by unit growth and lower Franchise and property expenses, primarily due to lapping global franchise convention expenses in the prior year, partially offset by a same-store sales decline.

Current wording

The quarterly increase in Operating Profit, excluding the impacts of foreign currency translation, was driven by unit growth and lower G&A partially offset by a same-store sales decline.

Previous wording

The Habit Burger Grill Division has 381 units, the vast majority of which are in the U.S. The Company owned 84% of the Habit Burger Grill units in the U.S. as of March 31, 2024.

Current wording

The Habit Burger Grill Division has 380 units, the vast majority of which are in the U.S. The Company owned 84% of the Habit Burger Grill units in the U.S. as of June 30, 2024.

Previous wording

The quarterly increase in Corporate and Unallocated G&A expense was driven by costs associated with our resource optimization program, partially offset by lapping costs related to the prior year ransomware attack.

Current wording

The year to date increases in Corporate and Unallocated G&A expense was driven by higher costs associated with our resource optimization program, partially offset by lapping costs related to the prior year ransomware attack and lower current year expenses related to our annual incentive compensation programs.

Previous wording

The quarterly decrease in Interest expense, net was primarily driven by lower borrowings and higher interest income, partially offset by a higher weighted-average interest rate.

Current wording

The year to date decrease in Interest expense, net was primarily driven by lower borrowings and higher interest income.

Previous wording

Net cash provided by operating activitieswas $363 million in 2024 versus $349 million in 2023. The increase was primarily driven by an increase in Operating Profit before Special Items and timing of spending on advertising, partially offset by higher income tax payments.

Current wording

Net cash provided by operating activitieswas $705 million in 2024 versus $678 million in 2023. The increase was primarily driven by an increase in Operating Profit before Special Items and timing of accounts receivable collections, partially offset by higher income tax payments.

Previous wording

Net cash provided by investing activitieswas $45 million in 2024 compared to net cash used in investing activities of $56 million in 2023. The change was primarily driven by proceeds from the sale of our approximate 5% minority investment in Devyani in 2024.

Current wording

Net cash used in investing activitieswas $253 million in 2024 compared to net cash provided by investing activities of $26 million in 2023. The change was primarily driven by outflows in the current year related to the KFC U.K. and Ireland restaurant acquisition and lapping proceeds from the prior year sale of KFC Russia. Current year proceeds arising from the sale of our approximate 5% minority investment in Devyani were primarily offset with higher current year purchases of short-term investments.

Previous wording

Net cash used in financing activitieswas $247 million in 2024 versus $334 million in 2023. The change was primarily driven by lower net debt repayments and lapping prior year share repurchases.

Current wording

Net cash used in financing activitieswas $547 million in 2024 versus $698 million in 2023. The change was primarily driven by lower current year net debt repayments.

Previous wording

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 five years and we expect that to continue to be the case in 2024. 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 undrawn as of March 31, 2024. The borrowing capacity under our Revolving Facility was increased to $1.5 billion as part of the April 2024 refinancing of the Credit Agreement as discussed in Note 10. We believe that our ongoing cash from operations, cash on hand, which was approximately $650 million at March 31, 2024, and availability under our Revolving Facility will be sufficient to fund our cash requirements over the next twelve months.

Current wording

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 five years and we expect that to continue to be the case in 2024. 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 $1.5 billion Revolving Facility under our Credit Agreement which had $180 million outstanding as of June 30, 2024. We believe that our ongoing cash from operations, cash on hand, which was approximately $400 million at June 30, 2024, and availability under our Revolving Facility will be sufficient to fund our cash requirements over the next twelve months.

Previous wording

As of March 31, 2024, approximately 94%, including the impact of interest rate swaps, of our $11.2 billion of total debt outstanding, excluding finance leases and debt issuance costs and discounts, is fixed with an effective overall interest rate of approximately 4.6%. We ended the quarter with a consolidated net leverage ratio of 4.1x EBITDA. We continually reassess our optimal leverage ratio to maximize shareholder returns. We target a capital structure 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).

Current wording

As of June 30, 2024, approximately 96%, including the impact of interest rate swaps, of our $11 billion of total debt outstanding, excluding the Revolving Facility balance, finance leases and debt issuance costs and discounts, is fixed with an effective overall interest rate of approximately 4.5%. We ended the quarter with a consolidated net leverage ratio of 4.1x EBITDA. We continually reassess our optimal leverage ratio to maximize shareholder returns. We target a capital structure 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).

Previous wording

See Note 10 for a discussion of the refinancing of the Credit Agreement that took place in April 2024.

Current wording

See Note 11 for details on the Securitization Notes, the Credit Agreement, Revolving Facility, Subsidiary Senior Unsecured Notes and YUM Senior Unsecured Notes, including a refinancing of the Credit Agreement that took place in April 2024.