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YUM Yum Brands

Filed: 4 May 21, 8:00pm

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
March 31, 2021
OR
 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

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

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

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

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes No x
The number of shares outstanding of the registrant’s Common Stock as of April 29, 2021 was 297,901,153 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 ended
Revenues3/31/20213/31/2020
Company sales$476 $355 
Franchise and property revenues658 596 
Franchise contributions for advertising and other services352 312 
Total revenues1,486 1,263 
Costs and Expenses, Net
Company restaurant expenses392 298 
General and administrative expenses206 208 
Franchise and property expenses23 58 
Franchise advertising and other services expense343 310 
Refranchising (gain) loss(15)(13)
Other (income) expense(6)152 
Total costs and expenses, net943 1,013 
Operating Profit543 250 
Investment (income) expense, net34 
Other pension (income) expense
Interest expense, net131 118 
Income Before Income Taxes409 95 
Income tax provision83 12 
Net Income$326 $83 
Basic Earnings Per Common Share$1.09 $0.28 
Diluted Earnings Per Common Share$1.07 $0.27 
Dividends Declared Per Common Share$0.50 $0.47 
See accompanying Notes to Condensed Consolidated Financial Statements.

4


CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
YUM! BRANDS, INC. AND SUBSIDIARIES
(in millions)
Quarter ended
3/31/20213/31/2020
Net Income$326 $83 
Other comprehensive income (loss), 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(102)
(102)
Tax (expense) benefit
(102)
Changes in pension and post-retirement benefits
Unrealized gains (losses) arising during the period47 
Reclassification of (gains) losses into Net Income
54 
Tax (expense) benefit(13)(1)
41 
Changes in derivative instruments
Unrealized gains (losses) arising during the period24 (77)
Reclassification of (gains) losses into Net Income(6)
28 (83)
Tax (expense) benefit(7)20 
21 (63)
Other comprehensive income (loss), net of tax65 (161)
Comprehensive Income (Loss)$391 $(78)
See accompanying Notes to Condensed Consolidated Financial Statements.

5


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
YUM! BRANDS, INC. AND SUBSIDIARIES
(in millions)
 Quarter ended
 3/31/20213/31/2020
Cash Flows – Operating Activities  
Net Income$326 $83 
Depreciation and amortization39 27 
Impairment and closure expense140 
Refranchising (gain) loss(15)(13)
Investment (income) expense, net34 
Contributions to defined benefit pension plans(2)(1)
Deferred income taxes14 (31)
Share-based compensation expense21 18 
Changes in accounts and notes receivable27 25 
Changes in prepaid expenses and other current assets(9)(17)
Changes in accounts payable and other current liabilities(123)(51)
Changes in income taxes payable(11)
Other, net40 35 
Net Cash Provided by Operating Activities324 238 
Cash Flows – Investing Activities
Capital spending(45)(35)
Acquisition of The Habit Restaurants, Inc., net of cash acquired(408)
Proceeds from refranchising of restaurants20 
Other, net39 
Net Cash Provided by (Used in) Investing Activities14 (441)
Cash Flows – Financing Activities
Proceeds from long-term debt800 
Repayments of long-term debt(912)(20)
Revolving credit facility, three months or less, net950 
Short-term borrowings by original maturity
More than three months - proceeds66 
More than three months - payments(44)
Three months or less, net
Repurchase shares of Common Stock(286)
Dividends paid on Common Stock(150)(141)
Debt issuance costs(5)
Other, net(10)(13)
Net Cash Provided by (Used in) Financing Activities(563)798 
Effect of Exchange Rates on Cash and Cash Equivalents(53)
Net Increase (Decrease) in Cash and Cash Equivalents, Restricted Cash and Restricted Cash Equivalents(222)542 
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - Beginning of Period1,024 768 
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - End of Period$802 $1,310 
See accompanying Notes to Condensed Consolidated Financial Statements.  

6


CONDENSED CONSOLIDATED BALANCE SHEETS
YUM! BRANDS, INC. AND SUBSIDIARIES
(in millions)
(Unaudited) 3/31/202112/31/2020
ASSETS  
Current Assets  
Cash and cash equivalents$561 $730 
Accounts and notes receivable, net508 534 
Prepaid expenses and other current assets385 425 
Total Current Assets1,454 1,689 
Property, plant and equipment, net1,215 1,235 
Goodwill597 597 
Intangible assets, net354 343 
Other assets1,416 1,435 
Deferred income taxes514 553 
Total Assets$5,550 $5,852 
LIABILITIES AND SHAREHOLDERS’ DEFICIT  
Current Liabilities  
Accounts payable and other current liabilities$1,061 $1,189 
Income taxes payable24 33 
Short-term borrowings394 453 
Total Current Liabilities1,479 1,675 
Long-term debt10,229 10,272 
Other liabilities and deferred credits1,754 1,796 
Total Liabilities13,462 13,743 
Shareholders’ Deficit  
Common Stock, 0 par value, 750 shares authorized; 298 shares issued in 2021 and 300 issued in 2020
Accumulated deficit(7,566)(7,480)
Accumulated other comprehensive loss(346)(411)
Total Shareholders’ Deficit(7,912)(7,891)
Total Liabilities and Shareholders’ Deficit$5,550 $5,852 
See accompanying Notes to Condensed Consolidated Financial Statements.  
7


CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT (Unaudited)
YUM! BRANDS, INC. AND SUBSIDIARIES
Quarters ended March 31, 2021 and 2020
(in millions)
 Yum! Brands, Inc. 
 Issued Common StockAccumulated DeficitAccumulated
Other Comprehensive Loss
Total Shareholders' Deficit
 SharesAmount
Balance at December 31, 2020300 $$(7,480)$(411)$(7,891)
Net Income326 326 
Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature
Pension and post-retirement benefit plans (net of tax impact of $13 million)41 41 
Net gain on derivative instruments (net of tax impact of $7 million)21 21 
Comprehensive Income391 
Dividends declared(151)(151)
Repurchase of shares of Common Stock(3)(14)(261)(275)
Employee share-based award exercises(10)(10)
Share-based compensation events24 24 
Balance at March 31, 2021298 $$(7,566)$(346)$(7,912)
Balance at December 31, 2019300 $$(7,628)$(388)$(8,016)
Net Income83 83 
Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature(102)(102)
Pension and post-retirement benefit plans (net of tax impact of $1 million)
Net loss on derivative instruments (net of tax impact of $20 million)(63)(63)
Comprehensive Income(78)
Dividends declared(142)(142)
Repurchase of shares of Common Stock
Employee share-based award exercises(13)(13)
Share-based compensation events28 28 
Adoption of Expected Credit Loss accounting standard(8)(8)
Balance at March 31, 2020301 $15 $(7,695)$(549)$(8,229)
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, 2020, (“2020 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 50,000 restaurants in more than 150 countries and territories.  As of March 31, 2021, 98% of these restaurants were owned and operated by franchisees.  The Company’s KFC, Pizza Hut and Taco Bell brands are global leaders of the chicken, pizza and Mexican-style food categories, respectively. The Habit Burger Grill, a concept we acquired on March 18, 2020, is a fast-casual restaurant concept specializing in made-to-order chargrilled burgers, sandwiches and more.

As of March 31, 2021, YUM consisted of 4 operating segments:  

The KFC Division which includes our worldwide operations of the KFC concept
The Pizza Hut Division which includes our worldwide operations of the Pizza Hut concept
The Taco Bell Division which includes our worldwide operations of the Taco Bell 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 3 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 consists 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 Habit Burger Grill Division operates on a weekly periodic calendar where each quarter consists of 13 weeks, except in fiscal years with 53 weeks when the fourth quarter consists of 14 weeks.

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 2020 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.

Note 2 - Habit Burger Grill Acquisition

On March 18, 2020, we completed the acquisition of all of the issued and outstanding common shares of The Habit Restaurants, Inc. As of the date of acquisition, The Habit Restaurants, Inc. operated 245 company-owned and 31 franchised Habit Burger Grill restaurants across the U.S. and in China, offering a flavor-forward variety of made-to-order items chargrilled over an open flame. We expect Habit Burger Grill to benefit from the global scale and resources of YUM and that the acquisition will accelerate and diversify YUM's growth.

