What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-08-07 compared with 2025-05-07 · 176 added, 92 removed, 362 unchanged (43% of the section changed)

66 unchanged sentences

Company also excludes restaurant-level asset impairment and closures expenses, which have historically not been significant, from the determination of Company restaurant profit as such expenses are not believed to be indicative of ongoing operations.

Further, while we generally include depreciation and amortization of restaurant-level assets within Divisional Company restaurant expenses used to derive Divisional Company restaurant profit, we record amortization of reacquired franchise rights arising from acquisition accounting within Corporate and Unallocated Company restaurant expenses as such amortization is not believed to be indicative of ongoing Divisional results as well as to enhance comparability of acquired stores' margins with those of existing restaurants within Divisional results.

Further, while we generally include depreciation and amortization of restaurant-level assets within Divisional Company restaurant expenses used to derive Divisional Company restaurant profit, we record amortization of reacquired franchise rights arising from acquisition accounting within Corporate and unallocated Company restaurant expenses as such amortization is not believed to be indicative of ongoing Divisional results as well as to enhance comparability of acquired stores' margins with those of existing restaurants for which reacquired franchise rights are not applicable.

Company restaurant profit and Company restaurant margin % as presented may not be comparable to other similarly titled measures of other companies in the industry.

8 unchanged sentences

Taco Bell Division +6 +4 +2 +5 +5

Pizza Hut Division (3) (2) (1) (20) (18)

Pizza Hut Division (1) (1) Even (15) (15)

YUM +4 +2 +3 +2 +2

Year to date Financial Highlights:

System Sales, ex FX Same-Store Sales Units GAAP Operating Profit Core Operating Profit

KFC Division +5 +2 +5 +8 +8

Taco Bell Division +8 +6 +2 +10 +10

Pizza Hut Division (2) (1) Even (17) (17)

YUM +4 +2 +3 +4 +5

Additionally:

• Foreign currency translation unfavorably impacted Divisional Operating Profit by $11 million for the quarter ended March 31, 2025.

First Quarter

2025 2024 % Change

• Foreign currency translation favorably impacted Divisional Operating Profit by $4 million for the quarter ended June 30, 2025 and unfavorably impacted Divisional Operating Profit by $7 million for the year to date ended June 30, 2025.

Second Quarter

2025 2024 % Change 2025 2024 % Change

GAAP EPS $1.33 $1.28 +4 $2.23 $2.38 (6)

Less Special Items EPS

$(0.40) $(0.05) NM

$(0.11) $(0.07) NM $(0.51) $(0.12) NM

EPS Excluding Special Items $1.44 $1.35 +7 $2.74 $2.50 +10

• Foreign currency translation negatively impacted our diluted EPS, excluding Special Items, by approximately $0.03 for the quarter ended March 31, 2025.

Our diluted EPS, excluding Special Items, was unfavorably impacted by $0.08 for the quarter ended March 31, 2024 from after-tax investment losses.

• Foreign currency translation favorably impacted our diluted EPS, excluding Special Items, by approximately $0.01 and unfavorably impacted our diluted EPS, excluding Special Items, by approximately $0.02 for the quarter and year to date ended June 30, 2025, respectively.

Our diluted EPS, excluding Special Items, for the year to date ended June 30, 2024 was unfavorably impacted by $0.08 from after-tax investment losses.

• Gross unit openings for the quarter were 871 units.

◦ Net units declined by 460 for the quarter, primarily driven by unit closures in Turkey.

Gross unit openings for the year to date were 1,622 units.

◦ Total units decreased by 74 for the year to date, primarily driven by unit closures in Turkey.

On January 8, 2025, we terminated our franchise agreements with franchisee IS Gida A.S.

(IS Gida), the owner and operator of KFC and Pizza Hut restaurants in Turkey and a subsidiary of IS Holding A.S., after failure by IS Gida to meet our standards.

As a result, 283 KFC restaurants and 254 Pizza Hut restaurants in Turkey were closed during the quarter.

Quarter ended

2025 2024 % B/(W)

As a result, 283 KFC restaurants and 254 Pizza Hut restaurants in Turkey were closed in January.

