What changed in this filing

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Item 1. Financial Statements

2023-11-02 compared with 2023-08-02 · 59 added, 57 removed, 348 unchanged (25% of the section changed)

1 unchanged sentence

CONDENSED CONSOLIDATED BALANCE SHEET

In millions, except per share data June 30,

In millions, except per share data September 30,

2023 December 31,

47 unchanged sentences

CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)

Quarters Ended Six Months Ended

June 30, June 30,

Quarters Ended Nine Months Ended

September 30, September 30,

In millions, except per share data 2023 2022 2023 2022

25 unchanged sentences

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

Quarters Ended Six Months Ended

June 30, June 30,

Quarters Ended Nine Months Ended

September 30, September 30,

In millions 2023 2022 2023 2022

24 unchanged sentences

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

Quarters Ended Six Months Ended

June 30, June 30,

Quarters Ended Nine Months Ended

September 30, September 30,

In millions 2023 2022 2023 2022

31 unchanged sentences

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)

For the six months ended June 30, 2022

For the nine months ended September 30, 2022

issued Accumulated other

18 unchanged sentences

Stock option exercises and other 97.6 1.7 61.8 159.4

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

Balance at September 30, 2022 1,660.6 $ 16.6 $ 8,460.1 $ 58,752.0 $ ( 186.2 ) $ 136.1 $ ( 2,509.6 ) ( 928.2 ) $ ( 71,235.2 ) $ ( 6,566.2 )

For the nine months ended September 30, 2023

issued Accumulated other

18 unchanged sentences

Stock option exercises and other 139.6 1.8 71.3 210.9

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 )

Balance at September 30, 2023 1,660.6 $ 16.6 $ 8,824.5 $ 62,649.0 $ ( 297.8 ) $ 61.7 $ ( 2,309.6 ) ( 935.3 ) $ ( 73,799.2 ) $ ( 4,854.8 )

See Notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)

For the quarter ended June 30, 2022

For the quarter ended September 30, 2022

issued Accumulated other

7 unchanged sentences

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 )

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 )

Net income 1,981.6 1,981.6

8 unchanged sentences

Stock option exercises and other 43.1 0.4 17.7 60.8

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

Balance at September 30, 2022 1,660.6 $ 16.6 $ 8,460.1 $ 58,752.0 $ ( 186.2 ) $ 136.1 $ ( 2,509.6 ) ( 928.2 ) $ ( 71,235.2 ) $ ( 6,566.2 )

For the quarter ended September 30, 2023

issued Accumulated other

7 unchanged sentences

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 )

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 )

Net income 2,317.1 2,317.1

8 unchanged sentences

Stock option exercises and other 45.8 0.2 16.4 62.2

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 )

Balance at September 30, 2023 1,660.6 $ 16.6 $ 8,824.5 $ 62,649.0 $ ( 297.8 ) $ 61.7 $ ( 2,309.6 ) ( 935.3 ) $ ( 73,799.2 ) $ ( 4,854.8 )

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

The results for the quarter and nine months ended September 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 June 30, 2023 2022

Restaurants at September 30, 2023 2022

Conventional franchised 21,761 21,641

7 unchanged sentences

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 4.7 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.

Diluted weighted-average shares include weighted-average shares outstanding plus the dilutive effect of share-based compensation, calculated using the treasury stock method, of 4.4 million shares and 4.6 million shares for the quarters ended 2023 and 2022, respectively, and 4.6 million shares and 4.7 million shares for the nine 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 1.5 million shares for the quarters ended 2023 and 2022, respectively, and 2.1 million shares and 1.5 million shares for the nine 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 quarter and six months ended June 30, 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 nine months ended September 30, 2023 that are of significance or potential significance to the Company.

Accelerating the Organization

2 unchanged sentences

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.

Restructuring expenses primarily consist of employee termination benefits, costs to terminate contracts, including lease terminations, and professional services and other costs.

The Company expects to incur about $ 250 million of costs related to Accelerating the Organization in 2023, of which $ 220 million was incurred in the nine months ended September 30, 2023.

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

Restructuring costs primarily consist of employee termination benefits, costs to terminate contracts, including lease terminations, and professional services and other costs.

Professional services and other costs primarily relate to expenses incurred for legal and consulting activities.

11 unchanged sentences

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.

Restructuring Costs Incurred ( 0.9 ) — 21.4 20.5

Cash Payments ( 13.0 ) ( 7.4 ) ( 15.3 ) ( 35.7 )

Other Non-Cash Items ( 2.5 ) — 0.1 ( 2.4 )

Accrued Balance at September 30, 2023 $ 55.9 $ 12.0 $ 7.7 $ 75.6

Of the $ 220 million of restructuring costs incurred in the nine months ended September 30, 2023, $ 62 million was recorded in the U.S., $ 71 million was recorded in the International Operated Markets segment and $ 87 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 September 30, 2023, related to the Company’s Accelerating the Organization initiative, is expected to be paid out over the next twelve months.

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.

Additional costs will be incurred as the strategy progresses;

The Company has started to incur costs associated with this strategy and additional costs will be incurred as the strategy progresses;

however, at this point in time these future costs cannot be estimated.

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 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.

The effective income tax rate was 20.7 % and 21.9 % for the quarters ended 2023 and 2022, respectively, and 19.7 % and 22.1 % for the nine months ended 2023 and 2022, respectively.

The effective tax rate for the nine months 2022 reflected $ 239 million of net tax benefits related to the sale of the Company’s Russia and Dynamic Yield businesses and the unfavorable impact of 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 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.

At September 30, 2023, the fair value of the Company’s debt obligations was estimated at $ 34.0 billion, compared to a carrying amount of $ 37.3 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 a pproximate fair value.

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

Financial Instruments and Hedging Activities

4 unchanged sentences

Derivative Assets Derivative Liabilities

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

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

Derivatives designated as hedging instruments

13 unchanged sentences

Total derivatives $ 250.2 $ 282.5 $ ( 90.8 ) $ ( 141.7 )

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:

The following table presents the pre-tax amounts from derivative instruments affecting income and AOCI for the nine months ended September 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 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.

At September 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 $ 85.8 million of cumulative hedging adjustments.

For the nine months ended September 30, 2023, the Company recognized a $ 5.7 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 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.

As of September 30, 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.

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 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.

As of September 30, 2023, the Company had derivatives outstanding with a notional amount of $150.0 million that hedge a portion of forecasted cash flows.

Based on market conditions at September 30, 2023, the $ 61.7 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 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

As of September 30, 2023, $ 12.7 billion of the Company's third-party foreign currency denominated debt, $ 359.6 million of the Company's intercompany foreign currency denominated debt and $ 572.6 million of foreign currency derivatives were designated to hedge investments in certain foreign subsidiaries and affiliates.

Undesignated Hedges

The Company enters into certain derivatives that are not designated for hedge accounting.

1 unchanged sentence

As an example, the Company enters into equity derivative contracts, including total return swaps, to hedge market-driven changes in certain of its supplemental benefit plan liabilities.

Changes in the fair value of these derivatives are recorded in Selling, general & administrative expenses together with the changes in the supplemental benefit plan liabilities.

The Company may also use certain investments to hedge changes in these liabilities.

Changes in the fair value of these derivatives or investments are recorded in Selling, general & administrative expenses together with the changes in the supplemental benefit plan liabilities.

In addition, the Company uses foreign currency forwards to mitigate the change in fair value of certain foreign currency denominated assets and liabilities.

1 unchanged sentence

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 June 30, 2023 and has master agreements that contain netting arrangements.

The Company did not have significant exposure to any individual counterparty at September 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 June 30, 2023, the Company was required to post $99 million of collateral due to the negative fair value of certain derivative positions.

At September 30, 2023, the Company was required to post $103.6 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 Six Months Ended

June 30, June 30,

Quarters Ended Nine Months Ended

September 30, September 30,

In millions 2023 2022 2023 2022

6 unchanged sentences

- the Company's largest market.

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 June 30, 2023.

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

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

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

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

Quarters Ended Six Months Ended

June 30, June 30,

Quarters Ended Nine Months Ended

September 30, September 30,

In millions 2023 2022 2023 2022

8 unchanged sentences

Total operating income* $ 3,208.3 $ 2,763.9 $ 8,844.8 $ 6,788.3

* 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.

* Results for the quarter and nine months 2023 reflected pre-tax charges of $ 26 million and $ 224 million, respectively, primarily related to restructuring costs associated with Accelerating the Organization .

Results for the nine months 2022 reflected $ 1,281 million of pre-tax charges related to the sale of the Company's business in Russia and a pre-tax gain of $ 271 million 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