26 unchanged sentences
• Bold Restaurant Development:
−Removed: Drive market and franchise expansion with strong economics and value
+Added: Drive market and franchise unit expansion with strong economics and value
We intend to drive long-term growth and shareholder returns primarily through consistent same-store sales growth and new unit development across all of our Concepts.
2 unchanged sentences
• Allocates G&A in an efficient manner that provides leverage to operating profit growth while at the same time opportunistically investing in strategic growth initiatives;
−Removed: • Pays a competitive dividend and returns excess cash to shareholders through share repurchases;
+Added: • Maximize shareholder return through a combination of paying a competitive dividend and returning excess free cash flow through debt paydowns and share repurchases;
• Targets a consolidated net leverage ratio that balances shareholder returns, cost of capital and flexibility against various risk factors.
3 unchanged sentences
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.
−Removed: Throughout 2022, 2021 and 2020 we had a significant number of restaurants that were temporarily closed including restaurants closed due to government and landlord restrictions as a result of COVID-19.
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).
1 unchanged sentence
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.
−Removed: In 2021 and 2020, when calculating respective same-store sales growth we also included in our prior year base the sales of stores that were added as a result of our acquisition of The Habit Restaurants, Inc.
+Added: In 2021, when calculating respective same-store sales growth we also included in our prior year base the sales of stores that were added as a result of our acquisition of The Habit Restaurants, Inc.
on March 18, 2020, and that were open for one year or more.
4 unchanged sentences
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.
−Removed: • System sales, System sales excluding the impacts of foreign currency translation (“FX”) and System sales excluding FX and the impact of the 53rd week in 2019 for our U.S.
−Removed: subsidiaries or certain international subsidiaries that operate on a weekly period calendar.
−Removed: System sales reflect the results of all restaurants regardless of ownership, including Company-owned and franchise restaurants.
+Added: • 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.
4 unchanged sentences
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.
−Removed: 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 invasion from the Division segments in which those profits were earned to Unallocated Other income (see Notes 3 and 19), 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.
+Added: 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 invasion of Ukraine from the Division segments in which those profits were earned to Unallocated Other income (see Notes 3 and 19), 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.
3 unchanged sentences
• Effective Tax Rate excluding Special Items;
−Removed: • Core Operating Profit and Core Operating Profit excluding the impact of the 53rd week in 2019.
+Added: • Core Operating Profit.
Core Operating Profit excludes Special Items and FX and we use Core Operating Profit for the purposes of evaluating performance internally;
14 unchanged sentences
We believe the elimination of the FX impact provides better year-to-year comparability without the distortion of foreign currency fluctuations.
−Removed: For 2019 we provided Core Operating Profit excluding the impact of the 53rd week and System sales excluding FX and the impact of the 53rd week to further enhance the comparability given the 53rd week that was part of our fiscal calendar in 2019.
Results of Operations
All comparisons within this summary are versus the same period a year ago.
−Removed: Comparisons versus 2019, unless otherwise stated, include the impact of a 53rd week in 2019.
For discussion of our results of operations for 2022 compared to 2021, refer to the Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Part II, Item 7 of our Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on February 27, 2023.
4 unchanged sentences
Taco Bell Division +9 +5 +4 +11 +11
−Removed: Pizza Hut Division +3 Even +4 Even +4
+Added: Pizza Hut Division +5 +2 +4 +1 +3
Worldwide +10 +6 +6 +6 +12
Additionally:
−Removed: • As of the beginning of the second quarter, we elected to remove 1,165 Russia units from our unit count and begin excluding their associated sales from our total system sales.
−Removed: We removed 1,112 units and 53 units in Russia from our KFC and Pizza Hut units counts, respectively.
−Removed: ◦ YUM and KFC Division year-over-year unit growth as shown above were negatively impacted by two and four percentage points, respectively.
−Removed: ◦ YUM and KFC Division system sales growth excluding foreign currency as shown above were negatively impacted by two and three percentage points, respectively.
−Removed: • 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
−Removed: as they are not indicative of our ongoing results.
−Removed: As a result of the decline in Core Operating Profits attributable to Russia:
−Removed: ◦ YUM and KFC Division Core Operating Profit as shown above were negatively impacted by two and four percentage points, respectively.
• Foreign currency translation unfavorably impacted Divisional Operating Profit by $49 million for the year ended December 31, 2023.
−Removed: 2022 2021 % Change
+Added: This included a negative impact to our KFC Division Operating Profit of $41 million for the year ended December 31, 2023.
GAAP EPS $5.59 $4.57 +23
2 unchanged sentences
EPS Excluding Special Items $5.17 $4.53 +14
−Removed: • In addition to the aforementioned factors impacting Operating Profit, our diluted EPS, excluding Special Items, was also impacted by lower Investment income, net year over year.
−Removed: Investment income, net added approximately $0.03 and $0.26 to our diluted EPS, excluding Special Items for the years ended December 31, 2022 and 2021, respectively,
• Gross unit openings for the year were 4,754 units resulting in 3,349 net new units.
9 unchanged sentences
Franchise advertising and other services expense 1,683 1,667 1,576 (1) (6)
−Removed: Refranchising (gain) loss (27) (35) (34) (22) 2
+Added: Refranchising (gain) loss (29) (27) (35) NM NM
Other (income) expense 14 7 2 NM NM
1 unchanged sentence
Operating Profit 2,318 2,187 2,139 6 2
−Removed: Investment (income) expense, net (11) (86) (74) (88) 16
−Removed: Other pension (income) expense 9 7 14 (26) 48
+Added: Investment (income) expense, net (7) (11) (86) NM NM
+Added: Other pension (income) expense (6) 9 7 NM NM
Interest expense, net 513 527 544 3 3
16 unchanged sentences
System Sales Growth (Decline) %, excluding FX 10 6 13
−Removed: System Sales Growth (Decline) %, excluding FX and 53rd week N/A N/A (3)
Our system sales breakdown by Company and franchise sales was as follows:
4 unchanged sentences
System sales 63,789 59,283 58,188
−Removed: Foreign Currency Impact on System sales (b)
+Added: Negative (Positive) Foreign Currency Impact (b)
1,169 2,653 N/A
4 unchanged sentences
System sales 33,863 31,116 31,365
−Removed: Foreign Currency Impact on System sales (b)
+Added: Negative (Positive) Foreign Currency Impact (b)
965 2,102 N/A
5 unchanged sentences
System sales 15,915 14,653 13,280
−Removed: Foreign Currency Impact on System sales (b)
+Added: Negative (Positive) Foreign Currency Impact (b)
System sales, excluding FX $ 15,912 $ 14,705 $ 13,280
4 unchanged sentences
System sales 13,315 12,853 12,955
−Removed: Foreign Currency Impact on System sales (b)
−Removed: (499) 260 N/A
+Added: Negative (Positive) Foreign Currency Impact (b)
System sales, excluding FX $ 13,522 $ 13,352 $ 12,955
−Removed: Habit Burger Grill Division (c)
+Added: Habit Burger Grill Division
Company sales (a)
2 unchanged sentences
System sales 696 661 588
−Removed: Foreign Currency Impact on System sales (b)
+Added: Negative (Positive) Foreign Currency Impact (b)
System sales, excluding FX $ 696 $ 661 $ 588
2 unchanged sentences
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 prior to adjustment for the prior year FX impact.
