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

FORM 10-Q

(Mark One)
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
  
EXCHANGE ACT OF 1934 for the quarterly period ended
March 31, 2021
OR
 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

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

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

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

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes No x
The number of shares outstanding of the registrant’s Common Stock as of April 29, 2021 was 297,901,153 shares.



YUM! BRANDS, INC.

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

2


PART I - FINANCIAL INFORMATION

Item 1.Financial Statements
3


CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
YUM! BRANDS, INC. AND SUBSIDIARIES
(in millions, except per share data)
 Quarter ended
Revenues3/31/20213/31/2020
Company sales$476 $355 
Franchise and property revenues658 596 
Franchise contributions for advertising and other services352 312 
Total revenues1,486 1,263 
Costs and Expenses, Net
Company restaurant expenses392 298 
General and administrative expenses206 208 
Franchise and property expenses23 58 
Franchise advertising and other services expense343 310 
Refranchising (gain) loss(15)(13)
Other (income) expense(6)152 
Total costs and expenses, net943 1,013 
Operating Profit543 250 
Investment (income) expense, net 34 
Other pension (income) expense3 3 
Interest expense, net131 118 
Income Before Income Taxes409 95 
Income tax provision83 12 
Net Income$326 $83 
Basic Earnings Per Common Share$1.09 $0.28 
Diluted Earnings Per Common Share$1.07 $0.27 
Dividends Declared Per Common Share$0.50 $0.47 
See accompanying Notes to Condensed Consolidated Financial Statements.

4


CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
YUM! BRANDS, INC. AND SUBSIDIARIES
(in millions)
Quarter ended
3/31/20213/31/2020
Net Income$326 $83 
Other comprehensive income (loss), net of tax
Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature
Adjustments and gains (losses) arising during the period
3 (102)
3 (102)
Tax (expense) benefit
  
3 (102)
Changes in pension and post-retirement benefits
Unrealized gains (losses) arising during the period
47  
Reclassification of (gains) losses into Net Income
7 5 
54 5 
Tax (expense) benefit
(13)(1)
41 4 
Changes in derivative instruments
Unrealized gains (losses) arising during the period
24 (77)
Reclassification of (gains) losses into Net Income
4 (6)
28 (83)
Tax (expense) benefit
(7)20 
21 (63)
Other comprehensive income (loss), net of tax65 (161)
Comprehensive Income (Loss)$391 $(78)
See accompanying Notes to Condensed Consolidated Financial Statements.

5


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
YUM! BRANDS, INC. AND SUBSIDIARIES
(in millions)
 Quarter ended
 3/31/20213/31/2020
Cash Flows – Operating Activities   
Net Income$326 $83 
Depreciation and amortization39 27 
Impairment and closure expense1 140 
Refranchising (gain) loss(15)(13)
Investment (income) expense, net 34 
Contributions to defined benefit pension plans(2)(1)
Deferred income taxes14 (31)
Share-based compensation expense21 18 
Changes in accounts and notes receivable27 25 
Changes in prepaid expenses and other current assets(9)(17)
Changes in accounts payable and other current liabilities(123)(51)
Changes in income taxes payable5 (11)
Other, net40 35 
Net Cash Provided by Operating Activities 324 238 
Cash Flows – Investing Activities
Capital spending(45)(35)
Acquisition of The Habit Restaurants, Inc., net of cash acquired (408)
Proceeds from refranchising of restaurants20 2 
Other, net39  
Net Cash Provided by (Used in) Investing Activities14 (441)
Cash Flows – Financing Activities
Proceeds from long-term debt800  
Repayments of long-term debt(912)(20)
Revolving credit facility, three months or less, net 950 
Short-term borrowings by original maturity
More than three months - proceeds
 66 
More than three months - payments
 (44)
Three months or less, net
  
Repurchase shares of Common Stock(286) 
Dividends paid on Common Stock(150)(141)
Debt issuance costs(5) 
Other, net(10)(13)
Net Cash Provided by (Used in) Financing Activities(563)798 
Effect of Exchange Rates on Cash and Cash Equivalents3 (53)
Net Increase (Decrease) in Cash and Cash Equivalents, Restricted Cash and Restricted Cash Equivalents(222)542 
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - Beginning of Period1,024 768 
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - End of Period$802 $1,310 
See accompanying Notes to Condensed Consolidated Financial Statements.  

