Retail & Restaurants: Income tax disclosures (ASU 2023-09)

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740), which expands income tax disclosure requirements, primarily related to the effective tax rate reconciliation and income taxes paid. We adopted the standard prospectively in fiscal 2025.

Tax Rate Reconciliation	2025
(dollars in millions)	Amount	Percent
U.S. federal statutory rate	1,001	21.0
State and local income taxes, net of federal income tax effects (a)	168	3.5
Foreign tax effects
Hong Kong	( 72 )	( 1.5 )
Other foreign jurisdictions	15	0.3
Effect of cross-border tax laws	25	0.5
Tax credits	( 77 )	( 1.6 )
Nontaxable or nondeductible Items (b)	( 16 )	( 0.3 )
Changes in unrecognized tax benefits	19	0.4
Other adjustments	( 1 )	—
Effective tax rate	1,062	22.3

(a) State taxes in California, New York, Illinois, and Minnesota contributed to the majority of the tax effect in this category.

(b) The tax effects of share based compensation are classified within nontaxable or nondeductible items in the effective tax rate reconciliation for 2025.

In December of 2023, FASB issued Accounting Standard Update ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”). ASU 2023-09 enhances the transparency and decision usefulness of income tax disclosures. Under ASU 2023-09, a public entity would be required to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold, such as if the effect of the reconciling items is equal to or greater than five percent of the amount computed by multiplying pretax income/loss by the applicable statutory income tax rate. Entities would also have to disclose the amount of income taxes paid disaggregated by federal, state, and foreign taxes and the amount of income taxes paid disaggregated by individual jurisdictions in which income taxes paid is equal to or greater than five percent of total income taxes paid, along with income/loss from continuing operations before income tax expense disaggregated between domestic and foreign and income tax expense from continuing operations disaggregated by federal, state, and foreign. ASU 2023-09 is effective for annual reporting periods beginning after December 15, 2024. ASU 2023-09 allows for early adoption for annual financial statements that have not yet been issued and allows retrospective and prospective adoption. The Company adopted this guidance beginning with its fourth quarter ending December 31, 2025. The application of this new guidance did not have a material impact on the Company’s consolidated financial condition, results of operations, or cash flows, as the guidance pertains to disclosure only. See Note 17 for further information concerning the Company’s income taxes.

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Recent Accounting Pronouncements. In December 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-09, Income Taxes (Topic 740): 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. We adopted this standard for the fiscal year ended December 31, 2025. See Note 18.

Note 3 - Restaurant Acquisitions

In 2025 and 2024, we completed restaurant acquisitions from franchisees as detailed below. In each transaction, t he acquisition was accounted for as a business combination using the acquisition method of accounting. The allocation of the purchase price for each acquisition is based on management's analysis, which may include analysis performed by third party valuation specialists, as of the respective acquisition dates. In completing our purchase price allocations, we continue to obtain information to assist in determining the fair value of assets acquired and liabilities assumed and the classification of acquired leases during a one-year measurement period subsequent to the acquisition.

For all of these restaurant acquisitions, reacquired franchise rights are the primary intangible asset we recognize when acquiring restaurants from franchisees and were valued based on after-royalty cash flows expected to be earned by the acquired restaurants over the remaining term of their then-existing franchise agreements. The excess of the purchase price over the estimated fair value of the net, identifiable assets acquired was recorded as goodwill. The goodwill recognized represents expected benefits of the acquisition that do not qualify for recognition as intangible assets. This includes value arising from cash flows expected to be earned in years subsequent to the expiration of the terms of franchise agreements existing upon acquisition. The goodwill is expected to be partially deductible for income tax purposes and has been allocated to the respective reporting units.