−Removed: (c) System sales for the Habit Burger Grill Division is shown since our March 18, 2020 acquisition date.
Non-GAAP Items
2 unchanged sentences
Core Operating Profit Growth % 12 5 18
−Removed: Core Operating Profit Growth %, excluding 53rd week N/A N/A (7)
Diluted EPS Growth %, excluding Special Items 14 1 23
3 unchanged sentences
Company restaurant margin % 17.2 % 15.8 % 18.1 %
−Removed: Detail of Special Items 2022 2021 2020
−Removed: Refranchising gain (loss) (a)
−Removed: Operating profit impact from decision to exit Russia (b)
−Removed: Charges associated with resource optimization (See Note 5)
2023 2022 2021
−Removed: Impairment of Habit Burger Grill goodwill (See Note 5)
−Removed: Unlocking Opportunity Initiative contribution (See Note 5)
−Removed: COVID-19 relief contribution (See Note 5)
+Added: Reconciliation of GAAP Operating Profit to Core Operating Profit
+Added: GAAP Operating Profit $ 2,318 $ 2,187 $ 2,139
+Added: Detail of Special Items:
+Added: (Gain) loss associated with market-wide refranchisings (a)
+Added: Operating (profit) loss impact from decision to exit Russia (b)
+Added: Charges associated with resource optimization (c)
Other Special Items (Income) Expense
Special Items (Income) Expense - Operating Profit
−Removed: Charges associated with resource optimization - Other pension (expense) income (see Note 5)
−Removed: Interest expense, net (See Note 5)
+Added: Negative (Positive) Foreign Currency Impact on Operating Profit
+Added: Core Operating Profit $ 2,406 $ 2,272 $ 2,155
+Added: Special Items as shown above were recorded to the financial statement line items identified below:
2023 2022 2021
−Removed: Special Items Income (Expense) before Income Taxes 10 (42) (303)
−Removed: Tax (Expense) Benefit on Special Items (c)
−Removed: Tax Benefit - Intra-entity transfers and valuations of intellectual property (d)
−Removed: Tax (Expense) - Income tax impacts from decision to exit Russia (e)
−Removed: Special Items Income (Expense), net of tax $ 17 $ 226 $ (210)
−Removed: Average diluted shares outstanding 290 302 307
−Removed: Special Items diluted EPS $ 0.06 $ 0.75 $ (0.68)
−Removed: (a) Due to their size and volatility, we have reflected as Special Items those refranchising gains and losses that were recorded in connection with our previously announced plans to have at least 98% franchise restaurant ownership by the end of 2018.
−Removed: As such, refranchising gains and losses recorded as Special Items are directly associated with restaurants that were refranchised prior to the end of 2018.
−Removed: During the years ended December 31, 2022, 2021 and 2020, we recorded net refranchising gains of $6 million, $3 million and $8 million, respectively, that have been reflected as Special Items.
−Removed: Additionally, during the years ended December 31, 2022, 2021 and 2020, we recorded net refranchising gains of $21 million, $32 million and $26 million, respectively, that have not been reflected as Special Items.
−Removed: These gains relate to refranchising of restaurants that were not part of our aforementioned plans to achieve 98% franchise ownership and that we believe are now more indicative of our expected ongoing refranchising activity.
−Removed: (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.
−Removed: 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.
−Removed: Further, we pledged to redirect any future net profits attributable to Russia subsequent to the date of invasion to humanitarian efforts.
−Removed: During the second quarter, we completed the transfer of ownership of the Pizza Hut Russia business to a local operator who has initiated the process of re-branding locations to a non-YUM concept.
−Removed: In October 2022, we announced that we entered into a sale and purchase agreement to transfer ownership of our KFC Russia restaurants, operating system and master franchise rights, including the network of KFC franchised restaurants, to Smart Service Ltd., a business operated by one of our existing KFC franchisees in Russia.
−Removed: Under the agreement, the buyer will be responsible for re-branding locations to a non-YUM concept and retaining the Company’s employees in Russia.
−Removed: Completion of the transaction is subject to regulatory and governmental approvals, as well as other conditions.
−Removed: Following the completion of the transaction, we will have ceased our corporate presence in Russia.
−Removed: Our GAAP operating results presented herein reflect revenues from and expenses to support the Russian operations for Pizza Hut, prior to the date of transfer, and KFC, for the entirety of the year ended December 31, 2022, within their historical financial statement line items and operating segments.
−Removed: 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 resulting net profits from the Division segment results in which they were earned to Unallocated Other income.
−Removed: 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.
−Removed: Also recorded in Unallocated Other income were foreign exchange gains attributable to fluctuations in the value of the Russian ruble.
−Removed: The resulting net Operating Profit from these items of $44 million for the year ended December 31, 2022 has been reflected as a Special Item as the amount is not indicative of our ongoing results.
−Removed: (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.
−Removed: Additionally, during the year ended December 31, 2021, we also recorded as a Special Item an $8 million tax benefit related to prior refranchisings for which the associated pre-tax gain or loss was recorded as Special.
−Removed: (d) In December of 2019, we completed intra-entity transfers of certain intellectual property (“IP”) rights.
−Removed: As a result of the transfer of certain of these rights, largely to subsidiaries in the United Kingdom (“UK”), we received a step-up in tax basis to current fair value under applicable UK law, and to the extent this step-up in tax basis was amortizable against future taxable income, we recognized deferred tax assets.
−Removed: The associated deferred tax benefit was originally recognized as a Special Item in 2019.
−Removed: On July 22, 2020, the UK Finance Act 2020 was enacted resulting in an increase in the UK corporate tax rate from 17% to 19%.
−Removed: As a result, we remeasured the related deferred tax assets originally recorded as described above and recognized an additional $25 million deferred tax benefit as a Special Item in the year ended December 31, 2020.
−Removed: Additionally, we recognized a related deferred tax benefit of $3 million as a result of an increase in the step-up in the tax basis as described above as a Special Item in the year ended December 31, 2020.
−Removed: On June 10, 2021, the UK Finance Act 2021 was enacted resulting in an increase in the UK corporate income tax rate from 19% to 25%.
−Removed: As a result, we remeasured the related deferred tax assets originally recorded as described above and recognized an additional $64 million deferred tax benefit as a Special Item in the year ended December 31, 2021.
−Removed: In July 2021, we concentrated management responsibility for European (excluding the UK) KFC franchise development, support operations and management oversight in Switzerland (the “KC Europe Reorganization”).
−Removed: Concurrent with this change in management responsibility, we completed intra-entity transfers of certain KFC IP rights from subsidiaries in the UK to subsidiaries in Switzerland.
−Removed: With the transfer of these rights, we received a step-up in amortizable tax basis to current fair value under applicable Swiss tax law.
