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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, 2022
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 May 5, 2022, was 285,163,809 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 | 20
| Item 3 - Quantitative and Qualitative Disclosures About Market Risk | 34
| Item 4 - Controls and Procedures | 34
| Report of Independent Registered Public Accounting Firm | 35
Part II. | Other Information and Signatures |
| Item 1 - Legal Proceedings | 36
| Item 1A - Risk Factors | 36
| Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds | 36
| Item 6 - Exhibits | 38
| Signatures | 39

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 | 3/31/2022 |  | 3/31/2021 |  |  |  |
Company sales | $ | 470 |  |  | $ | 476 |  |  |  |  |
Franchise and property revenues | 714 |  |  | 658 |  |  |  |  |
Franchise contributions for advertising and other services | 363 |  |  | 352 |  |  |  |  |
Total revenues | 1,547 |  |  | 1,486 |  |  |  |  |
Costs and Expenses, Net |  |  |  |  |  |  |
Company restaurant expenses | 402 |  |  | 392 |  |  |  |  |
General and administrative expenses | 253 |  |  | 206 |  |  |  |  |
Franchise and property expenses | 32 |  |  | 23 |  |  |  |  |
Franchise advertising and other services expense | 361 |  |  | 343 |  |  |  |  |
Refranchising (gain) loss | (4) |  |  | (15) |  |  |  |  |
Other (income) expense | (6) |  |  | (6) |  |  |  |  |
Total costs and expenses, net | 1,038 |  |  | 943 |  |  |  |  |
Operating Profit | 509 |  |  | 543 |  |  |  |  |
Investment (income) expense, net | (7) |  |  | — |  |  |  |  |
Other pension (income) expense | — |  |  | 3 |  |  |  |  |
Interest expense, net | 118 |  |  | 131 |  |  |  |  |
Income Before Income Taxes | 398 |  |  | 409 |  |  |  |  |
Income tax (benefit) provision | (1) |  |  | 83 |  |  |  |  |
Net Income | $ | 399 |  |  | $ | 326 |  |  |  |  |
Basic Earnings Per Common Share | $ | 1.38 |  |  | $ | 1.09 |  |  |  |  |
Diluted Earnings Per Common Share | $ | 1.36 |  |  | $ | 1.07 |  |  |  |  |
Dividends Declared Per Common Share | $ | 0.57 |  |  | $ | 0.50 |  |  |  |  |
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 |  |
| 3/31/2022 |  | 3/31/2021 |  |  |  |
Net Income | $ | 399 |  |  | $ | 326 |  |  |  |  |
Other comprehensive income, net of tax |  |  |  |  |  |  |
Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature |  |  |  |  |  |  |
Adjustments and gains (losses) arising during the period | (23) |  |  | 3 |  |  |  |  |
| (23) |  |  | 3 |  |  |  |  |
Tax (expense) benefit | — |  |  | — |  |  |  |  |
| (23) |  |  | 3 |  |  |  |  |
Changes in pension and post-retirement benefits |  |  |  |  |  |  |
Unrealized gains (losses) arising during the period | — |  |  | 47 |  |  |  |  |
Reclassification of (gains) losses into Net Income | 5 |  |  | 7 |  |  |  |  |
| 5 |  |  | 54 |  |  |  |  |
Tax (expense) benefit | (1) |  |  | (13) |  |  |  |  |
| 4 |  |  | 41 |  |  |  |  |
Changes in derivative instruments |  |  |  |  |  |  |
Unrealized gains (losses) arising during the period | 57 |  |  | 24 |  |  |  |  |
Reclassification of (gains) losses into Net Income | 12 |  |  | 4 |  |  |  |  |
| 69 |  |  | 28 |  |  |  |  |
Tax (expense) benefit | (17) |  |  | (7) |  |  |  |  |
| 52 |  |  | 21 |  |  |  |  |
Other comprehensive income, net of tax | 33 |  |  | 65 |  |  |  |  |
Comprehensive Income | $ | 432 |  |  | $ | 391 |  |  |  |  |
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
| 3/31/2022 |  | 3/31/2021
Cash Flows – Operating Activities |  |  |
Net Income | $ | 399 |  |  | $ | 326 |
Depreciation and amortization | 37 |  |  | 39 |
Refranchising (gain) loss | (4) |  |  | (15) |
Investment (income) expense, net | (7) |  |  | — |
Deferred income taxes | (77) |  |  | 14 |
Share-based compensation expense | 26 |  |  | 21 |
Changes in accounts and notes receivable | 29 |  |  | 27 |
Changes in prepaid expenses and other current assets | (13) |  |  | (9) |
Changes in accounts payable and other current liabilities | (176) |  |  | (123) |
Changes in income taxes payable | 29 |  |  | 5 |
Other, net | 10 |  |  | 39 |
Net Cash Provided by Operating Activities | 253 |  |  | 324 |
Cash Flows – Investing Activities |  |  |
Capital spending | (42) |  |  | (45) |
Proceeds from refranchising of restaurants | 24 |  |  | 20 |
Other, net | (11) |  |  | 39 |
Net Cash Provided by (Used In) Investing Activities | (29) |  |  | 14 |
Cash Flows – Financing Activities |  |  |
Proceeds from long-term debt | — |  |  | 800 |
Repayments of long-term debt | (15) |  |  | (912) |
Revolving credit facility, three months or less, net | 174 |  |  | — |
Short-term borrowings by original maturity |  |  |
More than three months - proceeds | — |  |  | — |
More than three months - payments | — |  |  | — |
Three months or less, net | — |  |  | — |
Repurchase shares of Common Stock | (343) |  |  | (286) |
Dividends paid on Common Stock | (165) |  |  | (150) |
Other, net | (28) |  |  | (15) |
Net Cash Used in Financing Activities | (377) |  |  | (563) |
Effect of Exchange Rates on Cash and Cash Equivalents | — |  |  | 3 |
Net Decrease in Cash and Cash Equivalents, Restricted Cash and Restricted Cash Equivalents | (153) |  |  | (222) |
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - Beginning of Period | 771 |  |  | 1,024 |
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - End of Period | $ | 618 |  |  | $ | 802 |
See accompanying Notes to Condensed Consolidated Financial Statements. |  |  |

6

CONDENSED CONSOLIDATED BALANCE SHEETS
YUM! BRANDS, INC. AND SUBSIDIARIES |  |  |
(in millions) |  |  |
| (Unaudited) 3/31/2022 |  | 12/31/2021
ASSETS |  |  |
Current Assets |  |  |
Cash and cash equivalents | $ | 365 |  |  | $ | 486 |
Accounts and notes receivable, net | 565 |  |  | 596 |
Prepaid expenses and other current assets | 426 |  |  | 450 |
Total Current Assets | 1,356 |  |  | 1,532 |
Property, plant and equipment, net | 1,181 |  |  | 1,207 |
Goodwill | 656 |  |  | 657 |
Intangible assets, net | 354 |  |  | 359 |
Other assets | 1,485 |  |  | 1,487 |
Deferred income taxes | 784 |  |  | 724 |
Total Assets | $ | 5,816 |  |  | $ | 5,966 |
LIABILITIES AND SHAREHOLDERS’ DEFICIT |  |  |
Current Liabilities |  |  |
Accounts payable and other current liabilities | $ | 1,202 |  |  | $ | 1,334 |
Income taxes payable | 27 |  |  | 13 |
Short-term borrowings | 73 |  |  | 68 |
Total Current Liabilities | 1,302 |  |  | 1,415 |
Long-term debt | 11,332 |  |  | 11,178 |
Other liabilities and deferred credits | 1,673 |  |  | 1,746 |
Total Liabilities | 14,307 |  |  | 14,339 |
Shareholders’ Deficit |  |  |
Common Stock, no par value, 750 shares authorized; 286 shares issued in 2022 and 289 issued in 2021 | — |  |  | — |
Accumulated deficit | (8,199) |  |  | (8,048) |
Accumulated other comprehensive loss | (292) |  |  | (325) |
Total Shareholders’ Deficit | (8,491) |  |  | (8,373) |
Total Liabilities and Shareholders’ Deficit | $ | 5,816 |  |  | $ | 5,966 |
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, 2022 and 2021
(in millions) |  |  |  |  |  |  |  |  |  |
|  | Yum! Brands, Inc. |  |
|  | Issued Common Stock |  | Accumulated Deficit |  | Accumulated Other Comprehensive Loss |  | Total Shareholders' Deficit
|  | Shares |  | Amount |  |  |
Balance at December 31, 2021 |  | 289 |  |  | $ | — |  |  | $ | (8,048) |  |  | $ | (325) |  |  | $ | (8,373) |
Net Income |  |  |  |  |  | 399 |  |  |  |  | 399 |
Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature |  |  |  |  |  |  |  | (23) |  |  | (23) |
Pension and post-retirement benefit plans (net of tax impact of $1 million) |  |  |  |  |  |  |  | 4 |  |  | 4 |
Net gain on derivative instruments (net of tax impact of $17 million) |  |  |  |  |  |  |  | 52 |  |  | 52 |
Comprehensive Income |  |  |  |  |  |  |  |  |  | 432 |
Dividends declared |  |  |  |  |  | (165) |  |  |  |  | (165) |
Repurchase of shares of Common Stock |  | (3) |  |  | (22) |  |  | (385) |  |  |  |  | (407) |
Employee share-based award exercises |  |  |  | (16) |  |  |  |  |  |  | (16) |
Share-based compensation events |  |  |  | 38 |  |  |  |  |  |  | 38 |
Balance at March 31, 2022 |  | 286 |  |  | $ | — |  |  | $ | (8,199) |  |  | $ | (292) |  |  | $ | (8,491) |
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) |
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, 2021 (“2021 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 54,000 restaurants in more than 155 countries and territories. As of March 31, 2022, 98% of these restaurants were owned and operated by franchisees. The Company’s KFC, Taco Bell and Pizza Hut brands are global leaders of the chicken, Mexican-style and pizza food categories, respectively. The Habit Burger Grill is a fast-casual restaurant concept specializing in made-to-order chargrilled burgers, sandwiches and more.
As of March 31, 2022, YUM consisted of four operating segments:
•The KFC Division which includes our worldwide operations of the KFC concept
•The Taco Bell Division which includes our worldwide operations of the Taco Bell concept
•The Pizza Hut Division which includes our worldwide operations of the Pizza Hut concept
•The Habit Burger Grill Division which includes our worldwide operations of the Habit Burger Grill concept
YUM's fiscal year begins on January 1 and ends December 31 of each year, with each quarter comprised of three months. The majority of our U.S. subsidiaries, including, beginning in fiscal year 2022, our Habit Burger Grill Division, and certain international subsidiaries operate on a weekly periodic calendar where the first three quarters of each fiscal year consist of 12 weeks and the fourth quarter consists of 16 weeks in fiscal years with 52 weeks and 17 weeks in fiscal years with 53 weeks. Our remaining international subsidiaries operate on a monthly calendar similar to that on which YUM operates.
For fiscal year 2021, our Habit Burger Grill Division operated on a weekly periodic calendar where each quarter consisted of 13 weeks. The impact of this change in reporting calendar was not significant and accordingly, prior year amounts presented in these Condensed Consolidated Financial Statements have not been restated.
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 2021 Form 10-K, the results of the interim periods presented. Our results of operations, comprehensive income, cash flows and changes in shareholders' deficit for these interim periods are not necessarily indicative of the results to be expected for the full year.
Our significant interim accounting policies include the recognition of advertising and marketing costs, generally in proportion to revenue, and the recognition of income taxes using an estimated annual effective tax rate.
We have reclassified certain other items in the Financial Statements for the prior periods to be comparable with the classification for the quarter ended March 31, 2022. These reclassifications had no effect on previously reported Net Income.
Russia Invasion of Ukraine
Given the Russian invasion of Ukraine, during the quarter ended March 31, 2022, we announced the suspension of all investment and restaurant development efforts in Russia as well as the operations of our 70 company-owned KFC restaurants in Russia and that we are finalizing an agreement with our Pizza Hut master franchisee to suspend all Pizza Hut restaurant operations. In addition to these actions, we have begun a process aimed at transferring ownership to local operators.
9

Our asset base in Russia at March 31, 2022 includes approximately $80 million in property, plant and equipment and lease right-of-use assets related primarily to our company-owned KFC restaurants and $13 million in goodwill related to our KFC Russia and Central and Eastern Europe reporting unit. Additionally, we have approximately $50 million of cumulative foreign currency translation losses associated with Russian assets recorded within Shareholders’ Deficit at March 31, 2022. We review long-lived assets of restaurants and goodwill for impairment on an annual basis as of the beginning of our fourth quarter or more often if an event occurs or circumstances change that indicates impairment might exist. As a result of our decisions regarding our Russian operations as described in the previous paragraph, we conducted an impairment review of our long-lived assets and goodwill during the quarter ended March 31, 2022. As a result of our review, there was no impairment recorded during the quarter ended March 31, 2022.
We will continue to monitor developments in Russia, including the status of our ownership transfer process, and update our impairment reviews accordingly.
Note 2 - Earnings Per Common Share (“EPS”)

|  | Quarter ended |  |
|  | 2022 |  | 2021 |  |  |  |
Net Income |  | $ | 399 |  |  | $ | 326 |  |  |  |  |
Weighted-average common shares outstanding (for basic calculation) |  | 289 |  |  | 301 |  |  |  |  |
Effect of dilutive share-based employee compensation |  | 5 |  |  | 4 |  |  |  |  |
Weighted-average common and dilutive potential common shares outstanding (for diluted calculation) |  | 294 |  |  | 305 |  |  |  |  |
Basic EPS |  | $ | 1.38 |  |  | $ | 1.09 |  |  |  |  |
Diluted EPS |  | $ | 1.36 |  |  | $ | 1.07 |  |  |  |  |
Unexercised employee stock options and stock appreciation rights (in millions) excluded from the diluted EPS computation(a) |  | 1.2 |  |  | 2.3 |  |  |  |  |

(a)These unexercised employee stock options and stock appreciation rights were not included in the computation of diluted EPS because to do so would have been antidilutive for the periods presented.
Note 3 - Shareholders' Deficit
Under the authority of our Board of Directors, we repurchased shares of our Common Stock during the quarters ended March 31, 2022 and 2021 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 |  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |  |  | 2022
November 2019 |  | — |  |  |  | 2,599 |  |  |  | $ | — |  |  |  | $ | 275 |  |  |  | $ | — |
May 2021 |  | 3,359 |  |  |  | — |  |  |  | 407 |  |  |  | — |  |  |  | 543 |
Total |  | 3,359 |  | (a) |  | 2,599 |  | (b) |  | $ | 407 |  | (a) |  | $ | 275 |  | (b) |  | $ | 543 |

(a) 2022 amount includes the effect of $64 million in share repurchases (0.5 million shares) with trade dates on, or prior to, March 31, 2022, but cash settlement dates subsequent to March 31, 2022.
(b) 2021 amount 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.
In May 2021, our Board of Directors authorized share repurchases from July 1, 2021 through December 31, 2022, of up to $2 billion (excluding applicable transaction fees) of our outstanding Common Stock.
10

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, 2021, net of tax |  | $ | (206) |  |  | $ | (34) |  |  | $ | (85) |  |  | $ | (325) |
OCI, net of tax |  |  |  |  |  |  |  |
Gains (losses) arising during the period classified into AOCI, net of tax |  | (23) |  |  | — |  |  | 43 |  |  | 20 |
(Gains) losses reclassified from AOCI, net of tax |  | — |  |  | 4 |  |  | 9 |  |  | 13 |
|  | (23) |  |  | 4 |  |  | 52 |  |  | 33 |
Balance at March 31, 2022, net of tax |  | $ | (229) |  |  | $ | (30) |  |  | $ | (33) |  |  | $ | (292) |

Note 4 - Other (Income) Expense

|  | Quarter ended |  |
|  | 3/31/2022 |  | 3/31/2021 |  |  |  |
Foreign exchange net (gain) loss |  | $ | (4) |  |  | $ | 2 |  |  |  |  |
Impairment and closure expense |  | — |  |  | 1 |  |  |  |  |
Other(a) |  | (2) |  |  | (9) |  |  |  |  |
Other (income) expense |  | $ | (6) |  |  | $ | (6) |  |  |  |  |

(a) The quarter ended March 31, 2021, includes a gain of $6 million associated with the sale of property.
Note 5 - Supplemental Balance Sheet Information
Accounts and Notes Receivable, net
The Company’s receivables are primarily generated from ongoing business relationships with our franchisees as a result of franchise and lease agreements. Trade receivables consisting of royalties from franchisees are generally due within 30 days of the period in which the corresponding sales occur and are classified as Accounts and notes receivable, net in our Condensed Consolidated Balance Sheets. Accounts and notes receivable, net also includes receivables generated from advertising cooperatives that we consolidate.
11

| 3/31/2022 |  | 12/31/2021
Accounts and notes receivable, gross | $ | 606 |  |  | $ | 632 |
Allowance for doubtful accounts | (41) |  |  | (36) |
Accounts and notes receivable, net(a) | $ | 565 |  |  | $ | 596 |

(a) Accounts and notes receivable, net includes approximately $2 million in license fees at March 31, 2022 related to Yum China Holdings, Inc. ("Yum China") gross revenue during the quarter ended March 31, 2022 that Yum China is now disputing are due under the terms of the Master License Agreement (“MLA”) between the Company and Yum China. License fees related to such revenue have historically been paid by Yum China and we believe they continue to be due under the terms of the MLA.
Property, Plant and Equipment, net

| 3/31/2022 |  | 12/31/2021
Property, plant and equipment, gross | $ | 2,468 |  |  | $ | 2,477 |
Accumulated depreciation and amortization | (1,287) |  |  | (1,270) |
Property, plant and equipment, net | $ | 1,181 |  |  | $ | 1,207 |

Assets held-for-sale totaled $9 million and $12 million as of March 31, 2022 and December 31, 2021, respectively, and are included in Prepaid expenses and other current assets in our Condensed Consolidated Balance Sheets.

Other Assets | 3/31/2022 |  | 12/31/2021
Operating lease right-of-use assets(a) | $ | 791 |  |  | $ | 809 |
Franchise incentives | 179 |  |  | 164 |
Investment in Devyani International Limited (See Note 12) | 122 |  |  | 118 |
Other | 393 |  |  | 396 |
Other assets | $ | 1,485 |  |  | $ | 1,487 |

(a) Non-current operating lease liabilities of $776 million and $793 million as of March 31, 2022 and December 31, 2021, 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

| 3/31/2022 |  | 12/31/2021
Cash and cash equivalents as presented in Condensed Consolidated Balance Sheets | $ | 365 |  |  | $ | 486 |
Restricted cash included in Prepaid expenses and other current assets(a) | 218 |  |  | 250 |
Restricted cash and restricted cash equivalents included in Other assets(b) | 35 |  |  | 35 |
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents as presented in Condensed Consolidated Statements of Cash Flows | $ | 618 |  |  | $ | 771 |

(a) Restricted cash within Prepaid expenses and other current assets reflects the cash related to advertising cooperatives which we consolidate that can only be used to settle obligations of the respective cooperatives and cash held in reserve for Taco Bell Securitization interest payments.
(b) Primarily trust accounts related to our self-insurance program.
Note 6 - Income Taxes

| Quarter ended |  |
| 2022 |  | 2021 |  |  |  |
Income tax (benefit) provision | $ | (1) |  |  | $ | 83 |  |  |  |  |
Effective tax rate | (0.2) | % |  | 20.2 | % |  |  |  |

12

The decrease in our effective tax rate for the quarter ended March 31, 2022, as compared with the quarter ended March 31, 2021, is primarily due to an $82 million tax benefit discretely recorded in the quarter ended March 31, 2022, from the release of a valuation allowance on foreign tax credit carryforwards. In January 2022, the U.S. Treasury published new regulations impacting foreign tax credit utilization beginning in the Company’s 2022 tax year. These regulations make foreign taxes paid to certain countries no longer creditable in the U.S. Accordingly, we reversed a valuation allowance associated with existing foreign tax credit carryforwards that we now believe will be used to offset these now non-creditable taxes in 2022 and future years.
Note 7 - Revenue Recognition
Disaggregation of Total Revenues
The following tables disaggregate revenue by Concept, for our two most significant markets based on Operating Profit and for all other markets. We believe this disaggregation best reflects the extent to which the nature, amount, timing and uncertainty of our revenues and cash flows are impacted by economic factors.

| Quarter ended 3/31/2022
|  | KFC Division |  | Taco Bell Division |  | Pizza Hut Division |  | Habit Burger Grill Division |  | Total
U.S. |  |  |  |  |  |  |  |  |  |
Company sales |  | $ | 15 |  |  | $ | 214 |  |  | $ | 5 |  |  | $ | 125 |  |  | $ | 359 |
Franchise revenues |  | 45 |  |  | 157 |  |  | 64 |  |  | 1 |  |  | 267 |
Property revenues |  | 3 |  |  | 11 |  |  | 1 |  |  | — |  |  | 15 |
Franchise contributions for advertising and other services |  | 6 |  |  | 123 |  |  | 72 |  |  | — |  |  | 201 |
China |  |  |  |  |  |  |  |  |  |
Franchise revenues |  | 61 |  |  | — |  |  | 16 |  |  | — |  |  | 77 |
Other |  |  |  |  |  |  |  |  |  |
Company sales |  | 111 |  |  | — |  |  | — |  |  | — |  |  | 111 |
Franchise revenues |  | 260 |  |  | 11 |  |  | 70 |  |  | — |  |  | 341 |
Property revenues |  | 14 |  |  | — |  |  | — |  |  | — |  |  | 14 |
Franchise contributions for advertising and other services |  | 145 |  |  | 1 |  |  | 16 |  |  | — |  |  | 162 |
|  | $ | 660 |  |  | $ | 517 |  |  | $ | 244 |  |  | $ | 126 |  |  | $ | 1,547 |

13

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

Contract Liabilities
Our contract liabilities are comprised of unamortized upfront fees received from franchisees and are presented within Accounts payable and other current liabilities and Other liabilities and deferred credits in our Condensed Consolidated Balance Sheets. A summary of significant changes to the contract liability balance during 2022 is presented below.

|  | Deferred Franchise Fees
Balance at December 31, 2021 |  | $ | 421 |
Revenue recognized that was included in unamortized upfront fees received from franchisees at the beginning of the period |  | (19) |
Increase for upfront fees associated with contracts that became effective during the period, net of amounts recognized as revenue during the period |  | 16 |
Balance at March 31, 2022 |  | $ | 418 |

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

Less than 1 year | $ | 67 |  |
1 - 2 years | 62 |  |
2 - 3 years | 57 |  |
3 - 4 years | 50 |  |
4 - 5 years | 44 |  |
Thereafter | 138 |  |
Total | $ | 418 |  |

Note 8 - Reportable Operating Segments
We identify our operating segments based on management responsibility. The following tables summarize Revenues and Operating Profit for each of our reportable operating segments:
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| Quarter ended |  |
Revenues | 2022 |  | 2021 |  |  |  |
KFC Division | $ | 660 |  |  | $ | 625 |  |  |  |  |
Taco Bell Division | 517 |  |  | 488 |  |  |  |  |
Pizza Hut Division | 244 |  |  | 251 |  |  |  |  |
Habit Burger Grill Division | 126 |  |  | 122 |  |  |  |  |
| $ | 1,547 |  |  | $ | 1,486 |  |  |  |  |

| Quarter ended |  |
Operating Profit | 2022 |  | 2021 |  |  |  |
KFC Division | $ | 291 |  |  | $ | 300 |  |  |  |  |
Taco Bell Division | 185 |  |  | 178 |  |  |  |  |
Pizza Hut Division | 102 |  |  | 102 |  |  |  |  |
Habit Burger Grill Division | (8) |  |  | — |  |  |  |  |
Corporate and unallocated G&A expenses | (71) |  |  | (50) |  |  |  |  |
Unallocated Company restaurant expenses | — |  |  | — |  |  |  |  |
Unallocated Franchise and property expenses | — |  |  | — |  |  |  |  |
Unallocated Refranchising gain (loss) | 4 |  |  | 15 |  |  |  |  |
Unallocated Other income (expense) | 6 |  |  | (2) |  |  |  |  |
Operating Profit | $ | 509 |  |  | $ | 543 |  |  |  |  |
Investment income (expense), net(a) | 7 |  |  | — |  |  |  |  |
Other pension income (expense) | — |  |  | (3) |  |  |  |  |
Interest expense, net(b) | (118) |  |  | (131) |  |  |  |  |
Income before income taxes | $ | 398 |  |  | $ | 409 |  |  |  |  |

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 our investment in Devyani International Limited (see Note 12).
(b)Includes fees expensed and unamortized debt-issuance costs written off totaling $12 million related to the refinancing of the Credit Agreement (as described within our 2021 Form 10-K) during the quarter ended March 31, 2021.
Note 9 - Pension Benefits
We sponsor qualified and supplemental (non-qualified) noncontributory defined benefit pension plans covering certain full-time salaried and hourly U.S. employees. The most significant of these plans, the YUM Retirement Plan (the “Plan”), is funded. We fund our other U.S. plans as benefits are paid. The Plan and our non-qualified plans 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 |  |
| 2022 |  | 2021 |  |  |  |
Service cost | $ | 2 |  |  | $ | 2 |  |  |  |  |
Interest cost | 8 |  |  | 8 |  |  |  |  |
Expected return on plan assets | (12) |  |  | (11) |  |  |  |  |
Amortization of net loss | 3 |  |  | 6 |  |  |  |  |
Amortization of prior service cost | 1 |  |  | 1 |  |  |  |  |
Net periodic benefit cost | $ | 2 |  |  | $ | 6 |  |  |  |  |

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

Short-term Borrowings |  | 3/31/2022 |  | 12/31/2021
Current maturities of long-term debt |  | $ | 80 |  |  | $ | 75 |
Less current portion of debt issuance costs and discounts |  | (7) |  |  | (7) |
Short-term borrowings |  | $ | 73 |  |  | $ | 68 |
Long-term Debt |  |  |  |
Securitization Notes |  | $ | 3,802 |  |  | $ | 3,811 |
Subsidiary Senior Unsecured Notes |  | 750 |  |  | 750 |
Revolving Facility |  | 174 |  |  | — |
Term Loan A Facility |  | 750 |  |  | 750 |
Term Loan B Facility |  | 1,485 |  |  | 1,489 |
YUM Senior Unsecured Notes |  | 4,475 |  |  | 4,475 |
Finance lease obligations |  | 64 |  |  | 64 |
|  | $ | 11,500 |  |  | $ | 11,339 |
Less debt issuance costs and discounts |  | (88) |  |  | (86) |
Less current maturities of long-term debt |  | (80) |  |  | (75) |
Long-term debt |  | $ | 11,332 |  |  | $ | 11,178 |

Details of our Short-term borrowings and Long-term debt as of December 31, 2021 can be found within our 2021 Form 10-K.
On February 23, 2022, Yum! Brands, Inc. issued a notice of redemption for the $600 million aggregate principal amount of 7.75% YUM Senior Unsecured Notes due April 1, 2025 (the “2025 Notes”). The 2025 Notes were redeemed subsequent to the first quarter, on April 1, 2022, at an amount equal to 103.875% of the aggregate principal amount of the 2025 Notes, reflecting a $23 million “call premium”, plus accrued and unpaid interest to the date of redemption.
Also subsequent to the first quarter, on April 1, 2022, Yum! Brands, Inc. issued $1.0 billion aggregate principal amount of 5.375% YUM Senior Unsecured Notes due April 1, 2032 (the “April 2032 Notes”). The net proceeds from the April 2032 Notes were used to fund the redemption of the 2025 Notes discussed above and for general corporate purposes. The redemption of the 2025 Notes and issuance of the April 2032 Notes are not reflected in the table above.
Cash paid for interest during the quarter ended March 31, 2022, was $90 million. During the quarter ended March 31, 2021, fees expensed as well as previously recorded unamortized debt issuance costs written off totaling $12 million were recognized within Interest expense, net due to the refinancing of our Credit Agreement. Excluding these amounts associated with the Credit Agreement refinancing, cash paid for interest during the quarter ended March 31, 2021, was $88 million.
Note 11 - Derivative Instruments
We use derivative instruments to manage certain of our market risks related to fluctuations in interest rates and foreign currency exchange rates. Our use of foreign currency contracts to manage foreign currency exchange rates is currently not significant.
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Interest Rate Swaps
We have entered into interest rate swaps, with the objective of reducing our exposure to interest rate risk for a portion of our variable-rate debt interest payments primarily under our Term Loan B Facility. At both March 31, 2022 and December 31, 2021, we had interest rate swaps expiring in March 2025 with notional amounts of $1.5 billion. These interest rate swaps have been designated cash flow hedges as the changes in the future cash flows of the swaps are expected to offset changes in expected future interest payments on the related variable-rate debt. There were no other interest rate swaps outstanding as of March 31, 2022 or December 31, 2021.
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, 2022, the swaps were highly effective cash flow hedges.
As a result of the use of interest rate swaps, 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, 2022, all of the counterparties to our interest rate swaps 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 these interest rate swaps recognized in OCI and reclassifications from AOCI into Net Income were as follows:

| Quarter ended |  |
| Gains/(Losses) Recognized in OCI |  | (Gains)/Losses Reclassified from AOCI into Net Income |  |  |  |
| 2022 |  | 2021 |  | 2022 |  | 2021 |  |  |  |  |  |  |  |
Interest rate swaps | $ | 59 |  |  | $ | 24 |  |  | $ | 11 |  |  | $ | 4 |  |  |  |  |  |  |  |  |
Income tax benefit/(expense) | (14) |  |  | (6) |  |  | (3) |  |  | (1) |  |  |  |  |  |  |  |  |

As of March 31, 2022, 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 $17 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. The fair value associated with the total return swaps as of March 31, 2022, was not significant.
See Note 12 for the fair value of our derivative assets and liabilities.
Note 12 - Fair Value Disclosures
As of March 31, 2022, 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 borrowings under our Revolving Facility, our notes receivable, net of allowances, and lease guarantees, less reserves for expected losses, approximates their carrying value. The following table presents the carrying value and estimated fair value of the Company’s debt obligations:
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| 3/31/2022 |  | 12/31/2021
| Carrying Value |  | Fair Value (Level 2) |  | Carrying Value |  | Fair Value (Level 2)
Securitization Notes(a) | $ | 3,802 |  |  | $ | 3,703 |  |  | $ | 3,811 |  |  | $ | 3,872 |
Subsidiary Senior Unsecured Notes(b) | 750 |  |  | 773 |  |  | 750 |  |  | 784 |
Term Loan A Facility(b) | 750 |  |  | 748 |  |  | 750 |  |  | 748 |
Term Loan B Facility(b) | 1,485 |  |  | 1,477 |  |  | 1,489 |  |  | 1,490 |
YUM Senior Unsecured Notes(b) | 4,475 |  |  | 4,452 |  |  | 4,475 |  |  | 4,845 |

(a) We estimated the fair value of the Securitization Notes using market quotes and calculations. The markets in which the Securitization Notes trade are not considered active markets.
(b) We estimated the fair value of the YUM and Subsidiary Senior Unsecured Notes, Term Loan A Facility and Term Loan B Facility using market quotes and calculations based on market rates.
Recurring Fair Value Measurements
The Company has interest rate swaps and other investments, all of which are required to be measured at fair value on a recurring basis (see Note 11 for discussion regarding derivative instruments). The following table presents fair values for those assets and liabilities measured at fair value on a recurring basis and the level within the fair value hierarchy in which the measurements fall.

|  |  |  |  |  | Fair Value
|  | Condensed Consolidated Balance Sheet |  | Level |  | 3/31/2022 |  | 12/31/2021
Assets |  |  |  |  |  |  |  |
Other Investments |  | Other assets |  | 1 |  |  | 125 |  |  | 119 |
Other Investments |  | Other assets |  | 3 |  |  | 5 |  |  | 5 |
Liabilities |  |  |  |  |  |  |  |
Interest Rate Swaps |  | Accounts payable and other current liabilities |  | 2 |  |  | 17 |  |  | 38 |
Interest Rate Swaps |  | Other liabilities and deferred credits |  | 2 |  |  | 5 |  |  | 54 |

The fair value of the Company’s interest rate swaps were determined based on the present value of expected future cash flows considering the risks involved, including nonperformance risk, and using discount rates appropriate for the duration based on observable inputs.
The other investments primarily include an approximate 5% minority interest in Devyani International Limited (“Devyani”), an entity that operates KFC and Pizza Hut franchised units in India, with a fair value of Indian Rupee 9.3 billion (or approximately $122 million) and Indian Rupee 8.8 billion (or approximately $118 million) at March 31, 2022 and December 31, 2021, respectively. For the quarter ended March 31, 2022, we recognized pre-tax investment income of Indian Rupee 540 million (or approximately $7 million) related to changes in fair value of our investment in Devyani.
Note 13 - Contingencies
Internal Revenue Service Proposed Adjustment
As a result of an audit by the Internal Revenue Service (“IRS”) for fiscal years 2013 through 2015, on October 13, 2021, we received a Notice of Proposed Adjustment (“NPA”) from the IRS for the 2014 fiscal year relating to a series of reorganizations we undertook during that year in connection with the business realignment of our corporate and management reporting structure along brand lines. The IRS asserts that these reorganizations involved taxable distributions of approximately $6.0 billion. We expect to receive the Revenue Agent’s Report (“RAR”) including the IRS’s calculation of the tax assessment in the second quarter of 2022. Based on the NPA, the amount of additional tax to be proposed is expected to be material. We disagree with the IRS’s position as asserted in the NPA and intend to contest it vigorously by filing a protest disputing on multiple grounds any proposed taxes and proceeding to the IRS Office of Appeals.
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The final resolution of this matter is uncertain, but the Company believes that it is more likely than not the Company’s tax position will be sustained; therefore, no reserve is recorded with respect to this matter. An unfavorable resolution of this matter could have a material, adverse impact on our consolidated Financial Statements in future periods.
Lease Guarantees
As a result of having assigned our interest in obligations under real estate leases as a condition to the refranchising of certain Company-owned restaurants, and guaranteeing certain other leases, we are frequently secondarily liable on lease agreements. These leases have varying terms, the latest of which expires in 2065. As of March 31, 2022, the potential amount of undiscounted payments we could be required to make in the event of non-payment by the primary lessee was approximately $400 million. The present value of these potential payments discounted at our pre-tax cost of debt at March 31, 2022, was approximately $325 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, 2022, 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 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 $145 million. Of this amount, $140 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 now scheduled for August 31, 2022. 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 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, 2021, (“2021 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 54,000 restaurants in more than 155 countries and territories, primarily under the concepts of KFC, Taco Bell, Pizza Hut and The Habit Burger Grill (collectively, the “Concepts”). The Company’s KFC, Taco Bell and Pizza Hut brands are global leaders of the chicken, Mexican-style and pizza food categories, respectively. The Habit Burger Grill, is a fast-casual restaurant concept specializing in made-to-order chargrilled burgers, sandwiches and more. Of the over 54,000 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 Taco Bell Division which includes our worldwide operations of the Taco Bell concept
•The Pizza Hut Division which includes our worldwide operations of the Pizza Hut concept
•The Habit Burger Grill Division which includes our worldwide operations of the Habit Burger Grill concept
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 and sustainability 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, including those temporarily closed. From time-to-time restaurants may be temporarily closed due to remodeling or image enhancement, rebuilding, natural disasters, health epidemic or pandemic, landlord disputes or other issues. The system sales of restaurants we deem temporarily closed remain in our base for purposes of determining same-store sales growth and the restaurants remain in our unit count (see below). Throughout 2021 we 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. Additionally, due to our decision in the quarter ended March 31, 2022, to suspend the operations of our 70 company-owned KFC stores in Russia, such restaurants are considered temporarily closed at March 31, 2022 for purposes of our same-store sales growth calculation and unit count presentation. 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.
•Gross unit openings reflects new openings by us and our franchisees. Net new unit growth reflects gross unit openings offset by permanent store closures, by us and our franchisees. To determine whether a restaurant meets the definition of a
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unit we consider whether the restaurant has operations that are ongoing and 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 gross unit openings and net new unit growth are useful to investors because we depend on new units for a significant portion of our growth. Additionally, gross unit openings and net new unit growth are 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, 2022, GAAP diluted EPS was $1.36 per share, an increase from $1.07 per share in the quarter ended March 31, 2021, and diluted EPS, excluding Special Items, was $1.05 per share, a decrease from $1.07 per share in the quarter ended March 31, 2021.
Quarterly Financial highlights:

| % Change
| System Sales, ex FX | Same-Store Sales | Units | GAAP Operating Profit | Core Operating Profit
KFC Division | +9 | +3 | +8 | (3) | +1
Taco Bell Division | +8 | +5 | +5 | +4 | +4
Pizza Hut Division | +3 | Even | +5 | Even | +2
Worldwide | +8 | +3 | +6 | (6) | (5)

Additionally:
•During the quarter, 997 gross units were opened contributing to the addition of 628 net new units.
•During the quarter, we repurchased 3.4 million shares totaling $407 million at an average price of $121.
•Foreign currency translation unfavorably impacted Divisional Operating Profit for the quarter by $14 million.
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Worldwide
GAAP Results

| Quarter ended |  |
| 2022 |  | 2021 |  | % B/(W) |  |  |  |  |  |
Company sales | $ | 470 |  |  | $ | 476 |  |  | (1) |  |  |  |  |  |  |  |  |
Franchise and property revenues | 714 |  |  | 658 |  |  | 9 |  |  |  |  |  |  |  |  |
Franchise contributions for advertising and other services | 363 |  |  | 352 |  |  | 3 |  |  |  |  |  |  |  |  |
Total revenues | 1,547 |  |  | 1,486 |  |  | 4 |  |  |  |  |  |  |  |  |
Company restaurant expenses | 402 |  |  | 392 |  |  | (3) |  |  |  |  |  |  |  |  |
G&A expenses | 253 |  |  | 206 |  |  | (23) |  |  |  |  |  |  |  |  |
Franchise and property expenses | 32 |  |  | 23 |  |  | (42) |  |  |  |  |  |  |  |  |
Franchise advertising and other services expense | 361 |  |  | 343 |  |  | (5) |  |  |  |  |  |  |  |  |
Refranchising (gain) loss | (4) |  |  | (15) |  |  | (76) |  |  |  |  |  |  |  |  |
Other (income) expense | (6) |  |  | (6) |  |  | NM |  |  |  |  |  |  |  |
Total costs and expenses, net | 1,038 |  |  | 943 |  |  | (10) |  |  |  |  |  |  |  |  |
Operating Profit | 509 |  |  | 543 |  |  | (6) |  |  |  |  |  |  |  |  |
Investment (income) expense, net | (7) |  |  | — |  |  | NM |  |  |  |  |  |  |  |
Other pension (income) expense | — |  |  | 3 |  |  | 83 |  |  |  |  |  |  |  |  |
Interest expense, net | 118 |  |  | 131 |  |  | 11 |  |  |  |  |  |  |  |  |
Income before income taxes | 398 |  |  | 409 |  |  | (3) |  |  |  |  |  |  |  |  |
Income tax (benefit) provision | (1) |  |  | 83 |  |  | 101 |  |  |  |  |  |  |  |  |
Net Income | $ | 399 |  |  | $ | 326 |  |  | 22 |  |  |  |  |  |  |  |  |
Diluted EPS(a) | $ | 1.36 |  |  | $ | 1.07 |  |  | 27 |  |  |  |  |  |  |  |  |
Effective tax rate | (0.2) | % |  | 20.2 | % |  | 20.4 |  | ppts. |  |  |  |  |  |  |

(a)See Note 2 for the number of shares used in this calculation.
Performance Metrics

Unit Count | 3/31/2022 |  | 3/31/2021 |  | % Increase (Decrease) |  |  |  |  |
Franchise | 52,990 |  |  | 49,714 |  |  | 7 |  |  |  |  |  |
Company-owned | 1,062 |  |  | 1,074 |  |  | (1) |  |  |  |  |  |
Total | 54,052 |  |  | 50,788 |  |  | 6 |  |  |  |  |  |

|  | Quarter ended |  |
|  | 2022 |  | 2021 |  |  |  |
Same-store Sales Growth (Decline) % |  | 3 |  |  | 9 |  |  |  |  |
System Sales Growth (Decline) %, reported |  | 6 |  |  | 14 |  |  |  |  |
System Sales Growth (Decline) %, excluding FX |  | 8 |  |  | 11 |  |  |  |  |

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

|  | Quarter ended |  |
|  | 2022 |  | 2021 |  |  |  |
Consolidated |  |  |  |  |  |  |  |
Company sales(a) |  | $ | 470 |  |  | $ | 476 |  |  |  |  |
Franchise sales |  | 13,676 |  |  | 12,909 |  |  |  |  |
System sales |  | 14,146 |  |  | 13,385 |  |  |  |  |
Foreign Currency Impact on System sales(b) |  | (275) |  |  | N/A |  |  |  |
System sales, excluding FX |  | $ | 14,421 |  |  | $ | 13,385 |  |  |  |  |
KFC Division |  |  |  |  |  |  |  |
Company sales(a) |  | $ | 126 |  |  | $ | 133 |  |  |  |  |
Franchise sales |  | 7,607 |  |  | 7,140 |  |  |  |  |
System sales |  | 7,733 |  |  | 7,273 |  |  |  |  |
Foreign Currency Impact on System sales(b) |  | (229) |  |  | N/A |  |  |  |
System sales, excluding FX |  | $ | 7,962 |  |  | $ | 7,273 |  |  |  |  |
Taco Bell Division |  |  |  |  |  |  |  |
Company sales(a) |  | $ | 214 |  |  | $ | 208 |  |  |  |  |
Franchise sales |  | 2,894 |  |  | 2,672 |  |  |  |  |
System sales |  | 3,108 |  |  | 2,880 |  |  |  |  |
Foreign Currency Impact on System sales(b) |  | (5) |  |  | N/A |  |  |  |
System sales, excluding FX |  | $ | 3,113 |  |  | $ | 2,880 |  |  |  |  |
Pizza Hut Division |  |  |  |  |  |  |  |
Company sales(a) |  | $ | 5 |  |  | $ | 14 |  |  |  |  |
Franchise sales |  | 3,155 |  |  | 3,082 |  |  |  |  |
System sales |  | 3,160 |  |  | 3,096 |  |  |  |  |
Foreign Currency Impact on System sales(b) |  | (41) |  |  | N/A |  |  |  |
System sales, excluding FX |  | $ | 3,201 |  |  | $ | 3,096 |  |  |  |  |
Habit Burger Grill Division |  |  |  |  |  |  |  |
Company sales(a) |  | $ | 125 |  |  | $ | 121 |  |  |  |  |
Franchise sales |  | 20 |  |  | 15 |  |  |  |  |
System sales |  | 145 |  |  | 136 |  |  |  |  |
Foreign Currency Impact on System sales(b) |  | — |  |  | N/A |  |  |  |
System sales, excluding FX |  | $ | 145 |  |  | $ | 136 |  |  |  |  |

(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 |  |
|  | 2022 |  | 2021 |  |  |  |
Core Operating Profit Growth (Decline) % |  | (5) |  |  | 33 |  |  |  |  |
Diluted EPS Growth (Decline) %, excluding Special Items |  | (1) |  |  | 67 |  |  |  |  |
Effective Tax Rate excluding Special Items |  | 20.3 | % |  | 20.2 | % |  |  |  |

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|  | Quarter ended |  |
|  | 2022 |  | 2021 |  |  |  |
Company restaurant profit |  | $ | 68 |  |  | $ | 84 |  |  |  |  |
Company restaurant margin % |  | 14.5 | % |  | 17.6 | % |  |  |  |

|  | Quarter ended |  |
Detail of Special Items |  | 2022 |  | 2021 |  |  |  |
Refranchising gain (loss)(a) |  | $ | 4 |  |  | $ | 2 |  |  |  |  |
Profits from operations in Russia(b) |  | 7 |  |  | — |  |  |  |  |
Other Special Items Income (Expense) |  | (1) |  |  | — |  |  |  |  |
Special Items Income (Expense) - Operating Profit |  | 10 |  |  | 2 |  |  |  |  |
Tax (Expense) Benefit on Special Items(c) |  | (2) |  |  | (1) |  |  |  |  |
Tax Benefit - Newly issued U.S. foreign tax credit regulations(d) |  | 82 |  |  | — |  |  |  |  |
Special Items Income (Expense), net of tax |  | $ | 90 |  |  | $ | 1 |  |  |  |  |
Average diluted shares outstanding |  | 294 |  |  | 305 |  |  |  |  |
Special Items diluted EPS |  | $ | 0.31 |  |  | $ | — |  |  |  |  |

(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 end of 2018. As such, refranchising gains and losses recorded during 2022 and 2021 as Special Items are directly associated with restaurants that were refranchised prior to the end of 2018.
During the quarters ended March 31, 2022 and 2021, we recorded net refranchising gains of $4 million and $2 million, respectively, that have been reflected as a Special Item.
Additionally, we recorded net refranchising gains of less than $1 million and $13 million during the quarters ended March 31, 2022 and 2021, respectively, that have not been reflected as Special Items. These net gains relate to refranchising of restaurants in 2022 and 2021 that were not part of our aforementioned plans to achieve 98% franchise ownership and that we believe are now more indicative of our expected ongoing refranchising activity.
(b)Our operating results for the quarter ended March 31, 2022, continue to reflect revenues and expenses related to Russia within their historical financial statement line items and operating segments. However, we have reclassed net Operating Profit attributable to Russia subsequent to the date of our pledge to direct any future net profits from operations in Russia to humanitarian efforts that had not yet been directed to humanitarian efforts as of March 31, 2022, from the Division segment results in which they were earned to Corporate and unallocated. Such Operating Profit has been reflected within Other (income) expense and reflected as a Special Item. See further discussion of the situation in Russia within this Management's Discussion and Analysis.
(c)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.
(d)In January 2022, the U.S. Treasury published new regulations impacting foreign tax credit utilization beginning in the Company’s 2022 tax year. These regulations make foreign taxes paid to certain countries no longer creditable in the U.S. As a result, we reversed a valuation allowance associated with existing foreign tax credit carryforwards that we now believe will be used to offset these now non-creditable taxes in 2022 and future years. This valuation allowance reversal resulted in a one-time tax benefit of $82 million that was reflected as a Special Item.
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Reconciliation of GAAP Operating Profit to Core Operating Profit |  | Quarter ended |  |
|  | 2022 |  | 2021 |  |  |  |
Consolidated |  |  |  |  |  |  |  |
GAAP Operating Profit |  | $ | 509 |  |  | $ | 543 |  |  |  |  |
Special Items Income (Expense) |  | 10 |  |  | 2 |  |  |  |  |
Foreign Currency Impact on Divisional Operating Profit(a) |  | (14) |  |  | N/A |  |  |  |
Core Operating Profit |  | $ | 513 |  |  | $ | 541 |  |  |  |  |
KFC Division |  |  |  |  |  |  |  |
GAAP Operating Profit |  | $ | 291 |  |  | $ | 300 |  |  |  |  |
Foreign Currency Impact on Divisional Operating Profit(a) |  | (12) |  |  | N/A |  |  |  |
Core Operating Profit |  | $ | 303 |  |  | $ | 300 |  |  |  |  |
Taco Bell Division |  |  |  |  |  |  |  |
GAAP Operating Profit |  | $ | 185 |  |  | $ | 178 |  |  |  |  |
Foreign Currency Impact on Divisional Operating Profit(a) |  | — |  |  | N/A |  |  |  |
Core Operating Profit |  | $ | 185 |  |  | $ | 178 |  |  |  |  |
Pizza Hut Division |  |  |  |  |  |  |  |
GAAP Operating Profit |  | $ | 102 |  |  | $ | 102 |  |  |  |  |
Foreign Currency Impact on Divisional Operating Profit(a) |  | (2) |  |  | N/A |  |  |  |
Core Operating Profit |  | $ | 104 |  |  | $ | 102 |  |  |  |  |
Habit Burger Grill Division |  |  |  |  |  |  |  |
GAAP Operating Profit (Loss) |  | $ | (8) |  |  | $ | — |  |  |  |  |
Foreign Currency Impact on Divisional Operating Profit(a) |  | — |  |  | N/A |  |  |  |
Core Operating Profit (Loss) |  | $ | (8) |  |  | $ | — |  |  |  |  |
Reconciliation of Diluted EPS to Diluted EPS excluding Special Items |  |  |  |  |  |  |  |
Diluted EPS |  | $ | 1.36 |  |  | $ | 1.07 |  |  |  |  |
Special Items Diluted EPS |  | 0.31 |  |  | — |  |  |  |  |
Diluted EPS excluding Special Items |  | $ | 1.05 |  |  | $ | 1.07 |  |  |  |  |
Reconciliation of GAAP Effective Tax Rate to Effective Tax Rate excluding Special Items |  |  |  |  |  |  |  |
GAAP Effective Tax Rate |  | (0.2) | % |  | 20.2 | % |  |  |  |
Impact on Tax Rate as a result of Special Items |  | (20.5) | % |  | — | % |  |  |  |
Effective Tax Rate excluding Special Items |  | 20.3 | % |  | 20.2 | % |  |  |  |

(a) 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).
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Reconciliation of GAAP Operating Profit to Company Restaurant Profit
|  | Quarter ended 3/31/2022
|  | KFC Division |  | Taco Bell Division |  | Pizza Hut Division |  | Habit Burger Grill Division |  | Corporate and Unallocated |  | Consolidated
GAAP Operating Profit (Loss) |  | $ | 291 |  |  | $ | 185 |  |  | $ | 102 |  |  | $ | (8) |  |  | $ | (61) |  |  | $ | 509 |
Less: |  |  |  |  |  |  |  |  |  |  |  |
Franchise and property revenues |  | 383 |  |  | 179 |  |  | 151 |  |  | 1 |  |  | — |  |  | 714 |
Franchise contributions for advertising and other services |  | 151 |  |  | 124 |  |  | 88 |  |  | — |  |  | — |  |  | 363 |
Add: |  |  |  |  |  |  |  |  |  |  |  |
General and administrative expenses |  | 84 |  |  | 36 |  |  | 50 |  |  | 12 |  |  | 71 |  |  | 253 |
Franchise and property expenses |  | 24 |  |  | 6 |  |  | 2 |  |  | — |  |  | — |  |  | 32 |
Franchise advertising and other services expense |  | 151 |  |  | 123 |  |  | 87 |  |  | — |  |  | — |  |  | 361 |
Refranchising (gain) loss |  | — |  |  | — |  |  | — |  |  | — |  |  | (4) |  |  | (4) |
Other (income) expense |  | 2 |  |  | — |  |  | (2) |  |  | — |  |  | (6) |  |  | (6) |
Company restaurant profit |  | $ | 18 |  |  | $ | 47 |  |  | $ | — |  |  | $ | 3 |  |  | $ | — |  |  | $ | 68 |
Company sales |  | $ | 126 |  |  | $ | 214 |  |  | $ | 5 |  |  | $ | 125 |  |  | $ | — |  |  | $ | 470 |
Company restaurant margin % |  | 14.1 | % |  | 21.9 | % |  | (0.7) | % |  | 3.0 | % |  | N/A |  | 14.5 | %

|  | Quarter ended 3/31/2021
|  | KFC Division |  | Taco Bell Division |  | Pizza Hut Division |  | Habit Burger Grill Division |  | Corporate and Unallocated |  | Consolidated
GAAP Operating Profit (Loss) |  | $ | 300 |  |  | $ | 178 |  |  | $ | 102 |  |  | $ | — |  |  | $ | (37) |  |  | $ | 543 |
Less: |  |  |  |  |  |  |  |  |  |  |  |
Franchise and property revenues |  | 354 |  |  | 162 |  |  | 141 |  |  | 1 |  |  | — |  |  | 658 |
Franchise contributions for advertising and other services |  | 138 |  |  | 118 |  |  | 96 |  |  | — |  |  | — |  |  | 352 |
Add: |  |  |  |  |  |  |  |  |  |  |  |
General and administrative expenses |  | 73 |  |  | 31 |  |  | 40 |  |  | 12 |  |  | 50 |  |  | 206 |
Franchise and property expenses |  | 14 |  |  | 7 |  |  | 2 |  |  | — |  |  | — |  |  | 23 |
Franchise advertising and other services expense |  | 133 |  |  | 116 |  |  | 94 |  |  | — |  |  | — |  |  | 343 |
Refranchising (gain) loss |  | — |  |  | — |  |  | — |  |  | — |  |  | (15) |  |  | (15) |
Other (income) expense |  | (6) |  |  | (2) |  |  | — |  |  | — |  |  | 2 |  |  | (6) |
Company restaurant profit |  | $ | 22 |  |  | $ | 50 |  |  | $ | 1 |  |  | $ | 11 |  |  | $ | — |  |  | $ | 84 |
Company sales |  | $ | 133 |  |  | $ | 208 |  |  | $ | 14 |  |  | $ | 121 |  |  | $ | — |  |  | $ | 476 |
Company restaurant margin % |  | 16.6 | % |  | 24.1 | % |  | 6.7 | % |  | 8.8 | % |  | N/A |  | 17.6 | %

Items Impacting Reported Results and Reasonably Likely to Impact Future Results
The following items impacted reported results in 2022 and/or 2021 and/or reasonably likely to impact future results. See also the Detail of Special Items section of this MD&A for other items similarly impacting results.
Russia Invasion of Ukraine
Given the Russian invasion of Ukraine, during the quarter ended March 31, 2022 we announced the suspension of all investment and restaurant development efforts in Russia as well as the operations of our 70 company-owned KFC restaurants in Russia and that we are finalizing an agreement with our Pizza Hut master franchisee to suspend all Pizza Hut restaurant
27

operations. Further, we pledged to direct any future net profits from operations in Russia subsequent to the invasion to humanitarian efforts. In addition to these actions, we have begun a process aimed at transferring ownership to local operators.
Our business in Russia consists of the aforementioned company-owned KFC restaurants, approximately 1,100 franchisee-owned KFC restaurants and 50 Pizza Hut restaurants that are operated under a master franchise agreement. Historically, our Russian business has constituted approximately 3% of our total operating profit and 2% of our total system sales. During the quarter ended March 31, 2022, our Core Operating Profits in Russia declined versus the first quarter of last year, negatively impacting consolidated YUM and KFC Division Core Operating Profit growth by one and two percentage points, respectively. On a full year basis, we expect that the year-over-year decline in Core Operating Profits in Russia will negatively impact YUM Core Operating Profit growth by three percentage points.
See Note 1 for a discussion regarding our net asset base in Russia.
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. As a result of COVID-19, governmental authorities around the world implemented measures to reduce the spread of COVID-19, some of which remain in place today. These measures have included and in some instances continue to 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 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.
As we ended the first quarter of 2022, COVID-19 outbreaks and resulting government restrictions limiting mobility continued to impact sales in a few key markets, primarily in China. Excluding China, our YUM consolidated same-store sales growth was 6%, our KFC Division same-store sales growth was 10% and our Pizza Hut Division same-store sales growth was 2% for the quarter ended March 31, 2022.
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 2022.
Investment in Devyani
In 2020, we received an approximate 5% minority interest in Devyani International Limited (“Devyani”), an entity that operates KFC and Pizza Hut franchised units in India. The minority interest was received in lieu of cash proceeds upon the refranchising of approximately 60 KFC restaurants in India. At the time of the refranchisings, the fair value of this minority interest was estimated to be approximately $31 million. On August 16, 2021, Devyani executed an initial public offering and subsequently the fair value of this investment became readily determinable. As a result, concurrent with the initial public offering we began recording changes in fair value in Investment (income) expense, net in our Condensed Consolidated Statements of Income and recognized pre-tax investment income of $7 million, in the quarter ended March 31, 2022.
KFC Division
The KFC Division has 27,372 units, 86% of which are located outside the U.S. Additionally, 99% of the KFC Division units were operated by franchisees as of March 31, 2022.
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|  | Quarter ended |  |
|  |  |  |  |  | % B/(W) |  |  |  |  |  |
|  | 2022 |  | 2021 |  | Reported |  | Ex FX |  |  |  |  |  |  |  |
System Sales |  | $ | 7,733 |  |  | $ | 7,273 |  |  | 6 |  |  |  | 9 |  |  |  |  |  |  |  |  |  |  |  |
Same-Store Sales Growth (Decline) % |  | 3 |  |  | 8 |  |  | N/A |  |  | N/A |  |  |  |  |  |  |  |  |  |  |
Company sales |  | $ | 126 |  |  | $ | 133 |  |  | (5) |  |  |  | — |  |  |  |  |  |  |  |  |  |  |  |
Franchise and property revenues |  | 383 |  |  | 354 |  |  | 8 |  |  |  | 12 |  |  |  |  |  |  |  |  |  |  |  |
Franchise contributions for advertising and other services |  | 151 |  |  | 138 |  |  | 10 |  |  |  | 16 |  |  |  |  |  |  |  |  |  |  |  |
Total revenues |  | $ | 660 |  |  | $ | 625 |  |  | 6 |  |  |  | 11 |  |  |  |  |  |  |  |  |  |  |  |
Company restaurant profit |  | $ | 18 |  |  | $ | 22 |  |  | (19) |  |  |  | (15) |  |  |  |  |  |  |  |  |  |  |  |
Company restaurant margin % |  | 14.1 | % |  | 16.6 | % |  | (2.5) |  | ppts. |  | (2.4) |  | ppts. |  |  |  |  |  |  |  |  |  |
G&A expenses |  | $ | 84 |  |  | $ | 73 |  |  | (15) |  |  |  | (18) |  |  |  |  |  |  |  |  |  |  |  |
Franchise and property expenses |  | 24 |  |  | 14 |  |  | (71) |  |  |  | (85) |  |  |  |  |  |  |  |  |  |  |  |
Franchise advertising and other services expense |  | 151 |  |  | 133 |  |  | (14) |  |  |  | (20) |  |  |  |  |  |  |  |  |  |  |  |
Operating Profit |  | $ | 291 |  |  | $ | 300 |  |  | (3) |  |  |  | 1 |  |  |  |  |  |  |  |  |  |  |  |

|  |  |  |  |  | % Increase (Decrease) |
Unit Count |  | 3/31/2022 |  | 3/31/2021 |  |
Franchise |  | 27,081 |  |  | 25,002 |  |  | 8 |  |
Company-owned |  | 291 |  |  | 290 |  |  | — |  |
Total |  | 27,372 |  |  | 25,292 |  |  | 8 |  |

Company sales and Company restaurant margin %
Company sales, excluding the impacts of foreign currency translation, were flat including the impact of a company same-store sales decline of 1%.
The quarterly decrease in Company restaurant margin percentage was driven by commodity and wage inflation.
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 4% and unit growth.
G&A
The quarterly increase in G&A, excluding the impact of foreign currency translation, was driven by higher headcount and salaries and higher professional fees.
Operating Profit
The quarterly increase in Operating Profit, excluding the impact of foreign currency translation, was driven by same-store sales growth and unit growth, partially offset by current year bad debt expense lapping prior year net bad debt recoveries for past due franchise receivables and higher G&A.
Taco Bell Division
The Taco Bell Division has 7,831 units, 90% of which are in the U.S. The Company owned 7% of the Taco Bell units in the U.S. as of March 31, 2022.
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|  | Quarter ended |  |
|  |  |  |  |  | % B/(W) |  |  |  |  |  |
|  | 2022 |  | 2021 |  | Reported |  | Ex FX |  |  |  |  |  |  |  |
System Sales |  | $ | 3,108 |  |  | $ | 2,880 |  |  | 8 |  |  |  | 8 |  |  |  |  |  |  |  |  |  |  |  |
Same-Store Sales Growth % |  | 5 |  |  | 9 |  |  | N/A |  |  | N/A |  |  |  |  |  |  |  |  |  |  |
Company sales |  | $ | 214 |  |  | $ | 208 |  |  | 3 |  |  |  | 3 |  |  |  |  |  |  |  |  |  |  |  |
Franchise and property revenues |  | 179 |  |  | 162 |  |  | 10 |  |  |  | 10 |  |  |  |  |  |  |  |  |  |  |  |
Franchise contributions for advertising and other services |  | 124 |  |  | 118 |  |  | 5 |  |  |  | 5 |  |  |  |  |  |  |  |  |  |  |  |
Total revenues |  | $ | 517 |  |  | $ | 488 |  |  | 6 |  |  |  | 6 |  |  |  |  |  |  |  |  |  |  |  |
Company restaurant profit |  | $ | 47 |  |  | $ | 50 |  |  | (6) |  |  |  | (6) |  |  |  |  |  |  |  |  |  |  |  |
Company restaurant margin % |  | 21.9 | % |  | 24.1 | % |  | (2.2) |  | ppts. |  | (2.2) |  | ppts. |  |  |  |  |  |  |  |  |  |
G&A expenses |  | $ | 36 |  |  | $ | 31 |  |  | (17) |  |  |  | (17) |  |  |  |  |  |  |  |  |  |  |  |
Franchise and property expenses |  | 6 |  |  | 7 |  |  | 10 |  |  |  | 11 |  |  |  |  |  |  |  |  |  |  |  |
Franchise advertising and other services expense |  | 123 |  |  | 116 |  |  | (6) |  |  |  | (6) |  |  |  |  |  |  |  |  |  |  |  |
Operating Profit |  | $ | 185 |  |  | $ | 178 |  |  | 4 |  |  | 4 |  |  |  |  |  |  |  |  |  |  |

|  |  |  |  |  | % Increase (Decrease) |
Unit Count |  | 3/31/2022 |  | 3/31/2021 |  |
Franchise |  | 7,367 |  |  | 7,019 |  |  | 5 |  |
Company-owned |  | 464 |  |  | 474 |  |  | (2) |  |
Total |  | 7,831 |  |  | 7,493 |  |  | 5 |  |

Company sales and Company restaurant margin %
The quarterly increase in Company sales was driven by company same-store sales growth of 5% and unit growth partially offset by refranchising.
The quarterly decrease in Company restaurant margin percentage was driven by commodity and wage inflation and partially offset by same-store sales growth.
Franchise and property revenues
The quarterly increases in Franchise and property revenues was driven by franchise same-store sales growth of 5% and unit growth.
G&A
The quarterly increase in G&A was driven by higher headcount and salaries and higher professional fees.
Operating Profit
The quarterly increase in Operating Profit was driven by same-store sales growth and unit growth partially offset by higher restaurant operating costs and higher G&A.
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Pizza Hut Division
The Pizza Hut Division has 18,518 units, 65% 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, 2022.

|  | Quarter ended |  |
|  |  |  |  |  | % B/(W) |  |  |  |  |  |
|  | 2022 |  | 2021 |  | Reported |  | Ex FX |  |  |  |  |  |  |  |
System Sales |  | $ | 3,160 |  |  | $ | 3,096 |  |  | 2 |  |  |  | 3 |  |  |  |  |  |  |  |  |  |  |  |
Same-Store Sales Growth (Decline) % |  | Even |  | 12 |  |  | N/A |  |  | N/A |  |  |  |  |  |  |  |  |  |  |
Company sales |  | $ | 5 |  |  | $ | 14 |  |  | (66) |  |  |  | (66) |  |  |  |  |  |  |  |  |  |  |  |
Franchise and property revenues |  | 151 |  |  | 141 |  |  | 7 |  |  |  | 8 |  |  |  |  |  |  |  |  |  |  |  |
Franchise contributions for advertising and other services |  | 88 |  |  | 96 |  |  | (8) |  |  |  | (8) |  |  |  |  |  |  |  |  |  |  |  |
Total revenues |  | $ | 244 |  |  | $ | 251 |  |  | (3) |  |  |  | (2) |  |  |  |  |  |  |  |  |  |  |  |
Company restaurant profit |  | $ | — |  |  | $ | 1 |  |  | NM |  |  | NM |  |  |  |  |  |  |  |  |  |  |
Company restaurant margin % |  | (0.7) | % |  | 6.7 | % |  | (7.4) |  | ppts. |  | (7.4) |  | ppts. |  |  |  |  |  |  |  |  |  |
G&A expenses |  | $ | 50 |  |  | $ | 40 |  |  | (22) |  |  |  | (22) |  |  |  |  |  |  |  |  |  |  |  |
Franchise and property expenses |  | 2 |  |  | 2 |  |  | 3 |  |  |  | 2 |  |  |  |  |  |  |  |  |  |  |  |
Franchise advertising and other services expense |  | 87 |  |  | 94 |  |  | 7 |  |  |  | 7 |  |  |  |  |  |  |  |  |  |  |  |
Operating Profit |  | $ | 102 |  |  | $ | 102 |  |  | Even |  |  | 2 |  |  |  |  |  |  |  |  |  |  |  |

|  |  |  |  |  | % Increase (Decrease) |
Unit Count |  | 3/31/2022 |  | 3/31/2021 |  |
Franchise |  | 18,496 |  |  | 17,657 |  |  | 5 |  |
Company-owned |  | 22 |  |  | 53 |  |  | (58) |  |
Total |  | 18,518 |  |  | 17,710 |  |  | 5 |  |

Company sales
The quarterly decrease in Company sales, excluding the impacts of foreign currency translation, was driven by the refranchising of stores in the United Kingdom.
Franchise and property revenues
The quarterly increase in Franchise and property revenues, excluding the impacts of foreign currency translation, was driven by the recognition of franchise fees related to unexercised development rights arising from a master franchise agreement and unit growth.
G&A
The quarterly increase in G&A, excluding the impacts of foreign currency translation, was driven by higher headcount and salaries and higher professional fees.
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Operating Profit
The quarterly increase in Operating Profit, excluding the impacts of foreign currency translation, was driven by the recognition of franchise fees related to unexercised development rights arising from a master franchise agreement and unit growth, partially offset by higher G&A.
Habit Burger Grill Division
The Habit Burger Grill Division has 331 units, the vast majority of which are in the U.S. The Company owned 90% of the Habit Burger Grill units in the U.S. as of March 31, 2022.

|  | Quarter ended |  |  |
|  |  |  |  |  | % B/(W)
|  | 2022 |  | 2021 |  | Reported |  | Ex FX |  |
System Sales |  | $ | 145 |  |  | $ | 136 |  |  | 6 |  |  | 6 |  |  |  |
Same-Store Sales Growth %(a) |  | 3 |  |  | 13 |  |  | N/A |  | N/A |  |  |
Total revenues |  | $ | 126 |  |  | $ | 122 |  |  | 3 |  |  | 3 |  |  |  |
Operating Profit (Loss) |  | $ | (8) |  |  | $ | — |  |  | NM |  | NM |  |  |

(a) Beginning with the quarter ended March 31, 2022, our Habit Burger Grill Division adopted a reporting calendar change as discussed in Note 1. The impact of this change in reporting calendar was not significant, and accordingly, prior year amounts in these Condensed Consolidated Financial Statements and accompanying Management's Discussion and Analysis have not been restated. System sales growth, excluding the impact of the reporting calendar change, was 17% for the quarter ended March 31, 2022.

Unit Count |  | 3/31/2022 |  | 3/31/2021 |  | % Increase (Decrease)
Franchise |  | 46 |  |  | 36 |  |  | 28 |
Company-owned |  | 285 |  |  | 257 |  |  | 11 |
Total |  | 331 |  |  | 293 |  |  | 13 |

Corporate & Unallocated

|  | Quarter ended |  |
(Expense) / Income |  | 2022 |  | 2021 |  | % B/(W) |  |  |  |  |  |
Corporate and unallocated G&A |  | $ | (71) |  |  | $ | (50) |  |  | (42) |  |  |  |  |  |  |  |  |
Unallocated Company restaurant expenses |  | — |  |  | — |  |  | NM |  |  |  |  |  |  |  |
Unallocated Refranchising gain (loss) |  | 4 |  |  | 15 |  |  | (76) |  |  |  |  |  |  |  |  |
Unallocated Other income (expense) |  | 6 |  |  | (2) |  |  | NM |  |  |  |  |  |  |  |
Investment income (expense), net (See Note 8) |  | 7 |  |  | — |  |  | NM |  |  |  |  |  |  |  |
Other pension income (expense) (See Note 9) |  | — |  |  | (3) |  |  | 83 |  |  |  |  |  |  |  |  |
Interest expense, net |  | (118) |  |  | (131) |  |  | 11 |  |  |  |  |  |  |  |
Income tax benefit (provision) (See Note 6) |  | 1 |  |  | (83) |  |  | 101 |  |  |  |  |  |  |  |  |
Effective tax rate (See Note 6) |  | (0.2) | % |  | 20.2 | % |  | 20.4 |  | ppts. |  |  |  |  |  |  |