Total cash consideration paid in connection with the acquisition was $408 million, net of acquired cash of $20 million. The acquisition was accounted for as a business combination using the acquisition method of accounting. During the quarter ended March 31, 2021, we finalized our estimate of the fair value of the net assets acquired, which resulted in goodwill being reduced by $15 million compared to the initial fair value estimate recorded in the quarter ended March 31, 2020 ($2 million of this reduction was recorded in the quarter ended March 31, 2021). The final allocation of consideration to the net tangible and intangible assets acquired upon the March 18, 2020 acquisition is presented in the table below.
9



Total Current Assets$11 
Property, plant and equipment, net111 
Habit Burger Grill brand (included in Intangible assets, net)96 
Operating lease right-of-use assets (included in Other assets)196 
Other assets28 
Total Assets442 
Total Current Liabilities(68)
Operating lease liabilities (included in Other liabilities and deferred credits)(170)
Total Liabilities(238)
Total identifiable net assets204 
Goodwill204 
Net consideration transferred$408 

During the first quarter of 2020, the operations of substantially all Habit Burger Grill restaurants were impacted by COVID-19. As a result, we performed an interim impairment test of the Habit Burger Grill reporting unit goodwill as of March 31, 2020. This test of impairment included comparing the estimated fair value of the Habit Burger Grill reporting unit to its carrying value, including goodwill, as originally determined through our preliminary purchase price allocation. The fair value estimate of the Habit Burger Grill reporting unit was based on the estimated price a willing buyer would pay for the reporting unit and was determined using an income approach through a discounted cash flow analysis using unobservable inputs (Level 3). The most impactful of these inputs included future average unit volumes of Habit Burger Grill restaurants as well as restaurant unit counts. The fair value was determined based upon a probability-weighted average of three scenarios, which included assumed recovery of Habit Burger Grill average unit volumes to a pre—COVID-19 level over periods ranging from the beginning of 2021 to the end of 2022. Factors impacting restaurant unit counts were near-term unit closures as the result of COVID-19 as well as the pace of expected new unit development. Unit counts assumed were correlated with the expected recoveries in average unit volumes. Based upon this fair value estimate, we determined that the carrying value of our Habit Burger Grill reporting unit exceeded its fair value. As a result, during the first quarter of 2020 we recorded a goodwill impairment charge of $139 million to Other (income) expense and a corresponding income tax benefit of $32 million. As we continued to refine our preliminary purchase price allocation in the quarter ended September 30, 2020, the impairment charge was adjusted upward by $5 million, which resulted in a corresponding income tax benefit of $1 million. Subsequent to these 2020 goodwill impairment charges and the finalization of the allocation of consideration to the net assets acquired (described above), the Habit Burger Grill reporting unit goodwill is approximately $60 million as of March 31, 2021.

10



Note 3 - Earnings Per Common Share (“EPS”)
 Quarter ended
 20212020
Net Income$326 $83 
Weighted-average common shares outstanding (for basic calculation)301 302 
Effect of dilutive share-based employee compensation
Weighted-average common and dilutive potential common shares outstanding (for diluted calculation)305 307 
Basic EPS$1.09 $0.28 
Diluted EPS$1.07 $0.27 
Unexercised employee stock options and stock appreciation rights (in millions) excluded from the diluted EPS computation(a)
2.3 4.2 

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

11


Note 4 - Shareholder's Deficit

Under the authority of our Board of Directors, we repurchased shares of our Common Stock during the quarters ended March 31, 2021 and 2020 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 Date20212020202120202021
November 20192,599 (a)$275 (a)$$1,475

(a) Excludes the effect of $11 million in share repurchases (0.1 million shares) with trade dates on, or prior to, December 31, 2020, but cash settlement dates subsequent to December 31, 2020.

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 December 31, 2020, net of tax$(182)$(96)$(133)$(411)
OCI, net of tax
Gains (losses) arising during the period classified into AOCI, net of tax36 18 57 
(Gains) losses reclassified from AOCI, net of tax
41 21 65 
Balance at March 31, 2021, net of tax$(179)$(55)$(112)$(346)

Note 5 - Other (Income) Expense
Quarter ended
 3/31/20213/31/2020
Foreign exchange net (gain) loss and other(a)
$(7)$12 
Impairment and closure expense(b)
140 
Other (income) expense$(6)$152 

(a)    The quarter ended March 31, 2021, includes a gain of $6 million associated with the sale of property.

(b)    The quarter ended March 31, 2020, includes a charge of $139 million related to the impairment of Habit Burger Grill goodwill. See Note 2.


12


Note 6 - Supplemental Balance Sheet Information

Accounts and Notes Receivable, net

The Company’s receivables are primarily generated from ongoing business relationships with our franchisees as a result of franchise and lease agreements.  Trade receivables consisting of royalties from franchisees are generally due within 30 days of the period in which the corresponding sales occur and are classified as Accounts and notes receivable, net in our Condensed Consolidated Balance Sheets.  Accounts and notes receivable, net also includes receivables generated from advertising cooperatives that we consolidate.
3/31/202112/31/2020
Accounts and notes receivable, gross$545 $579 
Allowance for doubtful accounts(37)(45)
Accounts and notes receivable, net$508 $534 

Property, Plant and Equipment, net
3/31/202112/31/2020
Property, plant and equipment, gross$2,466 $2,465 
Accumulated depreciation and amortization(1,251)(1,230)
Property, plant and equipment, net$1,215 $1,235 

Assets held-for-sale totaled $17 million and $7 million, respectively, as of March 31, 2021 and December 31, 2020, and are included in Prepaid expenses and other current assets in our Condensed Consolidated Balance Sheets.

Other Assets3/31/202112/31/2020
Operating lease right-of-use assets(a)
$840 $851 
Franchise incentives171 163 
Other405 421 
Other assets$1,416 $1,435 

(a)    Non-current operating lease liabilities of $816 million and $823 million as of March 31, 2021 and December 31, 2020, respectively, are included in Other liabilities and deferred credits in our Condensed Consolidated Balance Sheets.

Reconciliation of Cash and Cash Equivalents for Condensed Consolidated Statements of Cash Flows
3/31/202112/31/2020
Cash and cash equivalents as presented in Condensed Consolidated Balance Sheets$561 $730 
Restricted cash included in Prepaid expenses and other current assets(a)
207 258 
Restricted cash and restricted cash equivalents included in Other assets(b)
34 36 
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents as presented in Condensed Consolidated Statements of Cash Flows$802 $1,024 

(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 Taco Bell Securitization interest reserves.

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

13




Note 7 - Income Taxes
 Quarter ended
 20212020
Income tax provision$83 $12 
Effective tax rate20.2 %12.5 %

The increase in our effective tax rate for the first quarter 2021 as compared with the first quarter 2020 is primarily due to a reduction in the rate impact of the benefit associated with excess tax benefits on share-based compensation due to pre-tax earnings being significantly lower in the first quarter 2020 as compared to the first quarter 2021.

Note 8 - Revenue Recognition

Disaggregation of Total Revenues

The following tables disaggregate revenue by Concept, for our two most significant markets based on Operating Profit and for all other markets. We believe this disaggregation best reflects the extent to which the nature, amount, timing and uncertainty of our revenues and cash flows are impacted by economic factors.
Quarter ended 3/31/2021
KFC DivisionPizza Hut DivisionTaco Bell DivisionHabit Burger Grill DivisionTotal
U.S.
Company sales$14 $$208 $121 $348 
Franchise revenues44 67 144 256 
Property revenues10 14 
Franchise contributions for advertising and other services79 117 202 
China
Franchise revenues62 16 78 
Other
Company sales119 128 
Franchise revenues230 57 295 
Property revenues14 15 
Franchise contributions for advertising and other services132 17 150 
$625 $251 $488 $122 $1,486 
14


Quarter ended 3/31/2020
KFC DivisionPizza Hut DivisionTaco Bell DivisionHabit Burger Grill DivisionTotal
U.S.
Company sales$16 $$198 $$228 
Franchise revenues38 62 131 231 
Property revenues10 15 
Franchise contributions for advertising and other services70 107 181 
China
Franchise revenues47 10 57 
Other
Company sales114 13 127 
Franchise revenues212 59 278 
Property revenues14 15 
Franchise contributions for advertising and other services117 14 131 
$566 $235 $453 $$1,263 
0
0Contract Liabilities

Our contract liabilities are comprised of unamortized upfront fees received from franchisees. A summary of significant changes to the contract liability balance during 2021 is presented below.