−Removed: As a result of this transfer, we recorded a net, one-time benefit of $152 million as a Special Item in the year ended December 31, 2021.
−Removed: In December 2021, we continued our KFC Europe Reorganization and completed intra-entity transfers of additional European KFC IP rights from subsidiaries in the U.S.
−Removed: to subsidiaries in Switzerland.
−Removed: With the transfers of these additional
−Removed: rights, we received a step-up in amortizable tax basis to current fair value under applicable Swiss tax law.
−Removed: As a result of this transfer, we recorded a net one-time tax benefit of $35 million as a Special Item in the year ended December 31, 2021.
−Removed: In the quarter ended June 30, 2022, as a result of our decision to exit the Russia market, we recorded tax expense associated with the remeasurement of and establishment of a valuation allowance on a portion of the aforementioned deferred tax assets associated with the amortizable tax basis associated with the KFC IP rights held in Switzerland (see Note e).
−Removed: In the quarter ended December 31, 2022, we performed an annual valuation under Swiss laws of these Swiss IP rights, incorporating current assumptions around the expected future cash flows attributable to the IP.
−Removed: This valuation supported an increase to tax basis of Swiss IP rights associated with parts of our business that will continue to use these IP rights due to expected royalty growth assumptions in those parts of the business that largely offset the loss of the Russia royalty income associated with such IP rights.
−Removed: Based on this valuation as well as future forecasting of taxable income, we remeasured and reassessed the need for a valuation allowance on the deferred tax assets associated with the Swiss IP.
−Removed: As a result, we recorded a net tax benefit of $82 million as a Special Item in the quarter ended December 31, 2022.
−Removed: (e) Our decision to exit the Russia market in the quarter ended June 30, 2022, resulted in a reduction in the tax basis of KFC IP rights held in Switzerland due to the expected loss of the Russia royalty income associated with such rights going forward.
−Removed: As a result, we remeasured and reassessed the need for a valuation allowance on the associated deferred tax assets.
−Removed: In addition, we reassessed certain deferred tax liabilities associated with the Russia business given the expectation that the existing basis difference will now reverse by way of sale.
−Removed: Primarily as a result of these items, we recorded a net tax expense of $72 million in the year ended December 31, 2022, that was reflected as a Special Item.
−Removed: Reconciliation of GAAP Operating Profit to Core Operating Profit Year
+Added: Consolidated Statement of Income Line Item
+Added: General and administrative expenses
$ 28 $ 19 $ 7
−Removed: GAAP Operating Profit $ 2,187 $ 2,139 $ 1,503
+Added: Franchise and property expenses
+Added: Refranchising (gain) loss
+Added: Other (income) expense
Special Items (Income) Expense - Operating Profit
−Removed: Foreign Currency Impact on Divisional Operating Profit (a)
−Removed: Core Operating Profit $ 2,267 $ 2,094 $ 1,770
+Added: $ 39 $ (33) $ 16
GAAP Operating Profit $ 1,304 $ 1,198 $ 1,230
−Removed: Foreign Currency Impact on Divisional Operating Profit (a)
+Added: Negative (Positive) Foreign Currency Impact
Core Operating Profit $ 1,345 $ 1,296 $ 1,230
1 unchanged sentence
GAAP Operating Profit $ 944 $ 850 $ 758
−Removed: Foreign Currency Impact on Divisional Operating Profit (a)
+Added: Negative (Positive) Foreign Currency Impact
Core Operating Profit $ 944 $ 852 $ 758
1 unchanged sentence
GAAP Operating Profit $ 391 $ 387 $ 387
−Removed: Foreign Currency Impact on Divisional Operating Profit (a)
+Added: Negative (Positive) Foreign Currency Impact
Core Operating Profit $ 399 $ 405 $ 387
1 unchanged sentence
GAAP Operating Profit (Loss) $ (14) $ (24) $ 2
−Removed: Foreign Currency Impact on Divisional Operating Profit (a)
+Added: Negative (Positive) Foreign Currency Impact
Core Operating Profit (Loss) $ (14) $ (24) $ 2
+Added: Reconciliation of GAAP Net Income to Net Income excluding Special Items
+Added: GAAP Net Income
+Added: $ 1,597 $ 1,325 $ 1,575
+Added: Special Items (Income) Expense - Operating Profit
+Added: Special Items (Income) Expense - Interest Expense, net (d)
+Added: Special Items (Income) Expense - Other Pension Income
+Added: Special Items Tax (Benefit) Expense (e)
+Added: (161) (8) (270)
+Added: Net Income excluding Special Items
+Added: $ 1,475 $ 1,312 $ 1,354
Reconciliation of Diluted EPS to Diluted EPS excluding Special Items
Diluted EPS $ 5.59 $ 4.57 $ 5.21
−Removed: Special Items Diluted EPS 0.06 0.75 (0.68)
+Added: Less Special Items Diluted EPS
+Added: 0.42 0.04 0.73
Diluted EPS excluding Special Items $ 5.17 $ 4.53 $ 4.48
3 unchanged sentences
Effective Tax Rate excluding Special Items 20.6 % 20.9 % 21.4 %
−Removed: (a) The foreign currency impact on reported Operating Profit is presented in relation only to the immediately preceding year presented.
−Removed: 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).
+Added: (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.
+Added: During the years ended December 31, 2023 and 2021, we recorded net refranchising losses of $5 million and $4 million, respectively, that have been reflected as Special Items.
+Added: Additionally, during the years ended December 31, 2023, 2022 and 2021, we recorded net refranchising gains of $34 million, $27 million and $39 million, respectively, that have not been reflected as Special Items.
+Added: These net refranchising gains relate to refranchising of restaurants unrelated to market-wide refranchisings that we believe are indicative of our expected ongoing refranchising activity.
+Added: (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.
+Added: 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.
+Added: Further, we pledged to redirect any future net profits attributable to Russia subsequent to the date of invasion to humanitarian efforts.
+Added: During the second quarter of 2022, we completed the transfer of ownership of the Pizza Hut Russia business to a local operator.
+Added: In the second quarter of 2023, we completed our exit from the Russia market by selling the KFC business in Russia.
+Added: Our GAAP operating results presented herein reflect revenues from and expenses to support the Russian operations for KFC and Pizza Hut prior to the dates of sale or transfer, within their historical financial statement line items and operating segments.
+Added: 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).
+Added: Additionally, we incurred certain expenses related to the dispositions of the businesses and other one-time costs related to our exit from Russia which we recorded within Corporate and unallocated G&A and Unallocated Franchise and property expenses.
+Added: Also recorded in Unallocated Other income (expense) were foreign exchange impacts attributable to fluctuations in the value of the Russian ruble and a charge of $3 million recorded during the year ended December 31, 2023, as a result of the completion of the sale of the KFC Russia business.
+Added: The resulting net Operating Loss of $11 million for the year ended December 31, 2023, and net Operating Profit of $44 million for the year ended December 31, 2022, have been reflected as Special Items.
+Added: (c) Charges related to a resource optimization program initiated in the third quarter of 2020.
+Added: Due to their scope and size, the charges over the life of the program, which have primarily resulted from severance associated with positions that have been eliminated or relocated and consultant fees, are being recorded as Special Items.
+Added: (d) Amounts recorded in connection with redemptions of long-term debt.
+Added: Due to their size and the fact that they are not indicative of our ongoing interest expense, these amounts have been reflected as Special Items.
+Added: (e) The below table includes the detail of Special Items Tax (Benefit) Expense:
+Added: 2023 2022 2021
+Added: Tax (Benefit) Expense on Special Items Operating Profit and Interest Expense $ (8) $ 2 $ (11)
+Added: Tax (Benefit) Expense - Other Income tax impacts from decision to exit Russia
+Added: Tax (Benefit) - Intra-entity transfers and valuations of intellectual property
+Added: (183) (82) (251)
+Added: Tax Expense - Other Income tax impacts recorded as Special
+Added: Special Items Tax (Benefit) Expense $ (161) $ (8) $ (270)
+Added: Tax (Benefit) Expense on Special Items Operating Profit and Interest Expense was determined by assessing the tax impact of each individual component within Special Items based upon the nature of the item and jurisdictional tax law.
+Added: In addition to the corresponding Tax (Benefit) Expense on the Operating (Profit) Loss impact from our decision to exit Russia as included above, Special Items Tax (Benefit) Expense also includes $72 million of incremental net tax expense recorded in the year ended December 31, 2022 from the remeasurement and reassessment of the need for a valuation allowance on deferred tax assets in Switzerland due to the expected reduction in the tax basis of intellectual property rights ("IP") associated with the loss of the Russian royalty income.
+Added: In addition, we reassessed certain deferred tax liabilities associated with the Russia business given the expectation that the existing basis difference would reverse by way of sale.
+Added: Special Items Tax (Benefit) Expense includes $183 million, $82 million and $251 million of tax benefit recorded in the years ended December 31, 2023, 2022 and 2021 respectively, associated with intra-entity transfers and valuations of certain IP rights.
+Added: • The benefit recorded in the year ended December 31, 2023, resulted primarily from $99 million of deferred tax benefit arising from the remeasurement of deferred tax assets associated with previously transferred IP rights in Switzerland as a result of an increase in our jurisdictional tax rate, as well as a $29 million deferred tax benefit associated with credits granted by local Swiss tax authorities.
+Added: The benefit recorded in the year ended December 31, 2023, also includes $30 million of deferred tax benefit associated with the intra-entity transfer of certain Asia region IP rights to Singapore or the U.S.
+Added: • The benefit recorded in the year ended December 31, 2022, resulted from the remeasurement of deferred tax assets associated with IP rights held in Switzerland in connection with an annual valuation under Swiss law, as well as the reassessment of the need for a valuation allowance on those deferred tax assets based on forecasted future taxable income.
+Added: The annual valuation supported an increase to tax basis of Swiss IP rights associated with parts of our business that continue to use these IP rights due to expected royalty growth assumptions in those parts of the business that largely offset the loss of Russia royalty income associated with such IP rights as a result of our decision to exit the Russia market.
+Added: • The benefit recorded in the year ended December 31, 2021, resulted primarily from $187 million of tax benefit as a result of concentration of management responsibility for European (excluding the UK) KFC franchise development, support operations and management oversight in Switzerland.
+Added: Concurrent with this change in management responsibility, we completed intra-entity transfers of certain KFC IP rights from subsidiaries in the UK to subsidiaries in Switzerland, and later, additional European IP rights from subsidiaries in the U.S.
+Added: to subsidiaries in Switzerland.
+Added: With the transfers of these rights, we received a step-up in amortizable basis of those IP rights to current fair value under Swiss law.
+Added: The benefit recorded in the year ended December 31, 2021, also includes $64 million of benefit resulting from the remeasurement of deferred tax assets associated with previously transferred IP rights in the UK as a result of an increase in our jurisdictional tax rate.
+Added: Other Income Tax impacts recorded as Special in the year ended December 31, 2023 include $41 million of expense associated with a correction in the timing of capital loss utilization related to refranchising gains previously recorded as Special Items to tax years with a lower statutory tax rate.
Reconciliation of GAAP Operating Profit to Company Restaurant Profit
38 unchanged sentences
See also the Detail of Special Items section of this MD&A for other items similarly impacting results.
−Removed: Russia Invasion of Ukraine
−Removed: In the first quarter of 2022, as a result of the Russian invasion of Ukraine, we suspended all investment and restaurant development in Russia.
−Removed: 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.
−Removed: Further, we pledged to redirect any future net profits attributable to Russia subsequent to the date of invasion to humanitarian efforts.
−Removed: During the second quarter, we completed the transfer of ownership of the Pizza Hut Russia business to a local operator who has initiated the process of re-branding locations to a non-YUM concept.
−Removed: In October 2022, we announced that we entered into a sale and purchase agreement to transfer ownership of our KFC Russia restaurants, operating system and master franchise rights, including the network of KFC franchised restaurants, to Smart Service Ltd., a business operated by one of our existing KFC franchisees in Russia.
−Removed: Under the agreement, the buyer will be responsible for re-branding locations to a non-YUM concept and retaining the Company’s employees in Russia.
−Removed: Completion of the transaction is subject to regulatory and governmental approvals, as well as other conditions agreed to by the parties.
−Removed: Following the completion of the transaction, we will have ceased our corporate presence in Russia.
−Removed: 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.
−Removed: We removed 1,112 units and 53 units in Russia from our global KFC and Pizza Hut units counts, respectively.
−Removed: This negatively impacted YUM and KFC Division year-over-year unit growth by two and four percentage points, respectively at December 31, 2022.
−Removed: This also negatively impacted our system sales growth excluding foreign currency for YUM and KFC Division by two and three percentage points, respectively, during the year ended December 31, 2022.
−Removed: Russia units were removed from our same-store sales calculations as of the beginning of the second quarter.
−Removed: Our GAAP operating results presented herein reflect revenues from and expenses to support the Russian operations for Pizza Hut, prior to the date of transfer, and KFC, for the entirety of the year ended December 31, 2022, within their historical financial statement line items and operating segments.
−Removed: 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 resulting net profits from the Division segment results in which they were earned to Unallocated Other income and reflected such net profits as a Special Item.
−Removed: 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.
−Removed: The resulting net Operating
−Removed: Profit of $44 million for the year ended December 31, 2022 has been reflected as a Special Item as the amount is not indicative of our ongoing results.
−Removed: Historically, our Russian business has constituted approximately 3% of our total Operating Profit and 2% of our total system sales.
−Removed: During the year ended December 31, 2022, our Core Operating Profits in Russia declined versus the prior year, negatively impacting YUM and KFC Division Core Operating Profit growth by two and four percentage points, respectively.
−Removed: Our Core Operating Profit growth in the first and second quarters of 2023 will also be negatively impacted as we lap the 2022 Russia results that remained in Core Operating Profit.
−Removed: We expect YUM and KFC Division Core Operating Profit growth to be negatively impacted by approximately one and two percentage points, respectively, in both the first and second quarters of 2023 due to this lap.
+Added: Middle East Conflict
+Added: During the fourth quarter of 2023, certain of our markets, principally in our KFC and Pizza Hut Divisions, began being impacted by a military conflict in the Middle East region.
+Added: As a result, our sales were impacted to varying degrees in markets across the Middle East, Malaysia and Indonesia.
+Added: This represented a low single-digit headwind to fourth-quarter same-store sales growth.
+Added: This trend has continued into the first quarter of 2024, and we expect the sales impact to decrease over the course of 2024.
Impact of Foreign Currency Translation on Operating Profit
2 unchanged sentences
For 2024, we currently expect changes in foreign currency to negatively impact Divisional Operating Profit by approximately $10 to $30 million, primarily in the first half of the year.
−Removed: In late 2019, a novel strain of coronavirus, COVID-19, was first detected and in March 2020, the World Health Organization declared COVID-19 a global pandemic.
−Removed: As a result of COVID-19, governmental authorities around the world implemented measures to reduce the spread of COVID-19.
−Removed: These measures have included, and in some instances continue to include, restrictions on travel outside the home and limitations on business and other activities as well as encouraging social distancing.
−Removed: As a result of COVID-19, we and our franchisees experienced significant store closures and instances of reduced store-level operations, including reduced operating hours and dining-room closures.
−Removed: The impact on our sales in each of our markets has been dependent on the timing, severity and duration of the outbreak, measures implemented by government authorities to reduce the spread of COVID-19, as well as our reliance on dine-in sales in the market.
−Removed: Throughout 2022, COVID-19 outbreaks and resulting government restrictions limiting mobility continued to impact sales in a few key markets, primarily in China.
−Removed: Excluding China, our YUM same-store sales growth was 7% and our KFC Division same-store sales growth was 9% for the year ended December 31, 2022.
−Removed: The COVID-19 situation is ongoing, and its dynamic nature makes it difficult to forecast any impacts on the Company’s 2023 results.
Investment in Devyani
1 unchanged sentence
The minority interest was received in lieu of cash proceeds upon the refranchising of approximately 60 KFC restaurants in India.
−Removed: At the time of the refranchisings, the fair value of this minority interest was estimated to be approximately $31 million.
On August 16, 2021, Devyani executed an initial public offering and subsequently the fair value of this investment became readily determinable.
22 unchanged sentences
Company sales and Company restaurant margin %
−Removed: In 2022, the 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, partially offset by Company same-store sales growth of 1%.
−Removed: 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.
−Removed: In 2022, the decrease in Company restaurant margin percentage was driven by commodity and wage inflation.
+Added: In 2023, the increase in Company sales, excluding the impact of foreign currency translation, was driven by Company same-store sales growth of 5%, partially offset by the suspension of operations of our 70 company owned KFC restaurants in Russia.
+Added: In 2023, the increase in Company restaurant margin percentage was driven by Company same-store sales growth, partially offset by commodity inflation.
Franchise and property revenues
−Removed: In 2022, the increase in Franchise and property revenues, excluding the impacts of foreign currency translation, was driven by franchise same-store sales growth of 4% and unit growth.
−Removed: 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.
−Removed: In 2022, the increase in G&A, excluding the impacts of foreign currency translation, was driven by higher headcount and salaries and higher travel related costs, partially offset by lower expenses related to our annual incentive compensation program.
+Added: In 2023, the increase in Franchise and property revenues, excluding the impact of foreign currency translation, was driven by franchise same-store sales growth of 7% and unit growth, partially offset by a 5% negative impact from the sale of our KFC Russia business.
+Added: In 2023, the decrease in G&A, excluding the impact of foreign currency translation, was driven by the impact of the sale of our KFC Russia business, partially offset by higher headcount and salaries, and higher expenses related to our annual incentive compensation programs.
Operating Profit
−Removed: In 2022, the increase in Operating Profit, excluding the impacts of foreign currency translation, was driven by same-store sales growth and unit growth, partially offset by the negative impact of 4 percentage points on year-over-year operating profit growth as a result of lower profits in Russia, higher restaurant operating costs, and higher G&A.
+Added: In 2023, the 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 and the negative impact of 1 percentage point on operating profit growth as a result of lower profits in Russia.
Taco Bell Division
22 unchanged sentences
Company sales and Company restaurant margin %
−Removed: In 2022, the increase in Company sales was driven by same-store sales growth of 8% and unit growth partially offset by refranchising.
−Removed: In 2022, the decrease in Company restaurant margin percentage was driven by commodity and wage inflation partially offset by same-store sales growth.
+Added: In 2023, the increase in Company sales was driven by company same-store sales growth of 5% and unit growth partially offset by refranchising.
+Added: In 2023, the increase in Company restaurant margin percentage was driven by same-store sales growth partially offset by higher labor costs, commodity inflation and increases in other restaurant operating costs.
Franchise and property revenues
In 2023, the increase in Franchise and property revenues was driven by franchise same-store sales growth of 6% and unit growth.
−Removed: In 2022, the increase in G&A, excluding the impacts of foreign currency translation, was driven by higher headcount and salaries and higher travel related costs partially offset by lower charitable contributions.
+Added: In 2023, the increase in G&A was driven by higher digital and technology expenses and higher headcount and salaries, partially offset by lower expenses related to our annual incentive compensation programs.
Operating Profit
13 unchanged sentences
Total revenues $ 1,019 $ 1,004 $ 1,028 1 2 (2) —
−Removed: Company restaurant profit $ — $ 3 $ 3 NM NM (19) (24)
+Added: Company restaurant profit $ — $ — $ 3 NM NM NM NM
Company restaurant margin % 0.1 % (2.2) % 6.8 % 2.3 ppts.
8 unchanged sentences
Total 19,866 19,034 18,381 4 4
−Removed: Company sales
−Removed: In 2022, the decrease in Company sales, excluding the impacts of foreign currency translation, was driven by the refranchising of stores in the United Kingdom.
Franchise and property revenues
−Removed: In 2022, the increase in Franchise and property revenues, excluding the impacts of foreign currency translation, was driven by unit growth and the recognition of franchise fees related to unexercised development rights arising from a master franchise agreement.
−Removed: In 2022, the 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 professional fees and lower expenses related to our annual incentive compensation programs.
+Added: In 2023, the increase in Franchise and property revenues, excluding the impacts of foreign currency translation, was driven by unit growth and franchise same-store sales growth of 2%, partially offset by lapping the prior year recognition of franchise fees related to unexercised development rights arising from a master franchise agreement.
+Added: In 2023, the increase in G&A, excluding the impacts of foreign currency translation, was driven by higher headcount and salaries, higher professional fees and higher travel related expenses.
Operating Profit
−Removed: In 2022, the increase in Operating Profit, excluding the impacts of foreign currency translation, was driven by unit growth.
+Added: In 2023, the increase in Operating Profit, excluding the impacts of foreign currency translation, was driven by unit growth and same-store sales growth, partially offset by higher G&A and lapping the prior year recognition of franchise fees related to unexercised development rights arising from a master franchise agreement.
Habit Burger Grill Division
5 unchanged sentences
System Sales $ 696 $ 661 $ 588 6 6 12 12
−Removed: Same-Store Sales Growth (Decline) % (1) % 16 % N/A N/A N/A N/A N/A
+Added: Same-Store Sales Growth (Decline) % (3) % (1) % 16 % N/A N/A N/A N/A
Total revenues $ 586 $ 567 $ 525 3 3 8 8
8 unchanged sentences
Corporate and unallocated G&A $ (326) $ (297) $ (260) (10) (14)
−Removed: Unallocated Franchise and property expenses (6) 1 (4) NM 115
+Added: Unallocated Franchise and property income (expense)
Unallocated Refranchising gain (loss) (See Note 5)
−Removed: 27 35 34 (22) 2
+Added: 29 27 35 NM NM
Unallocated Other income (expense) (9) 52 (14) NM NM
Investment income (expense), net (See Note 5)
−Removed: 11 86 74 (88) 16
+Added: 7 11 86 NM NM
Other pension income (expense) (See Note 15)
−Removed: (9) (7) (14) (26) 48
+Added: 6 (9) (7) NM NM
Interest expense, net (513) (527) (544) 3 3
4 unchanged sentences
Corporate and unallocated G&A
−Removed: In 2022, the increase in Corporate and Unallocated G&A expenses was driven by higher headcount and salaries including personnel associated with our 2021 investments in digital and technology companies and expenses related to the divestiture of our Russia businesses, partially offset by lower current year expenses due to our annual incentive compensation programs.
+Added: In 2023, the increase in Corporate and Unallocated G&A expenses was driven by higher costs associated with our resource optimization program, higher current year expenses related to our annual incentive compensation programs and costs associated with the previously disclosed January 2023 ransomware attack.
Unallocated Other income (expense)
1 unchanged sentence
Interest expense, net
−Removed: The decrease in Interest expense, net for 2022 was primarily driven by $12 million of previously unamortized debt issuance costs written-off in the prior year due to the refinancing of our Credit Agreement and $6 million lower expense in the current year relating to the call premium and previously unamortized debt issuance costs written-off associated with the redemption of the 2025 Notes as compared to the call premium and previously unamortized debt issuance costs written-off associated with the redemption of the 2026 Notes (as discussed in our 2021 Form 10-K) in the prior year.
−Removed: The impact on Interest expense, net of higher borrowings was offset by a lower weighted-average interest rate on those borrowings.
+Added: The decrease in Interest expense, net for 2023 was primarily driven by lapping $28 million of expense in the prior year relating to the call premium and unamortized debt issuance costs written-off associated with the redemption of the 2025 Notes (as discussed in our 2022 Form 10-K) and higher interest income.
+Added: This was partially offset by a higher weighted average interest rate.
Consolidated Cash Flows
Net cash provided by operating activities was $1,603 million in 2023 versus $1,427 million in 2022.
−Removed: The decrease was largely driven by an increase in incentive compensation payments, timing of spending on advertising and an increase in income tax payments.
+Added: The increase was largely driven by an increase in Operating profit and a decrease in incentive compensation payments, partially offset by higher tax payments.
Net cash used in investing activities was $107 million in 2023 versus $202 million in 2022.
−Removed: The change was primarily driven by higher current year capital spending and lapping proceeds from our prior year sale of certain mutual fund investments, partially offset by the lapping of our prior year acquisition of Dragontail Systems Limited.
+Added: The change was primarily driven by proceeds from the current year sale of KFC Russia, partially offset by lower refranchising proceeds.
Net cash used in financing activities was $1,429 million in 2023 versus $1,323 million in 2022.
−Removed: The change was primarily driven by lower share repurchases and higher current year net borrowings.
+Added: The change was primarily driven by lower net borrowings, partially offset by lower current year share repurchases.
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.
−Removed: 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.
−Removed: 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.
−Removed: 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 (see Note 11) which had $279 million outstanding as of December 31, 2022.
+Added: Our annual operating cash flows have been in excess of $1.3 billion in each of the past five years and we expect that to continue to be the case in 2024.
+Added: 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 debt paydowns and share repurchases.
+Added: 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 (see Note 11) that was undrawn as of December 31, 2023.
We believe that our ongoing cash from operations, cash on hand, which was approximately $500 million at December 31, 2023, and availability under our Revolving Facility will be sufficient to fund our cash requirements over the next twelve months.
1 unchanged sentence
Debt Obligations and Interest Payments
−Removed: As of December 31, 2022, approximately 94%, including the impact of interest rate swaps, of our $11.6 billion of total debt outstanding, excluding the Revolving Facility balance, finance leases and debt issuance costs and discounts, is fixed with an effective overall interest rate of approximately 4.4%.
+Added: As of December 31, 2023, approximately 94%, including the impact of interest rate swaps, of our $11.2 billion of total debt outstanding, excluding finance leases and debt issuance costs and discounts, is fixed with an effective overall interest rate of approximately 4.6%.
We ended 2023 with a consolidated net leverage ratio of 4.2x EBITDA .
1 unchanged sentence
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.
−Removed: We have credit ratings of BB (Standard & Poor’s)/Ba2 (Moody’s) with a balance sheet consistent with highly-levered peer restaurant franchise companies.
+Added: We currently have credit ratings of BB (Standard & Poor’s)/Ba2 (Moody’s).
The following table summarizes the future maturities of our outstanding long-term debt, excluding finance leases and debt issuance costs and discounts, as of December 31, 2023.
2 unchanged sentences
Credit Agreement $ 48 $ 53 661 15 1,399 2,176
−Removed: Revolving Facility 279 279
Subsidiary Senior Unsecured Notes 750 750
2 unchanged sentences
Interest payments on the outstanding long-term debt in the table above total approximately $3.1 billion, with approximately $500 million due within the next twelve months on the outstanding amounts on a nominal basis.
−Removed: The estimated interest payments related to the variable rate portion of our debt, net of our interest rate swaps, are based on current LIBOR interest rates.
+Added: The estimated interest payments related to the variable rate portion of our debt, net of our interest rate swaps, are based on current Secured Overnight Financing Rate (“SOFR”) interest rates.
See Note 11 for details on the Securitization Notes, the Credit Agreement, Subsidiary Senior Unsecured Notes and YUM Senior Unsecured Notes.
3 unchanged sentences
These leases relate primarily to approximately 700 Company-owned restaurants and approximately 250 leased restaurants for which we sublease land, building or both to our franchisees.
−Removed: Capital Expenditures
+Added: Investing Activities
We remain committed to maintaining our asset light, franchisor model that includes at least a 98% franchise mix.
−Removed: Our allocation strategy for capital expenditures includes:
+Added: Our allocation strategy for investing activities includes:
• Run-rate capital expenditures consisting of company restaurant repairs, maintenance and remodels, support of our digital and technology initiatives and project-specific capital expenditures,
3 unchanged sentences
This will result in net capital expenditures of approximately $275 million, reflecting up to $315 million of gross capital expenditures and $40 million of refranchising proceeds.
+Added: Additionally, on December 6th, 2023, the Company announced that it had entered into a definitive agreement to acquire 218 KFC restaurants in the U.K.
+Added: and Ireland from a franchisee.
+Added: The transaction will be funded from the Company’s cash on hand and is expected to close early in 2024.
Purchase Obligations
9 unchanged sentences
Dividends and Share Repurchases
−Removed: In February 2023, our Board of Directors declared a dividend of $0.605 per share of Common Stock, a 6% increase from the quarterly dividend of $0.57 per share of Common Stock paid in 2022.
+Added: In January 2024, our Board of Directors declared a dividend of $0.67 per share of Common Stock, a 11% increase from the quarterly dividend of $0.605 per share of Common Stock paid in 2023.
This quarterly dividend will be distributed March 8, 2024, to shareholders of record at the close of business on February 21, 2024, and will total approximately $190 million.
5 unchanged sentences
As discussed in Note 20, 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.
−Removed: Additionally, interest on the underpayment is estimated to be approximately $780 million through December 31, 2022.
+Added: Additionally, interest on the underpayment is estimated to be approximately $1.1 billion through December 31, 2023.
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.
2 unchanged sentences
In September 2022, we filed a Protest with the IRS Examination Division disputing on multiple grounds the proposed underpayment of tax and penalties.
−Removed: We are awaiting the IRS Examination Division’s Rebuttal to our Protest.
−Removed: When that Rebuttal is filed, we intend to pursue independent review by the IRS Office of Appeals.
+Added: We have received the IRS Examination Division’s Rebuttal to our Protest and the case has been accepted by the IRS Office of Appeals.
Also, as discussed in Note 20, on January 29, 2020, we received an order from the Special Director of the Directorate of Enforcement (“DOE”) in India imposing a penalty on Yum!
2 unchanged sentences
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.
−Removed: A hearing has been scheduled with the administrative tribunal on March 14, 2023.
−Removed: The stay order remains in effect, and the next hearing in the Delhi High Court is scheduled for May 16, 2023.
+Added: A hearing with the administrative tribunal that had been scheduled for December 4, 2023 has been rescheduled to March 4, 2024.
+Added: The stay order remains in effect, and the next hearing in the Delhi High Court that had been scheduled for December 14, 2023 has been rescheduled to March 21, 2024.
We deny liability and intend to continue vigorously defending this matter.
See the Lease Guarantees section of Note 20 for discussion of our off-balance sheet arrangements.
+Added: New Accounting Pronouncements Not Yet Adopted
+Added: In November 2023, the Financial Accounting Standards Board ("FASB") issued ASU 2023-07, Segment Reporting (Topic 280):
+Added: Improvements to Reportable Segment Disclosures, which updates reportable segment disclosure requirements through enhanced disclosures about significant segment expenses.
+Added: The standard is effective for the Company's Annual Report on Form 10-K for fiscal 2024, and subsequent interim periods, with early adoption permitted.
+Added: The amendments should be applied retrospectively to all prior periods presented in the financial statements.
+Added: We are currently evaluating the impact of the standard on our disclosures.
+Added: In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):
+Added: Improvements to Income Tax Disclosures, which updates income tax disclosure requirements related to the income tax rate reconciliation and requires disclosure of income taxes paid by jurisdiction.
+Added: The standard is effective for the Company's Annual Report on Form 10-K for fiscal 2025 with early adoption permitted.
+Added: The amendments should be applied prospectively;
+Added: however, retrospective application is permitted.
+Added: We are currently evaluating the impact of the standard on our disclosures.
Critical Accounting Policies and Estimates
2 unchanged sentences
Changes in the estimates and judgments could significantly affect our results of operations and financial condition and cash flows in future years.
−Removed: A description of what we consider to be our most significant critical accounting policies follows.
+Added: A description of what we consider to be critical accounting policies follows.
Impairment or Disposal of Long-Lived Assets
We review long-lived assets of restaurants we intend to continue operating as Company restaurants (primarily PP&E, right-of-use operating lease assets and allocated intangible assets subject to amortization) annually for impairment, or whenever events or changes in circumstances indicate that the carrying amount of a restaurant may not be recoverable.
+Added: We use two consecutive years of operating losses as our primary indicator of potential impairment for our annual impairment testing of these restaurant
We evaluate recoverability based on the restaurant’s forecasted undiscounted cash flows, which incorporate our best estimate of sales growth and margin improvement based upon our plans for the unit and actual results at comparable restaurants.
For restaurant assets that are deemed to not be recoverable, we write-down the impaired restaurant to its estimated fair value.
−Removed: Key assumptions in the determination of fair value are the future after-tax cash flows of the restaurant, which are reduced by future royalties a franchisee would pay, and a discount rate.
−Removed: The after-tax cash flows incorporate reasonable sales growth and margin improvement assumptions that would be used by a franchisee in the determination of a purchase price for the
−Removed: Estimates of future cash flows are highly subjective judgments and can be significantly impacted by changes in the business or economic conditions.
−Removed: In each of the years ended December 31, 2022 and 2021 our primary indicator of potential impairment for our restaurant assets was two consecutive years of operating losses.
−Removed: For the year ended December 31, 2020, as a result of the impacts of the COVID-19 pandemic this indicator was expanded to include restaurants that were open less than two years with cumulative operating losses for the last year or cumulative operating losses since the store open date if open less than one year.
+Added: Fair value is an estimate of the price a franchisee would pay for the restaurant and its related assets, including any right-of-use assets, and is determined by discounting the estimated future after-tax cash flows of the restaurant, which include a deduction for royalties we would receive under a franchise agreement with terms substantially at market.
+Added: The after-tax cash flows incorporate reasonable sales growth and margin improvement assumptions as well as expectations as to the useful lives of the restaurant assets that would be used by a franchisee in the determination of a purchase price for the restaurant.
We perform an impairment evaluation at a restaurant group level when it is more likely than not that we will refranchise restaurants as a group.
1 unchanged sentence
Historically, these anticipated bids have been reasonably accurate estimations of the proceeds ultimately received.
−Removed: The after-tax cash flows used in determining the anticipated bids incorporate reasonable assumptions we believe a franchisee would make such as sales growth and margin improvement as well as expectations as to the useful lives of the restaurant assets.
−Removed: These after-tax cash flows also include a deduction for the anticipated, future royalties we would receive under a franchise agreement with terms substantially at market entered into simultaneously with the refranchising transaction.
+Added: The after-tax cash flows used in determining the anticipated bids incorporate similar assumptions to those of a restaurant level assessment.
The discount rate used in the fair value calculations is our estimate of the required rate of return that a franchisee would expect to receive when purchasing a similar restaurant or groups of restaurants and the related long-lived assets.
The discount rate incorporates rates of returns for historical refranchising market transactions and is commensurate with the risks and uncertainty inherent in the forecasted cash flows.
+Added: Estimates of future cash flows are highly subjective judgments and can be significantly impacted by changes in the business or economic conditions.
+Added: We formulate these estimates in consideration of historical experience, recent economic and industry trends, and competitive conditions.
+Added: If our estimates or underlying assumptions, including the discount rate, change, we may experience higher impairment charges in the future.
We evaluate indefinite-lived intangible assets for impairment on an annual basis as of the beginning of our fourth quarter or more often if an event occurs or circumstances change that indicates impairment might exist.
12 unchanged sentences
We believe the discount rate is commensurate with the risks and uncertainty inherent in the forecasted cash flows.
−Removed: The fair values of all our reporting units with goodwill balances were in excess of their respective carrying values as of our fourth quarter 2022 goodwill testing date.
−Removed: As it relates to our Habit Burger Grill reporting unit, which includes a goodwill balance of $66 million as of the end of 2022, the assumptions that are most impactful to our fair value estimate include future average unit volumes (“AUVs”) and restaurant unit counts.
−Removed: As of the beginning of the fourth quarter of 2022, the date of our annual impairment assessment, Habit’s forecasted results for these key assumptions have improved from those relied upon in our March 31, 2020 interim impairment test (see Note 5), including actual unit closures following the onset of the COVID-19 pandemic being lower and AUVs recovering to pre—COVID levels faster than assumed in that interim impairment test.
−Removed: When we refranchise restaurants, we include goodwill in the carrying amount of the restaurants disposed of based on the relative fair values of the portion of the reporting unit disposed of in the refranchising versus the portion of the reporting unit
−Removed: that will be retained.
+Added: The fair values of all our reporting units with goodwill balances were in excess of their respective carrying values as of our fourth quarter 2023 goodwill testing date, with all but the Habit Burger Grill reporting unit having fair values that were substantially in excess of their respective carrying values.
+Added: As it relates to our Habit Burger Grill reporting unit, which includes a goodwill balance of $66 million as of the end of 2023, the assumptions that are most impactful to our fair value estimate include margin improvement, sales growth from net new units and same-store sales growth.
+Added: Significant changes in the
+Added: assumptions used in our analysis could result in a future goodwill impairment charge.
+Added: Circumstances that could result in changes to our assumptions and related fair value estimate include, but are not limited to, expectations of lower than originally estimated margin improvement, which can be caused by a variety of factors including changes in expected labor costs and commodity inflation.
+Added: When we refranchise restaurants, we include goodwill in the carrying amount of the restaurants disposed of based on the relative fair values of the portion of the reporting unit disposed of in the refranchising versus the portion of the reporting unit that will be retained.
The fair value of the portion of the reporting unit disposed of in a refranchising is determined by reference to the discounted value of the future cash flows expected to be generated by the restaurant and retained by the franchisee, which include a deduction for the anticipated, future royalties the franchisee will pay us associated with the franchise agreement entered into simultaneously with the refranchising transaction.
+Added: The fair value of the reporting unit retained is based on the price a willing buyer would pay for the reporting unit retained and includes the value of franchise agreements.
Appropriate adjustments are made to the fair value determinations if such franchise agreement is determined to not be at prevailing market rates.
+Added: As such, the fair value of the reporting unit retained can include expected future cash flows from royalties from those restaurants currently being refranchised, royalties from existing franchise businesses and retained company restaurant operations.
+Added: As a result, the percentage of a reporting unit’s goodwill that will be written off in a refranchising transaction will be less than the percentage of the reporting unit’s Company-owned restaurants that are refranchised in that transaction and goodwill can be allocated to a reporting unit with only franchise restaurants.
When determining whether such franchise agreement is at prevailing market rates our primary consideration is consistency with the terms of our current franchise agreements both within the country that the restaurants are being refranchised in and around the world.
3 unchanged sentences
Others may consider the fair value of these future royalties as fair value disposed of and thus would conclude that a larger percentage of a reporting unit’s fair value is disposed of in a refranchising transaction.
−Removed: During 2022, refranchising activity completed by the Company was limited and the write-off of goodwill associated with these transactions was approximately $5 million.
+Added: During 2023, refranchising activity completed by the Company was limited and the write-off of goodwill associated with these transactions was less than $1 million.
Pension Plans
17 unchanged sentences
We expect net periodic benefit income for our U.S.
−Removed: plans of $4 million in 2023 compared to $9 million of periodic benefit cost in 2022, which represents an improvement of $13 million year-over-year.
+Added: plans of $3 million in 2024 compared to $4 million of periodic benefit income in 2023, which represents a decrease in
+Added: benefit of $1 million year-over-year.
A 50 basis-point change in our discount rate assumption at our 2023 measurement date would impact our 2024 U.S.
9 unchanged sentences
Additionally, every 100 basis point variation in actual return on plan assets versus our expected return of 6.35% will impact our unrecognized pre-tax actuarial net loss by approximately $8 million.
−Removed: An increase in actuarial loss due to changes in plan assets, primarily due to 2022 asset returns, has contributed to an unrecognized pre-tax actuarial net loss of $70 million included in Accumulated other comprehensive income for these U.S.
+Added: We have an unrecognized pre-tax actuarial net loss of $84 million included in Accumulated other comprehensive income for these U.S.
plans at December 31, 2023.
−Removed: We will recognize approximately $1 million of gain in net periodic benefit cost in 2023 versus $11 million of loss recognized in 2022.
+Added: We will recognize approximately $1 million of loss in net periodic benefit cost in 2024 versus $1 million of gain recognized in 2023.
At December 31, 2023, we had valuation allowances of $386 million to reduce our $1,758 million of deferred tax assets to amounts that are more likely than not to be realized.
7 unchanged sentences
A recognized tax position is then measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon settlement.
−Removed: At December 31, 2022, we had $128 million of unrecognized tax benefits, $82 million of which would impact the effective tax rate if recognized.
+Added: At December 31, 2023, we had $151 million of unrecognized tax benefits, $102 million of which would impact the effective income tax rate if recognized.
We evaluate unrecognized tax benefits, including interest thereon, on a quarterly basis to ensure that they have been appropriately adjusted for events, including audit settlements, which may impact our ultimate payment for such exposures.
6 unchanged sentences
We believe any such taxes would be immaterial.
−Removed: Ransomware Attack
−Removed: On January 18, 2023, the Company announced a ransomware attack that impacted certain Information Technology (“IT”) systems.
−Removed: 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 notified Federal law enforcement.
−Removed: 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.
−Removed: In addition, although data was taken from our network, there is no evidence that customer databases were accessed.
−Removed: We have incurred, and may continue to incur, certain expenses related to this attack, including expenses to respond to, remediate and investigate this matter.
−Removed: We remain subject to risks and uncertainties as a result of the incident, including as a result of the data that was taken from the Company’s network as noted above.
−Removed: While the Company’s response to this incident is ongoing, at this time we do not believe such impact of the incident will ultimately have a material adverse effect on our business, results of operations or financial condition.
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.