Corporate and unallocated G&A
The quarterly increase in Corporate and unallocated G&A expense was driven by higher headcount and salaries including personnel associated with our 2021 investments in digital and technology companies, higher meeting costs and higher professional fees.
Interest expense, net
The quarterly decrease in Interest expense, net was primarily driven by $12 million of previously unamortized debt issuance costs written off during the quarter ended March 31, 2021 due to the refinancing of our Credit Agreement.
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Consolidated Cash Flows
Net cash provided by operating activities was $253 million in 2022 versus $324 million in 2021. The decrease was largely driven by an increase in incentive compensation payments and a decrease in Operating profit before Special Items.
Net cash used in investing activities was $29 million in 2022 versus net cash provided by investing activities of $14 million in 2021. The change was primarily driven by the lapping of our prior year sale of certain mutual fund investments.
Net cash used in financing activities was $377 million in 2022 versus $563 million in 2021. The change was primarily driven by higher net borrowings in 2022, partially offset by higher share repurchases.
Liquidity and Capital Resources
We have historically generated substantial cash flows from our extensive franchise operations, which require a limited YUM investment, and from the operations of our Company-owned stores. Our annual operating cash flows have been in excess of $1.3 billion in each of the past three years and we expect that to continue to be the case in 2022. It is our intent to use these operating cash flows to continue to invest in growing our business and pay a competitive dividend, with any remaining excess then returned to shareholders through share repurchases. To the extent operating cash flows plus other sources of cash do not cover our anticipated cash needs, we maintain a $1.25 billion Revolving Facility under our Credit Agreement (see Note 10), of which $174 million was drawn as of March 31, 2022. We believe that our ongoing cash from operations, cash on hand, which was approximately $350 million at March 31, 2022, and availability under our Revolving Facility will be sufficient to fund our cash requirements over the next twelve months.
There have been no material changes to the disclosures made in Item 7 of the Company's 2021 Form 10-K regarding our material cash requirements. Due to the ongoing significance of our debt obligations, we are providing the update below.
Debt Instruments
As of March 31, 2022, approximately 92%, including the impact of interest rate swaps, of our $11.4 billion of total debt outstanding, excluding finance leases, is fixed with an effective overall interest rate of approximately 4.3%. 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, 2022.

|  | 2022 |  | 2023 |  | 2024 |  | 2025 |  | 2026 |  | 2027 |  | 2028 |  | 2029 |  | 2030 |  | 2031 |  | 2032 |  | 2037 |  | 2043 |  | Total
Securitization Notes |  | $ | 30 |  |  | $ | 39 |  |  | $ | 39 |  |  | $ | 39 |  |  | $ | 944 |  |  | $ | 875 |  |  | $ | 582 |  |  | $ | 565 |  |  | $ | 7 |  |  | $ | 682 |  |  |  |  |  |  |  |  | $ | 3,802 |
Credit Agreement |  | 25 |  |  | 34 |  |  | 48 |  |  | 53 |  |  | 662 |  | 15 |  | 1,398 |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 2,235 |
Subsidiary Senior Unsecured Notes |  |  |  |  |  |  |  |  |  |  |  | 750 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 750 |
YUM Senior Unsecured Notes |  |  |  | 325 |  |  |  |  | 600 |  |  |  |  |  |  |  |  |  |  | 800 |  |  | 1,050 |  |  | $ | 1,100 |  |  | $ | 325 |  |  | $ | 275 |  |  | 4,475 |
Revolving Facility |  |  |  |  |  |  |  |  |  | 174 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 174 |
Total |  | $ | 55 |  |  | $ | 398 |  |  | $ | 87 |  |  | $ | 692 |  |  | $ | 1,780 |  |  | $ | 1,640 |  |  | $ | 1,980 |  |  | $ | 565 |  |  | $ | 807 |  |  | $ | 1,732 |  |  | $ | 1,100 |  |  | $ | 325 |  |  | $ | 275 |  |  | $ | 11,436 |

See Note 10 for details on the Securitization Notes, the Credit Agreement, Subsidiary Senior Unsecured Notes and YUM Senior Unsecured Notes.
On February 23, 2022, Yum! Brands, Inc. issued a notice of redemption for the $600 million aggregate principal amount of 7.75% YUM Senior Unsecured Notes due April 1, 2025 (the “2025 Notes”). The 2025 Notes were redeemed subsequent to the first quarter, on April 1, 2022, at an amount equal to 103.875% of the aggregate principal amount of the 2025 Notes, reflecting a $23 million “call premium”, plus accrued and unpaid interest to the date of redemption.
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Also subsequent to the first quarter, on April 1, 2022, Yum! Brands, Inc. issued $1.0 billion aggregate principal amount of 5.375% YUM Senior Unsecured Notes due April 1, 2032 (the “April 2032 Notes”). The net proceeds from the April 2032 Notes were used to fund the redemption of the 2025 Notes discussed above and for general corporate purposes. The redemption of the 2025 Notes and issuance of the April 2032 Notes are not included in the table above.
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 with notional amounts of $1.5 billion expiring in March 2025. 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, 2022, to the disclosures made in Item 7A of the Company’s 2021 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, 2022.
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, 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, 2021, 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, 2021. 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.
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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, 2022, the related condensed consolidated statements of income, comprehensive income, cash flows and shareholders’ deficit for the three-month periods ended March 31, 2022 and 2021, 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, 2021, and the related consolidated statements of income, comprehensive income, shareholders’ deficit, and cash flows for the year then ended (not presented herein); and in our report dated February 22, 2022, 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, 2021, 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 10, 2022
35

PART II – OTHER INFORMATION AND SIGNATURES
Item 1. Legal Proceedings
Information regarding legal proceedings is incorporated by reference from Note 13 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. Information about our most recent risk factors is disclosed in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021. At March 31, 2022, there have been no material changes to the information, except for the expanded discussion related to the Russian invasion of Ukraine, included below.
Our international operations subject us to risks that could negatively affect our business.
A significant portion of our Concepts’ restaurants are operated in countries and territories outside of the U.S., including in emerging markets, and we intend to continue expansion of our international operations. As a result, our business and the businesses of our Concepts’ franchisees are increasingly exposed to risks inherent in international operations. These risks, which can vary substantially by country, include political, financial or social instability or conditions, geopolitical events, corruption, anti-American sentiment, social and ethnic unrest, military conflicts and terrorism, as well as changes in economic conditions (including consumer spending, unemployment levels and wage and commodity inflation), the regulatory environment (including the risks of operating in developing or emerging markets in which there are uncertainties regarding the interpretation and enforceability of legal requirements and the enforceability of contract rights and intellectual property rights), income and non-income based tax rates and laws. Additional risks include the impact of import restrictions or controls, sanctions, foreign exchange control regimes (including restrictions on currency conversion), health guidelines and safety protocols related to the COVID-19 pandemic, labor costs and conditions, compliance with the U.S. Foreign Corrupt Practices Act, the UK Bribery Act and other similar applicable laws prohibiting bribery of government officials and other corrupt practices, consumer preferences and the laws and policies that govern foreign investment in countries where our Concepts’ restaurants are operated. For example, we have been subject to a regulatory enforcement action in India alleging violation of foreign exchange laws for failure to satisfy conditions of certain operating approvals, such as minimum investment and store build requirements as well as limitations on the remittance of fees outside of the country (see Note 13).
Following the Russian invasion of Ukraine, we announced the suspension of all investment and restaurant development efforts in Russia as well as the operations of company-owned KFC restaurants in Russia, and that we are finalizing an agreement with our Pizza Hut master franchisee to suspend restaurant operations in Russia. In addition to these actions, we have begun a process aimed at transferring ownership to local operators while, in the interim, we continue to redirect any net profits from Russia operations to humanitarian efforts. There can be no guarantee that our efforts to transfer ownership will be successful, and any transfer or failure to transfer could result in damage to our and our Concepts’ brand reputations. In addition, the Russian invasion of Ukraine has and may continue to adversely impact macroeconomic conditions, give rise to regional instability and result in heightened economic sanctions from the U.S. and the international community in a manner that adversely affects us and our Concepts’ restaurants located in Russia and Eastern Europe, including to the extent that any such sanctions restrict our ability in this region to conduct business with certain suppliers or vendors, and/or to utilize the banking system and repatriate cash. Given current conditions and our announced intention to transfer the business to local operators, there can be no assurance of any contribution to any component of our results of operations from the Russia business in the short or long term.
We and our franchisees do business in jurisdictions that may be subject to trade or economic sanction regimes and such sanctions could be expanded. Any failure to comply with such sanction regimes or other similar laws or regulations could result in the assessment of damages, the imposition of penalties, suspension of business licenses, or a cessation of operations at our or our franchisees’ businesses, as well as damage to our and our Concepts’ brand images and reputations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information as of March 31, 2022, with respect to shares of Common Stock repurchased by the Company during the quarter then ended:
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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)
1/1/22-1/31/22 |  | — |  | $— |  | — |  | $950
2/1/22-2/28/22 |  | 1,022 |  | $123.92 |  | 1,022 |  | $823
3/1/22-3/31/22 |  | 2,337 |  | $119.88 |  | 2,337 |  | $543
Total |  | 3,359 |  | $121.11 |  | 3,359 |  | $543

In May 2021, our Board of Directors authorized share repurchases from July 1, 2021 through December 31, 2022, of up to $2 billion (excluding applicable transaction fees) of our outstanding Common Stock. All shares repurchased above were made pursuant to that authorization.
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Item 6. Exhibits

| (a) | Exhibit Index |
|  | Exhibit No. |  | Exhibit Description |
|  | 4.2.3 |  | Third Supplemental Indenture, dated as of March 24, 2022, by and between the Company and U.S. Bank Trust Company National Association, as trustee, which is incorporated herein by reference from Exhibit 4.1 to Form 8-K filed April 1, 2022. |
|  | 10.13.5† |  | Yum! Brands, Inc. Long Term Incentive Plan Form of Global Restricted Stock Unit Agreement (2022), as effective February 11, 2022, as attached herein. |
|  | 10.26.1 |  | Amendment No. 1 to Master License Agreement, dated as of April 15, 2022, by and between Yum! Restaurants Asia Pte. Ltd. and Yum Restaurants Consulting (Shanghai) Company Limited, as attached herein. |
|  | 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 |
|  | † |  | Indicates a management contract or compensatory plan. |

38

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 10, 2022 | /s/ David E. Russell
|  | Senior Vice President, Finance and Corporate Controller
|  | (Principal Accounting Officer)

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