What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-11-02 compared with 2021-08-04 · 62 added, 53 removed, 330 unchanged (26% of the section changed)

1 unchanged sentence

CONDENSED CONSOLIDATED BALANCE SHEET

In millions, except per share data June 30,

In millions, except per share data September 30,

2021 December 31,

18 unchanged sentences

Accounts payable $ 772.6 $ 741.3

Dividends payable 1,027.3 —

Lease liability 701.5 701.5

27 unchanged sentences

CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)

Quarters Ended Six Months Ended

June 30, June 30,

Quarters Ended Nine Months Ended

September 30, September 30,

In millions, except per share data 2021 2020 2021 2020

25 unchanged sentences

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

Quarters Ended Six Months Ended

June 30, June 30,

Quarters Ended Nine Months Ended

September 30, September 30,

In millions 2021 2020 2021 2020

18 unchanged sentences

Total other comprehensive income (loss), net of tax ( 92.0 ) 47.5 ( 76.4 ) ( 276.1 )

Comprehensive income (loss) $ 2,284.0 $ 673.9 $ 3,772.1 $ 1,267.1

Comprehensive income $ 2,057.9 $ 1,810.1 $ 5,830.0 $ 3,077.2

See Notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

Quarters Ended Six Months Ended

June 30, June 30,

Quarters Ended Nine Months Ended

September 30, September 30,

In millions 2021 2020 2021 2020

8 unchanged sentences

Changes in working capital items 174.0 824.3 ( 134.8 ) ( 602.8 )

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

Cash provided by operations 2,617.8 2,939.5 6,475.0 4,272.4

Investing activities

13 unchanged sentences

Other ( 11.7 ) ( 0.1 ) ( 32.7 ) ( 122.0 )

Cash provided by (used for) financing activities ( 1,306.3 ) ( 1,577.9 ) ( 3,570.2 ) 1,955.1

Cash used for financing activities ( 927.4 ) ( 2,268.5 ) ( 4,497.6 ) ( 313.4 )

Effect of exchange rates on cash and cash equivalents ( 49.1 ) 25.0 ( 77.7 ) 9.2

Cash and equivalents increase (decrease) 29.7 ( 2,124.1 ) ( 399.7 ) 2,357.2

Cash and equivalents increase 1,256.4 428.1 856.7 2,785.3

Cash and equivalents at beginning of period 3,049.4 3,255.7 3,449.1 898.5

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)

For the six months ended June 30, 2020

For the nine months ended September 30, 2020

issued Accumulated other

17 unchanged sentences

Stock option exercises and other 136.8 3.1 123.4 260.2

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

Balance at September 30, 2020 1,660.6 $ 16.6 $ 7,854.7 $ 53,492.5 $ ( 236.3 ) $ ( 78.0 ) $ ( 2,444.5 ) ( 915.5 ) $ ( 67,077.1 ) $ ( 8,472.1 )

For the nine months ended September 30, 2021

issued Accumulated other

17 unchanged sentences

Stock option exercises and other 124.3 2.0 73.5 197.8

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 )

Balance at September 30, 2021 1,660.6 $ 16.6 $ 8,125.8 $ 55,897.7 $ ( 307.1 ) $ ( 30.2 ) $ ( 2,325.9 ) ( 913.4 ) $ ( 67,051.9 ) $ ( 5,675.0 )

See Notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)

For the quarter ended June 30, 2020

For the quarter ended September 30, 2020

issued Accumulated other

7 unchanged sentences

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 )

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 )

Net income 1,762.6 1,762.6

7 unchanged sentences

Stock option exercises and other 67.4 1.0 37.8 105.2

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

Balance at September 30, 2020 1,660.6 $ 16.6 $ 7,854.7 $ 53,492.5 $ ( 236.3 ) $ ( 78.0 ) $ ( 2,444.5 ) ( 915.5 ) $ ( 67,077.1 ) $ ( 8,472.1 )

For the quarter ended September 30, 2021

issued Accumulated other

7 unchanged sentences

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 )

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 )

Net income 2,149.9 2,149.9

7 unchanged sentences

Stock option exercises and other 45.7 0.5 21.0 66.7

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 )

Balance at September 30, 2021 1,660.6 $ 16.6 $ 8,125.8 $ 55,897.7 $ ( 307.1 ) $ ( 30.2 ) $ ( 2,325.9 ) ( 913.4 ) $ ( 67,051.9 ) $ ( 5,675.0 )

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

The results for the quarter and nine months ended September 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 June 30, 2021 2020

Restaurants at September 30, 2021 2020

Conventional franchised 21,552 21,781

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 5.5 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.

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 for each of the quarters 2021 and 2020, and 5.4 million shares for each of the nine months 2021 and 2020.

Share-based compensation awards that would have been antidilutive, and therefore were not included in the calculation of diluted weighted-average shares, totaled 1.4 million shares and 1.8 million shares for the quarters 2021 and 2020, respectively, and 3.0 million shares and 1.9 million shares for the nine months 2021 and 2020, respectively.