Deferred Franchise Fees
Balance at December 31, 2020$415 
Revenue recognized that was included in unamortized upfront fees received from franchisees at the beginning of the period(17)
Increase for upfront fees associated with contracts that became effective during the period, net of amounts recognized as revenue during the period12 
Other(a)
(3)
Balance at March 31, 2021$407 

(a)    Primarily includes impact of foreign currency translation.

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

Less than 1 year$64 
1 - 2 years59 
2 - 3 years54 
3 - 4 years49 
4 - 5 years43 
Thereafter138 
Total$407 

15



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
Revenues20212020
KFC Division$625 $566 
Pizza Hut Division251 235 
Taco Bell Division488 453 
Habit Burger Grill Division122 
 $1,486 $1,263 

 Quarter ended
Operating Profit20212020
KFC Division$300 $224 
Pizza Hut Division102 76 
Taco Bell Division178 144 
Habit Burger Grill Division(2)
Corporate and unallocated G&A expenses(50)(50)
Unallocated Company restaurant expenses(1)
Unallocated Franchise and property expenses(2)
Unallocated Refranchising gain (loss)15 13 
Unallocated Other income (expense) (See Note 5)(2)(152)
Operating Profit$543 $250 
Investment income (expense), net(a)
(34)
Other pension income (expense) (See Note 10)(3)(3)
Interest expense, net(b)
(131)(118)
Income before income taxes$409 $95 

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)Includes changes in the value of Grubhub, Inc. ("Grubhub") common stock and other investments. For the quarter ended March 31, 2020, we recognized investment expense of $22 million related to changes in fair value of our investment in Grubhub common stock. In the quarter ended September 30, 2020, we sold our investment in Grubhub.

(b)Includes fees expensed and unamortized debt issuance costs written off totaling $12 million related to the refinancing of the Credit Agreement during the quarter ended March 31, 2021 (see Note 11).


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. plan as benefits are paid.  The Plan and our non-qualified plan in the U.S. are closed to new salaried participants.  

16


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

 Quarter ended
 20212020
Service cost$$
Interest cost
Expected return on plan assets(11)(11)
Amortization of net loss
Amortization of prior service cost
Net periodic benefit cost$$
Note 11 - Short-term Borrowings and Long-term Debt

Short-term Borrowings3/31/202112/31/2020
Current maturities of long-term debt$401 $463 
Less current portion of debt issuance costs and discounts(7)(10)
Short-term borrowings$394 $453 
Long-term Debt  
Securitization Notes$2,861 $2,869 
Subsidiary Senior Unsecured Notes1,800 1,800 
Term Loan A Facility750 431 
Term Loan B Facility1,500 1,916 
YUM Senior Unsecured Notes3,725 3,725 
Finance lease obligations69 72 
$10,705 $10,813 
Less debt issuance costs and discounts(75)(78)
Less current maturities of long-term debt(401)(463)
Long-term debt$10,229 $10,272 

Details of our Short-term borrowings and Long-term debt as of December 31, 2020 can be found within our 2020 Form 10-K.

On March 15, 2021, 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 existing $1.9 billion term loan B facility, $431 million term loan A facility and $1.0 billion revolving facility through the issuance of a $1.5 billion term loan B facility maturing March 15, 2028 (the "Term Loan B Facility"), a $750 million term loan A facility maturing March 15, 2026 (the "Term Loan A Facility") and a $1.25 billion revolving facility maturing March 15, 2026 (the "Revolving Facility") pursuant to an amendment to the Credit Agreement (as defined in our 2020 Form 10-K). The amendment reduces the interest rate currently applicable to the refinanced Term Loan A Facility and for borrowings under the refinanced Revolving Facility by 25 basis points. Subsequent to the refinance the interest rate applicable to the Term Loan A Facility and the Revolving Facility ranges from 0.75% to 1.50% plus LIBOR or from 0.00% to 0.50% plus the Base Rate, at the Borrowers' election, based on the total leverage ratio (as defined in the Credit Agreement).

The refinanced Term Loan A Facility is now subject to quarterly amortization payments in an amount equal to 0.625% of the principal amount of the facility as of the refinance date beginning with the second quarter of 2022. 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 second quarter of 2024. The Term Loan B Facility continues to be subject to quarterly amortization payments in an amount equal to 0.25% of the principal amount of the facility as of the refinance date. All other material provisions under the Credit Agreement remain unchanged.

As a result of this Credit Agreement refinancing, $8 million of fees were capitalized as debt issuance costs primarily within Long-term debt and Other assets on our Condensed Consolidated Balance Sheet as of March 31, 2021. During the quarter
17


ended March 31, 2021, fees expensed as well as previously recorded unamortized debt issuance costs written off totaling approximately $12 million were recognized within Interest expense, net due to this refinancing. Excluding the amounts associated with the Credit Agreement refinancing, cash paid for interest during the quarters ended March 31, 2021 and 2020 was $88 million and $72 million, respectively.

YUM Senior Unsecured Notes Issuance and Redemption of Subsidiary Senior Unsecured Notes

Subsequent to the end of the first quarter, on April 1, 2021, YUM! Brands, Inc. issued $1.1 billion aggregate principal amount of 4.625% YUM Senior Unsecured Notes due January 31, 2032 (the “2032 Notes”). Interest on the 2032 Notes is payable semi-annually in arrears on April 1 and October 1 of each year, beginning on October 1, 2021. The indenture governing the 2032 Notes contains covenants and events of default that are customary for debt securities of this type, including cross-default provisions whereby the acceleration of the maturity of any of our indebtedness in a principal amount of $100 million or more or the failure to pay the principal of such indebtedness at its stated maturity will constitute an event of default under the 2032 Notes unless such indebtedness is discharged, or the acceleration of the maturity of that indebtedness is annulled, within 30 days after notice. We intend to use the net proceeds from the 2032 Notes to fund the redemption of the 2026 Notes discussed below.

Subsequent to the end of the first quarter, on April 23, 2021, the Borrowers issued a notice of redemption for June 1, 2021 for $1,050 million aggregate principal amount of 5.25% Subsidiary Senior Unsecured Notes due in 2026 (the “2026 Notes”). The redemption amount will be equal to 102.625% of the $1,050 million aggregate principal amount redeemed, reflecting a “call premium”, plus accrued interest to the date of redemption.

Note 12 - Derivative Instruments

We use derivative instruments to manage certain of our market risks related to fluctuations in interest rates and foreign currency exchange rates.

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 March 31, 2021 and December 31, 2020, our interest rate swaps expiring in July 2021 had notional amounts of $1.55 billion and our interest rate swaps expiring in March 2025 had notional amounts of $1.5 billion. These interest rate swaps are 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 March 31, 2021 or December 31, 2020.

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 March 31, 2021, the swaps were highly effective cash flow hedges.

Foreign Currency Contracts

We have entered into foreign currency forward and swap contracts with the objective of reducing our exposure to earnings volatility arising from foreign currency fluctuations associated with certain foreign currency denominated intercompany receivables and payables. The notional amount, maturity date, and currency of these contracts match those of the underlying intercompany receivables or payables. Our foreign currency contracts are designated cash flow hedges as the future cash flows of the contracts are expected to offset changes in intercompany receivables and payables due to foreign currency exchange rate fluctuations.

Gains or losses on the foreign currency contracts are reported as a component of AOCI. Amounts are reclassified from AOCI each quarter to offset foreign currency transaction gains or losses recorded within Other (income) expense when the related intercompany receivables and payables affect earnings due to their functional currency remeasurements. Through March 31, 2021, all foreign currency contracts related to intercompany receivables and payables were highly effective cash flow hedges.

As of March 31, 2021 and December 31, 2020, outstanding foreign currency contracts related to intercompany receivables and payables had total notional amounts of $34 million and $39 million, respectively. These foreign currency forward contracts all have durations that expire in 2021.

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As a result of the use of interest rate swaps and foreign currency contracts, the Company is exposed to risk that the counterparties will fail to meet their contractual obligations. To mitigate the counterparty credit risk, we only enter into contracts with major financial institutions carefully selected based upon their credit ratings and other factors, and continually assess the creditworthiness of counterparties. At March 31, 2021, all of the counterparties to our interest rate swaps and foreign currency contracts had investment grade ratings according to the three major ratings agencies. To date, all counterparties have performed in accordance with their contractual obligations.

Gains and losses on derivative instruments designated as cash flow hedges recognized in OCI and reclassifications from AOCI into Net Income:
 Quarter ended
 Gains/(Losses) Recognized in OCI (Gains)/Losses Reclassified from AOCI into Net Income
 2021 2020 2021 2020
Interest rate swaps$24 $(83)$$
Foreign currency contracts(8)
Income tax benefit/(expense)(6)19 (1)

As of March 31, 2021, the estimated net loss included in AOCI related to our cash flow hedges that will be reclassified into earnings in the next 12 months is $34 million, based on current LIBOR interest rates.

Total Return Swaps

We have entered into total return swap derivative contracts, with the objective of reducing our exposure to market-driven changes in certain of the liabilities associated with compensation deferrals into our Executive Income Deferral ("EID") plan. While these total return swaps represent economic hedges, we have not designated them as hedges for accounting purposes. As a result, the changes in the fair value of these derivatives are recognized immediately in earnings within General and administrative expenses in our Condensed Consolidated Statements of Income largely offsetting the changes in the associated EID liabilities.

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

Note 13 - Fair Value Disclosures

As of March 31, 2021, 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 notes receivable, net of allowances, and lease guarantees, less reserves for expected losses, approximates their carrying value. The following table presents the carrying value and estimated fair value of the Company’s debt obligations:

3/31/202112/31/2020
Carrying ValueFair Value (Level 2)Carrying ValueFair Value (Level 2)
Securitization Notes(a)
$2,861 $2,999 $2,869 $3,015 
Subsidiary Senior Unsecured Notes(b)
1,800 1,901 1,800 1,890 
Term Loan A Facility(b)
750 727 431 428 
Term Loan B Facility(b)
1,500 1,504 1,916 1,907 
YUM Senior Unsecured Notes(b)
3,725 3,952 3,725 4,094 
(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.
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(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, foreign currency contracts 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 SheetLevel3/31/202112/31/2020
Assets
Foreign Currency ContractsPrepaid expenses and other current assets$$
Other InvestmentsOther assets45 
Liabilities
Interest Rate SwapsAccounts payable and other current liabilities35 28 
Interest Rate SwapsOther liabilities and deferred credits92 127 

The fair value of the Company’s interest rate swaps and foreign currency contracts were determined based on the present value of expected future cash flows considering the risks involved, including nonperformance risk, and using discount rates appropriate for the duration based on observable inputs. The other investments primarily include investments in mutual funds, which were historically used to offset fluctuations for a portion of our EID liabilities and whose fair values were determined based on the closing market prices of the respective mutual funds as of March 31, 2021 and December 31, 2020. In the quarter ended March 31, 2021, upon entering into the total return swaps as disclosed in Note 13, we sold the majority of these other investments and received cash proceeds of $44 million. These proceeds have been classified within Other, net cash flows from investing activities within our Condensed Consolidated Statements of Cash Flows.

Note 14 - Contingencies

Lease Guarantees

As a result of having assigned our interest in obligations under real estate leases as a condition to the refranchising of certain Company-owned restaurants, and guaranteeing certain other leases, we are frequently secondarily liable on lease agreements.  These leases have varying terms, the latest of which expires in 2065.  As of March 31, 2021, the potential amount of undiscounted payments we could be required to make in the event of non-payment by the primary lessee was approximately $425 million. The present value of these potential payments discounted at our pre-tax cost of debt at March 31, 2021, was approximately $350 million.  Our franchisees are the primary lessees under the vast majority of these leases.  We generally have cross-default provisions with these franchisees that would put them in default of their franchise agreement in the event of non-payment under the lease.  We believe these cross-default provisions significantly reduce the risk that we will be required to make payments under these leases, although such risk may not be reduced in the context of a bankruptcy or other similar restructuring of a large franchisee or group of franchisees.  The liability recorded for our expected losses under such leases as of March 31, 2021, 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.

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
20


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 $150 million. Of this amount, $145 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. The stay order remains in effect and the next hearing is scheduled for August 9, 2021. 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.

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.
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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, 2020, (“2020 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 50,000 restaurants in more than 150 countries and territories, primarily under the concepts of KFC, Pizza Hut, Taco Bell and The Habit Burger Grill (collectively, the "Concepts").  The Company’s KFC, Pizza Hut and Taco Bell brands are global leaders of the chicken, pizza and Mexican-style food categories, respectively. The Habit Burger Grill, a concept we acquired on March 18, 2020, is a fast-casual restaurant concept specializing in made-to-order chargrilled burgers, sandwiches and more. Of the over 50,000 restaurants, 98% are operated by franchisees.

YUM currently consists of four operating segments:

The KFC Division which includes our worldwide operations of the KFC concept
The Pizza Hut Division which includes our worldwide operations of the Pizza Hut concept
The Taco Bell Division which includes our worldwide operations of the Taco Bell concept
The Habit Burger Grill Division which includes our worldwide operations of the Habit Burger Grill concept

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

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

Our global citizenship strategy, called the Recipe for Good, reflects our priorities for socially responsible growth, risk management and sustainable stewardship of our people, food and planet.  

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

Same-store sales growth is the estimated percentage change in system sales of all restaurants that have been open and in the YUM system for one year or more (with the exception of Habit Burger Grill restaurants acquired in the first quarter of 2020 for which we included all sales in the quarter ended March 31, 2020 both before and after the acquisition in the prior year base for purposes of determining 2021 same-store sales growth), 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. Throughout 2020 and continuing into 2021 we have had a significant number of restaurants that were temporarily closed including restaurants closed due to government and landlord restrictions as a result of COVID-19. 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). 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.

Net new unit growth reflects new unit openings offset by permanent store closures, by us and our franchisees. To determine whether a restaurant meets the definition of a unit we consider whether the restaurant has operations that are ongoing and
22


independent from another YUM unit, serves the primary product of one of our Concepts, operates under a separate franchise agreement (if operated by a franchisee) and has substantial and sustainable sales. We believe net new unit growth is useful to investors because we depend on net new units for a significant portion of our growth. Additionally, net new unit growth is generally reflective of the economic returns to us and our franchisees from opening and operating our Concept restaurants.

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

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

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

Effective Tax Rate excluding Special Items;

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

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

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

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

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

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


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Results of Operations

Summary  

All comparisons within this summary are versus the same period a year ago.

For the quarter ended March 31, 2021, GAAP diluted EPS was $1.07 per share, an increase from $0.27 per share in the quarter ended March 31, 2020, and diluted EPS, excluding Special Items, was $1.07 per share, an increase from $0.64 per share in the quarter ended March 31, 2020.

Quarterly Financial highlights:
% Change
System Sales, ex FXSame-Store SalesUnitsGAAP Operating ProfitCore Operating Profit
KFC Division+11+8+4+34+28
Pizza Hut Division+7+12(4)+34+30
Taco Bell Division+11+9+1+24+24
Worldwide(1)
+11+9+1+117+33
(1)    Worldwide system sales ex F/X includes the benefit of our acquisition of Habit Burger Grill on March 18, 2020. Same-store sales reflects the inclusion of Habit Burger Grill in the prior year base for periods in the first-quarter of 2020 both before and after the acquisition. Operating profit results of Habit Burger Grill for the period subsequent to our acquisition are reflected in the consolidated figures.

Additionally:

Net new units added were 435 for the quarter for 1% unit growth year-over-year.

During the quarter, we repurchased 2.6 million shares totaling $275 million at an average price of $106.

Foreign currency translation favorably impacted Divisional Operating Profit for the quarter to date by $16 million.

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Worldwide

GAAP Results
 Quarter ended
 20212020% B/(W)
Company sales$476 $355 34 
Franchise and property revenues658 596 10 
Franchise contributions for advertising and other services352 312 13 
Total revenues1,486 1,263 18 
Company restaurant expenses392 298 (32)
G&A expenses206 208 
Franchise and property expenses23 58 61 
Franchise advertising and other services expense343 310 (10)
Refranchising (gain) loss(15)(13)15 
Other (income) expense(6)152 NM
Total costs and expenses, net943 1,013 
Operating Profit543 250 117 
Investment (income) expense, net— 34 NM
Other pension (income) expense(12)
Interest expense, net131 118 (11)
Income before income taxes409 95 NM
Income tax provision83 12 NM
Net Income$326 $83 NM
Diluted EPS(a)
$1.07 $0.27 NM
Effective tax rate20.2 %12.5 %(7.7)ppts.
(a)See Note 3 for the number of shares used in this calculation.


Performance Metrics
Unit Count3/31/20213/31/2020% Increase (Decrease)
Franchise49,714 49,359 
Company-owned1,074 1,152 (7)
Total50,788 50,511 

Quarter ended
 20212020
Same-store Sales Growth (Decline) %(7)
System Sales Growth (Decline) %, reported14 (4)
System Sales Growth (Decline) %, excluding FX11 (3)
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Our system sales breakdown by Company and franchise sales was as follows:
Quarter ended
20212020
Consolidated
Company sales(a)
$476 $355 
Franchise sales12,909 11,339 
System sales13,385 11,694 
Foreign Currency Impact on System sales(b)
383 N/A
System sales, excluding FX$13,002 $11,694 
KFC Division
Company sales(a)
$133 $130 
Franchise sales7,140 6,157 
System sales7,273 6,287 
Foreign Currency Impact on System sales(b)
292 N/A
System sales, excluding FX$6,981 $6,287 
Pizza Hut Division
Company sales(a)
$14 $18 
Franchise sales3,082 2,783 
System sales3,096 2,801 
Foreign Currency Impact on System sales(b)
86 N/A
System sales, excluding FX$3,010 $2,801 
Taco Bell Division
Company sales(a)
$208 $198 
Franchise sales2,672 2,398 
System sales2,880 2,596 
Foreign Currency Impact on System sales(b)
N/A
System sales, excluding FX$2,875 $2,596 
Habit Burger Grill Division
Company sales(a)
$121 $
Franchise sales15 
System sales136 10 
Foreign Currency Impact on System sales(b)
— N/A
System sales, excluding FX$136 $10 
(a)Company sales represents sales from our Company-operated stores as presented on our Condensed Consolidated Statements of Income.

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

Non-GAAP Items
Non-GAAP Items, along with the reconciliation to the most comparable GAAP financial measure, as presented below.
Quarter ended
20212020
Core Operating Profit Growth (Decline) %33 (6)
Diluted EPS Growth (Decline) %, excluding Special Items67 (23)
Effective Tax Rate excluding Special Items20.2 %18.7 %
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Quarter ended
20212020
Company restaurant profit$84 $57 
Company restaurant margin %17.6 %16.2 %
 Quarter ended
Detail of Special Items20212020
Refranchising gain (loss)(a)
$$
Costs associated with acquisition and integration of Habit Burger Grill (See Note 2)— (6)
Impairment of Habit Burger Grill goodwill (See Note 2)— (139)
Other Special Items Income (Expense)— (3)
Special Items Income (Expense) - Operating Profit(145)
Tax (Expense) Benefit on Special Items(b)
(1)33 
Special Items Income (Expense), net of tax$$(112)
Average diluted shares outstanding305 307 
Special Items diluted EPS$— $(0.37)
Reconciliation of GAAP Operating Profit to Core Operating Profit
Consolidated
GAAP Operating Profit$543 $250 
Special Items Income (Expense)(145)
Foreign Currency Impact on Divisional Operating Profit(c)
16 N/A
Core Operating Profit$525 $395 
KFC Division
GAAP Operating Profit$300 $224 
Foreign Currency Impact on Divisional Operating Profit(c)
13 N/A
Core Operating Profit$287 $224 
Pizza Hut Division
GAAP Operating Profit$102 $76 
Foreign Currency Impact on Divisional Operating Profit(c)
N/A
Core Operating Profit$99 $76 
Taco Bell Division
GAAP Operating Profit$178 $144 
Foreign Currency Impact on Divisional Operating Profit(c)
— N/A
Core Operating Profit$178 $144 
Habit Burger Grill Division
GAAP Operating Profit (Loss)$— $(2)
Foreign Currency Impact on Divisional Operating Profit(c)
— N/A
Core Operating Profit$— $(2)
Reconciliation of Diluted EPS to Diluted EPS excluding Special Items
Diluted EPS$1.07 $0.27 
Special Items Diluted EPS— (0.37)
Diluted EPS excluding Special Items$1.07 $0.64 
Reconciliation of GAAP Effective Tax Rate to Effective Tax Rate excluding Special Items
GAAP Effective Tax Rate20.2 %12.5 %
Impact on Tax Rate as a result of Special Items(b)
— %(6.2)%
Effective Tax Rate excluding Special Items20.2 %18.7 %

(a)Due to their size and volatility we have reflected as Special Items those refranchising gains and losses that were recorded in connection with our previously announced plans to have at least 98% franchise restaurant ownership by the
27


end of 2018. As such, refranchising gains and losses recorded during 2021 and 2020 as Special Items directly relate to refranchising gains and losses recorded prior to December 31, 2018.

During the quarters ended March 31, 2021 and 2020, we recorded net refranchising gains of $2 million and $3 million, respectively, that have been reflected as Special Items.

Additionally, during the quarters ended March 31, 2021 and 2020, we recorded net refranchising gains of $13 million and $10 million, respectively, that have not been reflected as Special Items as such amounts are considered indicative of our expected ongoing refranchising activity.  These gains relate to refranchising of restaurants in 2021 and 2020 that were not part of our aforementioned plans to achieve 98% franchise ownership and that we believe are now more indicative of our ongoing operations.

(b)Tax (Expense) Benefit on Special Items was determined based upon the impact of the nature, as well as the jurisdiction of the respective individual components within Special Items.

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

Reconciliation of GAAP Operating Profit to Company Restaurant Profit
Quarter ended 3/31/2021
KFC DivisionPizza Hut DivisionTaco Bell DivisionHabit Burger Grill DivisionUnallocatedTotal
GAAP Operating Profit$300 $102 $178 $— $(37)$543 
Less:
Franchise and property revenues354 141 162 — 658 
Franchise contributions for advertising and other services138 96 118 — — 352 
Add:
General and administrative expenses73 40 31 12 50 206 
Franchise and property expenses14 — — 23 
Franchise advertising and other services expense133 94 116 — — 343 
Refranchising (gain) loss— — — — (15)(15)
Other (income) expense(6)— (2)— (6)
Company restaurant profit$22 $$50 $11 $— $84 
Company sales$133 $14 $208 $121 $— $476 
Company restaurant margin %16.6 %6.7 %24.1 %8.8 %NM17.6 %

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Quarter ended 3/31/2020
KFC DivisionPizza Hut DivisionTaco Bell DivisionHabit Burger Grill DivisionUnallocatedTotal
GAAP Operating Profit$224 $76 $144 $(2)$(192)$250 
Less:
Franchise and property revenues315 133 148 — — 596 
Franchise contributions for advertising and other services121 84 107 — — 312 
Add:
General and administrative expenses73 46 38 50 208 
Franchise and property expenses33 12 11 — 58 
Franchise advertising and other services expense120 84 106 — — 310 
Refranchising (gain) loss— — — — (13)(13)
Other (income) expense(2)— 152 152 
Company restaurant profit$15 $(1)$45 $(1)$(1)$57 
Company sales$130 $18 $198 $$— $355 
Company restaurant margin %11.7 %(3.0)%22.4 %(7.7)%NM16.2 %

Items Impacting Current Quarter and Expected to Impact Future Results

The following items impacted reported results in 2021 and/or 2020 and/or are expected to impact future results. See also the Detail of Special Items section of this MD&A for other items similarly impacting results.

