What changed in this filing

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Item 1. Financial Statements

2023-08-02 compared with 2023-05-04 · 97 added, 40 removed, 308 unchanged (31% of the section changed)

1 unchanged sentence

CONDENSED CONSOLIDATED BALANCE SHEET

In millions, except per share data March 31,

In millions, except per share data June 30,

2023 December 31,

17 unchanged sentences

Current liabilities

Short-term borrowings and current maturities of long-term debt $ 524.2 $ —

Accounts payable $ 806.6 $ 980.2

28 unchanged sentences

CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)

Quarters Ended

Quarters Ended Six Months Ended

June 30, June 30,

In millions, except per share data 2023 2022 2023 2022

25 unchanged sentences

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

Quarters Ended

Quarters Ended Six Months Ended

June 30, June 30,

In millions 2023 2022 2023 2022

24 unchanged sentences

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

Quarters Ended

Quarters Ended Six Months Ended

June 30, June 30,

In millions 2023 2022 2023 2022

12 unchanged sentences

Purchases of restaurant businesses ( 114.0 ) ( 110.5 ) ( 211.6 ) ( 197.2 )

Sales of restaurant businesses 20.8 16.5

Sales of restaurant and other businesses 59.2 351.7 80.0 368.2

Sales of property 3.7 6.3 21.7 11.2

16 unchanged sentences

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)

For the quarter ended March 31, 2022

For the six months ended June 30, 2022

issued Accumulated other

18 unchanged sentences

Stock option exercises and other 54.5 1.3 44.1 98.6

Balance at March 31, 2022 1,660.6 $ 16.6 $ 8,307.1 $ 57,614.0 $ ( 180.8 ) $ ( 7.5 ) $ ( 2,453.6 ) ( 921.1 ) $ ( 69,286.6 ) $ ( 5,990.8 )

For the quarter ended March 31, 2023

Balance at June 30, 2022 1,660.6 $ 16.6 $ 8,378.7 $ 57,785.1 $ ( 183.5 ) $ 77.2 $ ( 2,140.1 ) ( 924.9 ) $ ( 70,303.8 ) $ ( 6,369.8 )

For the six months ended June 30, 2023

issued Accumulated other

18 unchanged sentences

Stock option exercises and other 93.8 1.6 54.9 148.7

Balance at June 30, 2023 1,660.6 $ 16.6 $ 8,735.8 $ 61,436.6 $ ( 302.5 ) $ 11.2 $ ( 2,164.3 ) ( 931.9 ) $ ( 72,732.5 ) $ ( 4,999.1 )

See Notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)

For the quarter ended June 30, 2022

issued Accumulated other

comprehensive income (loss) Common stock in

treasury Total

shareholders’

equity (deficit)

capital Retained

earnings Pensions Cash flow

hedges Foreign

In millions, except per share data Shares Amount Shares Amount

Balance at March 31, 2022 1,660.6 $ 16.6 $ 8,307.1 $ 57,614.0 $ ( 180.8 ) $ ( 7.5 ) $ ( 2,453.6 ) ( 921.1 ) $ ( 69,286.6 ) $ ( 5,990.8 )

Net income 1,188.0 1,188.0

Other comprehensive income (loss),

net of tax ( 2.7 ) 84.7 313.5 395.5

Comprehensive income 1,583.5

Common stock cash dividends

($ 1.38 per share)

( 1,016.9 ) ( 1,016.9 )

Treasury stock purchases ( 4.3 ) ( 1,031.2 ) ( 1,031.2 )

Share-based compensation 38.3 38.3

Stock option exercises and other 33.3 0.5 14.0 47.3

Balance at June 30, 2022 1,660.6 $ 16.6 $ 8,378.7 $ 57,785.1 $ ( 183.5 ) $ 77.2 $ ( 2,140.1 ) ( 924.9 ) $ ( 70,303.8 ) $ ( 6,369.8 )

For the quarter ended June 30, 2023

issued Accumulated other

comprehensive income (loss) Common stock in

treasury Total

shareholders’

equity (deficit)

capital Retained

earnings Pensions Cash flow

hedges Foreign

In millions, except per share data Shares Amount Shares Amount

Balance at March 31, 2023 1,660.6 $ 16.6 $ 8,635.5 $ 60,235.0 $ ( 299.3 ) $ 14.0 $ ( 2,204.1 ) ( 930.5 ) $ ( 72,173.8 ) $ ( 5,776.1 )

Net income 2,310.4 2,310.4

Other comprehensive income (loss),

net of tax ( 3.2 ) ( 2.8 ) 39.8 33.8

Comprehensive income 2,344.2

Common stock cash dividends

($ 1.52 per share)

( 1,108.8 ) ( 1,108.8 )

Treasury stock purchases ( 2.0 ) ( 578.5 ) ( 578.5 )

Share-based compensation 45.2 45.2

Stock option exercises and other 55.1 0.6 19.8 74.9

Balance at June 30, 2023 1,660.6 $ 16.6 $ 8,735.8 $ 61,436.6 $ ( 302.5 ) $ 11.2 $ ( 2,164.3 ) ( 931.9 ) $ ( 72,732.5 ) $ ( 4,999.1 )

See Notes to condensed consolidated financial statements.