In September 2021, McDonald's Board of Directors declared a 7% increase in the quarterly cash dividend to $ 1.38 per share of

common stock, resulting in $ 1.0 billion of dividends payable in December 2021.

In addition, the Company resumed its

share repurchase program in September 2021.

Recent Accounting Pronouncements

12 unchanged sentences

The pronouncement provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate and other interbank offered rates to alternative reference rates.

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 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 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.

The effective income tax rate was 20.1 % and 20.5 % for the quarters ended 2021 and 2020, respectively, and 15.9 % and 22.2 % for the nine months ended 2021 and 2020, respectively.

The tax rate for the nine 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.

3 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 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.

At September 30, 2021, the fair value of the Company’s debt obligations was estimated at $ 39.7 billion, compared to a carrying amount of $ 35.1 billion.

These amounts do not include approximately $ 1.2 billion of additional debt that was issued in October 2021, which will be used to replace upcoming maturities of debt.

The additional debt consists of two €500 million Euro-denominated bonds with interest rates of 0.25 % and 0.875 % and maturity dates of 2028 and 2033, respectively.

The fair value of debt obligations is based upon quoted market prices, Level 2 within the valuation hierarchy.

The carrying amounts of cash and equivalents and notes receivable approximate fair value.

5 unchanged sentences

Derivative Assets Derivative Liabilities

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

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

Derivatives designated as hedging instruments

13 unchanged sentences

Total derivatives $ 284.1 $ 227.0 $ ( 10.0 ) $ ( 97.5 )

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:

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

Location of Gain or Loss

16 unchanged sentences

Equity Other operating income/expense, net

( 7.8 ) ( 5.6 )

Undesignated derivatives $ 57.0 $ 4.4

3 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 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.

At September 30, 2021, the carrying amount of fixed-rate debt that was effectively converted was $ 1.5 billion, which included an increase of $ 19.9 million of cumulative hedging adjustments.

For the nine months ended September 30, 2021, the Company recognized a $ 15.9 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.

Cash Flow Hedges

2 unchanged sentences

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

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.

As of September 30, 2021, the Company had derivatives outstanding with an equivalent notional amount of $ 1.3 billion that hedged a portion of forecasted foreign currency denominated cash flows.

Based on market conditions at September 30, 2021, the $ 30.2 million in cumulative cash flow hedging losses, after tax, is not expected to have a significant effect on earnings over the next 12 months.

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 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.

As of September 30, 2021, $ 11.4 billion of the Company's third-party foreign currency denominated debt, $ 1.2 billion of the Company's intercompany foreign currency denominated debt and $ 1.1 billion of derivatives were designated to hedge investments in certain foreign subsidiaries and affiliates.

Undesignated Derivatives

The Company enters into certain derivatives that are not designated for hedge accounting, therefore the changes in the fair value of these derivatives are recognized immediately in earnings together with the gain or loss from the hedged balance sheet position.

The Company enters into certain derivatives that are not designated for hedge accounting.

Therefore, the changes in the fair value of these derivatives are recognized immediately in earnings together with the gain or loss from the hedged balance sheet position.

As an example, the Company enters into equity derivative contracts, including total return swaps, to hedge market-driven changes in certain of its supplemental benefit plan liabilities.

Changes in the fair value of these derivatives are recorded in Selling, general & administrative expenses together with the changes in the supplemental benefit plan liabilities.

The Company may also use certain derivatives to mitigate the share price risk related to its sale of stock in McDonald’s Japan.

The Company has also used certain derivatives to mitigate the share price risk related to its sale of stock in McDonald’s Japan.

The changes in the fair value of the undesignated derivatives used for the most recent sale transaction were recognized immediately in earnings in Other Operating (income) expense, net.

2 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 June 30, 2021 and has master agreements that contain netting arrangements.

The Company did not have significant exposure to any individual counterparty at September 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 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.

At September 30, 2021, neither the Company nor its counterparties were 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.

Franchise Arrangements

Revenues from franchised restaurants consisted of:

Quarters Ended Six Months Ended

June 30, June 30,

Quarters Ended Nine Months Ended

September 30, September 30,

In millions 2021 2020 2021 2020

6 unchanged sentences

- the Company's largest market.

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

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

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

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

• International Developmental Licensed Markets & Corporate - comprised primarily of 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 June 30, 2021.

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

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

Quarters Ended Six Months Ended

June 30, June 30,

Quarters Ended Nine Months Ended

September 30, September 30,

In millions 2021 2020 2021 2020

8 unchanged sentences

Total operating income $ 2,986.5 $ 2,526.4 $ 7,958.9 $ 5,181.1

* 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.

* Results for the quarter and nine months 2021 included $ 106 million and $ 339 million, respectively, of net strategic gains primarily related to the sale of McDonald's Japan stock.

The quarter and nine months 2020 also included $139 million and $125 million, respectively, of net strategic gains, primarily related to the sale of McDonald's Japan stock.

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

Subsequent Events

2 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