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

FORM 10-Q
(Mark One)

☒ |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
|  | EXCHANGE ACT OF 1934 for the quarterly period ended | 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 Carolina |  | 13-3951308 |
| (State or other jurisdiction of |  | (I.R.S. Employer |
| incorporation or organization) |  | Identification No.) |
| 1441 Gardiner Lane, | Louisville, | Kentucky |  | 40213 |
| (Address of principal executive offices) |  | (Zip Code) |
| Registrant’s telephone number, including area code: | (502) | 874-8300 |

Securities registered pursuant to Section 12(b) of the Act
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered
| Common Stock, no par value | YUM | New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer | ☒ |  | Accelerated Filer | ☐
Non-accelerated Filer | ☐ |  | Smaller Reporting Company | ☐
Emerging Growth Company | ☐ |  |  |

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x
The number of shares outstanding of the registrant’s Common Stock as of 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 | 4
| Condensed Consolidated Statements of Comprehensive Income | 5
| Condensed Consolidated Statements of Cash Flows | 6
| Condensed Consolidated Balance Sheets | 7
| Condensed Consolidated Statements of Shareholders' Deficit | 8
| Notes to Condensed Consolidated Financial Statements | 9
| Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations | 22
| Item 3 - Quantitative and Qualitative Disclosures About Market Risk | 36
| Item 4 – Controls and Procedures | 36
| Report of Independent Registered Public Accounting Firm | 38
Part II. | Other Information and Signatures |
| Item 1 – Legal Proceedings | 39
| Item 1A – Risk Factors | 39
| Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds | 39
| Item 6 – Exhibits | 40
| Signatures | 41

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 |  |
Revenues | 3/31/2021 |  | 3/31/2020 |  |  |  |
Company sales | $ | 476 |  |  | $ | 355 |  |  |  |  |
Franchise and property revenues | 658 |  |  | 596 |  |  |  |  |
Franchise contributions for advertising and other services | 352 |  |  | 312 |  |  |  |  |
Total revenues | 1,486 |  |  | 1,263 |  |  |  |  |
Costs and Expenses, Net |  |  |  |  |  |  |
Company restaurant expenses | 392 |  |  | 298 |  |  |  |  |
General and administrative expenses | 206 |  |  | 208 |  |  |  |  |
Franchise and property expenses | 23 |  |  | 58 |  |  |  |  |
Franchise advertising and other services expense | 343 |  |  | 310 |  |  |  |  |
Refranchising (gain) loss | (15) |  |  | (13) |  |  |  |  |
Other (income) expense | (6) |  |  | 152 |  |  |  |  |
Total costs and expenses, net | 943 |  |  | 1,013 |  |  |  |  |
Operating Profit | 543 |  |  | 250 |  |  |  |  |
Investment (income) expense, net | — |  |  | 34 |  |  |  |  |
Other pension (income) expense | 3 |  |  | 3 |  |  |  |  |
Interest expense, net | 131 |  |  | 118 |  |  |  |  |
Income Before Income Taxes | 409 |  |  | 95 |  |  |  |  |
Income tax provision | 83 |  |  | 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 |  |
| 3/31/2021 |  | 3/31/2020 |  |  |  |
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 | 3 |  |  | (102) |  |  |  |  |
| 3 |  |  | (102) |  |  |  |  |
Tax (expense) benefit | — |  |  | — |  |  |  |  |
| 3 |  |  | (102) |  |  |  |  |
Changes in pension and post-retirement benefits |  |  |  |  |  |  |
Unrealized gains (losses) arising during the period | 47 |  |  | — |  |  |  |  |
Reclassification of (gains) losses into Net Income | 7 |  |  | 5 |  |  |  |  |
| 54 |  |  | 5 |  |  |  |  |
Tax (expense) benefit | (13) |  |  | (1) |  |  |  |  |
| 41 |  |  | 4 |  |  |  |  |
Changes in derivative instruments |  |  |  |  |  |  |
Unrealized gains (losses) arising during the period | 24 |  |  | (77) |  |  |  |  |
Reclassification of (gains) losses into Net Income | 4 |  |  | (6) |  |  |  |  |
| 28 |  |  | (83) |  |  |  |  |
Tax (expense) benefit | (7) |  |  | 20 |  |  |  |  |
| 21 |  |  | (63) |  |  |  |  |
Other comprehensive income (loss), net of tax | 65 |  |  | (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
| 3/31/2021 |  | 3/31/2020
Cash Flows – Operating Activities |  |  |
Net Income | $ | 326 |  |  | $ | 83 |
Depreciation and amortization | 39 |  |  | 27 |
Impairment and closure expense | 1 |  |  | 140 |
Refranchising (gain) loss | (15) |  |  | (13) |
Investment (income) expense, net | — |  |  | 34 |
Contributions to defined benefit pension plans | (2) |  |  | (1) |
Deferred income taxes | 14 |  |  | (31) |
Share-based compensation expense | 21 |  |  | 18 |
Changes in accounts and notes receivable | 27 |  |  | 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 | 5 |  |  | (11) |
Other, net | 40 |  |  | 35 |
Net Cash Provided by Operating Activities | 324 |  |  | 238 |
Cash Flows – Investing Activities |  |  |
Capital spending | (45) |  |  | (35) |
Acquisition of The Habit Restaurants, Inc., net of cash acquired | — |  |  | (408) |
Proceeds from refranchising of restaurants | 20 |  |  | 2 |
Other, net | 39 |  |  | — |
Net Cash Provided by (Used in) Investing Activities | 14 |  |  | (441) |
Cash Flows – Financing Activities |  |  |
Proceeds from long-term debt | 800 |  |  | — |
Repayments of long-term debt | (912) |  |  | (20) |
Revolving credit facility, three months or less, net | — |  |  | 950 |
Short-term borrowings by original maturity |  |  |
More than three months - proceeds | — |  |  | 66 |
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 | 3 |  |  | (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 Period | 1,024 |  |  | 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) 3/31/2021 |  | 12/31/2020
ASSETS |  |  |
Current Assets |  |  |
Cash and cash equivalents | $ | 561 |  |  | $ | 730 |
Accounts and notes receivable, net | 508 |  |  | 534 |
Prepaid expenses and other current assets | 385 |  |  | 425 |
Total Current Assets | 1,454 |  |  | 1,689 |
Property, plant and equipment, net | 1,215 |  |  | 1,235 |
Goodwill | 597 |  |  | 597 |
Intangible assets, net | 354 |  |  | 343 |
Other assets | 1,416 |  |  | 1,435 |
Deferred income taxes | 514 |  |  | 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 payable | 24 |  |  | 33 |
Short-term borrowings | 394 |  |  | 453 |
Total Current Liabilities | 1,479 |  |  | 1,675 |
Long-term debt | 10,229 |  |  | 10,272 |
Other liabilities and deferred credits | 1,754 |  |  | 1,796 |
Total Liabilities | 13,462 |  |  | 13,743 |
Shareholders’ Deficit |  |  |
Common Stock, no 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 Stock |  | Accumulated Deficit |  | Accumulated Other Comprehensive Loss |  | Total Shareholders' Deficit
|  | Shares |  | Amount |  |  |
Balance at December 31, 2020 |  | 300 |  |  | $ | — |  |  | $ | (7,480) |  |  | $ | (411) |  |  | $ | (7,891) |
Net Income |  |  |  |  |  | 326 |  |  |  |  | 326 |
Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature |  |  |  |  |  |  |  | 3 |  |  | 3 |
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 Income |  |  |  |  |  |  |  |  |  | 391 |
Dividends declared |  |  |  |  |  | (151) |  |  |  |  | (151) |
Repurchase of shares of Common Stock |  | (3) |  |  | (14) |  |  | (261) |  |  |  |  | (275) |
Employee share-based award exercises |  | 1 |  |  | (10) |  |  |  |  |  |  | (10) |
Share-based compensation events |  |  |  | 24 |  |  |  |  |  |  | 24 |
Balance at March 31, 2021 |  | 298 |  |  | $ | — |  |  | $ | (7,566) |  |  | $ | (346) |  |  | $ | (7,912) |
Balance at December 31, 2019 |  | 300 |  |  | $ | — |  |  | $ | (7,628) |  |  | $ | (388) |  |  | $ | (8,016) |
Net Income |  |  |  |  |  | 83 |  |  |  |  | 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) |  |  |  |  |  |  |  | 4 |  |  | 4 |
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 |  | 1 |  |  | (13) |  |  |  |  |  |  | (13) |
Share-based compensation events |  |  |  | 28 |  |  |  |  |  |  | 28 |
Adoption of Expected Credit Loss accounting standard |  |  |  |  |  | (8) |  |  |  |  | (8) |
Balance at March 31, 2020 |  | 301 |  |  | $ | 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 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
YUM's fiscal year begins on January 1 and ends December 31 of each year, with each quarter comprised of three months. The majority of our U.S. subsidiaries and certain international subsidiaries operate on a weekly periodic calendar where the first three quarters of each fiscal year 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, net |  | 111 |
Habit Burger Grill brand (included in Intangible assets, net) |  | 96 |
Operating lease right-of-use assets (included in Other assets) |  | 196 |
Other assets |  | 28 |
Total Assets |  | 442 |
Total Current Liabilities |  | (68) |
Operating lease liabilities (included in Other liabilities and deferred credits) |  | (170) |
Total Liabilities |  | (238) |
Total identifiable net assets |  | 204 |
Goodwill |  | 204 |
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 |  |
|  | 2021 |  | 2020 |  |  |  |
Net Income |  | $ | 326 |  |  | $ | 83 |  |  |  |  |
Weighted-average common shares outstanding (for basic calculation) |  | 301 |  |  | 302 |  |  |  |  |
Effect of dilutive share-based employee compensation |  | 4 |  |  | 5 |  |  |  |  |
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 Date |  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |  |  | 2021
November 2019 |  | 2,599 |  | (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 Nature |  | Pension and Post-Retirement Benefits |  | Derivative Instruments |  | Total
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 tax |  | 3 |  |  | 36 |  |  | 18 |  |  | 57 |
(Gains) losses reclassified from AOCI, net of tax |  | — |  |  | 5 |  |  | 3 |  |  | 8 |
|  | 3 |  |  | 41 |  |  | 21 |  |  | 65 |
Balance at March 31, 2021, net of tax |  | $ | (179) |  |  | $ | (55) |  |  | $ | (112) |  |  | $ | (346) |

Note 5 - Other (Income) Expense

|  | Quarter ended |  |
|  | 3/31/2021 |  | 3/31/2020 |  |  |  |
Foreign exchange net (gain) loss and other(a) |  | $ | (7) |  |  | $ | 12 |  |  |  |  |
Impairment and closure expense(b) |  | 1 |  |  | 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.

| 3/31/2021 |  | 12/31/2020
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

| 3/31/2021 |  | 12/31/2020
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 Assets | 3/31/2021 |  | 12/31/2020
Operating lease right-of-use assets(a) | $ | 840 |  |  | $ | 851 |
Franchise incentives | 171 |  |  | 163 |
Other | 405 |  |  | 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

| 3/31/2021 |  | 12/31/2020
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 |  |
| 2021 |  | 2020 |  |  |  |
Income tax provision | $ | 83 |  |  | $ | 12 |  |  |  |  |
Effective tax rate | 20.2 | % |  | 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 Division |  | Pizza Hut Division |  | Taco Bell Division |  | Habit Burger Grill Division |  | Total
U.S. |  |  |  |  |  |  |  |  |  |
Company sales |  | $ | 14 |  |  | $ | 5 |  |  | $ | 208 |  |  | $ | 121 |  |  | $ | 348 |
Franchise revenues |  | 44 |  |  | 67 |  |  | 144 |  |  | 1 |  |  | 256 |
Property revenues |  | 4 |  |  | — |  |  | 10 |  |  | — |  |  | 14 |
Franchise contributions for advertising and other services |  | 6 |  |  | 79 |  |  | 117 |  |  | — |  |  | 202 |
China |  |  |  |  |  |  |  |  |  |
Franchise revenues |  | 62 |  |  | 16 |  |  | — |  |  | — |  |  | 78 |
Other |  |  |  |  |  |  |  |  |  |
Company sales |  | 119 |  |  | 9 |  |  | — |  |  | — |  |  | 128 |
Franchise revenues |  | 230 |  |  | 57 |  |  | 8 |  |  | — |  |  | 295 |
Property revenues |  | 14 |  |  | 1 |  |  | — |  |  | — |  |  | 15 |
Franchise contributions for advertising and other services |  | 132 |  |  | 17 |  |  | 1 |  |  | — |  |  | 150 |
|  | $ | 625 |  |  | $ | 251 |  |  | $ | 488 |  |  | $ | 122 |  |  | $ | 1,486 |

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|  | Quarter ended 3/31/2020
|  | KFC Division |  | Pizza Hut Division |  | Taco Bell Division |  | Habit Burger Grill Division |  | Total
U.S. |  |  |  |  |  |  |  |  |  |
Company sales |  | $ | 16 |  |  | $ | 5 |  |  | $ | 198 |  |  | $ | 9 |  |  | $ | 228 |
Franchise revenues |  | 38 |  |  | 62 |  |  | 131 |  |  | — |  |  | 231 |
Property revenues |  | 4 |  |  | 1 |  |  | 10 |  |  | — |  |  | 15 |
Franchise contributions for advertising and other services |  | 4 |  |  | 70 |  |  | 107 |  |  | — |  |  | 181 |
China |  |  |  |  |  |  |  |  |  |
Franchise revenues |  | 47 |  |  | 10 |  |  | — |  |  | — |  |  | 57 |
Other |  |  |  |  |  |  |  |  |  |
Company sales |  | 114 |  |  | 13 |  |  | — |  |  | — |  |  | 127 |
Franchise revenues |  | 212 |  |  | 59 |  |  | 7 |  |  | — |  |  | 278 |
Property revenues |  | 14 |  |  | 1 |  |  | — |  |  | — |  |  | 15 |
Franchise contributions for advertising and other services |  | 117 |  |  | 14 |  |  | — |  |  | — |  |  | 131 |
|  | $ | 566 |  |  | $ | 235 |  |  | $ | 453 |  |  | $ | 9 |  |  | $ | 1,263 |

Contract 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 period |  | 12 |
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 years | 59 |  |
2 - 3 years | 54 |  |
3 - 4 years | 49 |  |
4 - 5 years | 43 |  |
Thereafter | 138 |  |
Total | $ | 407 |  |

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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 |  |
Revenues | 2021 |  | 2020 |  |  |  |
KFC Division | $ | 625 |  |  | $ | 566 |  |  |  |  |
Pizza Hut Division | 251 |  |  | 235 |  |  |  |  |
Taco Bell Division | 488 |  |  | 453 |  |  |  |  |
Habit Burger Grill Division | 122 |  |  | 9 |  |  |  |  |
| $ | 1,486 |  |  | $ | 1,263 |  |  |  |  |

| Quarter ended |  |
Operating Profit | 2021 |  | 2020 |  |  |  |
KFC Division | $ | 300 |  |  | $ | 224 |  |  |  |  |
Pizza Hut Division | 102 |  |  | 76 |  |  |  |  |
Taco Bell Division | 178 |  |  | 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.
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The components of net periodic benefit cost associated with our U.S. pension plans are as follows:

| Quarter ended |  |
| 2021 |  | 2020 |  |  |  |
Service cost | $ | 2 |  |  | $ | 2 |  |  |  |  |
Interest cost | 8 |  |  | 9 |  |  |  |  |
Expected return on plan assets | (11) |  |  | (11) |  |  |  |  |
Amortization of net loss | 6 |  |  | 4 |  |  |  |  |
Amortization of prior service cost | 1 |  |  | 1 |  |  |  |  |
Net periodic benefit cost | $ | 6 |  |  | $ | 5 |  |  |  |  |

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

Short-term Borrowings |  | 3/31/2021 |  | 12/31/2020
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 Notes |  | 1,800 |  |  | 1,800 |
Term Loan A Facility |  | 750 |  |  | 431 |
Term Loan B Facility |  | 1,500 |  |  | 1,916 |
YUM Senior Unsecured Notes |  | 3,725 |  |  | 3,725 |
Finance lease obligations |  | 69 |  |  | 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
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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) |  |  | $ | 4 |  |  | $ | 2 |  |  |  |  |  |  |  |  |
Foreign currency contracts | — |  |  | 6 |  |  | — |  |  | (8) |  |  |  |  |  |  |  |  |
Income tax benefit/(expense) | (6) |  |  | 19 |  |  | (1) |  |  | 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:

| 3/31/2021 |  | 12/31/2020
| Carrying Value |  | Fair Value (Level 2) |  | Carrying Value |  | Fair 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 Sheet |  | Level |  | 3/31/2021 |  | 12/31/2020
Assets |  |  |  |  |  |  |  |
Foreign Currency Contracts |  | Prepaid expenses and other current assets |  | 2 |  |  | $ | 1 |  |  | $ | 1 |
Other Investments |  | Other assets |  | 1 |  |  | 2 |  |  | 45 |
Liabilities |  |  |  |  |  |  |  |
Interest Rate Swaps |  | Accounts payable and other current liabilities |  | 2 |  |  | 35 |  |  | 28 |
Interest Rate Swaps |  | Other liabilities and deferred credits |  | 2 |  |  | 92 |  |  | 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
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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
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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 FX | Same-Store Sales | Units | GAAP Operating Profit | Core 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 |  |
| 2021 |  | 2020 |  | % B/(W) |  |  |  |  |  |
Company sales | $ | 476 |  |  | $ | 355 |  |  | 34 |  |  |  |  |  |  |  |  |
Franchise and property revenues | 658 |  |  | 596 |  |  | 10 |  |  |  |  |  |  |  |  |
Franchise contributions for advertising and other services | 352 |  |  | 312 |  |  | 13 |  |  |  |  |  |  |  |  |
Total revenues | 1,486 |  |  | 1,263 |  |  | 18 |  |  |  |  |  |  |  |  |
Company restaurant expenses | 392 |  |  | 298 |  |  | (32) |  |  |  |  |  |  |  |  |
G&A expenses | 206 |  |  | 208 |  |  | 1 |  |  |  |  |  |  |  |  |
Franchise and property expenses | 23 |  |  | 58 |  |  | 61 |  |  |  |  |  |  |  |  |
Franchise advertising and other services expense | 343 |  |  | 310 |  |  | (10) |  |  |  |  |  |  |  |  |
Refranchising (gain) loss | (15) |  |  | (13) |  |  | 15 |  |  |  |  |  |  |  |  |
Other (income) expense | (6) |  |  | 152 |  |  | NM |  |  |  |  |  |  |  |
Total costs and expenses, net | 943 |  |  | 1,013 |  |  | 7 |  |  |  |  |  |  |  |  |
Operating Profit | 543 |  |  | 250 |  |  | 117 |  |  |  |  |  |  |  |  |
Investment (income) expense, net | — |  |  | 34 |  |  | NM |  |  |  |  |  |  |  |
Other pension (income) expense | 3 |  |  | 3 |  |  | (12) |  |  |  |  |  |  |  |  |
Interest expense, net | 131 |  |  | 118 |  |  | (11) |  |  |  |  |  |  |  |  |
Income before income taxes | 409 |  |  | 95 |  |  | NM |  |  |  |  |  |  |  |
Income tax provision | 83 |  |  | 12 |  |  | NM |  |  |  |  |  |  |  |
Net Income | $ | 326 |  |  | $ | 83 |  |  | NM |  |  |  |  |  |  |  |
Diluted EPS(a) | $ | 1.07 |  |  | $ | 0.27 |  |  | NM |  |  |  |  |  |  |  |
Effective tax rate | 20.2 | % |  | 12.5 | % |  | (7.7) |  | ppts. |  |  |  |  |  |  |

(a)See Note 3 for the number of shares used in this calculation.
Performance Metrics

Unit Count | 3/31/2021 |  | 3/31/2020 |  | % Increase (Decrease) |  |  |  |  |
Franchise | 49,714 |  |  | 49,359 |  |  | 1 |  |  |  |  |  |
Company-owned | 1,074 |  |  | 1,152 |  |  | (7) |  |  |  |  |  |
Total | 50,788 |  |  | 50,511 |  |  | 1 |  |  |  |  |  |

| Quarter ended |  |
| 2021 |  | 2020 |  |  |  |
Same-store Sales Growth (Decline) % | 9 |  |  | (7) |  |  |  |  |
System Sales Growth (Decline) %, reported | 14 |  |  | (4) |  |  |  |  |
System Sales Growth (Decline) %, excluding FX | 11 |  |  | (3) |  |  |  |  |

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Our system sales breakdown by Company and franchise sales was as follows:

|  | Quarter ended |  |
|  | 2021 |  | 2020 |  |  |  |
Consolidated |  |  |  |  |  |  |  |
Company sales(a) |  | $ | 476 |  |  | $ | 355 |  |  |  |  |
Franchise sales |  | 12,909 |  |  | 11,339 |  |  |  |  |
System sales |  | 13,385 |  |  | 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 sales |  | 7,140 |  |  | 6,157 |  |  |  |  |
System sales |  | 7,273 |  |  | 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 sales |  | 3,082 |  |  | 2,783 |  |  |  |  |
System sales |  | 3,096 |  |  | 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 sales |  | 2,672 |  |  | 2,398 |  |  |  |  |
System sales |  | 2,880 |  |  | 2,596 |  |  |  |  |
Foreign Currency Impact on System sales(b) |  | 5 |  |  | N/A |  |  |  |
System sales, excluding FX |  | $ | 2,875 |  |  | $ | 2,596 |  |  |  |  |
Habit Burger Grill Division |  |  |  |  |  |  |  |
Company sales(a) |  | $ | 121 |  |  | $ | 9 |  |  |  |  |
Franchise sales |  | 15 |  |  | 1 |  |  |  |  |
System sales |  | 136 |  |  | 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 |  |
|  | 2021 |  | 2020 |  |  |  |
Core Operating Profit Growth (Decline) % |  | 33 |  |  | (6) |  |  |  |  |
Diluted EPS Growth (Decline) %, excluding Special Items |  | 67 |  |  | (23) |  |  |  |  |
Effective Tax Rate excluding Special Items |  | 20.2 | % |  | 18.7 | % |  |  |  |

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|  | Quarter ended
|  | 2021 |  | 2020
Company restaurant profit |  | $ | 84 |  |  | $ | 57 |
Company restaurant margin % |  | 17.6 | % |  | 16.2 | %

|  | Quarter ended |  |
Detail of Special Items |  | 2021 |  | 2020 |  |  |  |
Refranchising gain (loss)(a) |  | $ | 2 |  |  | $ | 3 |  |  |  |  |
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 |  | 2 |  |  | (145) |  |  |  |  |
Tax (Expense) Benefit on Special Items(b) |  | (1) |  |  | 33 |  |  |  |  |
Special Items Income (Expense), net of tax |  | $ | 1 |  |  | $ | (112) |  |  |  |  |
Average diluted shares outstanding |  | 305 |  |  | 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) |  | 2 |  |  | (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) |  | 3 |  |  | 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 Rate |  | 20.2 | % |  | 12.5 | % |  |  |  |
Impact on Tax Rate as a result of Special Items(b) |  | — | % |  | (6.2) | % |  |  |  |
Effective Tax Rate excluding Special Items |  | 20.2 | % |  | 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
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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 Division |  | Pizza Hut Division |  | Taco Bell Division |  | Habit Burger Grill Division |  | Unallocated |  | Total
GAAP Operating Profit |  | $ | 300 |  |  | $ | 102 |  |  | $ | 178 |  |  | $ | — |  |  | $ | (37) |  |  | $ | 543 |
Less: |  |  |  |  |  |  |  |  |  |  |  |
Franchise and property revenues |  | 354 |  |  | 141 |  |  | 162 |  |  | 1 |  |  | — |  |  | 658 |
Franchise contributions for advertising and other services |  | 138 |  |  | 96 |  |  | 118 |  |  | — |  |  | — |  |  | 352 |
Add: |  |  |  |  |  |  |  |  |  |  |  |
General and administrative expenses |  | 73 |  |  | 40 |  |  | 31 |  |  | 12 |  |  | 50 |  |  | 206 |
Franchise and property expenses |  | 14 |  |  | 2 |  |  | 7 |  |  | — |  |  | — |  |  | 23 |
Franchise advertising and other services expense |  | 133 |  |  | 94 |  |  | 116 |  |  | — |  |  | — |  |  | 343 |
Refranchising (gain) loss |  | — |  |  | — |  |  | — |  |  | — |  |  | (15) |  |  | (15) |
Other (income) expense |  | (6) |  |  | — |  |  | (2) |  |  | — |  |  | 2 |  |  | (6) |
Company restaurant profit |  | $ | 22 |  |  | $ | 1 |  |  | $ | 50 |  |  | $ | 11 |  |  | $ | — |  |  | $ | 84 |
Company sales |  | $ | 133 |  |  | $ | 14 |  |  | $ | 208 |  |  | $ | 121 |  |  | $ | — |  |  | $ | 476 |
Company restaurant margin % |  | 16.6 | % |  | 6.7 | % |  | 24.1 | % |  | 8.8 | % |  | NM |  | 17.6 | %

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|  | Quarter ended 3/31/2020
|  | KFC Division |  | Pizza Hut Division |  | Taco Bell Division |  | Habit Burger Grill Division |  | Unallocated |  | Total
GAAP Operating Profit |  | $ | 224 |  |  | $ | 76 |  |  | $ | 144 |  |  | $ | (2) |  |  | $ | (192) |  |  | $ | 250 |
Less: |  |  |  |  |  |  |  |  |  |  |  |
Franchise and property revenues |  | 315 |  |  | 133 |  |  | 148 |  |  | — |  |  | — |  |  | 596 |
Franchise contributions for advertising and other services |  | 121 |  |  | 84 |  |  | 107 |  |  | — |  |  | — |  |  | 312 |
Add: |  |  |  |  |  |  |  |  |  |  |  |
General and administrative expenses |  | 73 |  |  | 46 |  |  | 38 |  |  | 1 |  |  | 50 |  |  | 208 |
Franchise and property expenses |  | 33 |  |  | 12 |  |  | 11 |  |  | — |  |  | 2 |  |  | 58 |
Franchise advertising and other services expense |  | 120 |  |  | 84 |  |  | 106 |  |  | — |  |  | — |  |  | 310 |
Refranchising (gain) loss |  | — |  |  | — |  |  | — |  |  | — |  |  | (13) |  |  | (13) |
Other (income) expense |  | 1 |  |  | (2) |  |  | 1 |  |  | — |  |  | 152 |  |  | 152 |
Company restaurant profit |  | $ | 15 |  |  | $ | (1) |  |  | $ | 45 |  |  | $ | (1) |  |  | $ | (1) |  |  | $ | 57 |
Company sales |  | $ | 130 |  |  | $ | 18 |  |  | $ | 198 |  |  | $ | 9 |  |  | $ | — |  |  | $ | 355 |
Company restaurant margin % |  | 11.7 | % |  | (3.0) | % |  | 22.4 | % |  | (7.7) | % |  | NM |  | 16.2 | %