COVID-19

In late 2019, a novel strain of coronavirus, COVID-19, was first detected and in March 2020, the World Health Organization declared COVID-19 a global pandemic. Throughout 2020 and into 2021, COVID-19 has spread throughout the U.S. and the rest of the world and governmental authorities have implemented measures to reduce the spread of COVID-19. These measures include restrictions on travel outside the home and other limitations on business and other activities as well as encouraging social distancing. As a result of COVID-19, we and our franchisees have experienced significant store closures and instances of reduced store-level operations, including reduced operating hours and dining-room closures. The impact on our sales in each of our markets has been dependent on the timing, severity and duration of the outbreak, measures implemented by government authorities to reduce the spread of COVID-19, as well as our reliance on dine-in sales in the market.

Our results were significantly impacted by the impacts of COVID-19 in the year ended December 31, 2020, as evidenced by our worldwide same-store sales decline of 6%. Overall, our sales declines were primarily driven by temporary store closures, which peaked in early April 2020 at about 11,000 restaurants and ended the year at about 830 restaurants, which meant roughly 98% of our system was open in a full or limited capacity at year end. In addition to the loss of sales due to restaurants being temporarily closed, we also lost sales due to dining room closures or other limitations on access.

Beginning in 2020 and continuing through the first quarter of 2021 we have been able to mitigate the loss of sales due to temporary unit closures, dining room closures or other limitations on access through the strength of our off-premise channels, aided by increasing consumer access to our brands via digital channels. As a result, our same-store sales increased 9% in the quarter ended March 31, 2021 driven by strong performance in North America, the United Kingdom, Australia and Japan, with some offset from COVID-19-related trading restrictions in parts of Asia and Europe. Our first quarter 2021 same-store sales results include the impact of nearly 900 restaurants remaining temporarily closed due to COVID-19. These temporary closures are primarily KFC and Pizza Hut restaurants located in countries where COVID-19 government restrictions remain elevated, including Latin America and certain parts of Europe and Asia. Assets located in malls, transportation centers, airports and other similar locations continue to be pressured, making up many of the temporary closures.

The COVID-19 situation is ongoing, and its dynamic nature makes it difficult to forecast any impacts on the Company's results for the balance of 2021. The ultimate pace of our recovery will largely depend on the pace of restaurant reopenings and the continuation of current sales trends, although we expect continuing adverse impacts from COVID-19 in certain parts of the
29


world. In addition, for our restaurants that prominently feature drive-thru, carryout and delivery options, COVID-19 has in many cases contributed to an increase in sales during 2020 and the first quarter of 2021. If the impact of COVID-19 recedes, in-person dining restrictions are lifted or lessened and the restaurant industry in general returns to more normal operations, the benefits to sales experienced by certain of our restaurants, including our Pizza Hut delivery restaurants, could wane and our results could be negatively impacted. As 98% of our restaurants are operated by approximately 2,000 independent franchisees across the world, we are closely monitoring the impact of COVID-19 on our franchisees' financial condition.

The Habit Restaurants, Inc. Acquisition

On March 18, 2020, we acquired The Habit Restaurants, Inc. for total cash consideration of $408 million, net of cash acquired. Our condensed consolidated financial statements and system sales metric reflect the ongoing results of Habit Burger Grill operations for fourteen days in the quarter ended March 31, 2020 and full quarter results for the quarter ended March 31, 2021. These ongoing results had an insignificant impact on our consolidated results of operations. Consolidated system sales for the quarter ended March 31, 2021, were positively impacted 1% due to the acquisition of Habit Burger Grill.

As a result of the impacts of COVID-19 on the results of Habit Burger Grill’s operations, as well as general market conditions, we recorded an after-tax impairment charge of $107 million in the first quarter of 2020 related to the goodwill arising from the preliminary purchase price allocation associated with the acquisition. We have reflected this impairment as a Special Item, resulting in a Special Item EPS charge for the quarter ended March 31, 2020, of approximately $0.35. See Note 2.

Franchise Bad Debt Expense

We experienced significant quarterly fluctuations in franchise bad debt expense in 2020 due in large part to the uncertainties associated with COVID-19. During the quarter ended March 31, 2021, we recognized net bad debt recoveries of $6 million related to short-term accounts receivable due from our franchisees for royalties, rent and other services we provide, which were primarily reflected within Franchise and property expenses. These net bad debt recoveries of $6 million compared to $28 million of bad debt expense recognized in the quarter ended March 31, 2020, and thus benefited Operating Profit growth by $34 million quarter-over-quarter.

Due to the quarterly fluctuations in franchise bad debt expense in 2020 discussed above, we expect quarterly operating profit growth in 2021 to continue to be impacted as we lap net bad debt expense of $13 million in the quarter ended June 30, 2020, and net bad debt recoveries of $21 million and $8 million in the quarters ended September 30, 2020 and December 31, 2020, respectively. While difficult to forecast, at this point we do not expect net bad debt expense to significantly impact our full year operating profit growth for 2021.

Investment in Grubhub, Inc. (“Grubhub”)

In April of 2018 we purchased 2.8 million shares of Grubhub common stock for $200 million. In the quarter ended September 30, 2020, we sold our entire investment in Grubhub and received proceeds of $206 million. While we held our investment in Grubhub common stock we recognized changes in the fair value in our investment in our Condensed Consolidated Statements of Income. For the quarter ended March 31, 2020, we recognized pre-tax investment expense of $22 million related to changes in fair value of our investment in Grubhub common stock.


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KFC Division

The KFC Division has 25,292 units, 84% of which are located outside the U.S. Additionally, 99% of the KFC Division units were operated by franchisees as of March 31, 2021.

Quarter ended
% B/(W)
20212020ReportedEx FX
System Sales$7,273 $6,287 16 11 
Same-Store Sales Growth (Decline) %(8)N/AN/A
Company sales$133 $130 (3)
Franchise and property revenues354 315 12 
Franchise contributions for advertising and other services138 121 14 
Total revenues$625 $566 10 
Company restaurant profit$22 $15 46 36 
Company restaurant margin %16.6 %11.7 %4.9 ppts.4.6 ppts.
G&A expenses$73 $73 — 
Franchise and property expenses14 33 59 61 
Franchise advertising and other services expense133 120 (11)(5)
Operating Profit$300 $224 34 28 
% Increase (Decrease)
Unit Count3/31/20213/31/2020
Franchise25,002 23,969 
Company-owned290 335 (13)
Total25,292 24,304 

Company sales and Company restaurant margin %

The quarterly decrease in Company sales, excluding the impacts of foreign currency translation, was driven by refranchising, partially offset by company same-store sales growth of 7%.

The quarterly increase in Company restaurant margin % was driven by same-store sales growth, partially offset by increased restaurant-level costs.

Franchise and property revenues

The quarterly increase in Franchise and property revenues, excluding the impacts of foreign currency translation, was driven by franchise same-store sales growth of 8% and unit growth.

G&A

The quarterly decrease in G&A, excluding the impacts of foreign currency translation, was driven by lower travel related costs, partially offset by higher expenses related to our deferred compensation program.

Operating Profit

The quarterly increase in Operating Profit, excluding the impacts of foreign currency translation, was driven by same-store sales growth, lower bad debt expense, and unit growth.
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Pizza Hut Division

The Pizza Hut Division has 17,710 units, 63% 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, 2021.

Quarter ended
% B/(W)
20212020ReportedEx FX
System Sales$3,096 $2,801 11 
Same-Store Sales Growth (Decline) %12 (11)N/AN/A
Company sales$14 $18 (24)(27)
Franchise and property revenues141 133 
Franchise contributions for advertising and other services96 84 14 13 
Total revenues$251 $235 
Company restaurant profit$$(1)NMNM
Company restaurant margin %6.7 %(3.0)%9.7 ppts.9.7 ppts.
G&A expenses$40 $46 11 12 
Franchise and property expenses12 84 85 
Franchise advertising and other services expense94 84 (12)(11)
Operating Profit$102 $76 34 30 
% Increase (Decrease)
Unit Count3/31/20213/31/2020
Franchise17,657 18,434 (4)
Company-owned53 99 (46)
Total17,710 18,533 (4)

Company sales

The quarterly decrease in Company sales, excluding the impacts of foreign currency translation, was driven by the refranchising of stores in the UK in the quarter ended March 31, 2021, partially offset by company same-store sales growth of 9%.

Franchise and property revenues

The quarterly increase in Franchise and property revenues, excluding the impacts of foreign currency translation, was driven by franchise same-store sales growth of 12%, partially offset by unit declines.

G&A

The quarterly decrease in G&A, excluding the impacts of foreign currency translation, was driven by lower headcount, lower professional fees and lower travel related costs, partially offset by higher expenses related to our deferred compensation programs.

Operating Profit

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

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Taco Bell Division

The Taco Bell Division has 7,493 units, the vast majority of which are in the U.S. The Company owned 7% of the Taco Bell units in the U.S. as of March 31, 2021.

Quarter ended
% B/(W)
20212020ReportedEx FX
System Sales$2,880 $2,596 11 11 
Same-Store Sales Growth %N/AN/A
Company sales$208 $198 
Franchise and property revenues162 148 
Franchise contributions for advertising and other services118 107 10 10 
Total revenues$488 $453 
Company restaurant profit$50 $45 13 13 
Company restaurant margin %24.1 %22.4 %1.7 ppts.1.7 ppts.
G&A expenses$31 $38 17 18 
Franchise and property expenses11 36 36 
Franchise advertising and other services expense116 106 (9)(9)
Operating Profit$178 $144 2424
% Increase (Decrease)
Unit Count3/31/20213/31/2020
Franchise7,019 6,925 
Company-owned474 473 — 
Total7,493 7,398 

Company sales and Company restaurant margin %

The quarterly increase in Company sales was driven by same-store sales growth of 4% and unit growth.

The quarterly increase in Company restaurant margin % was driven by the favorable impact of higher guest check partially offset by transaction declines.

Franchise and property revenues

The quarterly increase in Franchise and property revenues was driven by franchise same-store sales growth of 10% and unit growth.

G&A

The quarterly decrease in G&A was driven by lower headcount, lapping higher severance expenses and lower travel related costs offset by higher expenses related to our deferred compensation programs.

Operating Profit

The quarterly increase in Operating Profit was driven by same-store sales growth and lower G&A expenses.

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Habit Burger Grill Division

The Habit Burger Grill Division has 293 units, the vast majority of which are in the U.S.  The Company owned 91% of the Habit Burger Grill units in the U.S. as of March 31, 2021.  During the quarter ended March 31, 2021, The Habit Burger Grill opened 6 gross new restaurants and reported same-store sales growth of 13%. Total revenues and Operating Profit were $122 million and less than $1 million, respectively, for the quarter ended March 31, 2021.

Corporate & Unallocated
Quarter ended
(Expense) / Income20212020% B/(W)
Corporate and unallocated G&A$(50)$(50)(1)
Unallocated Company restaurant expenses— (1)NM
Unallocated Franchise and property expenses— (2)NM
Unallocated Refranchising gain (loss)15 13 15
Unallocated Other income (expense)(2)(152)NM
Investment income (expense), net (See Note 9)— (34)NM
Other pension income (expense) (See Note 10)(3)(3)(12)
Interest expense, net(131)(118)(11)
Income tax provision (See Note 7)(83)(12)NM
Effective tax rate (See Note 7)20.2 %12.5 %(7.7)ppts.

Corporate and unallocated G&A

The quarterly increase in Corporate and unallocated G&A expense was driven by higher expenses related to our deferred compensation programs, higher share-based compensation expense and increased headcount supporting our technology initiatives offset by lower professional fees including lapping prior year costs associated with the acquisition of Habit Burger Grill.

Unallocated Other income (expense)

Unallocated Other income (expense) for the quarter ended March 31, 2020, includes a goodwill impairment charge of $139 million for Habit Burger Grill (see Note 2).

Interest expense, net

The quarterly increase in Interest expense, net was driven by fees expensed as well as unamortized debt issuance costs written off totaling approximately $12 million related to the refinancing of the Credit Agreement (see Note 11).

Consolidated Cash Flows

Net cash provided by operating activities was $324 million in 2021 versus $238 million in 2020. The increase was largely driven by an increase in Operating profit before Special Items and decreased incentive compensation payments, partially offset by the timing of advertising and accounts payable spending and an increase in interest and income tax payments.

Net cash provided by investing activities was $14 million in 2021 versus net cash used in investing activities of $441 million in 2020. The increase was primarily driven by the lapping of our prior year acquisition of The Habit Restaurants, Inc., the current year sale of certain mutual fund investments (see Note 13) and higher refranchising proceeds in the current year, partially offset by higher current year capital spending.

Net cash used in financing activities was $563 million in 2021 versus net cash provided by financing activities of $798 million in 2020. The change was primarily driven by lower net borrowings and higher share repurchases in the current year.

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Liquidity and Capital Resources

Our primary sources of liquidity are cash generated by operations, cash on hand and our Revolving Facility (as defined below). We have historically generated substantial cash flows from the operations of our Company-owned stores and from our extensive franchise operations, which require a limited YUM investment. Our annual operating cash flows have historically been in excess of $1 billion. It is our intent to use these operating cash flows to continue to invest in growing our business and pay a meaningful dividend, with any remaining excess then returned to shareholders through share repurchases. To the extent operating cash flows plus other sources of cash such as refranchising proceeds 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, 2021. We believe that our existing cash from operations, cash on hand and availability under our Revolving Facility, will be sufficient to fund our operations, anticipated capital expenditures and debt repayment obligations over the next twelve months.

Debt Instruments

As of March 31, 2021, approximately 93%, including the impact of interest rate swaps, of our $10.6 billion of total debt outstanding, excluding finance leases, is fixed with an effective overall interest rate of approximately 4.8%. We are managing a capital structure which reflects consolidated leverage, net of available cash, in-line with our target of ~5.0x EBITDA, and which we believe provides an attractive balance between optimized interest rates, duration and flexibility with diversified sources of liquidity and maturities spread over multiple years. We have credit ratings of BB (Standard & Poor's)/Ba2 (Moody's) with a balance sheet consistent with highly-levered peer restaurant franchise companies.

The following table summarizes the future maturities of our outstanding long-term debt, excluding finance leases and debt issuance costs and discounts, as of March 31, 2021.

202120222023202420252026202720282030203120372043Total
Securitization Notes$21 $29 $1,281 $16 $16 $921 $$571 $2,861 
Credit Agreement12 29 34 48 53 662151,397 2,250 
Subsidiary Senior Unsecured Notes1,050 750 1,800 
YUM Senior Unsecured Notes350 325 600 $800 $1,050 $325 $275 3,725 
Total$383 $58 $1,640 $64 $669 $2,633 $771 $1,968 $800 $1,050 $325 $275 $10,636 

Securitization Notes include four series of senior secured notes issued by Taco Bell Funding, LLC (the “Issuer”) totaling $2.9 billion with fixed interest rates ranging from 4.318% to 4.970%.  The Securitization Notes are secured by substantially all of the assets of the Issuer and the Issuer’s special purpose, wholly-owned subsidiaries (collectively with the Issuer, the Securitization Entities), and include a lien on all existing and future U.S. Taco Bell franchise and license agreements and the royalties payable thereunder, existing and future U.S. Taco Bell intellectual property, certain transaction accounts and a pledge of the equity interests in asset-owning Securitization Entities.  The Securitization Notes contain cross-default provisions whereby the failure to pay principal on any outstanding Securitization Notes will constitute an event of default under any other Securitization Notes.

Credit Agreement includes senior secured credit facilities consisting of a $750 million Term Loan A facility (the “Term Loan A Facility"), a $1.5 billion Term Loan B facility (the “Term Loan B Facility”) and a $1.25 billion revolving facility (the “Revolving Facility”) issued by 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. Our Revolving Facility was undrawn as of March 31, 2021. The interest rates applicable to the Term Loan A Facility and the Revolving Facility range from 0.75% to 1.50% plus LIBOR or from 0.00% to 0.50% plus the Base Rate, at the Borrowers’ election, based upon the total net leverage ratio of the Borrowers and the Specified Guarantors (as defined in the Credit Agreement). The interest rates applicable to the Term Loan B Facility are 1.75% plus LIBOR or 0.75% plus the Base Rate, at the Borrowers' election. Our Term Loan A Facility and Term Loan B Facility contain cross-default provisions whereby the failure to pay principal of or otherwise perform any agreement or condition under indebtedness of certain subsidiaries with a principal amount in excess of $100 million will constitute an event of default under the Credit Agreement. See Note 11 for details regarding our refinance of the Credit Agreement during the quarter ended March 31, 2021.

Subsidiary Senior Unsecured Notes include $1,050 million aggregate principal amount of 5.25% Subsidiary Senior Unsecured Notes due 2026 (the "2026 Notes") and $750 million aggregate principal amount of 4.75% Subsidiary Senior Unsecured Notes due 2027. Our Subsidiary Senior Unsecured Notes contain cross-default provisions whereby the acceleration of the maturity of
35


the indebtedness of certain subsidiaries with a principal amount in excess of $100 million or the failure to pay principal of such indebtedness will constitute an event of default under the Subsidiary Senior Unsecured Notes.

Subsequent to the end of the first quarter, on April 23, 2021, the Borrowers issued a notice of redemption for June 1, 2021 for the 2026 Notes. The redemption amount is equal to 102.625% of the principal amount redeemed, reflecting a “call premium”, plus accrued interest to the date of redemption. See Note 11.

YUM Senior Unsecured Notes include seven series of senior unsecured notes issued by Yum! Brands, Inc. totaling $3.7 billion with fixed interest rates ranging from 3.625% to 7.75%. Our YUM Senior Unsecured Notes contain cross-default provisions whereby the acceleration of the maturity of any of our indebtedness or the failure to pay principal of such indebtedness above certain thresholds will constitute an event of default under the YUM Senior Unsecured Notes unless such indebtedness is discharged, or the acceleration of the maturity of that indebtedness is annulled, within 30 days after notice.

Subsequent to the end of the first quarter, on April 1, 2021, Yum! Brands, Inc. issued $1.1 billion aggregate principal amount of 4.625% YUM Senior Unsecured Notes due January 31, 2032 (the “2032 Notes”) that are not included in the table above. We intend to use the net proceeds from the 2032 Notes to fund the redemption of the 2026 Notes discussed above. See Note 11.

New Accounting Pronouncements Not Yet Adopted

In March 2020, the FASB issued guidance related to reference rate reform. The pronouncement provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from LIBOR and other interbank offered rates to alternative reference rates. The guidance was effective upon issuance and generally can be applied to applicable contract modifications through December 31, 2022. We are currently evaluating the impact of the transition from LIBOR to alternative reference rates, including the impact on our interest rate swaps. As of March 31, 2021, our interest rate swaps expiring in July 2021 had notional amounts of $1.55 billion and our interest rate swaps expiring in March 2025 had notional amounts of $1.5 billion. These interest rate swaps are designated cash flow hedges. We do not anticipate the impact of adopting this standard will be material to our Financial Statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There were no material changes during the quarter ended March 31, 2021, to the disclosures made in Item 7A of the Company’s 2020 Form 10-K.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Control

There were no changes with respect to the Company’s internal control over financial reporting or in other factors that materially affected, or are reasonably likely to materially affect, internal control over financial reporting during the quarter ended March 31, 2021.

Forward-Looking Statements

Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and by the use of forward-looking words such as “expect,” “expectation,” “believe,” “anticipate,” “may,” “could,” “intend,” “belief,” “plan,” “estimate,” “target,” “predict,” “likely,” “seek,” “project,” “model,” “ongoing,” “will,” “should,” “forecast,” “outlook” or similar terminology. Forward-looking statements are based on our current expectations, estimates, assumptions and/or projections, our perception of historical trends and current conditions, as well as other factors that we believe are appropriate and reasonable under the circumstances. Forward-looking statements are neither predictions nor guarantees of future events,
36


circumstances or performance and are inherently subject to known and unknown risks, uncertainties and assumptions that could cause our actual results to differ materially from those indicated by those statements. There can be no assurance that our expectations, estimates, assumptions and/or projections will be achieved. Factors that could cause actual results and events to differ materially from our expectations and forward-looking statements include (i) the factors described in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Part I, Item 2 of this report, (ii) any risks and uncertainties described in the Risk Factors included in Part II, Item 1A of this report, (iii) the factors described in the Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Part II, Item 7 of our Form 10-K for the year ended December 31, 2020, and (iv) the risks and uncertainties described in the Risk Factors included in Part I, Item 1A of our Form 10-K for the year ended December 31, 2020. You should not place undue reliance on forward-looking statements, which speak only as of the date hereof. We are not undertaking to update any of these statements.
37



Report of Independent Registered Public Accounting Firm


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

Results of Review of Interim Financial Information

We have reviewed the condensed consolidated balance sheet of Yum! Brands, Inc. and Subsidiaries (YUM) as of March 31, 2021, the related condensed consolidated statements of income, comprehensive income, cash flows and shareholders’ deficit for the three-month periods ended March 31, 2021 and 2020, and the related notes (collectively, the consolidated interim financial information). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial information for it to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of YUM as of December 31, 2020, and the related consolidated statements of income, comprehensive income, cash flows and changes in shareholders’ deficit for the year then ended (not presented herein); and in our report dated February 19, 2021, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2020, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

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

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


/s/ KPMG LLP

Louisville, Kentucky
May 4, 2021

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PART II – OTHER INFORMATION AND SIGNATURES

Item 1. Legal Proceedings

Information regarding legal proceedings is incorporated by reference from Note 14 to the Company’s Condensed Consolidated Financial Statements set forth in Part I of this report.

Item 1A. Risk Factors

We face a variety of risks that are inherent in our business and our industry, including operational, legal, regulatory and product risks. Such risks could cause our actual results to differ materially from our forward-looking statements, expectations and historical trends. There have been no material changes from the risk factors disclosed in Part I, Item 1A "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2020.

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

The following table provides information as of March 31, 2021, with respect to shares of Common Stock repurchased by the Company during the quarter then ended:

Fiscal PeriodsTotal number of shares purchased
(thousands)
Average price paid per shareTotal number of shares purchased as part of publicly announced plans or programs
(thousands)
Approximate dollar value of shares that may yet be purchased under the plans or programs
(millions)
1/1/21-1/31/21$ —$1,750
2/1/21-2/28/21911$105.00911$1,654
3/1/21-3/31/211,688$106.301,688$1,475
Total2,599$105.842,599$1,475
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Item 6. Exhibits
(a)Exhibit Index
Exhibit No.Exhibit Description
4.2.2.
10.1
10.20
15
31.1
31.2
 
32.1
 
32.2
 
101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
 
101.SCHXBRL Taxonomy Extension Schema Document
 
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
 
101.LABXBRL Taxonomy Extension Label Linkbase Document
 
101.PREXBRL Taxonomy Extension Presentation Linkbase Document
 
101.DEFXBRL Taxonomy Extension Definition Linkbase Document

40


SIGNATURES

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


 YUM! BRANDS, INC.
 (Registrant)



Date:May 4, 2021/s/ David E. Russell
  Senior Vice President, Finance and Corporate Controller
  (Principal Accounting Officer)
41