What changed in this filing

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Item 1. Financial Statements

2021-08-04 compared with 2021-05-05 · 85 added, 36 removed, 298 unchanged (29% of the section changed)

1 unchanged sentence

CONDENSED CONSOLIDATED BALANCE SHEET

In millions, except per share data March 31,

In millions, except per share data June 30,

2021 December 31,

47 unchanged sentences

CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)

Quarters Ended

Quarters Ended Six Months Ended

June 30, June 30,

In millions, except per share data 2021 2020 2021 2020

25 unchanged sentences

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

Quarters Ended

Quarters Ended Six Months Ended

June 30, June 30,

In millions 2021 2020 2021 2020

16 unchanged sentences

Defined benefit pension plans-net of tax benefit (expense) of $0.1, $0.1, $0.1 and $0.5

( 5.0 ) 2.3 ( 15.2 ) 3.5

Total other comprehensive income (loss), net of tax 64.7 190.1 15.6 ( 323.6 )

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

Quarters Ended

Quarters Ended Six Months Ended

June 30, June 30,

In millions 2021 2020 2021 2020

8 unchanged sentences

Changes in working capital items ( 545.9 ) ( 1,230.5 ) ( 308.8 ) ( 1,427.1 )

Cash provided by operations 2,124.0 1,546.0

Cash provided by (used for) operations 1,733.2 ( 213.1 ) 3,857.2 1,332.9

Investing activities

20 unchanged sentences

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)

For the quarter ended March 31, 2020

For the six months ended June 30, 2020

issued Accumulated other

17 unchanged sentences

Stock option exercises and other 69.4 2.1 85.6 155.0

Balance at March 31, 2020 1,660.6 $ 16.6 $ 7,713.5 $ 53,106.7 $ ( 242.5 ) $ ( 36.7 ) $ ( 2,717.2 ) ( 917.1 ) $ ( 67,133.8 ) $ ( 9,293.4 )

For the quarter ended March 31, 2021

Balance at June 30, 2020 1,660.6 $ 16.6 $ 7,780.0 $ 52,660.8 $ ( 240.2 ) $ ( 56.0 ) $ ( 2,510.1 ) ( 916.5 ) $ ( 67,114.2 ) $ ( 9,463.1 )

For the six months ended June 30, 2021

issued Accumulated other

17 unchanged sentences

Stock option exercises and other 78.6 1.5 52.5 131.1

Balance at June 30, 2021 1,660.6 $ 16.6 $ 8,046.0 $ 55,739.0 $ ( 302.8 ) $ ( 61.0 ) $ ( 2,207.4 ) ( 913.8 ) $ ( 67,038.4 ) $ ( 5,808.0 )

See Notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)

For the quarter ended June 30, 2020

issued Accumulated other

comprehensive income (loss) Common stock in

treasury Total

shareholders’

equity (deficit)

capital Retained

earnings Pensions Cash flow

hedges Foreign

In millions, except per share data Shares Amount Shares Amount

Balance at March 31, 2020 1,660.6 $ 16.6 $ 7,713.5 $ 53,106.7 $ ( 242.5 ) $ ( 36.7 ) $ ( 2,717.2 ) ( 917.1 ) $ ( 67,133.8 ) $ ( 9,293.4 )

Net income 483.8 483.8

Other comprehensive income (loss),

net of tax 2.3 ( 19.3 ) 207.1 190.1

Comprehensive income 673.9

Common stock cash dividends

($1.25 per share) ( 929.7 ) ( 929.7 )

Treasury stock purchases ( 0.1 ) ( 2.3 ) ( 2.3 )

Share-based compensation 30.8 30.8

Stock option exercises and other 35.7 0.7 21.9 57.6

Balance at June 30, 2020 1,660.6 $ 16.6 $ 7,780.0 $ 52,660.8 $ ( 240.2 ) $ ( 56.0 ) $ ( 2,510.1 ) ( 916.5 ) $ ( 67,114.2 ) $ ( 9,463.1 )

For the quarter ended June 30, 2021

issued Accumulated other

comprehensive income (loss) Common stock in

treasury Total

shareholders’

equity (deficit)

capital Retained

earnings Pensions Cash flow

hedges Foreign

In millions, except per share data Shares Amount Shares Amount

Balance at March 31, 2021 1,660.6 $ 16.6 $ 7,959.1 $ 54,483.0 $ ( 297.8 ) $ ( 73.2 ) $ ( 2,264.9 ) ( 914.5 ) $ ( 67,058.3 ) $ ( 7,235.5 )

Net income 2,219.3 2,219.3

Other comprehensive income (loss),

net of tax ( 5.0 ) 12.2 57.5 64.7

Comprehensive income 2,284.0

Common stock cash dividends

($1.29 per share) ( 963.3 ) ( 963.3 )

Treasury stock purchases — ( 3.0 ) ( 3.0 )

Share-based compensation 36.5 36.5

Stock option exercises and other 50.4 0.7 22.9 73.3

Balance at June 30, 2021 1,660.6 $ 16.6 $ 8,046.0 $ 55,739.0 $ ( 302.8 ) $ ( 61.0 ) $ ( 2,207.4 ) ( 913.8 ) $ ( 67,038.4 ) $ ( 5,808.0 )

See Notes to condensed consolidated financial statements.

