v3.26.1
Fair Value Measurements and Disclosures
 6 Months Ended
Jun. 30, 2026
Fair Value Disclosures [Abstract]  
Fair Value Measurements and Disclosures

Note 11 – Fair Value Measurements and Disclosures

 

The Company’s financial assets and liabilities primarily consist of cash and cash equivalents, short-term investments, long-term bank deposits and notes, accounts receivable, accounts payable, short-term borrowings and lease liabilities, and the carrying values of these assets and liabilities approximate their fair value in general.

 

The Company’s financial assets also include its investment in equity securities and available-for-sale debt securities as disclosed in Note 3. Investment in equity securities is measured at fair value based on the closing market price for the shares at the end of each reporting period, with subsequent fair value changes recorded in our Condensed Consolidated Statements of Income. Investment in available-for-sale debt securities is measured at estimated fair value with subsequent fair value changes recorded in Other comprehensive income (loss) in the Condensed Consolidated Statements of Comprehensive Income.

 

The following table is a summary of our financial assets measured on a recurring basis or disclosed at fair value and the level within the fair value hierarchy in which the measurement falls. The Company classifies its cash equivalents, short-term investments, long-term bank deposits and notes, and investment in equity securities within Level 1 or Level 2 in the fair value hierarchy because it uses quoted market prices or alternative pricing sources and models utilizing market observable inputs to determine their fair value, respectively. The Company classifies its investment in available-for-sale debt securities in Level 3 in the fair value hierarchy because it is valued based on unobservable inputs. No transfers among the levels within the fair value hierarchy occurred during the quarters and years to date ended June 30, 2026 and 2025.

 

 

 

 

 

 

Fair Value Measurement or Disclosure
at June 30, 2026

 

 

 

Balance at
June 30, 2026

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Fixed income debt securities(a)

 

$

149

 

 

 

 

 

$

149

 

 

 

 

Money market funds

 

 

46

 

 

 

46

 

 

 

 

 

 

 

Time deposits

 

 

38

 

 

 

 

 

 

38

 

 

 

 

Total cash equivalents

 

 

233

 

 

 

46

 

 

 

187

 

 

 

—

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

Variable return investments

 

 

483

 

 

 

483

 

 

 

 

 

 

 

Fixed income debt securities(a)

 

 

170

 

 

 

 

 

 

170

 

 

 

 

Time deposits

 

 

154

 

 

 

 

 

 

154

 

 

 

 

Structured deposits

 

 

94

 

 

 

 

 

 

94

 

 

 

 

Total short-term investments

 

 

901

 

 

 

483

 

 

 

418

 

 

 

—

 

Long-term bank deposits and notes:

 

 

 

 

 

 

 

 

 

 

 

 

Time deposits

 

 

359

 

 

 

 

 

 

359

 

 

 

 

Variable return investments

 

 

154

 

 

 

 

 

 

154

 

 

 

 

Fixed income bank notes(a)

 

 

150

 

 

 

 

 

 

150

 

 

 

 

Structured deposits

 

 

25

 

 

 

 

 

 

25

 

 

 

 

Total long-term bank deposits and notes

 

 

688

 

 

 

—

 

 

 

688

 

 

 

—

 

Equity investments:

 

 

 

 

 

 

 

 

 

 

 

 

Investment in equity securities

 

 

38

 

 

 

38

 

 

 

 

 

 

 

Investment in available-for-sale debt securities

 

 

15

 

 

 

 

 

 

 

 

 

15

 

Total equity investments

 

 

53

 

 

 

38

 

 

 

—

 

 

 

15

 

Total

 

$

1,875

 

 

$

567

 

 

$

1,293

 

 

$

15

 

 

 

 

 

 

 

 

Fair Value Measurement or Disclosure
at December 31, 2025

 

 

 

Balance at
December 31, 2025

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Fixed income debt securities(a)

 

$

185

 

 

$

43

 

 

$

142

 

 

 

 

Money market funds

 

 

93

 

 

 

93

 

 

 

 

 

 

 

Total cash equivalents

 

 

278

 

 

 

136

 

 

 

142

 

 

 

—

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

Time deposits

 

 

420

 

 

 

 

 

 

420

 

 

 

 

Fixed income debt securities(a)

 

 

200

 

 

 

 

 

 

200

 

 

 

 

Variable return investments

 

 

162

 

 

 

162

 

 

 

 

 

 

 

Structured deposits

 

 

96

 

 

 

 

 

 

96

 

 

 

 

Total short-term investments

 

 

878

 

 

 

162

 

 

 

716

 

 

 

—

 

Long-term bank deposits and notes:

 

 

 

 

 

 

 

 

 

 

 

 

Time deposits

 

 

352

 

 

 

 

 

 

352

 

 

 

 

Variable return investments

 

 

151

 

 

 

 

 

 

151

 

 

 

 

Fixed income bank notes

 

 

150

 

 

 

 

 

 

150

 

 

 

 

Structured deposits

 

 

25

 

 

 

 

 

 

25

 

 

 

 

Total long-term bank deposits and notes

 

 

678

 

 

 

—

 

 

 

678

 

 

 

—

 

Equity investments:

 

 

 

 

 

 

 

 

 

 

 

 

Investment in equity securities

 

 

57

 

 

 

57

 

 

 

 

 

 

 

Investment in available-for-sale debt securities

 

 

15

 

 

 

 

 

 

 

 

 

15

 

Total equity investments

 

 

72

 

 

 

57

 

 

 

—

 

 

 

15

 

Total

 

$

1,906

 

 

$

355

 

 

$

1,536

 

 

$

15

 

 

(a)
Classified as held-to-maturity investments and measured at amortized cost.

 

The Company is required to provide bank deposits, insurance or guarantees to secure the balance of prepaid stored-value cards issued by the Company pursuant to regulatory requirements. $21 million of time deposits in Long-term bank deposits and notes were restricted for use as of June 30, 2026, and $29 million of time deposits in Short-term investments and $34 million of time deposits in Long-term bank deposits and notes were restricted for use as of December 31, 2025. The decrease in such investments was primarily due to the increased use of bank guarantees by the Company to secure a portion of prepaid stored-value cards.

 

Non-Recurring Fair Value Measurements

 

In addition, certain of the Company’s restaurant-level assets (including operating lease ROU assets and PP&E), goodwill and intangible assets are measured at fair value based on unobservable inputs (Level 3) on a non-recurring basis, if determined to be impaired.
 

In determining the fair value of restaurant-level assets, the Company considered the highest and best use of the assets from market participants’ perspective, which is represented by the higher of the forecasted discounted cash flows from operating restaurants and the price that market participants would pay to sub-lease the operating lease ROU assets and acquire remaining restaurant assets, even if that use differs from the current use by the Company. The after-tax cash flows incorporate reasonable assumptions we believe a franchisee would make, such as sales growth, and include a deduction for royalties we would receive under a franchise agreement with terms substantially at market. The discount rate used in the fair value calculation is our estimate of the required rate-of-return that a franchisee would expect to receive when purchasing a similar restaurant and the related long-lived assets. Estimates of the price market participants would pay to sub-lease the operating lease ROU assets are based on comparable market rental information that could be reasonably obtained for the property. In situations where the highest and best use of the restaurant-level assets from market participants’ perspective is represented by sub-leasing the operating lease ROU assets and acquiring remaining restaurant assets, the Company continues to use these assets in operating its restaurant business, which is consistent with its long-term strategy of growing revenue through operating restaurant concepts.

 

As of each relevant measurement date, the fair value of restaurant-level assets, if determined to be impaired, is primarily represented by a price that a market participant would pay to sub-lease the operating lease ROU assets and acquire the remaining restaurant assets, which reflects the highest and best use of the assets. Significant unobservable inputs used in the fair value measurement include market rental prices, which were determined with the assistance of an independent valuation specialist. The direct comparison approach is used as the valuation technique by assuming a sub-lease of each of the properties in its existing state with vacant possession. By making reference to lease transactions as available in the relevant market, comparable properties in close proximity have been selected and adjustments have been made to account for any difference in factors such as location and property size.

 

The following table presents amounts recognized from all non-recurring fair value measurements based on unobservable inputs (Level 3) during the quarters and years to date ended June 30, 2026 and 2025. These amounts exclude fair value measurements made for restaurants that were subsequently closed or refranchised prior to those respective period-end dates.

 

 

 

Quarter Ended

 

 

Year to Date Ended

 

 

 

 

 

6/30/2026

 

 

6/30/2025

 

 

6/30/2026

 

 

6/30/2025

 

 

Account Classification

Restaurant-level impairment(a)

 

 

7

 

 

 

8

 

 

 

7

 

 

 

8

 

 

Closure and impairment expenses, net

 

(a)
Restaurant-level impairment charges are recorded in Closures and impairment expenses, net and resulted mainly from our semi-annual impairment evaluation of long-lived assets of individual restaurants that were being operated at the time of impairment and had not been offered for refranchising. After considering the impairment charges recorded during the corresponding periods, the fair value of such assets as of June 30, 2026 and 2025 was $19 million and $23 million, respectively.