4 unchanged sentences

In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation have been included.

The results for the quarter ended March 31, 2023 do not necessarily indicate the results that may be expected for the full year.

The results for the quarter and six months ended June 30, 2023 do not necessarily indicate the results that may be expected for the full year.

Restaurant Information

The following table presents restaurant information by ownership type:

Restaurants at March 31, 2023 2022

Restaurants at June 30, 2023 2022

Conventional franchised 21,719 21,621

4 unchanged sentences

Total Systemwide restaurants 40,801 39,696

Restaurant information reflects the sale of over 850 restaurants in conjunction with the exit of our business in Russia in the second quarter of 2022, most of which were Company-operated.

The results of operations of restaurant businesses purchased and sold in transactions with franchisees were not material either individually or in the aggregate to the accompanying condensed consolidated financial statements for the periods prior to purchase and sale.

1 unchanged sentence

Diluted earnings per common share is calculated as net income divided by diluted weighted-average shares.

Diluted weighted-average shares include weighted-average shares outstanding plus the dilutive effect of share-based compensation, calculated using the treasury stock method, of 4.6 million shares and 5.0 million shares for the quarters 2023 and 2022, respectively.

Share-based compensation awards that would have been antidilutive, and therefore were not included in the calculation of diluted weighted-average shares, totaled 2.3 million shares and 1.7 million shares for the quarters 2023 and 2022, respectively.

Diluted weighted-average shares include weighted-average shares outstanding plus the dilutive effect of share-based compensation, calculated using the treasury stock method, of 4.7 million shares and 4.5 million shares for the quarters ended 2023 and 2022, respectively, and 4.6 million shares and 4.8 million shares for the six months ended 2023 and 2022, respectively.

Share-based compensation awards that would have been antidilutive, and therefore were not included in the calculation of diluted weighted-average shares, totaled 1.2 million shares and 1.6 million shares for the quarters ended 2023 and 2022, respectively, and 2.1 million shares and 1.6 million shares for the six months ended 2023 and 2022, respectively.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

There have been no recent accounting pronouncements or changes in accounting pronouncements during the three months ended March 31, 2023 that are of significance or potential significance to the Company.

There have been no recent accounting pronouncements or changes in accounting pronouncements during the quarter and six months ended June 30, 2023 that are of significance or potential significance to the Company.

Accelerating the Organization

1 unchanged sentence

Enhancements to the strategy include the addition of Restaurant Development to the Company’s growth pillars and an internal effort to modernize ways of working, Accelerating the Organization , both of which are aimed at elevating the Company’s performance.

Accelerating the Organization is designed to unlock further growth as the Company modernizes the way it works by focusing on becoming faster, more innovative and more efficient at solving problems for its customers and people.

The Company expects to incur between $ 200 million and $ 250 million of expenses related to this strategic initiative in 2023, of which $ 180 million was incurred in the three months ended March 31, 2023.

Accelerating the Organization is designed to unlock further growth as the Company focuses on becoming faster, more innovative and more efficient for the benefit of our customers and people.

The Company expects to incur up to $ 250 million of expenses related to this strategic initiative in 2023, of which $ 199 million was incurred in the six months ended June 30, 2023.

These expenses were recorded in the Other operating (income) expense, net line within the consolidated statement of income.

8 unchanged sentences

Other Non-Cash Items — — ( 14.1 ) ( 14.1 )

Accrued Balance at End of Period $ 108.8 $ 25.5 $ 28.9 $ 163.2

Of the $ 180 million of restructuring costs incurred in the three months ended March 31, 2023, $ 58 million was recorded in the U.S., $ 71 million was recorded in the International Operated Markets segment and $ 51 million was recorded in the International Developmental Licensed Markets & Corporate segment, the majority of which was recorded at Corporate.

Substantially all of the accrued restructuring balance recorded at March 31, 2023, related to the Company’s Accelerating the Organization initiative, is expected to be paid out by the end of 2023.