4 unchanged sentences

In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation have been included.

The results for the quarter ended March 31, 2021, do not necessarily indicate the results that may be expected for the full year.

The results for the quarter and six months ended June 30, 2021 do not necessarily indicate the results that may be expected for the full year.

Restaurant Information

The following table presents restaurant information by ownership type:

Restaurants at March 31, 2021 2020

Restaurants at June 30, 2021 2020

Conventional franchised 21,519 21,822

7 unchanged sentences

Diluted earnings per common share is calculated using net income divided by diluted weighted-average shares.

Diluted weighted-average shares include weighted-average shares outstanding plus the dilutive effect of share-based compensation, calculated using the treasury stock method, of 5.2 million shares and 5.9 million shares for the quarters 2021 and 2020, respectively.

Share-based compensation awards that would have been antidilutive, and therefore were not included in the calculation of diluted weighted-average shares, totaled 3.6 million shares and 2.0 million shares for the quarters 2021 and 2020, respectively.

Diluted weighted-average shares include weighted-average shares outstanding plus the dilutive effect of share-based compensation, calculated using the treasury stock method, of 5.5 million shares and 4.8 million shares for the quarters 2021 and 2020, respectively, and 5.4 million shares and 5.3 million shares for the six months 2021 and 2020, respectively.

Share-based compensation awards that would have been antidilutive, and therefore were not included in the calculation of diluted weighted-average shares, totaled 3.0 million shares and 2.8 million shares for the quarters 2021 and 2020, respectively, and 3.0 million shares and 2.8 million shares for the six months 2021 and 2020, respectively.

Recent Accounting Pronouncements

8 unchanged sentences

Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848):

In March 2020, the FASB issued ASU No.

2020-04, “Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting" (“ASU 2020-04”).

1 unchanged sentence

The guidance was effective upon issuance and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022.

The Company is currently evaluating the impact the adoption of ASU 2020-04 will have on its consolidated financial statements.

Updates to Significant Accounting Policies

Long-lived assets and Goodwill

Long-lived assets and Goodwill are typically reviewed for impairment annually in the fourth quarter and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable or if an indicator of impairment exists.

The Company has continued to monitor the global economic uncertainty as a result of COVID-19 to assess the outlook for restaurant operations and the impact that any disruption may have on the Company's business and overall financial performance.

As a result of the Company's analysis, and in consideration of the totality of events and circumstances, including the potential impact of COVID-19 related disruptions on the Company’s operating results, there were no indicators of impairment during the first quarter of 2021.

The adoption of ASU 2020-04 will not have a material impact on the Company's condensed consolidated financial statements.

The effective income tax rate was 6.6 % and 25.4 % for the quarters ended 2021 and 2020, respectively, and 13.2 % and 24.0 % for the six months ended 2021 and 2020, respectively.

The tax rate for the quarter and six months ended 2021 included a benefit of $ 364 million related to the remeasurement of deferred taxes as a result of a change in the U.K.

statutory income tax rate.

Fair Value Measurements

2 unchanged sentences

The Company did not have any significant changes to the valuation techniques used to measure fair value as described in the Company's December 31, 2020 Annual Report on Form 10-K.

At March 31, 2021, the fair value of the Company’s debt obligations was estimated at $ 39.8 billion, compared to a carrying amount of $ 35.7 billion.

At June 30, 2021, the fair value of the Company’s debt obligations was estimated at $ 40.3 billion, compared to a carrying amount of $ 35.4 billion.

The fair value was based upon quoted market prices, Level 2 within the valuation hierarchy.

6 unchanged sentences

Derivative Assets Derivative Liabilities

In millions Balance Sheet Classification March 31, 2021 December 31, 2020 Balance Sheet Classification March 31, 2021 December 31, 2020

In millions Balance Sheet Classification June 30, 2021 December 31, 2020 Balance Sheet Classification June 30, 2021 December 31, 2020

Derivatives designated as hedging instruments

13 unchanged sentences

Total derivatives $ 267.3 $ 227.0 $ ( 29.6 ) $ ( 97.5 )

The following table presents the pre-tax amounts from derivative instruments affecting income and AOCI for the three months ended March 31, 2021 and 2020, respectively:

The following table presents the pre-tax amounts from derivative instruments affecting income and AOCI for the six months ended June 30, 2021 and 2020, respectively:

Location of Gain or Loss

21 unchanged sentences

The Company enters into fair value hedges that convert a portion of its fixed rate debt into floating rate debt by use of interest rate swaps.

At March 31, 2021, the carrying amount of fixed-rate debt that was effectively converted was $ 1.0 billion, which included an increase of $ 26.9 million of cumulative hedging adjustments.

For the three months ended March 31, 2021, the Company recognized an $ 8.9 million loss on the fair value of interest rate swaps, and a corresponding gain on the fair value of the related hedged debt instrument to interest expense.

At June 30, 2021, the carrying amount of fixed-rate debt that was effectively converted was $ 1.5 billion, which included an increase of $ 25.7 million of cumulative hedging adjustments.

For the six months ended June 30, 2021, the Company recognized a $ 10.1 million loss on the fair value of interest rate swaps, and a corresponding gain on the fair value of the related hedged debt instrument to interest expense.

Cash Flow Hedges

2 unchanged sentences

The hedges cover the next 18 months for certain exposures and are denominated in various currencies.

As of March 31, 2021, the Company had derivatives outstanding with an equivalent notional amount of $ 1.2 billion that hedged a portion of forecasted foreign currency denominated cash flows.

Based on market conditions at March 31, 2021, the $ 73.2 million in cumulative cash flow hedging losses, after tax, is not expected to have a significant effect on earnings over the next 12 months.

As of June 30, 2021, the Company had derivatives outstanding with an equivalent notional amount of $ 1.4 billion that hedged a portion of forecasted foreign currency denominated cash flows.

Based on market conditions at June 30, 2021, the $ 61.0 million in cumulative cash flow hedging losses, after tax, is not expected to have a significant effect on earnings over the next 12 months.

Net Investment Hedges

1 unchanged sentence

Realized and unrealized translation adjustments from these hedges are included in shareholders' equity in the foreign currency translation component of Other comprehensive income ("OCI") and offset translation adjustments on the underlying net assets of foreign subsidiaries and affiliates, which also are recorded in OCI.

As of March 31, 2021, $ 11.6 billion of the Company's third party foreign currency denominated debt and $ 877.8 million of intercompany foreign currency denominated debt was designated to hedge investments in certain foreign subsidiaries and affiliates.

As of June 30, 2021, $ 11.6 billion of the Company's third-party foreign currency denominated debt and $ 1.0 billion of the Company's intercompany foreign currency denominated debt was designated to hedge investments in certain foreign subsidiaries and affiliates.

Undesignated Derivatives

7 unchanged sentences

The Company is exposed to credit-related losses in the event of non-performance by its derivative counterparties.

The Company did not have significant exposure to any individual counterparty at March 31, 2021 and has master agreements that contain netting arrangements.

The Company did not have significant exposure to any individual counterparty at June 30, 2021 and has master agreements that contain netting arrangements.

For financial reporting purposes, the Company presents gross derivative balances in the financial statements and supplementary data, including for counterparties subject to netting arrangements.

Some of these agreements also require each party to post collateral if credit ratings fall below, or aggregate exposures exceed, certain contractual limits.

At March 31, 2021, the Company was required to post an immaterial amount of collateral due to the negative fair value of certain derivative positions.

At June 30, 2021, the Company was required to post an immaterial amount of collateral due to the negative fair value of certain derivative positions.

The Company's counterparties were not required to post collateral on any derivative position, other than on certain hedges of the Company’s supplemental benefit plan liabilities where the counterparties were required to post collateral on their liability positions.

1 unchanged sentence

Revenues from franchised restaurants consisted of:

Quarters Ended

Quarters Ended Six Months Ended

June 30, June 30,

In millions 2021 2020 2021 2020

6 unchanged sentences

- the Company's largest market.

The segment is 95% franchised as of March 31, 2021.

The segment is 95% franchised as of June 30, 2021.

• International Operated Markets - comprised of markets or countries in which the Company operates and franchises restaurants, including Australia, Canada, France, Germany, Italy, the Netherlands, Russia, Spain and the U.K.

The segment is 84% franchised as of March 31, 2021.

The segment is 84% franchised as of June 30, 2021.

• International Developmental Licensed Markets & Corporate - comprised of primarily developmental licensee and affiliate markets in the McDonald’s system.

Corporate activities are also reported in this segment.

The segment is 98% franchised as of March 31, 2021.

The segment is 98% franchised as of June 30, 2021.

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

Quarters Ended

Quarters Ended Six Months Ended

June 30, June 30,

In millions 2021 2020 2021 2020

8 unchanged sentences

Total operating income $ 2,691.1 $ 961.1 $ 4,972.4 $ 2,654.7

* Results for the quarter 2021 included $ 128.6 million of strategic gains related to the sale of McDonald's Japan stock, which reduced the Company's ownership by an additional 3%.

As of March 31, 2021, the Company owned approximately 41 % of McDonald's Japan.

* Results included $ 98 million and $ 233 million for the quarter and six months, respectively, of net strategic gains primarily related to the sale of McDonald's Japan stock, which reduced the Company's total ownership by 3% for the quarter and 6% for the six months.

As of June 30, 2021, the Company owned approximately 38 % of McDonald's Japan.

The proceeds were recorded within the other investing activities section of the Condensed Consolidated Statement of Cash Flows.

3 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements