Fair Value Disclosures

8 Months Ended

Sep. 03, 2016

Fair Value Disclosures

As of September 3, 2016, the carrying values of cash and cash equivalents, short-term investments, accounts receivable and accounts payable approximated their fair values because of the short-term nature of these instruments. The fair values of notes receivable net of allowances and lease guarantees less subsequent amortization approximates their carrying values. 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. We estimated the fair value of the Class A-2 Notes by obtaining broker quotes from two separate brokerage firms that are knowledgeable about the Company’s Class A-2 Notes and, at times, trade these notes. The markets in which the Class A-2 Notes trade are not considered active markets. The fair value of the Company’s foreign currency contracts and 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 upon observable inputs. The other investments include investments in mutual funds, which are used to offset fluctuations in deferred compensation liabilities that employees have chosen to invest in phantom shares of a Stock Index Fund or Bond Index Fund. The fair value of the other investments (Level 1) was determined based on the closing market prices of the respective mutual funds as of September 3, 2016, and December 26, 2015. The YUM and Subsidiary Senior Unsecured Notes were estimated to have a combined fair value of $4.5 billion (Level 2), compared to their combined carrying value of $4.3 billion as of September 3, 2016. The fair values of the Company’s Term Loan A Facility and Term Loan B Facility approximated their respective carrying values of $0.5 billion (Level 2) and $2.0 billion (Level 2) as of September 3, 2016. As of September 3, 2016 the Company’s Class A-2 Notes were estimated to have a collective fair value of $2.4 billion (Level 2), compared to a collective carrying value of $2.3 billion.

The following table presents fair values for those assets and liabilities (See Note 11 for discussion regarding derivative instruments) measured at fair value on a recurring basis and the level within the fair value hierarchy in which the measurements fall. No transfers among the levels within the fair value hierarchy occurred during the quarter and year to date ended September 3, 2016.



		Fair Value
	Level	9/3/2016		12/26/2015		Condensed Consolidated Balance Sheet
Interest Rate Swaps - Liability	2	$	7	$	2	Accounts payable and other current liabilities
Interest Rate Swaps - Asset	2	3		—		Other assets
Foreign Currency Contracts - Asset	2	6		—		Prepaid expenses and other current assets
Foreign Currency Contracts - Liability	2	3		—		Other liabilities and deferred credits
Foreign Currency Contracts - Asset	2	—		19		Other assets
Other Investments	1	23		21		Other assets

During the quarter and year to date ended September 3, 2016, we recorded restaurant-level impairment (Level 3) of $4 million and $39 million, respectively. During the quarter and year to date ended September 5, 2015, we recorded restaurant-level impairment (Level 3) of $1 million and $19 million, respectively. The remaining net book value of the assets measured at fair value as of September 3, 2016, subsequent to these impairments, was not significant.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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