Item 1. Financial Statements

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
YUM! BRANDS, INC. AND SUBSIDIARIES
(in millions, except per share data)
			Quarter ended
Revenues			3/31/2024						3/31/2023
Company sales			$	474					$	474
Franchise and property revenues			757						770
Franchise contributions for advertising and other services			367						401
Total revenues			1,598						1,645
Costs and Expenses, Net
Company restaurant expenses			400						403
General and administrative expenses			286						282
Franchise and property expenses			31						36
Franchise advertising and other services expense			367						395
Refranchising (gain) loss			(5)						(4)
Other (income) expense			(1)						10
Total costs and expenses, net			1,078						1,122
Operating Profit			520						523
Investment (income) expense, net			22						24
Other pension (income) expense			(2)						(2)
Interest expense, net			117						130
Income Before Income Taxes			383						371
Income tax provision			69						71
Net Income			$	314					$	300
Basic Earnings Per Common Share			$	1.11					$	1.07
Diluted Earnings Per Common Share			$	1.10					$	1.05
Dividends Declared Per Common Share			$	0.67					$	0.605
See accompanying Notes to Condensed Consolidated Financial Statements.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
YUM! BRANDS, INC. AND SUBSIDIARIES
(in millions)
			Quarter ended
			3/31/2024						3/31/2023
Net Income			$	314					$	300
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			(10)						8
Reclassification of adjustments and (gains) losses into Net Income			—						—
			(10)						8
Tax (expense) benefit			—						—
			(10)						8
Changes in pension and post-retirement benefits
Unrealized gains (losses) arising during the period			—						—
Reclassification of (gains) losses into Net Income			—						—
			—						—
Tax (expense) benefit			—						(2)
			—						(2)
Changes in derivative instruments
Unrealized gains (losses) arising during the period			12						(8)
Reclassification of (gains) losses into Net Income			(8)						(3)
			4						(11)
Tax (expense) benefit			(1)						3
			3						(8)
Other comprehensive income (loss), net of tax			(7)						(2)
Comprehensive Income			$	307					$	298
See accompanying Notes to Condensed Consolidated Financial Statements.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
YUM! BRANDS, INC. AND SUBSIDIARIES
(in millions)
			Quarter ended
			3/31/2024						3/31/2023
Cash Flows – Operating Activities
Net Income			$	314					$	300
Depreciation and amortization			35						29
Refranchising (gain) loss			(5)						(4)
Investment (income) expense, net			22						24
Deferred income taxes			21						(4)
Share-based compensation expense			23						25
Changes in accounts and notes receivable			44						23
Changes in prepaid expenses and other current assets			(32)						(7)
Changes in accounts payable and other current liabilities			(66)						(101)
Changes in income taxes payable			(26)						28
Other, net			33						36
Net Cash Provided by Operating Activities			363						349
Cash Flows – Investing Activities
Capital spending			(49)						(62)
Proceeds from the sale of Devyani International Limited common stock			104						—
Proceeds from refranchising of restaurants			11						5
Other, net			(21)						1
Net Cash Provided by (Used in) Investing Activities			45						(56)
Cash Flows – Financing Activities
Repayments of long-term debt			(10)						(20)
Revolving credit facility, three months or less, net			—						(85)
Repurchase shares of Common Stock			—						(50)
Dividends paid on Common Stock			(189)						(169)
Other, net			(48)						(10)
Net Cash Used in Financing Activities			(247)						(334)
Effect of Exchange Rates on Cash and Cash Equivalents			(7)						3
Net Increase (Decrease) in Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents			154						(38)
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - Beginning of Period			724						647
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - End of Period			$	878					$	609
See accompanying Notes to Condensed Consolidated Financial Statements.

CONDENSED CONSOLIDATED BALANCE SHEETS
YUM! BRANDS, INC. AND SUBSIDIARIES
(in millions)
			(Unaudited) 3/31/2024						12/31/2023
ASSETS
Current Assets
Cash and cash equivalents			$	652					$	512
Accounts and notes receivable, net			686						737
Prepaid expenses and other current assets			436						360
Total Current Assets			1,774						1,609
Property, plant and equipment, net			1,190						1,197
Goodwill			641						642
Intangible assets, net			370						377
Other assets			1,228						1,361
Deferred income taxes			1,021						1,045
Total Assets			$	6,224					$	6,231
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current Liabilities
Accounts payable and other current liabilities			$	1,095					$	1,169
Income taxes payable			35						55
Short-term borrowings			58						53
Total Current Liabilities			1,188						1,277
Long-term debt			11,130						11,142
Other liabilities and deferred credits			1,662						1,670
Total Liabilities			13,980						14,089
Shareholders’ Deficit
Common Stock, no par value, 750 shares authorized; 281 shares issued in 2024 and 2023			45						60
Accumulated deficit			(7,492)						(7,616)
Accumulated other comprehensive loss			(309)						(302)
Total Shareholders’ Deficit			(7,756)						(7,858)
Total Liabilities and Shareholders’ Deficit			$	6,224					$	6,231
See accompanying Notes to Condensed Consolidated Financial Statements.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT (Unaudited)
YUM! BRANDS, INC. AND SUBSIDIARIES
Quarters ended March 31, 2024 and 2023
(in millions)
						Yum! Brands, Inc.
						Issued Common Stock												Accumulated Deficit						Accumulated Other Comprehensive Loss						Total Shareholders' Deficit
						Shares						Amount
Balance at December 31, 2023						281						$	60					$	(7,616)					$	(302)					$	(7,858)
Net Income																		314												314
Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature																								(10)						(10)
Pension and post-retirement benefit plans																								—						—
Net gain on derivative instruments (net of tax impact of $1 million)																								3						3
Comprehensive Income																														307
Dividends declared																		(190)												(190)
Repurchase of shares of Common Stock						—						—						—												—
Employee share-based award exercises						—						(47)																		(47)
Share-based compensation events												32																		32
Balance at March 31, 2024						281						$	45					$	(7,492)					$	(309)					$	(7,756)
Balance at December 31, 2022						280						$	—					$	(8,507)					$	(369)					$	(8,876)
Net Income																		300												300
Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature																								8						8
Pension and post-retirement benefit plans (net of tax impact of $2 million)																								(2)						(2)
Net loss on derivative instruments (net of tax impact of $3 million)																								(8)						(8)
Comprehensive Income																														298
Dividends declared																		(170)												(170)
Repurchase of shares of Common Stock						—						(24)						(26)												(50)
Employee share-based award exercises						—						(10)																		(10)
Share-based compensation events												34																		34
Balance at March 31, 2023						280						$	—					$	(8,403)					$	(371)					$	(8,774)
See accompanying Notes to Condensed Consolidated Financial Statements.

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, 2023 (“2023 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 59,000 restaurants in more than 155 countries and territories. As of March 31, 2024, 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 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, 2024, 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 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. For subsidiaries that operate on this weekly periodic calendar, 2024 will include a 53rd week. Our remaining international subsidiaries operate on a monthly calendar similar to that on which YUM operates.

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 2023 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 items in the Financial Statements for the prior periods to be comparable with the classification for the quarter ended March 31, 2024. These reclassifications had no effect on previously reported Net Income.

Note 2 - Earnings Per Common Share (“EPS”)

						Quarter ended
						2024						2023
Net Income						$	314					$	300
Weighted-average common shares outstanding (for basic calculation)						282						281
Effect of dilutive share-based employee compensation						4						4
Weighted-average common and dilutive potential common shares outstanding (for diluted calculation)						286						285
Basic EPS						$	1.11					$	1.07
Diluted EPS						$	1.10					$	1.05
Unexercised employee SARs, RSUs, PSUs and stock options (in millions) excluded from the diluted EPS computation(a)						1.7						1.5

(a)These unexercised employee stock appreciation rights (“SARs”), restricted stock units (“RSUs”), performance share units (“PSUs”) and stock options 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, 2024 and 2023 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						2024									2023												2024									2023												2024
September 2022						—									387												—									50												1,700
Total						—									387												$	—								$	50											$	1,700

In September 2022, our Board of Directors authorized share repurchases of up to $2 billion (excluding applicable transaction fees) of our outstanding Common Stock through June 30, 2024. As of March 31, 2024, we have remaining capacity to repurchase up to $1.7 billion of Common Stock under the September 2022 authorization.

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, 2023, net of tax						$	(201)					$	(104)					$	3					$	(302)
OCI, net of tax
Gains (losses) arising during the period classified into AOCI, net of tax						(10)						—						9						(1)
(Gains) losses reclassified from AOCI, net of tax						—						—						(6)						(6)
						(10)						—						3						(7)
Balance at March 31, 2024, net of tax						$	(211)					$	(104)					$	6					$	(309)

Note 4 - Other (Income) Expense

						Quarter ended
						3/31/2024						3/31/2023
Foreign exchange net (gain) loss						$	5					$	3
Impairment and closure expense						—						1
Other						(6)						6
Other (income) expense						$	(1)					$	10

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.

			3/31/2024						12/31/2023
Accounts and notes receivable, gross			$	741					$	776
Allowance for doubtful accounts			(55)						(39)
Accounts and notes receivable, net			$	686					$	737

Property, Plant and Equipment, net

			3/31/2024						12/31/2023
Property, plant and equipment, gross			$	2,536					$	2,529
Accumulated depreciation and amortization			(1,346)						(1,332)
Property, plant and equipment, net			$	1,190					$	1,197

Other Assets			3/31/2024						12/31/2023
Operating lease right-of-use assets(a)			$	755					$	764
Franchise incentives			180						175
Investment in Devyani International Limited (See Note 12)			—						124
Other			293						298
Other assets			$	1,228					$	1,361

(a) Non-current operating lease liabilities of $748 million and $757 million as of March 31, 2024 and December 31, 2023, 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

			3/31/2024						12/31/2023
Cash and cash equivalents as presented in Condensed Consolidated Balance Sheets			$	652					$	512
Restricted cash included in Prepaid expenses and other current assets(a)			191						177
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			$	878					$	724

(a) Restricted cash within Prepaid expenses and other current assets primarily 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
			2024						2023
Income tax provision			$	69					$	71
Effective tax rate			18.0		%				19.1		%

Our estimated effective tax rate for the full fiscal year is expected to be higher than the U.S. federal statutory rate of 21%, primarily due to state income taxes and U.S. taxes on foreign earnings partially offset by taxes on income earned in foreign jurisdictions with statutory tax rates below 21%.

The first quarter effective tax rate was lower than the prior year primarily due to favorable developments in the current quarter related to uncertain tax positions as well as favorability associated with higher tax deductions for share-based compensation, partially offset by higher taxes paid in foreign jurisdictions where our intellectual property rights are domiciled.

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 3/31/2024
						KFC Division						Taco Bell Division						Pizza Hut Division						Habit Burger Grill Division						Total
U.S.
Company sales						$	14					$	240					$	2					$	127					$	383
Franchise revenues						43						188						68						1						300
Property revenues						3						9						1						1						14
Franchise contributions for advertising and other services						10						146						73						1						230
China
Franchise revenues						68						—						17						—						85
Other
Company sales						91						—						—						—						91
Franchise revenues						272						13						62						—						347
Property revenues						11						—						—						—						11
Franchise contributions for advertising and other services						120						2						15						—						137
						$	632					$	598					$	238					$	130					$	1,598

						Quarter ended 3/31/2023
						KFC Division						Taco Bell Division						Pizza Hut Division						Habit Burger Grill Division						Total
U.S.
Company sales						$	16					$	229					$	5					$	130					$	380
Franchise revenues						46						178						70						1						295
Property revenues						3						10						1						1						15
Franchise contributions for advertising and other services						8						140						78						—						226
China
Franchise revenues						66						—						18						—						84
Other
Company sales						94						—						—						—						94
Franchise revenues						284						13						66						—						363
Property revenues						13						—						—						—						13
Franchise contributions for advertising and other services						157						2						16						—						175
						$	687					$	572					$	254					$	132					$	1,645

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 2024 is presented below.

						Deferred Franchise Fees
Balance at December 31, 2023						$	444
Revenue recognized that was included in unamortized upfront fees received from franchisees at the beginning of the period						(20)
Increase for upfront fees associated with contracts that became effective during the period, net of amounts recognized as revenue during the period						19
Other(a)						(3)
Balance at March 31, 2024						$	440

(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			$	72
1 - 2 years			65
2 - 3 years			59
3 - 4 years			53
4 - 5 years			44
Thereafter			147
Total			$	440

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:

			Quarter ended
Revenues			2024						2023
KFC Division			$	632					$	687
Taco Bell Division			598						572
Pizza Hut Division			238						254
Habit Burger Grill Division			130						132
			$	1,598					$	1,645

			Quarter ended
Operating Profit			2024						2023
KFC Division			$	313					$	305
Taco Bell Division			208						204
Pizza Hut Division			93						104
Habit Burger Grill Division			(5)						(5)
Corporate and unallocated G&A expenses			(89)						(84)
Unallocated Franchise and property income (expenses)			—						(1)
Unallocated Refranchising gain (loss)			5						4
Unallocated Other income (expense)			(5)						(4)
Operating Profit			$	520					$	523
Investment income (expense), net(a)			(22)						(24)
Other pension income (expense)			2						2
Interest expense, net			(117)						(130)
Income before income taxes			$	383					$	371

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).

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 qualified and funded. We fund our other U.S. plans as benefits are paid. Our two significant U.S. plans, including the Plan and a supplemental plan, were previously amended such that any salaried employee hired or rehired by YUM after September 30, 2001, is not eligible to participate in those plans. Additionally, these two plans in the U.S. are currently closed to new hourly participants.

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

			Quarter ended
			2024						2023
Service cost			$	1					$	1
Interest cost			11						10
Expected return on plan assets			(13)						(12)
Net periodic benefit cost (income)			$	(1)					$	(1)

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

Short-term Borrowings						3/31/2024						12/31/2023
Current maturities of long-term debt						$	61					$	56
Less current portion of debt issuance costs and discounts						(3)						(3)
Short-term borrowings						$	58					$	53
Long-term Debt
Securitization Notes						$	3,743					$	3,743
Subsidiary Senior Unsecured Notes						750						750
Revolving Facility						—						—
Term Loan A Facility						713						717
Term Loan B Facility						1,455						1,459
YUM Senior Unsecured Notes						4,550						4,550
Finance lease obligations						49						50
						$	11,260					$	11,269
Less long-term portion of debt issuance costs and discounts						(69)						(71)
Less current maturities of long-term debt						(61)						(56)
Long-term debt						$	11,130					$	11,142

Details of our Short-term borrowings and Long-term debt as of December 31, 2023 can be found within our 2023 Form 10-K.

Subsequent to the first quarter, on April 26, 2024, 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 outstanding $713 million under the Term Loan A Facility and $1.25 billion capacity under the Revolving Facility through the issuance of a $500 million term loan A facility and a $1.5 billion revolving facility pursuant to an amendment to the Credit Agreement (as defined in our 2023 Form 10-K). The transaction did not add any additional net new debt to the Company's Balance Sheet. The new term loan A facility and the revolving facility will mature on the earliest of (i) April 26, 2029, (ii) the date that is 91 days prior to the March 15, 2028 maturity of the Borrowers’ existing Term Loan B Facility if more than $250

million of such Term Loan B remains outstanding as of such date and (iii) the date that is 91 days prior to the June 1, 2027 maturity of the Borrowers’ existing Subsidiary Senior Unsecured Notes if more than $250 million of such Subsidiary Senior Unsecured Notes remains outstanding as of such date. Further, the Amendment removes the excess cash flow mandatory prepayment requirement with respect to the new term loan A facility. All other material provisions of the Credit Agreement remain unchanged.

Cash paid for interest during the quarter ended March 31, 2024, was $101 million. Cash paid for interest during the quarter ended March 31, 2023 was $104 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 associated with certain foreign currency denominated intercompany receivables and payables is currently not significant.

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, 2024 and December 31, 2023, 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, 2024 or December 31, 2023.

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, 2024, the swaps were highly effective cash flow hedges.

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
			2024						2023						2024						2023
Interest rate swaps			$	11					$	(7)					$	(9)					$	(5)
Income tax benefit/(expense)			(3)						2						2						1

As of March 31, 2024, the estimated net gain included in AOCI related to our cash flow hedges that will be reclassified into earnings in the next 12 months is $28 million, based on current Secured Overnight Financing Rate ("SOFR") 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 both March 31, 2024 and December 31, 2023, was not significant.

As a result of the use of derivative instruments, 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, 2024, all of the counterparties to our derivative instruments had investment grade ratings

according to the three major ratings agencies. To date, all counterparties have performed in accordance with their contractual obligations.

See Note 12 for the fair value of our derivative assets and liabilities.

Note 12 - Fair Value Disclosures

As of March 31, 2024, 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 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:

			3/31/2024												12/31/2023
			Carrying Value						Fair Value (Level 2)						Carrying Value						Fair Value (Level 2)
Securitization Notes(a)			$	3,743					$	3,423					$	3,743					$	3,391
Subsidiary Senior Unsecured Notes(b)			750						742						750						742
Term Loan A Facility(b)			713						709						717						716
Term Loan B Facility(b)			1,455						1,460						1,459						1,466
YUM Senior Unsecured Notes(b)			4,550						4,361						4,550						4,439

(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						3/31/2024						12/31/2023
Assets
Investments						Other assets						1						$	1					$	125
Investments						Other assets						3						7						7
Interest Rate Swaps						Prepaid expenses and other current assets						2						28						24
Interest Rate Swaps						Other assets						2						—						2

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.

Investments as of December 31, 2023, primarily included our approximate 5% minority interest in Devyani International Limited (“Devyani”), a franchise entity that operates KFC and Pizza Hut restaurants in India, with a fair value of $124 million. During the quarter ended March 31, 2024, we sold our ownership interest in Devyani for pre-tax proceeds of $104 million and recognized pre-tax investment losses of $20 million related to changes in fair value during the quarter prior to the date of sale.

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, in August 2022, we received a Revenue Agent’s Report (“RAR”) from the IRS asserting an underpayment of tax of $2.1 billion plus $418 million in penalties for the 2014 fiscal year. Additionally, interest on the underpayment is estimated to be approximately $1.2 billion through the first quarter of 2024. The proposed underpayment relates primarily 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 transactions resulted in taxable distributions of approximately $6.0 billion.

We disagree with the IRS’s position as asserted in the RAR and intend to contest that position vigorously. In September 2022, we filed a Protest with the IRS Examination Division disputing on multiple grounds the proposed underpayment of tax and penalties. We have received the IRS Examination Division’s Rebuttal to our Protest and the case has been accepted by the IRS Office of Appeals.

The Company does not expect resolution of this matter within twelve months and cannot predict with certainty the timing of such resolution. 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 Condensed 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, 2024, the potential amount of undiscounted payments we could be required to make in the event of non-payment by the primary lessee was approximately $375 million. The present value of these potential payments discounted at our pre-tax cost of debt at March 31, 2024, was approximately $300 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, 2024, 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.

India Regulatory Matter

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 $135 million. Of this amount, $130 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. In November 2022, YRIPL was notified that an administrative tribunal bench had been constituted to hear an appeal by DOE of certain findings of the January 2020 order, including claims that certain charges had been wrongly dropped and that an insufficient amount of penalty had been imposed. A hearing with the administrative tribunal that had been scheduled for March 4, 2024 has been rescheduled to July 30, 2024. A hearing held on March 21, 2024, before the Delhi High Court has been continued to July 4, 2024, and the stay order remains in effect. 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.

Other Matters

We are currently engaged in various other legal proceedings and have certain unresolved claims pending, the ultimate liability for which, if any, cannot be determined at this time. However, based upon consultation with legal counsel, we are of the opinion that such proceedings and claims are not expected to have a material adverse effect, individually or in the aggregate, on our Condensed Consolidated Financial Statements.

Note 14 - Subsequent Event

KFC U.K. and Ireland Store Acquisition

On April 29, 2024, we completed the previously announced acquisition of 216 KFC restaurants from a franchisee in the U.K. and Ireland. Consideration for this acquisition consists of approximately $180 million in cash, subject to customary post-closing adjustments.