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
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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) |  |  |  |  |  |
|  | 2021 |  | 2020 |  | Reported |  | Ex FX |  |  |  |  |  |  |  |
System Sales |  | $ | 7,273 |  |  | $ | 6,287 |  |  | 16 |  |  |  | 11 |  |  |  |  |  |  |  |  |  |  |  |
Same-Store Sales Growth (Decline) % |  | 8 |  |  | (8) |  |  | N/A |  |  | N/A |  |  |  |  |  |  |  |  |  |  |
Company sales |  | $ | 133 |  |  | $ | 130 |  |  | 2 |  |  |  | (3) |  |  |  |  |  |  |  |  |  |  |  |
Franchise and property revenues |  | 354 |  |  | 315 |  |  | 12 |  |  |  | 8 |  |  |  |  |  |  |  |  |  |  |  |
Franchise contributions for advertising and other services |  | 138 |  |  | 121 |  |  | 14 |  |  |  | 9 |  |  |  |  |  |  |  |  |  |  |  |
Total revenues |  | $ | 625 |  |  | $ | 566 |  |  | 10 |  |  |  | 6 |  |  |  |  |  |  |  |  |  |  |  |
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 |  |  | — |  |  |  | 2 |  |  |  |  |  |  |  |  |  |  |  |
Franchise and property expenses |  | 14 |  |  | 33 |  |  | 59 |  |  |  | 61 |  |  |  |  |  |  |  |  |  |  |  |
Franchise advertising and other services expense |  | 133 |  |  | 120 |  |  | (11) |  |  |  | (5) |  |  |  |  |  |  |  |  |  |  |  |
Operating Profit |  | $ | 300 |  |  | $ | 224 |  |  | 34 |  |  |  | 28 |  |  |  |  |  |  |  |  |  |  |  |

|  |  |  |  |  | % Increase (Decrease) |
Unit Count |  | 3/31/2021 |  | 3/31/2020 |  |
Franchise |  | 25,002 |  |  | 23,969 |  |  | 4 |  |
Company-owned |  | 290 |  |  | 335 |  |  | (13) |  |
Total |  | 25,292 |  |  | 24,304 |  |  | 4 |  |

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.
31

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) |  |  |  |  |  |
|  | 2021 |  | 2020 |  | Reported |  | Ex FX |  |  |  |  |  |  |  |
System Sales |  | $ | 3,096 |  |  | $ | 2,801 |  |  | 11 |  |  |  | 7 |  |  |  |  |  |  |  |  |  |  |  |
Same-Store Sales Growth (Decline) % |  | 12 |  |  | (11) |  |  | N/A |  |  | N/A |  |  |  |  |  |  |  |  |  |  |
Company sales |  | $ | 14 |  |  | $ | 18 |  |  | (24) |  |  |  | (27) |  |  |  |  |  |  |  |  |  |  |  |
Franchise and property revenues |  | 141 |  |  | 133 |  |  | 7 |  |  |  | 4 |  |  |  |  |  |  |  |  |  |  |  |
Franchise contributions for advertising and other services |  | 96 |  |  | 84 |  |  | 14 |  |  |  | 13 |  |  |  |  |  |  |  |  |  |  |  |
Total revenues |  | $ | 251 |  |  | $ | 235 |  |  | 7 |  |  |  | 5 |  |  |  |  |  |  |  |  |  |  |  |
Company restaurant profit |  | $ | 1 |  |  | $ | (1) |  |  | NM |  |  | NM |  |  |  |  |  |  |  |  |  |  |
Company restaurant margin % |  | 6.7 | % |  | (3.0) | % |  | 9.7 |  | ppts. |  | 9.7 |  | ppts. |  |  |  |  |  |  |  |  |  |
G&A expenses |  | $ | 40 |  |  | $ | 46 |  |  | 11 |  |  |  | 12 |  |  |  |  |  |  |  |  |  |  |  |
Franchise and property expenses |  | 2 |  |  | 12 |  |  | 84 |  |  |  | 85 |  |  |  |  |  |  |  |  |  |  |  |
Franchise advertising and other services expense |  | 94 |  |  | 84 |  |  | (12) |  |  |  | (11) |  |  |  |  |  |  |  |  |  |  |  |
Operating Profit |  | $ | 102 |  |  | $ | 76 |  |  | 34 |  |  |  | 30 |  |  |  |  |  |  |  |  |  |  |  |

|  |  |  |  |  | % Increase (Decrease) |
Unit Count |  | 3/31/2021 |  | 3/31/2020 |  |
Franchise |  | 17,657 |  |  | 18,434 |  |  | (4) |  |
Company-owned |  | 53 |  |  | 99 |  |  | (46) |  |
Total |  | 17,710 |  |  | 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.
32

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) |  |  |  |  |  |
|  | 2021 |  | 2020 |  | Reported |  | Ex FX |  |  |  |  |  |  |  |
System Sales |  | $ | 2,880 |  |  | $ | 2,596 |  |  | 11 |  |  |  | 11 |  |  |  |  |  |  |  |  |  |  |  |
Same-Store Sales Growth % |  | 9 |  |  | 1 |  |  | N/A |  |  | N/A |  |  |  |  |  |  |  |  |  |  |
Company sales |  | $ | 208 |  |  | $ | 198 |  |  | 5 |  |  |  | 5 |  |  |  |  |  |  |  |  |  |  |  |
Franchise and property revenues |  | 162 |  |  | 148 |  |  | 9 |  |  |  | 9 |  |  |  |  |  |  |  |  |  |  |  |
Franchise contributions for advertising and other services |  | 118 |  |  | 107 |  |  | 10 |  |  |  | 10 |  |  |  |  |  |  |  |  |  |  |  |
Total revenues |  | $ | 488 |  |  | $ | 453 |  |  | 8 |  |  |  | 8 |  |  |  |  |  |  |  |  |  |  |  |
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 expenses |  | 7 |  |  | 11 |  |  | 36 |  |  |  | 36 |  |  |  |  |  |  |  |  |  |  |  |
Franchise advertising and other services expense |  | 116 |  |  | 106 |  |  | (9) |  |  |  | (9) |  |  |  |  |  |  |  |  |  |  |  |
Operating Profit |  | $ | 178 |  |  | $ | 144 |  |  | 24 |  |  | 24 |  |  |  |  |  |  |  |  |  |  |

|  |  |  |  |  | % Increase (Decrease) |
Unit Count |  | 3/31/2021 |  | 3/31/2020 |  |
Franchise |  | 7,019 |  |  | 6,925 |  |  | 1 |  |
Company-owned |  | 474 |  |  | 473 |  |  | — |  |
Total |  | 7,493 |  |  | 7,398 |  |  | 1 |  |

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.
33

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) / Income |  | 2021 |  | 2020 |  | % 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.
34

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.

|  | 2021 |  | 2022 |  | 2023 |  | 2024 |  | 2025 |  | 2026 |  | 2027 |  | 2028 |  | 2030 |  | 2031 |  | 2037 |  | 2043 |  | Total
Securitization Notes |  | $ | 21 |  |  | $ | 29 |  |  | $ | 1,281 |  |  | $ | 16 |  |  | $ | 16 |  |  | $ | 921 |  |  | $ | 6 |  |  | $ | 571 |  |  |  |  |  |  |  |  |  |  | $ | 2,861 |
Credit Agreement |  | 12 |  |  | 29 |  |  | 34 |  |  | 48 |  |  | 53 |  |  | 662 |  | 15 |  | 1,397 |  |  |  |  |  |  |  |  |  |  | 2,250 |
Subsidiary Senior Unsecured Notes |  |  |  |  |  |  |  |  |  |  |  | 1,050 |  |  | 750 |  |  |  |  |  |  |  |  |  |  |  |  | 1,800 |
YUM Senior Unsecured Notes |  | 350 |  |  |  |  | 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
38

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 Periods |  | Total number of shares purchased (thousands) |  | Average price paid per share |  | Total 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
2/1/21-2/28/21 |  | 911 |  | $105.00 |  | 911 |  | $1,654
3/1/21-3/31/21 |  | 1,688 |  | $106.30 |  | 1,688 |  | $1,475
Total |  | 2,599 |  | $105.84 |  | 2,599 |  | $1,475

39

Item 6. Exhibits

| (a) | Exhibit Index |
|  | Exhibit No. |  | Exhibit Description |
|  | 4.2.2. |  | Second Supplemental Indenture, dated as of April 1, 2021, by and between the Company and U.S. Bank National Association, as trustee, which is incorporated herein from Exhibit 4.1 to Form 8-K filed April 1, 2021. |
|  | 10.1 |  | Refinancing Amendment No. 4, dated as of March 15, 2021, to Credit Agreement dated as of June 16, 2016 among Pizza Hut Holdings, LLC, KFC Holding Co. and Taco Bell of America, LLC, as borrowers, the Lenders from time to time party thereto and JPMorgan Chase Bank, N.A., as Collateral Agent, Swing Line Lender, an L/C Issuer and Administrative Agent for the Lenders., which is incorporated herein by reference from Exhibit 10.1 to YUM’s Report on 8-K filed on March 18, 2021. |
|  | 10.20 |  | Yum! Brands, Inc. Long Term Incentive Plan Form of Global Performance Share Unit Agreement (2021) |
|  | 15 |  | Letter from KPMG LLP regarding Unaudited Interim Financial Information (Acknowledgement of Independent Registered Public Accounting Firm) |
|  | 31.1 |  | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|  | 31.2 |  | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|  | 32.1 |  | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|  | 32.2 |  | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|  | 101.INS |  | XBRL 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.SCH |  | XBRL Taxonomy Extension Schema Document |
|  | 101.CAL |  | XBRL Taxonomy Extension Calculation Linkbase Document |
|  | 101.LAB |  | XBRL Taxonomy Extension Label Linkbase Document |
|  | 101.PRE |  | XBRL Taxonomy Extension Presentation Linkbase Document |
|  | 101.DEF |  | XBRL Taxonomy Extension Definition Linkbase Document |

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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)

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