Quarter ended Year to date

2025 2024 % B/(W) 2025 2024 % B/(W)

Company sales $ 669 $ 572 17 $ 1,277 $ 1,046 22

7 unchanged sentences

Refranchising (gain) loss (11) (14) (21) (16) (19) (14)

Other (income) expense (8) (1) NM

Other (income) expense (7) (5) NM (15) (6) NM

Total costs and expenses, net 1,311 1,156 (13) 2,550 2,234 (14)

Operating Profit 622 607 2 1,170 1,127 4

Investment (income) expense, net (1) 22 NM

Investment (income) expense, net — — NM (1) 22 NM

Other pension (income) expense (1) (1) (40) (1) (3) (62)

6 unchanged sentences

Effective tax rate 25.1 % 24.7 % (0.4) ppts.

32.4 % 21.8 % (10.7) ppts.

(a) See Note 3 for the number of shares used in this calculation.

4 unchanged sentences

Total 61,272 59,498 3

Quarter ended

Quarter ended Year to date

2025 2024 2025 2024

Same-store Sales Growth (Decline) % 2 (1) 2 (2)

2 unchanged sentences

Our system sales breakdown by Company and franchise sales was as follows:

Quarter ended

Quarter ended Year to date

2025 2024 2025 2024

Company sales (a)

$ 669 $ 572 $ 1,277 $ 1,046

Franchise sales 15,608 14,979 30,504 29,551

1 unchanged sentence

Negative (Positive) Foreign Currency Impact (b)

(99) N/A 141 N/A

System sales, excluding FX $ 16,179 $ 15,551 $ 31,922 $ 30,597

Company sales (a)

$ 245 $ 163 $ 461 $ 268

Franchise sales 8,476 8,063 16,600 16,086

1 unchanged sentence

Negative (Positive) Foreign Currency Impact (b)

(81) N/A 103 N/A

System sales, excluding FX $ 8,640 $ 8,226 $ 17,164 $ 16,354

1 unchanged sentence

Company sales (a)

$ 287 $ 268 $ 550 $ 508

Franchise sales 3,988 3,749 7,705 7,106

1 unchanged sentence

Negative (Positive) Foreign Currency Impact (b)

(4) N/A 1 N/A

System sales, excluding FX $ 4,270 $ 4,017 $ 8,256 $ 7,614

1 unchanged sentence

Company sales (a)

$ 7 $ 2 $ 10 $ 4

Franchise sales 3,109 3,138 6,134 6,303

1 unchanged sentence

Negative (Positive) Foreign Currency Impact (b)

(14) N/A 37 N/A

System sales, excluding FX $ 3,102 $ 3,140 $ 6,181 $ 6,307

1 unchanged sentence

Company sales (a)

$ 130 $ 139 $ 255 $ 266

Franchise sales 36 29 66 56

7 unchanged sentences

Non-GAAP Items, along with the reconciliation to the most comparable GAAP financial measure, as presented below.

Quarter ended

Quarter ended Year to date

2025 2024 2025 2024

Core Operating Profit Growth %

3 unchanged sentences

Company restaurant margin % 16.3 % 17.8 % 15.3 % 16.8 %

Reconciliation of GAAP Operating Profit to Core Operating Profit Quarter ended

Reconciliation of GAAP Operating Profit to Core Operating Profit Quarter ended Year to date

2025 2024 2025 2024

GAAP Operating Profit $ 622 $ 607 $ 1,170 $ 1,127

3 unchanged sentences

Charges associated with Brand HQ Consolidation (c)

Other Special Items Expense 2 —

German acquisition and Turkey termination-related costs (d)

Special Items Expense - Operating Profit

Negative Foreign Currency Impact on Division Operating Profit

(Positive) Negative Foreign Currency Impact on Division Operating Profit

(4) N/A 7 N/A

Core Operating Profit $ 646 $ 633 $ 1,232 $ 1,177

2 unchanged sentences

Decrease in Franchise and property revenues

$ — $ — $ 1 $ —

Increase in General and administrative expenses

Increase in Refranchising loss

Increase in Refranchising (gain) loss

Increase in Other income

Special Items Expense - Operating Profit

$ 28 $ 26 $ 55 $ 50

GAAP Operating Profit $ 365 $ 334 $ 697 $ 647

Negative (Positive) Foreign Currency Impact

(4) N/A 5 N/A

Core Operating Profit $ 361 $ 334 $ 702 $ 647

9 unchanged sentences

GAAP Operating Profit (Loss)