Accrued Balance at March 31, 2023 $ 108.8 $ 25.5 $ 28.9 $ 163.2

Restructuring Costs Incurred ( 8.8 ) 5.6 21.9 18.7

Cash Payments ( 27.7 ) ( 11.7 ) ( 46.8 ) ( 86.2 )

Other Non-Cash Items — — ( 2.5 ) ( 2.5 )

Accrued Balance at June 30, 2023 $ 72.3 $ 19.4 $ 1.5 $ 93.2

Of the $ 199 million of restructuring costs incurred in the six months ended June 30, 2023, $ 62 million was recorded in the U.S., $ 72 million was recorded in the International Operated Markets segment and $ 65 million was recorded in the International Developmental Licensed Markets & Corporate segment, the majority of which was recorded at Corporate.

Substantially all of the accrued restructuring balance recorded at June 30, 2023, related to the Company’s Accelerating the Organization initiative, is expected to be paid out by the end of 2023.

As part of Accelerating the Organization, the Company is also in the initial stages of developing a strategy that will utilize an enterprise-wide Global Business Services model to deliver business services at scale with greater efficiency.

2 unchanged sentences

The expectation is that the Company will complete the majority of its Global Business Services strategy by the end of 2027.

The effective income tax rate was 20.5 % and 28.3 % for the quarters ended March 31, 2023 and 2022, respectively.

The tax rate for the quarter ended March 31, 2022 was impacted by the non-deductibility for tax purposes of $ 500 million of nonoperating expense related to a tax audit in France.

Excluding the impacts of the $ 500 million of nonoperating expense, current year restructuring charges related to Accelerating the Organization and prior year charges, primarily related to Russia, the effective income tax rate was 20.9 % and 21.3 % for the quarters ended March 31, 2023 and 2022, respectively.

The effective income tax rate was 18.0 % and 15.7 % for the quarters ended 2023 and 2022, respectively, and 19.1 % and 22.3 % for the six months ended 2023 and 2022, respectively.

The effective tax rate for both periods 2023 reflected a tax benefit of $ 55 million related to the remeasurement of certain deferred tax liabilities.

The six months 2023 also reflected a tax benefit of $ 50 million on restructuring charges related to Accelerating the Organization .

The effective tax rate for the quarter and six months 2022 reflected $ 214 million and $ 239 million, respectively, of net tax benefits related to the sale of the Company’s Russia and Dynamic Yield businesses, as well as approximately $ 50 million of net tax benefits related to global tax audit progression.

The six months 2022 were also unfavorably impacted by the non-deductible $ 537 million of nonoperating expense related to the settlement of a tax audit in France.

Fair Value Measurements

2 unchanged sentences

There were no significant changes to the valuation techniques used to measure fair value as described in the Company's December 31, 2022 Annual Report on Form 10-K.

At March 31, 2023, the fair value of the Company’s debt obligations was estimated at $ 35.6 billion, compared to a carrying amount of $ 37.1 billion.

At June 30, 2023, the fair value of the Company’s debt obligations was estimated at $ 33.6 billion, compared to a carrying amount of $ 35.7 billion.

The fair value of debt obligations is based upon quoted market prices, classified as Level 2 within the valuation hierarchy.

The carrying amount of cash and equivalents and notes receivable approximate fair value.

The carrying amount of cash and equivalents and notes receivable a pproximate fair value.

Financial Instruments and Hedging Activities

4 unchanged sentences

Derivative Assets Derivative Liabilities

In millions Balance Sheet Classification March 31, 2023 December 31, 2022 Balance Sheet Classification March 31, 2023 December 31, 2022

In millions Balance Sheet Classification June 30, 2023 December 31, 2022 Balance Sheet Classification June 30, 2023 December 31, 2022

Derivatives designated as hedging instruments

13 unchanged sentences

Total derivatives $ 270.6 $ 282.5 $ ( 126.3 ) $ ( 141.7 )

The following table presents the pre-tax amounts from derivative instruments affecting income and AOCI for the three months ended March 31, 2023 and 2022, respectively:

The following table presents the pre-tax amounts from derivative instruments affecting income and AOCI for the six months ended June 30, 2023 and 2022, respectively:

Location of gain or loss

20 unchanged sentences

The Company enters into fair value hedges that convert a portion of its fixed rate debt into floating rate debt by the use of interest rate swaps.

At March 31, 2023, the carrying amount of fixed-rate debt that was effectively converted was an equivalent notional amount of $ 1.2 billion, which included a decrease of $ 79 million of cumulative hedging adjustments.

For the three months ended March 31, 2023, the Company recognized a $ 12.5 million gain on the fair value of interest rate swaps, and a corresponding loss on the fair value of the related hedged debt instrument to interest expense.

At June 30, 2023, the carrying amount of fixed-rate debt that was effectively converted was an equivalent notional amount of $ 1.0 billion, which included a decrease of $ 88.8 million of cumulative hedging adjustments.

For the six months ended June 30, 2023, the Company recognized a $ 2.7 million gain on the fair value of interest rate swaps, and a corresponding loss on the fair value of the related hedged debt instrument to interest expense.

Cash Flow Hedges

2 unchanged sentences

The hedges cover up to the next 18 months for certain exposures and are denominated in various currencies.

As of March 31, 2023, the Company had foreign currency derivatives outstanding with an equivalent notional amount of $ 1.6 billion that hedged a portion of forecasted foreign currency denominated cash flows.

As of June 30, 2023, the Company had foreign currency derivatives outstanding with an equivalent notional amount of $ 1.7 billion that hedged a portion of forecasted foreign currency denominated cash flows.

To protect against the variability of interest rates on anticipated bond issuances, the Company may use treasury locks to hedge a portion of expected future cash flows.

As of March 31, 2023, the Company had derivatives outstanding with a notional amount of $500 million that hedge a portion of forecasted cash flows.

Based on market conditions at March 31, 2023, the $ 14 million in cumulative cash flow hedging gains, after tax, is not expected to have a significant effect on the Company's earnings over the next 12 months.

As of June 30, 2023, the Company had derivatives outstanding with a notional amount of $500 million that hedge a portion of forecasted cash flows.

Based on market conditions at June 30, 2023, the $ 11.3 million in cumulative cash flow hedging gains, after tax, is not expected to have a significant effect on the Company's earnings over the next 12 months.

Net Investment Hedges

1 unchanged sentence

Realized and unrealized translation adjustments from these hedges are included in shareholders' equity in the foreign currency translation component of Other comprehensive income ("OCI") and offset translation adjustments on the underlying net assets of foreign subsidiaries and affiliates, which also are recorded in OCI.

As of March 31, 2023, $ 13.9 billion of the Company's third-party foreign currency denominated debt, $ 1.0 billion of the Company's intercompany foreign currency denominated debt and $ 662 million of foreign currency derivatives were designated to hedge investments in certain foreign subsidiaries and affiliates.

As of June 30, 2023, $ 13.4 billion of the Company's third-party foreign currency denominated debt, $ 1.0 billion of the Company's intercompany foreign currency denominated debt and $ 652 million of foreign currency derivatives were designated to hedge investments in certain foreign subsidiaries and affiliates.

Undesignated Derivatives

6 unchanged sentences

The Company is exposed to credit-related losses in the event of non-performance by its derivative counterparties.

The Company did not have significant exposure to any individual counterparty at March 31, 2023 and has master agreements that contain netting arrangements.

The Company did not have significant exposure to any individual counterparty at June 30, 2023 and has master agreements that contain netting arrangements.

For financial reporting purposes, the Company presents gross derivative balances in its financial statements and supplementary data, including for counterparties subject to netting arrangements.

Some of these agreements also require each party to post collateral if credit ratings fall below, or aggregate exposures exceed, certain contractual limits.

At March 31, 2023, the Company was required to post $120 million of collateral due to the negative fair value of certain derivative positions.

At June 30, 2023, the Company was required to post $99 million of collateral due to the negative fair value of certain derivative positions.

The Company's counterparties were not required to post collateral on any derivative position, other than on certain hedges of the Company’s supplemental benefit plan liabilities where the counterparties were required to post collateral on their liability positions.

1 unchanged sentence

Revenues from franchised restaurants consisted of:

Quarters Ended

Quarters Ended Six Months Ended

June 30, June 30,

In millions 2023 2022 2023 2022

6 unchanged sentences

- the Company's largest market.

The segment is 95 % franchised as of March 31, 2023.

The segment is 95 % franchised as of June 30, 2023.

• International Operated Markets - comprised of markets or countries in which the Company operates and franchises restaurants, including Australia, Canada, France, Germany, Italy, the Netherlands, Spain and the U.K.

The segment is 89 % franchised as of March 31, 2023.

The segment is 89 % franchised as of June 30, 2023.

During the second quarter of 2022, the Company completed the sale of its business in Russia, resulting in a total exit from the market.

1 unchanged sentence

Corporate activities are also reported in this segment.

The segment is 98 % franchised as of March 31, 2023.

The segment is 98 % franchised as of June 30, 2023.

The following table presents the Company’s revenues and operating income by segment:

Quarters Ended

Quarters Ended Six Months Ended

June 30, June 30,

In millions 2023 2022 2023 2022

8 unchanged sentences

Total operating income* $ 3,104.1 $ 1,711.8 $ 5,636.5 $ 4,024.4

* Results for the quarter and six months 2023 reflected $ 18 million and $ 198 million, respectively, primarily related to pre-tax restructuring charges related to Accelerating the Organization.

Results for 2022 included pre-tax charges of $ 1,153 million for the quarter and $ 1,281 million for the six months related to the sale of the Company's business in Russia, as well as $ 271 million of pre-tax gains in both periods related to the Company's sale of its Dynamic Yield business.

Subsequent Events

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements