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, 2022, (“2022 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 55,000 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 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 55,000 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 Good Growth 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 global citizenship and sustainability strategy is reflected in our Good agenda, which includes our priorities for social responsibility, risk management and sustainable stewardship of our people, food and planet.

Our Growth agenda 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

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). 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 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.

As of the beginning of the second quarter of 2022, as a result of our progress towards exiting Russia and our decision to reclass future net profits attributable to Russia subsequent to the date of their invasion of Ukraine from the Division segments in which those profits were earned to Unallocated Other income (see Notes 1 and 8), we elected to remove all Russia units from our unit count as well as to begin excluding those units' associated sales from our system sales totals. We removed 1,112 units and 53 units in Russia from our global KFC and Pizza Hut unit counts, respectively. These units were treated similar to permanent store closures for purposes of our same-store sales calculations and thus they were removed from our same-store sales calculations beginning April 1, 2022.

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.

Results of Operations

Summary

All comparisons within this summary are versus the same period a year ago. The Quarterly Financial Highlights table below reflects the impact of removing all Russian units from our unit count and their associated sales from our system sales totals as of the beginning of the second quarter of 2022.

Quarterly Financial Highlights:

			% Change
			System Sales, ex FX			Same-Store Sales			Units			GAAP Operating Profit			Core Operating Profit
KFC Division			+11			+9			+2			+5			+12
Taco Bell Division			+12			+8			+6			+10			+11
Pizza Hut Division			+10			+7			+3			+2			+7
YUM			+11			+8			+3			+3			+11

Additionally:

• As of the beginning of the second quarter of 2022, we elected to remove 1,165 Russia units from our unit count and begin excluding their associated sales from our total system sales. We removed 1,112 units and 53 units in Russia from our KFC and Pizza Hut units counts, respectively. As a result:

◦YUM and KFC Division system sales growth excluding foreign currency as shown above were negatively impacted by 2 and 4 percentage points, respectively.

◦YUM and KFC Division year-over-year unit growth as shown above were negatively impacted by 2 and 5 percentage points, respectively.

• Also, we elected to reclass future net profits attributable to Russia subsequent to the date of invasion from the Division segments in which those profits were earned to Unallocated Other income and reflected such profits as a Special Item as they are not indicative of our ongoing results. As a result of the decline in Core Operating Profits attributable to Russia:

◦YUM and KFC Division Core Operating Profit as shown above were negatively impacted by 1 and 2 percentage points, respectively, for the quarter ended March 31, 2023.

• Foreign currency translation unfavorably impacted Divisional Operating Profit by $27 million for the quarter ended March 31, 2023.

			First Quarter
			2023			2022			% Change
GAAP EPS			$1.05			$1.36			(23)
Special Items EPS			$(0.01)			$0.31			NM
EPS Excluding Special Items			$1.06			$1.05			Even

• In addition to the aforementioned factors impacting Operating Profit, our 2023 diluted EPS, excluding Special Items, was negatively impacted by $0.07 from mark to market adjustments from unrealized investment losses and $0.08 from foreign currency translation.

• Gross unit openings for the quarter were 746 units resulting in 323 net new units.

Worldwide

GAAP Results

			Quarter ended
			2023						2022						% B/(W)
Company sales			$	474					$	470					1
Franchise and property revenues			770						714						8
Franchise contributions for advertising and other services			401						363						10
Total revenues			1,645						1,547						6
Company restaurant expenses			403						402						—
G&A expenses			282						253						(11)
Franchise and property expenses			36						32						(12)
Franchise advertising and other services expense			395						361						(9)
Refranchising (gain) loss			(4)						(4)						17
Other (income) expense			10						(6)						NM
Total costs and expenses, net			1,122						1,038						(8)
Operating Profit			523						509						3
Investment (income) expense, net			24						(7)						NM
Other pension (income) expense			(2)						—						NM
Interest expense, net			130						118						(10)
Income before income taxes			371						398						(7)
Income tax provision (benefit)			71						(1)						NM
Net Income			$	300					$	399					(25)
Diluted EPS(a)			$	1.05					$	1.36					(23)
Effective tax rate			19.1		%				(0.2)		%				(19.3)			ppts.

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

Performance Metrics

Unit Count			3/31/2023						3/31/2022						% Increase (Decrease)
Franchise			54,681						52,990						3
Company-owned			1,002						1,062						(6)
Total			55,683						54,052						3

						Quarter ended
						2023						2022
Same-store Sales Growth (Decline) %						8						3
System Sales Growth (Decline) %, reported						6						6
System Sales Growth (Decline) %, excluding FX						11						8

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

						Quarter ended
						2023						2022
Consolidated
Company sales(a)						$	474					$	470
Franchise sales						14,541						13,676
System sales						15,015						14,146
Foreign Currency Impact on System sales(b)						(641)						N/A
System sales, excluding FX						$	15,656					$	14,146
KFC Division
Company sales(a)						$	110					$	126
Franchise sales						7,947						7,607
System sales						8,057						7,733
Foreign Currency Impact on System sales(b)						(504)						N/A
System sales, excluding FX						$	8,561					$	7,733
Taco Bell Division
Company sales(a)						$	229					$	214
Franchise sales						3,235						2,894
System sales						3,464						3,108
Foreign Currency Impact on System sales(b)						(10)						N/A
System sales, excluding FX						$	3,474					$	3,108
Pizza Hut Division
Company sales(a)						$	5					$	5
Franchise sales						3,331						3,155
System sales						3,336						3,160
Foreign Currency Impact on System sales(b)						(127)						N/A
System sales, excluding FX						$	3,463					$	3,160
Habit Burger Grill Division
Company sales(a)						$	130					$	125
Franchise sales						28						20
System sales						158						145
Foreign Currency Impact on System sales(b)						—						N/A
System sales, excluding FX						$	158					$	145

(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
						2023						2022
Core Operating Profit Growth (Decline) %						11						(5)
Diluted EPS Growth (Decline) %, excluding Special Items						Even						(1)
Effective Tax Rate excluding Special Items						19.3		%				20.4		%

						Quarter ended
						2023						2022
Company restaurant profit						$	71					$	68
Company restaurant margin %						14.9		%				14.5		%

						Quarter ended
Detail of Special Items						2023						2022
Gain associated with market-wide refranchisings(a)						$	3					$	3
Operating profit impact from decision to exit Russia(b)						(3)						7
Other Special Items Expense						(3)						(1)
Special Items Income (Expense) - Operating Profit						(3)						9
Tax (Expense) Benefit on Special Items(c)						2						(2)
Tax Benefit - U.S. foreign tax credit regulations issued in January 2022(d)						—						82
Special Items Income (Expense), net of tax						$	(1)					$	89
Average diluted shares outstanding						285						294
Special Items diluted EPS						$	(0.01)					$	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 market-wide refranchisings. During both the quarters ended March 31, 2023 and 2022, we recorded net refranchising gains of $3 million, respectively, that have been reflected as Special Items.

Additionally, we recorded net refranchising gains of $1 million, during both the quarters ended March 31, 2023 and 2022, respectively, that have not been reflected as Special Items. These net refranchising gains relate to refranchising of restaurants unrelated to market-wide refranchisings and that we believe are indicative of our expected ongoing refranchising activity.

(b)In the first quarter of 2022, as a result of the Russian invasion of Ukraine, we suspended all investment and restaurant development in Russia. We also suspended all operations of our 70 company-owned KFC restaurants in Russia and began finalizing an agreement to suspend all Pizza Hut operations in Russia, in partnership with our master franchisee. Further, we pledged to redirect any future net profits attributable to Russia subsequent to the date of invasion to humanitarian efforts. During the second quarter of 2022, we completed the transfer of ownership of the Pizza Hut Russia business to a local operator. In April 2023, we completed our exit from the Russian market by selling the KFC business in Russia to Smart Service Ltd., including all Russian company-owned KFC restaurants, operating system, and master franchise rights as well as the trademark for the Rostik’s brand. Under the sale and purchase agreement, the buyer has agreed to lead the process to rebrand KFC restaurants in Russia to Rostik's and retain the Company's employees in Russia.

Our GAAP operating results continue to reflect revenues from and expenses to support the Russian operations for KFC for the quarter ended March 31, 2023, as well as for both Pizza Hut and KFC for the quarter ended March 31, 2022, within their historical financial statement line items and operating segments. However, given our decision to exit Russia and our pledge to direct any future net profits attributable to Russia subsequent to the date of invasion to humanitarian efforts, we have reclassed such net operating profits or losses from the Division segment results in which they were earned to Unallocated Other income (expense). Additionally, we have incurred certain expenses related to the transfer of the businesses and other one-time costs related to our exit from Russia which we have recorded within Corporate and unallocated G&A and Unallocated Franchise and property expenses. Also recorded in Unallocated Other income (expense) were foreign exchange impacts attributable to fluctuations in the value of the Russian ruble. The resulting net Operating Loss of $3 million and net Operating Profit of $7 million for the quarters ended March 31, 2023 and 2022, respectively, have been reflected as a Special Item as the amounts are not indicative of our ongoing results.

(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 made foreign taxes paid to certain countries no longer creditable in the U.S., which was expected to result in additional foreign tax credit carryforward utilization prospectively. As a result,

we reversed a valuation allowance associated with existing foreign tax credit carryforwards. This valuation allowance reversal resulted in a one-time tax benefit of $82 million in the quarter ended March 31, 2022 that was reflected as a Special Item. The U.S. Treasury published clarifying guidance in November 2022 which resulted in foreign taxes originally determined to be non-creditable under the January 2022 regulations to now be treated as creditable taxes. As such, the valuation allowance on foreign tax credit carryforwards that was released in the quarter ended March 31, 2022, was re-established in the quarter ended December 31, 2022.

Reconciliation of GAAP Operating Profit to Core Operating Profit						Quarter ended
						2023						2022
Consolidated
GAAP Operating Profit						$	523					$	509
Special Items Income (Expense)						(3)						9
Foreign Currency Impact on Divisional Operating Profit(a)						(27)						N/A
Core Operating Profit						$	553					$	500
KFC Division
GAAP Operating Profit						$	305					$	291
Foreign Currency Impact on Divisional Operating Profit(a)						(21)						N/A
Core Operating Profit						$	326					$	291
Taco Bell Division
GAAP Operating Profit						$	204					$	185
Foreign Currency Impact on Divisional Operating Profit(a)						(1)						N/A
Core Operating Profit						$	205					$	185
Pizza Hut Division
GAAP Operating Profit						$	104					$	102
Foreign Currency Impact on Divisional Operating Profit(a)						(5)						N/A
Core Operating Profit						$	109					$	102
Habit Burger Grill Division
GAAP Operating Loss						$	(5)					$	(8)
Foreign Currency Impact on Divisional Operating Profit(a)						—						N/A
Core Operating Loss						$	(5)					$	(8)
Reconciliation of Diluted EPS to Diluted EPS excluding Special Items
Diluted EPS						$	1.05					$	1.36
Special Items Diluted EPS						(0.01)						0.31
Diluted EPS excluding Special Items						$	1.06					$	1.05
Reconciliation of GAAP Effective Tax Rate to Effective Tax Rate excluding Special Items
GAAP Effective Tax Rate						19.1		%				(0.2)		%
Impact on Tax Rate as a result of Special Items						(0.2)		%				(20.6)		%
Effective Tax Rate excluding Special Items						19.3		%				20.4		%

(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).

Reconciliation of GAAP Operating Profit to Company Restaurant Profit
						Quarter ended 3/31/2023
						KFC Division						Taco Bell Division						Pizza Hut Division						Habit Burger Grill Division						Corporate and Unallocated						Consolidated
GAAP Operating Profit (Loss)						$	305					$	204					$	104					$	(5)					$	(85)					$	523
Less:
Franchise and property revenues						412						201						155						2						—						770
Franchise contributions for advertising and other services						165						142						94						—						—						401
Add:
General and administrative expenses						89						45						51						13						84						282
Franchise and property expenses						26						5						3						1						1						36
Franchise advertising and other services expense						164						138						93						—						—						395
Refranchising (gain) loss						—						—						—						—						(4)						(4)
Other (income) expense						7						1						(2)						—						4						10
Company restaurant profit						$	14					$	50					$	—					$	7					$	—					$	71
Company sales						$	110					$	229					$	5					$	130					$	—					$	474
Company restaurant margin %						12.0		%				22.2		%				3.9		%				4.9		%				N/A						14.9		%

						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		%

Items Impacting Reported Results and Reasonably Likely to Impact Future Results

The following items impacted reported results in 2023 and/or 2022 and/or are 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

In the first quarter of 2022, as a result of the Russian invasion of Ukraine, we suspended all investment and restaurant development in Russia. We also suspended all operations of our 70 company-owned KFC restaurants in Russia and began finalizing an agreement to suspend all Pizza Hut operations in Russia, in partnership with our master franchisee. Further, we pledged to redirect any future net profits attributable to Russia subsequent to the date of invasion to humanitarian efforts. During the second quarter of 2022, we completed the transfer of ownership of the Pizza Hut Russia business to a local operator. In April 2023, we completed our exit from the Russian market by selling the KFC business in Russia to Smart Service Ltd., including all Russian company-owned KFC restaurants, operating system, and master franchise rights as well as the trademark for the Rostik’s brand. Under the sale and purchase agreement, the buyer has agreed to lead the process to rebrand KFC restaurants in Russia to Rostik's and retain the Company's employees in Russia. With the completion of this transaction we have now ceased our corporate presence in Russia.

As of the beginning of the second quarter of 2022, we elected to remove all Russia units from our unit count and their associated sales from our total system sales. We removed 1,112 units and 53 units in Russia from our global KFC and Pizza Hut units counts, respectively. This negatively impacted YUM and KFC Division year-over-year unit growth by 2 and 5 percentage points, respectively at March 31, 2023. This also negatively impacted our system sales growth excluding foreign currency for YUM and KFC Division by 2 and 4 percentage points, respectively, during the quarter ended March 31, 2023. Russia units were removed from our same-store sales calculations as of the beginning of the second quarter of 2022.

Our GAAP operating results continue to reflect revenues from and expenses to support the Russian operations for KFC for the quarter ended March 31, 2023, as well as for both Pizza Hut and KFC for the quarter ended March 31, 2022, within their historical financial statement line items and operating segments. However, given our decision to exit Russia and our pledge to direct any future net profits attributable to Russia subsequent to the date of invasion to humanitarian efforts, we reclassed such net operating profits or losses from the Division segment results in which they were earned to Unallocated Other income (expense) and reflected such net profits as a Special Item. Additionally, we have incurred certain expenses related to the transfer of the businesses and other costs related to our exit from Russia which we have recorded within Corporate and unallocated G&A and Unallocated Franchise and property expenses. The resulting net Operating Loss of $3 million and net Operating Profit of $7 million for the quarters ended March 31, 2023 and 2022, respectively, have been reflected as a Special Item as the amounts are not indicative of our ongoing results.

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, 2023, our Core Operating Profits in Russia declined versus the first quarter of last year, negatively impacting YUM and KFC Division Core Operating Profit growth by 1 and 2 percentage points, respectively.

See Note 1 for a discussion regarding our net asset base in Russia.

Impact of Foreign Currency Translation on Operating Profit

Changes in foreign currency exchange rates negatively impacted the translation of our foreign currency denominated Divisional Operating Profit by $27 million for the quarter ended March 31, 2023. This included a negative impact to our KFC Division Operating Profit of $21 million. For the second quarter of 2023, we currently expect changes in foreign currency to negatively impact Divisional Operating Profit by approximately $10 to $20 million.

Investment in Devyani

Changes in the fair value of our approximate 5% minority investment in Devyani International Limited ("Devyani"), a franchise entity that operates KFC and Pizza Hut restaurants in India, resulted in a pre-tax loss of $23 million and a pre-tax gain of $7 million in the quarters ended March 31, 2023 and 2022, respectively.

KFC Division

The KFC Division has 28,003 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, 2023.

						Quarter ended
																		% B/(W)
						2023						2022						Reported									Ex FX
System Sales						$	8,057					$	7,733					4									11
Same-Store Sales Growth (Decline) %						9						3						N/A									N/A
Company sales						$	110					$	126					(13)									(6)
Franchise and property revenues						412						383						8									14
Franchise contributions for advertising and other services						165						151						9									12
Total revenues						$	687					$	660					4									10
Company restaurant profit						$	14					$	18					(26)									(20)
Company restaurant margin %						12.0		%				14.1		%				(2.1)			ppts.						(2.0)			ppts.
G&A expenses						$	89					$	84					(6)									(8)
Franchise and property expenses						26						24						(11)									(19)
Franchise advertising and other services expense						164						151						(9)									(12)
Operating Profit						$	305					$	291					5									12

																		% Increase (Decrease)
Unit Count						3/31/2023						3/31/2022
Franchise						27,785						27,081						3
Company-owned						218						291						(25)
Total						28,003						27,372						2

Company sales and Company restaurant margin %

The quarterly decrease in Company sales, excluding the impacts of foreign currency translation, was driven by the suspension of operations of our 70 company owned KFC restaurants in Russia during the quarter ended March 31, 2022, partially offset by Company same-store sales growth of 6%. As discussed in the Introduction and Overview section of this MD&A, all units in Russia, both Company and franchised, were removed from our same-store sales calculations beginning April 1, 2022.

The quarterly decrease in Company restaurant margin percentage was driven by commodity 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 9% and unit growth.

As discussed in the Introduction and Overview section of this MD&A, all units in Russia, both Company and franchised, were removed from our same-store sales calculations beginning April 1, 2022.

G&A

The quarterly increase in G&A, excluding the impact of foreign currency translation, was driven by higher headcount and salaries and higher travel related costs.

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 higher restaurant operating costs, higher G&A, and the negative impact of 2 percentage points on year-over-year operating profit growth as a result of lower profits in Russia.

Taco Bell Division

The Taco Bell Division has 8,276 units, 87% of which are in the U.S. The Company owned 7% of the Taco Bell units in the U.S. as of March 31, 2023.

						Quarter ended
																		% B/(W)
						2023						2022						Reported									Ex FX
System Sales						$	3,464					$	3,108					11									12
Same-Store Sales Growth %						8						5						N/A									N/A
Company sales						$	229					$	214					7									7
Franchise and property revenues						201						179						12									12
Franchise contributions for advertising and other services						142						124						14									14
Total revenues						$	572					$	517					11									11
Company restaurant profit						$	50					$	47					9									9
Company restaurant margin %						22.2		%				21.9		%				0.3			ppts.						0.3			ppts.
G&A expenses						$	45					$	36					(25)									(25)
Franchise and property expenses						5						6						14									16
Franchise advertising and other services expense						138						123						(12)									(12)
Operating Profit						$	204					$	185					10									11

																		% Increase (Decrease)
Unit Count						3/31/2023						3/31/2022
Franchise						7,806						7,367						6
Company-owned						470						464						1
Total						8,276						7,831						6

Company sales and Company restaurant margin %

The quarterly increase in Company sales was driven by company same-store sales growth of 7% and unit growth partially offset by refranchising.

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

Franchise and property revenues

The quarterly increases in Franchise and property revenues was driven by franchise same-store sales growth of 9% and unit growth.

G&A

The quarterly increase in G&A, excluding the impacts of foreign currency translation, was driven by higher digital and technology expenses, higher headcount and salaries and higher travel related expenses.

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.

Pizza Hut Division

The Pizza Hut Division has 19,046 units, 66% 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, 2023.

						Quarter ended
																		% B/(W)
						2023						2022						Reported									Ex FX
System Sales						$	3,336					$	3,160					6									10
Same-Store Sales Growth (Decline) %						7						Even						N/A									N/A
Company sales						$	5					$	5					2									2
Franchise and property revenues						155						151						3									6
Franchise contributions for advertising and other services						94						88						7									8
Total revenues						$	254					$	244					4									7
Company restaurant profit						$	—					$	—					NM									NM
Company restaurant margin %						3.9		%				(0.7)		%				4.6			ppts.						4.6			ppts.
G&A expenses						$	51					$	50					(3)									(5)
Franchise and property expenses						3						2						(30)									(8)
Franchise advertising and other services expense						93						87						(7)									(8)
Operating Profit						$	104					$	102					2									7

																		% Increase (Decrease)
Unit Count						3/31/2023						3/31/2022
Franchise						19,025						18,496						3
Company-owned						21						22						(5)
Total						19,046						18,518						3

Company sales

The quarterly increase in Company sales, excluding the impacts of foreign currency translation, was driven by company same-store sales growth of 6%.

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 7% and unit growth, partially offset by lapping the prior year recognition of franchise fees related to unexercised development rights arising from a master franchise agreement.

G&A

The quarterly increase in G&A, excluding the impacts of foreign currency translation, was driven by higher headcount and salaries and higher travel related expenses, partially offset by lower legal fees.

Operating Profit

The quarterly increase in Operating Profit, excluding the impacts of foreign currency translation, was driven by same-store sales growth and unit growth, partially offset by lapping the upfront recognition of franchise fees related to unexercised development rights arising from a master franchise agreement.

Habit Burger Grill Division

The Habit Burger Grill Division has 358 units, the vast majority of which are in the U.S. The Company owned 85% of the Habit Burger Grill units in the U.S. as of March 31, 2023.

						Quarter ended
																		% B/(W)
						2023						2022						Reported
System Sales						$	158					$	145					8
Same-Store Sales Growth %						—						3						N/A
Total revenues						$	132					$	126					4
Operating Profit (Loss)						$	(5)					$	(8)					35

Unit Count						3/31/2023						3/31/2022						% Increase (Decrease)
Franchise						65						46						41
Company-owned						293						285						3
Total						358						331						8

Corporate & Unallocated

						Quarter ended
(Expense) / Income						2023						2022						% B/(W)
Corporate and unallocated G&A						$	(84)					$	(71)					(17)
Unallocated Franchise and property expenses (See Note 8)						(1)						—						NM
Unallocated Refranchising gain (loss)						4						4						17
Unallocated Other income (expense) (See Note 8)						(4)						6						NM
Investment income (expense), net (See Note 8)						(24)						7						NM
Other pension income (expense) (See Note 9)						2						—						NM
Interest expense, net						(130)						(118)						(10)
Income tax benefit (provision) (See Note 6)						(71)						1						NM
Effective tax rate (See Note 6)						19.1		%				(0.2)		%				(19.3)			ppts.

Corporate and unallocated G&A

The quarterly increase in Corporate and Unallocated G&A expense was driven by costs associated with the previously disclosed ransomware attack.

Interest expense, net

The quarterly increase in Interest expense, net was primarily driven by a higher weighted average interest rate.

Consolidated Cash Flows

Net cash provided by operating activities was $349 million in 2023 versus $253 million in 2022. The increase was primarily driven by a decrease in incentive compensation payments, an increase in Operating profit before Special Items and timing of spending on advertising, partially offset by higher interest payments.

Net cash used in investing activities was $56 million in 2023 versus $29 million in 2022. The change was primarily driven by higher current year capital spending and lower refranchising proceeds.

Net cash used in financing activities was $334 million in 2023 versus $377 million in 2022. The change was primarily driven by lower current year share repurchases, partially offset by lower net borrowings.

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 four years and we expect that to continue to be the case in 2023. 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 which had $194 million outstanding as of March 31, 2023. We believe that our ongoing cash from operations, cash on hand, which was approximately $350 million at March 31, 2023, 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 2022 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, 2023, approximately 94%, including the impact of interest rate swaps, of our $11.6 billion of total debt outstanding, excluding the Revolving Facility balances, finance leases and debt issuance costs and discounts, is fixed with an effective overall interest rate of approximately 4.5%. We ended the quarter with a consolidated net leverage ratio of 4.9x EBITDA. We continually reassess our optimal leverage ratio to maximize shareholder returns. We target a capital structure which we believe provides an attractive balance between optimized interest rates, duration and flexibility with diversified sources of liquidity and maturities spread over multiple years. We have credit ratings of BB+ (Standard & Poor's)/Ba2 (Moody's) 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, 2023.

						2023						2024						2025						2026						2027						2028						2029						2030						2031						2032						2037						2043						Total
Securitization Notes						$	29					$	39					$	39					$	944					$	875					$	582					$	565					$	7					$	683																							$	3,763
Credit Agreement						25						48						53						662						15						1,398																																										2,201
Revolving Facility																								194																																																						194
Subsidiary Senior Unsecured Notes																														750																																																750
YUM Senior Unsecured Notes						325																																										800						1,050						$	2,100					$	325					$	275					4,875
Total						$	379					$	87					$	92					$	1,800					$	1,640					$	1,980					$	565					$	807					$	1,733					$	2,100					$	325					$	275					$	11,783

See Note 10 for details on the Securitization Notes, the Credit Agreement, Subsidiary Senior Unsecured Notes and YUM Senior Unsecured Notes.

Ransomware Attack

On January 18, 2023, the Company announced a ransomware attack that impacted certain Information Technology (“IT”) systems. Promptly upon the detection of the incident, the Company initiated response protocols and an investigation, engaged the services of industry-leading cybersecurity and forensics professionals and consulted Federal law enforcement. This incident resulted in the closure of fewer than 300 restaurants in one market for one day, and certain of the Company’s IT systems and data were affected. In addition, although data was taken from our network, with our forensic investigation complete we have concluded that the affected data was limited to certain personal information of former and current employees, and there continues to be no evidence that customer databases were accessed.

We have incurred, and may continue to incur, certain expenses related to this attack, including expenses to respond to, remediate and investigate this matter. In addition, in April 2023, several separate putative class actions were filed in U.S. federal and state court by current and/or former employees alleging violations of privacy and other rights in connection with the ransomware incident. We do not believe the impact of the incident or the aforementioned matters will ultimately have a material adverse effect on our business, results of operations or financial condition.