$ 3 $ 2 $ 2 $ (3)

Negative (Positive) Foreign Currency Impact

3 unchanged sentences

Special Items Expense - Operating Profit

Special Items Tax Expense (Benefit) (d)

Special Items Tax Expense (Benefit) (e)

3 (7) 88 (17)

Net Income excluding Special Items $ 405 $ 386 $ 771 $ 714

Quarter ended

Quarter ended Year to date

2025 2024 2025 2024

Reconciliation of Diluted EPS to Diluted EPS excluding Special Items

7 unchanged sentences

(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.

During the quarter ended March 31, 2024, we recorded net refranchising losses of $3 million that have been reflected as Special Items.

Additionally, we recorded net refranchising gains of $5 million and $8 million during quarters ended March 31, 2025 and 2024, respectively, that have not been reflected as Special Items.

During the quarter and year to date ended June 30, 2024, we recorded net refranchising losses of $1 million and $4 million, respectively, that have been reflected as Special Items.

Additionally, we recorded net refranchising gains of $11 million and $15 million during quarters ended June 30, 2025 and 2024, respectively, that have not been reflected as Special Items.

During the years to date ended June 30, 2025 and 2024, we recorded net refranchising gains of $16 million and $23 million, respectively, that have not been reflected as Special Items.

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.

(b) We recorded charges of $17 million and $21 million during the quarters ended March 31, 2025 and 2024, respectively, to General and administrative expenses related to a resource optimization program.

(b) We recorded charges of $14 million and $32 million during the quarter and year to date ended June 30, 2025, respectively, and $25 million and $46 million during the quarter and year to date ended June 30, 2024, respectively, to Corporate and unallocated General and administrative expenses related to a resource optimization program.

Over the past several years, this program has allowed us to reallocate significant resources to accelerate our digital, technology and innovation capabilities to deliver a modern, world-class team member and customer experience and improve unit economics.

2 unchanged sentences

Due to their scope and size, these charges have been reflected as Special Items.

(c) During the quarter ended March 31, 2025, we recorded charges of approximately $7 million to General and administrative expenses associated with our decision to designate two brand headquarters in the U.S., located in Plano, Texas and Irvine, California, to foster greater collaboration among brands and employees.

(c) During the quarter and year to date ended June 30, 2025, we recorded charges of approximately $10 million and $17 million, respectively, to Corporate and unallocated General and administrative expenses associated with our decision to designate two brand headquarters in the U.S., located in Plano, Texas and Irvine, California, to foster greater collaboration among brands and employees.

This involved relocating the KFC U.S.

2 unchanged sentences

Due to their scope and size, these charges have been reflected as Special Items.

(d) The below table includes the detail of Special Items Tax Benefit:

Quarter ended

(d) On January 8, 2025, we terminated our franchise agreements with franchisee IS Gida A.S.

(IS Gida), the owner and operator of KFC and Pizza Hut restaurants in Turkey and a subsidiary of IS Holding A.S.

(IS Holding), after failure by IS Gida to meet our standards.

As a result, 283 KFC restaurants and 254 Pizza Hut restaurants in Turkey were closed during the first quarter of 2025.

We also re-acquired the master franchise rights in Germany for KFC and Pizza Hut from the owner of IS Holding in December 2024.

We recorded charges of $5 million and $7 million during the quarter and year to date ended June 30, 2025, respectively, to Corporate and unallocated General and administrative expenses consisting primarily of severance costs associated with re-acquiring the master franchise rights in Germany.

Consistent with prior charges related to the matter, these charges have been reflected as Special Items.

(e) The below table includes the detail of Special Items Tax Benefit:

Quarter ended Year to date

6/30/2025 6/30/2024 6/30/2025 6/30/2024

Tax (Benefit) on Special Items Expense

$ (7) $ (7) $ (14) $ (13)

Tax Expense - Foreign tax audit

1 unchanged sentence

Special Items Tax Expense (Benefit)

$ 3 $ (7) $ 88 $ (17)

Tax Benefit on Special Items 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.

Tax Expense - Foreign tax audit in the quarter ended March 31, 2025 reflects a reserve associated with a change in management's judgement around a Mexican subsidiary's ability to utilize losses to offset recapture gains triggered by a historical tax deconsolidation in Mexico (see Note 7).

Tax Expense - Foreign tax audit in the quarter and year to date ended June 30, 2025 reflects a reserve associated with a change in management's judgement around a Mexican subsidiary's ability to utilize losses to offset recapture gains triggered by a historical tax deconsolidation in Mexico (see Note 7).

This tax expense was reflected as a Special Item due to its size and the years to which the reserve relates.

Other Income tax impacts recorded as Special in the quarter ended March 31, 2024 include benefits related to the reversal of a reserve due to the favorable resolution of a tax audit in a foreign jurisdiction.

Other Income tax impacts recorded as Special in the year to date ended June 30, 2024 include benefits related to the reversal of a reserve due to the favorable resolution of a tax audit in a foreign jurisdiction.

Such reserve was established in prior years related to income tax liabilities originally recorded as a Special Item as part of an intercompany restructuring of intellectual property.

29 unchanged sentences

Company restaurant margin % 11.9 % 25.6 % (2.2) % 10.7 % N/A 17.8 %

Year to date 6/30/2025

KFC Division Taco Bell Division Pizza Hut Division Habit Burger & Grill Division

Corporate and Unallocated Consolidated

GAAP Operating Profit (Loss) $ 697 $ 502 $ 155 $ 2 $ (186) $ 1,170

Franchise and property revenues 844 482 290 5 (1) 1,620

Franchise contributions for advertising and other services 316 336 169 1 — 823

General and administrative expenses 166 98 109 26 205 604

Franchise and property expenses 36 13 21 2 — 73

Franchise advertising and other services expense 311 333 179 1 — 824

Refranchising (gain) loss — — — — (16) (16)

Other (income) expense — — (5) — (10) (15)

Company restaurant profit (loss)

$ 50 $ 129 $ (1) $ 25 $ (7) $ 196

Company sales $ 461 $ 550 $ 10 $ 255 $ — $ 1,277

Company restaurant margin % 10.8 % 23.4 % (6.4) % 9.6 % N/A 15.3 %

Year to date 6/30/2024

KFC Division Taco Bell Division Pizza Hut Division Habit Burger & Grill Division

Corporate and Unallocated Consolidated

GAAP Operating Profit (Loss) $ 647 $ 458 $ 187 $ (3) $ (162) $ 1,127

Franchise and property revenues 802 444 296 4 — 1,546

Franchise contributions for advertising and other services 279 312 177 1 — 769

General and administrative expenses 167 96 102 27 175 567

Franchise and property expenses 26 16 10 2 — 54

Franchise advertising and other services expense 276 310 181 1 — 768

Refranchising (gain) loss — — — — (19) (19)

Other (income) expense (3) (1) (7) — 5 (6)

Company restaurant profit $ 32 $ 123 $ — $ 22 $ (1) $ 176

Company sales $ 268 $ 508 $ 4 $ 266 $ — $ 1,046

Company restaurant margin % 12.0 % 24.2 % (0.1) % 8.2 % N/A 16.8 %

Items Impacting Reported Results and Reasonably Likely to Impact Future Results

The following item impacted reported results in 2024.

The following item impacted reported results in 2024 and/or are reasonably likely to impact future results.

See also the Detail of Special Items in this MD&A for other items impacting results in 2025 or 2024.

1 unchanged sentence

During the quarter ended March 31, 2024, we sold our approximate 5% minority investment in Devyani International Limited ("Devyani"), a franchise entity that operates KFC and Pizza Hut restaurants in India, for pre-tax proceeds of $104 million.

Changes in the fair value of our ownership interest in Devyani prior to the date of sale resulted in pre-tax investment losses of $20 million in the quarter ended March 31, 2024.

Changes in the fair value of our ownership interest in Devyani prior to the date of sale resulted in pre-tax investment losses of $20 million in the year to date ended June 30, 2024.

Impact of Tax Law Changes

Subsequent to the end of the second quarter, on July 4, 2025, H.R.1, commonly known as the One Big Beautiful Bill Act ("OBBBA") was enacted into law in the U.S.

As the legislation was enacted into law after June 30, 2025, it had no impact on our income tax provision for the quarter and year to date ended June 30, 2025.

The Company is in the process of evaluating the effects of the legislation on our ability to utilize approximately $70 million of existing foreign tax credit related deferred tax assets prior to their expiration.

We anticipate that any change in management's judgment regarding our ability to use these foreign tax credits would be recorded through our Income tax provision in the quarter ended September 30, 2025.

We currently anticipate the OBBBA will have a favorable impact on our ongoing effective tax rate beginning in 2026.

The KFC Division has 32,369 units, 89% of which are located outside the U.S.

Additionally, 99% of the KFC Division units were operated by franchisees as of March 31, 2025.

Quarter ended

2025 2024 Reported Ex FX

Additionally, 99% of the KFC Division units were operated by franchisees as of June 30, 2025.

Quarter ended Year to date

% B/(W) % B/(W)

2025 2024 Reported Ex FX 2025 2024 Reported Ex FX

System Sales $ 8,721 $ 8,226 6 5 $ 17,061 $ 16,354 4 5

Same-Store Sales Growth (Decline) % 2 (2) N/A N/A

Same-Store Sales Growth (Decline) % 2 (3) N/A N/A 2 (3) N/A N/A

Company sales $ 245 $ 163 51 47 $ 461 $ 268 72 71

4 unchanged sentences

Company restaurant margin % 12.1 % 11.9 % 0.2 ppts.

G&A expenses $ 80 $ 83 3 2

10.8 % 12.0 % (1.2) ppts.

G&A expenses $ 86 $ 84 (2) (1) $ 166 $ 167 Even Even

Franchise and property expenses 20 9 (133) (129) 36 26 (39) (39)

7 unchanged sentences

Company sales and Company restaurant margin %

The quarterly increase in Company sales, excluding the impacts of foreign currency translation, was driven by the KFC U.K.

The quarterly and year to date increases in Company sales, excluding the impacts of foreign currency translation, were driven by the KFC U.K.

and Ireland restaurant acquisition (see Note 2) in the second quarter of 2024 and Company same-store sales growth of 2%.

The quarterly decrease in Company restaurant margin percentage was driven by the margin percentages of the units included in the KFC U.K.

The quarterly increase in Company restaurant margin percentage was driven by lower food costs in certain markets, partially offset by the margin percentages of the units included in the KFC U.K.

and Ireland restaurant acquisition.

The year to date decrease in Company restaurant margin percentage was driven by the margin percentages of the units included in the KFC U.K.

and Ireland restaurant acquisition, partially offset by Company same-store sales growth.

Franchise and property revenues

The quarterly 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 a 1% negative impact from the KFC U.K.

The quarterly and year to date increases in Franchise and property revenues, excluding the impacts of foreign currency translation, were driven by unit growth and franchise same-store sales growth of 2%, partially offset by a 1% negative impact from the KFC U.K.

and Ireland restaurant acquisition.

The quarterly decrease in G&A, excluding the impacts of foreign currency translation, was driven by lower headcount, partially offset by expenses related to the operation of acquired KFC U.K.

and Ireland restaurants.

The quarterly increase in G&A, excluding the impacts of foreign currency translation, was driven by higher expenses related to our annual incentive compensation programs, partially offset by lapping higher prior year professional fees.

G&A, excluding the impacts of foreign currency translation, was flat year to date as higher expenses related to our annual incentive compensation programs and the operation of acquired KFC U.K.

and Ireland restaurants was offset by lapping higher prior year professional fees.

Operating Profit

The quarterly increase in Operating Profit, excluding the impacts of foreign currency translation, was driven by unit growth and same-store sales growth.

The quarterly and year to date increases in Operating Profit, excluding the impacts of foreign currency translation, were driven by unit growth and same-store sales growth, partially offset by lapping prior year net bad debt recoveries.

Taco Bell Division

The Taco Bell Division has 8,756 units, 87% of which are in the U.S.

The Company owned 7% of the Taco Bell units in the U.S.

as of March 31, 2025.

Quarter ended

2025 2024 Reported Ex FX

The Company owned 7% of the Taco Bell Division units in the U.S.

as of June 30, 2025.

Quarter ended Year to date

% B/(W) % B/(W)

2025 2024 Reported Ex FX 2025 2024 Reported Ex FX

System Sales $ 4,275 $ 4,017 6 6 $ 8,255 $ 7,614 8 8

Same-Store Sales Growth % 9 1 N/A N/A

Same-Store Sales Growth % 4 5 N/A N/A 6 3 N/A N/A

Company sales $ 287 $ 268 7 7 $ 550 $ 508 8 8

3 unchanged sentences

Company restaurant profit $ 70 $ 69 1 1 $ 129 $ 123 5 5

Company restaurant margin % 22.4 % 22.5 % (0.1) (0.1)

Company restaurant margin % 24.3 % 25.6 % (1.3) ppts.

23.4 % 24.2 % (0.8) ppts.

G&A expenses $ 49 $ 47 (6) (6) $ 98 $ 96 (2) (2)

8 unchanged sentences

Company sales and Company restaurant margin %

The quarterly increase in Company sales was driven by Company same-store sales growth of 7% and unit growth.

The quarterly restaurant margin percentage decrease was driven by lower margins associated with new builds outside the U.S., commodity inflation and higher labor and other restaurant operating costs partially offset by same-store sales growth.

The quarterly and year to date increases in Company sales were driven by company same-store sales growth of 2% and 4% for the quarter and year to date, respectively, and unit growth.

The quarterly and year to date restaurant margin percentage decreases were driven by commodity inflation, higher labor and other restaurant operating costs partially offset by same-store sales growth.

Franchise and property revenues

The quarterly increase in Franchise and property revenues was driven by franchise same-store sales growth of 9% and unit growth.

The quarterly decrease in G&A was driven by decreased legal costs and lower headcount and salaries partially offset by higher digital and technology expenses.

The quarterly and year to date increases in Franchise and property revenues were driven by franchise same-store sales growth of 4% and 7% for the quarter and year to date, respectively, and unit growth.

The quarterly increase in G&A was driven by higher digital and technology expenses and professional and legal fees partially offset by lower headcount.

The year to date increase in G&A was driven by higher digital and technology expenses and increased share-based compensation partially offset by lower professional and legal fees and lower headcount.

Operating Profit

The quarterly increase in Operating Profit was driven by same-store sales growth and unit growth partially offset by higher restaurant operating costs.

The quarterly and year to date increases in Operating Profit were driven by same-store sales growth and unit growth partially offset by higher restaurant operating costs.

Pizza Hut Division

2 unchanged sentences

airports) and includes units operating under both the Pizza Hut and Telepizza brands.

Additionally, over 99% of the Pizza Hut Division units were operated by franchisees as of March 31, 2025.

Quarter ended

2025 2024 Reported Ex FX

Additionally, over 99% of the Pizza Hut Division units were operated by franchisees as of June 30, 2025.

Quarter ended Year to date

% B/(W) % B/(W)

2025 2024 Reported Ex FX 2025 2024 Reported Ex FX

System Sales $ 3,116 $ 3,140 (1) (1) $ 6,144 $ 6,307 (3) (2)

Same-Store Sales Growth (Decline) % (2) (7) N/A N/A

Same-Store Sales Growth (Decline) % (1) (3) N/A N/A (1) (5) N/A N/A

Company sales $ 7 $ 2 323 323 $ 10 $ 4 205 205

1 unchanged sentence

Franchise contributions for advertising and other services 85 89 (4) (5) 169 177 (4) (4)

Total revenues $ 231 $ 238 (3) (2)

Company restaurant profit $ — $ — NM NM

Total revenues $ 239 $ 239 Even Even $ 470 $ 477 (1) (1)

Company restaurant profit (loss)

$ — $ — NM NM $ (1) $ — NM NM

Company restaurant margin % (6.6) % (2.2) % (4.4) ppts.

(6.4) % (0.1) % (6.3) ppts.

G&A expenses $ 54 $ 50 (6) (5) $ 109 $ 102 (6) (5)

8 unchanged sentences

Franchise and property revenues

The quarterly decrease in Franchise and property revenues, excluding the impacts of foreign currency translation, was driven by a franchise same-store sales decline of (2%).

The quarterly increase in G&A, excluding the impacts of foreign currency translation, was driven by professional and legal expenses associated with four franchise entities that are transitioning to new ownership.

The quarterly and year to date decreases in Franchise and property revenues, excluding the impacts of foreign currency translation, were driven by franchise same-store sales declines of (1%).

The quarterly and year to date increases in G&A, excluding the impacts of foreign currency translation, were driven by higher professional and legal expenses, including professional and legal fees associated with franchise entities that have or are transitioning to new ownership.

Operating Profit

The quarterly decrease in Operating Profit, excluding the impacts of foreign currency translation, was driven by higher current year bad debt expense (including bad debt expense associated with four franchise entities that are transitioning to new ownership), timing of digital and technology related spending within Franchise advertising and other services expense, a same-store sales decline and higher G&A.

The quarterly decrease in Operating Profit, excluding the impacts of foreign currency translation, was driven by higher current year bad debt expense (including bad debt expense associated with franchise entities that have or are transitioning to new ownership), higher G&A, timing of digital and technology related spending within Franchise advertising and other services expense, expenses associated with our bi-annual Global Franchise Convention and a same store sales decline.

The year to date decrease in Operating Profit, excluding the impacts of foreign currency translation, was driven by higher current year bad debt expense (including bad debt expense associated with franchise entities that have or are transitioning to new ownership), timing of digital and technology related spending within Franchise advertising and other services expense, higher G&A, a same store sales decline and expenses associated with our bi-annual Global Franchise Convention.

Habit Burger & Grill Division

The Habit Burger & Grill Division has 379 units, the vast majority of which are in the U.S.

The Company owned 80% of the Habit Burger & Grill units in the U.S.

as of March 31, 2025.

Quarter ended

2025 2024 Reported Ex FX

System Sales $ 155 $ 154 Even Even

The Company owned 80% of the Habit Burger & Grill Division units in the U.S.

as of June 30, 2025.

Quarter ended Year to date

% B/(W) % B/(W)

2025 2024 Reported Ex FX 2025 2024 Reported Ex FX

System Sales $ 166 $ 168 (1) (1) $ 321 $ 322 (1) (1)

Same-Store Sales Growth (Decline) %

(3) (8) N/A N/A

(4) (6) N/A N/A (3) (7) N/A N/A

Total revenues $ 134 $ 141 (6) (6) $ 262 $ 271 (4) (4)

3 unchanged sentences

Company-owned 303 313 (3)

Total 379 381 (1)

Total 379 380 Even

Corporate & Unallocated

Quarter ended

(Expense) / Income 2025 2024 % B/(W)

Quarter ended Year to date

(Expense) / Income 2025 2024 % B/(W) 2025 2024 % B/(W)

Corporate and unallocated G&A $ (99) $ (86) (16) $ ( 205 ) $ ( 175 ) (16)

Unallocated Company restaurant expenses (See Note 9)

(4) (1) NM ( 7 ) ( 1 ) NM

Unallocated Refranchising gain (loss) 11 14 (21) 16 19 (14)

Unallocated Other income (expense) 6 (5) NM

Unallocated Other income (expense) 4 — NM 10 ( 5 ) NM

Investment income (expense), net (see Note 9)

— — NM 1 ( 22 ) NM

Other pension income (expense) (see Note 10)

1 1 (40) 1 3 (62)

Interest expense, net (123) (121) (1) ( 243 ) ( 238 ) (2)

Income tax benefit (provision) (See Note 7) (176) (69) (155)

Income tax provision (See Note 7) (125) (120) (4) (301) (189) (59)

Effective tax rate (See Note 7) 25.1 % 24.7 % (0.4) ppts.

32.4 % 21.8 % (10.7) ppts.

Corporate and unallocated G&A

The quarterly increase in Corporate and Unallocated G&A expense was driven by higher costs associated with our resource optimization program, costs associated with our brand headquarters consolidation, higher professional fees and higher compensation.

The quarterly and year to date increases in Corporate and unallocated G&A expense were driven by costs associated with our brand headquarters consolidation, higher compensation and higher professional fees, partially offset by lower costs associated with our resource optimization program.

Consolidated Cash Flows

Net cash provided by operating activities was $850 million in 2025 versus $705 million in 2024.

The increase was primarily driven by a decrease in incentive compensation payments, an increase in Operating Profit before Special Items and timing of accounts receivable collections, partially offset by timing of spending on advertising and an increase in payments related to our resource optimization program.

Net cash provided by investing activities was $2 million in 2025 versus $45 million in 2024.

The change was primarily driven by higher current year capital spending.

The prior year proceeds arising from the sale of our approximate 5% minority investment in Devyani were largely offset by proceeds arising from the current year maturity of short-term investments.

The increase was primarily driven by lower incentive compensation payments, lower income tax payments and an increase in Operating Profit before Special Items.

Net cash used in investing activities was $130 million in 2025 versus $253 million in 2024.

The change was primarily driven by maturities of short-term investments in the current year compared to net purchases of short-term investments in the prior year and lower current year spending on acquisitions, partially offset by lapping prior year proceeds arising from the sale of our approximate 5% minority investment in Devyani and higher current year capital spending.

Net cash used in financing activities was $741 million in 2025 versus $547 million in 2024.

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As a result, we plan to deliver materially higher capital returns going forward as compared to the past two years when we were using significant amounts of cash to reduce our debt outstanding.

To the extent operating cash flows plus other sources of cash do not cover our anticipated cash needs, we maintain a $1.5 billion Revolving Facility under our Credit Agreement which had $374 million outstanding as of March 31, 2025.

We believe that our ongoing cash from operations, cash on hand, which was approximately $600 million at March 31, 2025, and availability under our Revolving Facility will be sufficient to fund our cash requirements over the next twelve months.

Borrowings under our Revolving Facility had original maturities of three months or less.

We believe that our ongoing cash from operations, cash on hand, which was approximately $680 million at June 30, 2025, and availability under our Revolving Facility will be sufficient to fund our cash requirements over the next twelve months.

The May 2016 Securitization Notes in the amount of $938 million have an anticipated repayment date of May 2026.

While we currently anticipate refinancing those Notes prior to that date, we believe that in the event we either cannot or choose not to do so, cash from the aforementioned sources would be sufficient to fully repay the $938 million in May 2026.

There have been no material changes to the disclosures made in Item 7 of the Company's 2024 Form 10-K regarding our material cash requirements.

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Debt Instruments

As of March 31, 2025, approximately 82% of our $11.0 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 4.7%.

Subsequent to the end of the first quarter, we entered into interest rate swaps (see Note 12) to fix the interest rate on $1.5 billion of borrowings, primarily under our Term Loan B Facility, from April 2025 to March 2028 which increased the fixed percentage of this total debt outstanding to 96%.

As of June 30, 2025, approximately 96%, including the impact of interest rate swaps, of our $11.0 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 4.5%.

We ended the quarter with a consolidated net leverage ratio of 3.8x EBITDA.

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We 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 March 31, 2025.

The following table summarizes the future maturities of our outstanding long-term debt, excluding finance leases and debt issuance costs and discounts, as of June 30, 2025.

2025 2026 2027 2028 2029 2030 2031 2032 2037 2043 Total

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We are currently evaluating the impact of the standard on our disclosures.

In March 2024, the SEC issued a final rule under SEC Release Nos.

33-11275 and 34-99678, The Enhancement and Standardization of Climate-Related Disclosures for Investors.

The rule requires disclosure of material climate-related information outside of the audited financial statements and disclosure in the footnotes addressing specified financial statement effects of severe weather events and other natural conditions above certain financial thresholds, certain carbon offsets and renewable energy credits or certificates.

The standard is effective for the Company's Annual Report on Form 10-K for fiscal 2025.

In April 2024, the SEC released an order staying this final rule pending judicial review of all the petitions challenging the rule.

We are in the process of analyzing the impact of the rule on our disclosures should the stay be lifted.

In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses (Subtopic 220-40), which requires new financial statement disclosures disaggregating prescribed expense categories within relevant income statement expense captions.

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Quantitative and Qualitative Disclosures About Market Risk

There were no material changes during the quarter ended March 31, 2025, to the disclosures made in Item 7A of the Company’s 2024 Form 10-K.

There were no material changes during the quarter ended June 30, 2025, to the disclosures made in Item 7A of the Company’s 2024 Form 10-K.

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 2. Management’s Discussion and Analysis