6


CONDENSED CONSOLIDATED BALANCE SHEETS
YUM! BRANDS, INC. AND SUBSIDIARIES
(in millions)
(Unaudited) 3/31/2021
12/31/2020
ASSETS  
Current Assets  
Cash and cash equivalents$561 $730 
Accounts and notes receivable, net508 534 
Prepaid expenses and other current assets385 425 
Total Current Assets1,454 1,689 
Property, plant and equipment, net1,215 1,235 
Goodwill597 597 
Intangible assets, net354 343 
Other assets1,416 1,435 
Deferred income taxes514 553 
Total Assets$5,550 $5,852 
LIABILITIES AND SHAREHOLDERS’ DEFICIT  
Current Liabilities  
Accounts payable and other current liabilities$1,061 $1,189 
Income taxes payable24 33 
Short-term borrowings394 453 
Total Current Liabilities1,479 1,675 
Long-term debt10,229 10,272 
Other liabilities and deferred credits1,754 1,796 
Total Liabilities13,462 13,743 
Shareholders’ Deficit  
Common Stock, no par value, 750 shares authorized; 298 shares issued in 2021 and 300 issued in 2020
  
Accumulated deficit(7,566)(7,480)
Accumulated other comprehensive loss(346)(411)
Total Shareholders’ Deficit(7,912)(7,891)
Total Liabilities and Shareholders’ Deficit$5,550 $5,852 
See accompanying Notes to Condensed Consolidated Financial Statements.  
7


CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT (Unaudited)
YUM! BRANDS, INC. AND SUBSIDIARIES
Quarters ended March 31, 2021 and 2020
(in millions)
 Yum! Brands, Inc. 
 Issued Common StockAccumulated DeficitAccumulated
Other Comprehensive Loss
Total Shareholders' Deficit
 SharesAmount
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 nature3 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 events24 24 
Balance at March 31, 2021
298 $ $(7,566)$(346)$(7,912)
Balance at December 31, 2019
300 $ $(7,628)$(388)$(8,016)
Net Income 83 83 
Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature (102)(102)
Pension and post-retirement benefit plans (net of tax impact of $1 million)
4 4 
Net loss on derivative instruments (net of tax impact of $20 million)
(63)(63)
Comprehensive Income (78)
Dividends declared(142)(142)
Repurchase of shares of Common Stock 
Employee share-based award exercises 1 (13)(13)
Share-based compensation events28 28 
Adoption of Expected Credit Loss accounting standard(8)(8)
Balance at March 31, 2020
301 $15 $(7,695)$(549)$(8,229)
See accompanying Notes to Condensed Consolidated Financial Statements.

8


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Tabular amounts in millions, except per share data)

Note 1 - Financial Statement Presentation

We have prepared our accompanying unaudited Condensed Consolidated Financial Statements (“Financial Statements”) in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information.  Accordingly, they do not include all of the information and footnotes required by Generally Accepted Accounting Principles in the United States (“GAAP”) for complete financial statements.  Therefore, we suggest that the accompanying Financial Statements be read in conjunction with the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, (“2020 Form 10-K”).  

Yum! Brands, Inc. and its Subsidiaries (collectively referred to herein as the “Company,” “YUM,” “we,” “us” or “our”) franchise or operate a system of over 50,000 restaurants in more than 150 countries and territories.  As of March 31, 2021, 98% of these restaurants were owned and operated by franchisees.  The Company’s KFC, Pizza Hut and Taco Bell brands are global leaders of the chicken, pizza and Mexican-style food categories, respectively. The Habit Burger Grill, a concept we acquired on March 18, 2020, is a fast-casual restaurant concept specializing in made-to-order chargrilled burgers, sandwiches and more.

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

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

YUM's fiscal year begins on January 1 and ends December 31 of each year, with each quarter comprised of three months. The majority of our U.S. subsidiaries and certain international subsidiaries operate on a weekly periodic calendar where the first three quarters of each fiscal year consists of 12 weeks and the fourth quarter consists of 16 weeks in fiscal years with 52 weeks and 17 weeks in fiscal years with 53 weeks. Our remaining international subsidiaries operate on a monthly calendar similar to that on which YUM operates. Our Habit Burger Grill Division operates on a weekly periodic calendar where each quarter consists of 13 weeks, except in fiscal years with 53 weeks when the fourth quarter consists of 14 weeks.

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

The accompanying Financial Statements include all normal and recurring adjustments considered necessary to present fairly, when read in conjunction with our 2020 Form 10-K, the results of the interim periods presented. Our results of operations, comprehensive income, cash flows and changes in shareholders' deficit for these interim periods are not necessarily indicative of the results to be expected for the full year.

Our significant interim accounting policies include the recognition of advertising and marketing costs, generally in proportion to revenue, and the recognition of income taxes using an estimated annual effective tax rate.

Note 2 - Habit Burger Grill Acquisition

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

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



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

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

10



Note 3 - Earnings Per Common Share (“EPS”)
 Quarter ended
 20212020
Net Income$326 $83 
Weighted-average common shares outstanding (for basic calculation)301 302 
Effect of dilutive share-based employee compensation4 5 
Weighted-average common and dilutive potential common shares outstanding (for diluted calculation)305 307 
Basic EPS$1.09 $0.28 
Diluted EPS$1.07 $0.27 
Unexercised employee stock options and stock appreciation rights (in millions) excluded from the diluted EPS computation(a)
2.3 4.2 

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

11


Note 4 - Shareholder's Deficit

Under the authority of our Board of Directors, we repurchased shares of our Common Stock during the quarters ended March 31, 2021 and 2020 as indicated below.  All amounts exclude applicable transaction fees. 

 Shares Repurchased
(thousands)
Dollar Value of Shares
Repurchased
Remaining Dollar Value of Shares that may be Repurchased
Authorization Date20212020202120202021
November 20192,599 
(a)
 $275 
(a)
$ $1,475

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

Changes in Accumulated other comprehensive loss ("AOCI") are presented below.
Translation Adjustments and Gains (Losses) From Intra-Entity Transactions of a Long-Term NaturePension and Post-Retirement BenefitsDerivative InstrumentsTotal
Balance at December 31, 2020, net of tax$(182)$(96)$(133)$(411)
OCI, net of tax
Gains (losses) arising during the period classified into AOCI, net of tax
3 36 18 57 
(Gains) losses reclassified from AOCI, net of tax
 5 3 8 
3 41 21 65 
Balance at March 31, 2021, net of tax$(179)$(55)$(112)$(346)

Note 5 - Other (Income) Expense
Quarter ended
 3/31/20213/31/2020
Foreign exchange net (gain) loss and other(a)
$(7)$12 
Impairment and closure expense(b)
1 140 
Other (income) expense$(6)$152 

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

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


12


Note 6 - Supplemental Balance Sheet Information

Accounts and Notes Receivable, net

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

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

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

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

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

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

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

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

13




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

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

Note 8 - Revenue Recognition

Disaggregation of Total Revenues

The following tables disaggregate revenue by Concept, for our two most significant markets based on Operating Profit and for all other markets. We believe this disaggregation best reflects the extent to which the nature, amount, timing and uncertainty of our revenues and cash flows are impacted by economic factors.
Quarter ended 3/31/2021
KFC DivisionPizza Hut DivisionTaco Bell DivisionHabit Burger Grill DivisionTotal
U.S.
Company sales$14 $5 $208 $121 $348 
Franchise revenues44 67 144 1 256 
Property revenues4  10  14 
Franchise contributions for advertising and other services6 79 117  202 
China
Franchise revenues62 16   78 
Other
Company sales119 9   128 
Franchise revenues230 57 8  295 
Property revenues14 1   15 
Franchise contributions for advertising and other services132 17 1  150 
$625 $251 $488 $122 $1,486 
14


Quarter ended 3/31/2020
KFC DivisionPizza Hut DivisionTaco Bell DivisionHabit Burger Grill DivisionTotal
U.S.
Company sales$16 $5 $198 $9 $228 
Franchise revenues38 62 131  231 
Property revenues4 1 10  15 
Franchise contributions for advertising and other services4 70 107  181 
China
Franchise revenues47 10   57 
Other
Company sales114 13   127 
Franchise revenues212 59 7  278 
Property revenues14 1   15 
Franchise contributions for advertising and other services117 14   131 
$566 $235 $453 $9 $1,263 
Contract Liabilities

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

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

(a)    Primarily includes impact of foreign currency translation.

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

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

15



Note 9 - Reportable Operating Segments

We identify our operating segments based on management responsibility. The following tables summarize Revenues and Operating Profit for each of our reportable operating segments:
 Quarter ended
Revenues20212020
KFC Division$625 $566 
Pizza Hut Division251 235 
Taco Bell Division488 453 
Habit Burger Grill Division122 9 
 $1,486 $1,263 

 Quarter ended
Operating Profit 20212020
KFC Division$300 $224 
Pizza Hut Division102 76 
Taco Bell Division178 144 
Habit Burger Grill Division (2)
Corporate and unallocated G&A expenses(50)(50)
Unallocated Company restaurant expenses (1)
Unallocated Franchise and property expenses (2)
Unallocated Refranchising gain (loss)15 13 
Unallocated Other income (expense) (See Note 5)
(2)(152)
Operating Profit$543 $250 
Investment income (expense), net(a)
 (34)
Other pension income (expense) (See Note 10)(3)(3)
Interest expense, net(b)
(131)(118)
Income before income taxes$409 $95 

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

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

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


Note 10 - Pension Benefits

We sponsor qualified and supplemental (non-qualified) noncontributory defined benefit pension plans covering certain full-time salaried and hourly U.S. employees.  The most significant of these plans, the YUM Retirement Plan (the Plan), is funded. We fund our other U.S. plan as benefits are paid.  The Plan and our non-qualified plan in the U.S. are closed to new salaried participants.  

16


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

 Quarter ended
 20212020
Service cost$2 $2 
Interest cost8 9 
Expected return on plan assets(11)(11)
Amortization of net loss6 4 
Amortization of prior service cost1 1 
Net periodic benefit cost$6 $5 
Note 11 - Short-term Borrowings and Long-term Debt

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

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

On March 15, 2021, KFC Holding Co., Pizza Hut Holdings, LLC and Taco Bell of America, LLC (collectively, the “Borrowers”), each of which is a wholly-owned subsidiary of the Company, completed the refinancing of the then existing $1.9 billion term loan B facility, $431 million term loan A facility and $1.0 billion revolving facility through the issuance of a $1.5 billion term loan B facility maturing March 15, 2028 (the "Term Loan B Facility"), a $750 million term loan A facility maturing March 15, 2026 (the "Term Loan A Facility") and a $1.25 billion revolving facility maturing March 15, 2026 (the "Revolving Facility") pursuant to an amendment to the Credit Agreement (as defined in our 2020 Form 10-K). The amendment reduces the interest rate currently applicable to the refinanced Term Loan A Facility and for borrowings under the refinanced Revolving Facility by 25 basis points. Subsequent to the refinance the interest rate applicable to the Term Loan A Facility and the Revolving Facility ranges from 0.75% to 1.50% plus LIBOR or from 0.00% to 0.50% plus the Base Rate, at the Borrowers' election, based on the total leverage ratio (as defined in the Credit Agreement).

The refinanced Term Loan A Facility is now subject to quarterly amortization payments in an amount equal to 0.625% of the principal amount of the facility as of the refinance date beginning with the second quarter of 2022. The Term Loan A Facility quarterly amortization payments increase to 1.25% of the principal amount of the facility as of the refinance date beginning with the second quarter of 2024. The Term Loan B Facility continues to be subject to quarterly amortization payments in an amount equal to 0.25% of the principal amount of the facility as of the refinance date. All other material provisions under the Credit Agreement remain unchanged.

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


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

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

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

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

Note 12 - Derivative Instruments

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

Interest Rate Swaps

We have entered into interest rate swaps, with the objective of reducing our exposure to interest rate risk for a portion of our variable-rate debt interest payments primarily under our Term Loan B Facility. At both March 31, 2021 and December 31, 2020, our interest rate swaps expiring in July 2021 had notional amounts of $1.55 billion and our interest rate swaps expiring in March 2025 had notional amounts of $1.5 billion. These interest rate swaps are designated cash flow hedges as the changes in the future cash flows of the swaps are expected to offset changes in expected future interest payments on the related variable-rate debt. There were no other interest rate swaps outstanding as of March 31, 2021 or December 31, 2020.

Gains or losses on the interest rate swaps are reported as a component of AOCI and reclassified into Interest expense, net in our Condensed Consolidated Statements of Income in the same period or periods during which the related hedged interest payments affect earnings. Through March 31, 2021, the swaps were highly effective cash flow hedges.

Foreign Currency Contracts

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

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

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

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

Gains and losses on derivative instruments designated as cash flow hedges recognized in OCI and reclassifications from AOCI into Net Income:
 Quarter ended
 Gains/(Losses) Recognized in OCI (Gains)/Losses Reclassified from AOCI into Net Income
 2021 2020 2021 2020
Interest rate swaps$24 $(83)$4 $2 
Foreign currency contracts 6  (8)
Income tax benefit/(expense)(6)19 (1)1 

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

Total Return Swaps

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

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

Note 13 - Fair Value Disclosures

As of March 31, 2021, the carrying values of cash and cash equivalents, restricted cash, short-term investments, accounts receivable, short-term borrowings and accounts payable approximated their fair values because of the short-term nature of these instruments. The fair value of notes receivable, net of allowances, and lease guarantees, less reserves for expected losses, approximates their carrying value. The following table presents the carrying value and estimated fair value of the Company’s debt obligations:

3/31/202112/31/2020
Carrying ValueFair Value (Level 2)Carrying ValueFair Value (Level 2)
Securitization Notes(a)
$2,861 $2,999 $2,869 $3,015 
Subsidiary Senior Unsecured Notes(b)
1,800 1,901 1,800 1,890 
Term Loan A Facility(b)
750 727 431 428 
Term Loan B Facility(b)
1,500 1,504 1,916 1,907 
YUM Senior Unsecured Notes(b)
3,725 3,952