What changed in this filing

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Item 1. Financial Statements

2022-08-04 compared with 2022-05-02 · 125 added, 56 removed, 298 unchanged (38% 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,

2022 December 31,

42 unchanged sentences

924.9 and 915.8 million shares

( 70,303.8 ) ( 67,810.2 )

Total shareholders’ equity (deficit) ( 6,369.8 ) ( 4,601.0 )

2 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 2022 2021 2022 2021

25 unchanged sentences

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

Quarters Ended

Quarters Ended Six Months Ended

June 30, June 30,

In millions 2022 2021 2022 2021

13 unchanged sentences

Cash flow hedges-net of tax benefit (expense) of ( 24.3 ), ( 3.7 ), ( 29.3 ) and ( 14.9 )

84.7 12.2 102.0 50.3

Defined benefit pension plans:

8 unchanged sentences

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

Quarters Ended

Quarters Ended Six Months Ended

June 30, June 30,

In millions 2022 2021 2022 2021

12 unchanged sentences

Purchases of restaurant businesses ( 110.5 ) ( 49.4 ) ( 197.2 ) ( 88.1 )

Sales of restaurant businesses 16.5 29.6

Sales of restaurant and other businesses 351.7 52.2 368.2 81.8

Sales of property 6.3 23.8 11.2 56.6

11 unchanged sentences

Effect of exchange rates on cash and cash equivalents ( 75.4 ) 16.3 ( 197.6 ) ( 28.6 )

Cash and equivalents decrease ( 2,373.5 ) ( 429.4 )

Cash and equivalents increase (decrease) ( 463.2 ) 29.7 ( 2,836.7 ) ( 399.7 )

Cash and equivalents at beginning of period 2,335.7 3,019.7 4,709.2 3,449.1

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)

For the quarter ended March 31, 2021

For the six months ended June 30, 2021

issued Accumulated other

18 unchanged sentences

Stock option exercises and other 78.6 1.5 52.5 131.1

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 )

For the quarter ended March 31, 2022

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 )

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)

For the six months ended June 30, 2022

issued Accumulated other

18 unchanged sentences

Stock option exercises and other 54.5 1.3 44.1 98.6

Balance at June 30, 2022 1,660.6 $ 16.6 $ 8,378.7 $ 57,785.1 $ ( 183.5 ) $ 77.2 $ ( 2,140.1 ) ( 924.9 ) $ ( 70,303.8 ) $ ( 6,369.8 )

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)

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 )

For the quarter ended June 30, 2022

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, 2022 1,660.6 $ 16.6 $ 8,307.1 $ 57,614.0 $ ( 180.8 ) $ ( 7.5 ) $ ( 2,453.6 ) ( 921.1 ) $ ( 69,286.6 ) $ ( 5,990.8 )

Net income 1,188.0 1,188.0

Other comprehensive income (loss),

net of tax ( 2.7 ) 84.7 313.5 395.5

Comprehensive income 1,583.5

Common stock cash dividends

($ 1.38 per share)

( 1,016.9 ) ( 1,016.9 )

Treasury stock purchases ( 4.3 ) ( 1,031.2 ) ( 1,031.2 )

Share-based compensation 38.3 38.3

Stock option exercises and other 33.3 0.5 14.0 47.3

Balance at June 30, 2022 1,660.6 $ 16.6 $ 8,378.7 $ 57,785.1 $ ( 183.5 ) $ 77.2 $ ( 2,140.1 ) ( 924.9 ) $ ( 70,303.8 ) $ ( 6,369.8 )

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, 2022 do not necessarily indicate the results that may be expected for the full year.

During the first quarter of 2022, McDonald's announced it was temporarily suspending operations and closing restaurants in Russia and Ukraine.

The temporary closures were effective at the end of February in Ukraine and mid-March in Russia.

The Company is supporting its businesses in these markets through the continuation of employee salaries and lease payments as well as providing support to the Company's supply chain in the region.

The results for the quarter and six months ended June 30, 2022 do not necessarily indicate the results that may be expected for the full year.

In the first quarter of 2022, the Company temporarily closed restaurants in Russia and Ukraine due to the ongoing war in the region.

Restaurants remained closed in Ukraine throughout the second quarter.

During the second quarter of 2022, the Company completed the sale of its Russian business, resulting in a total exit from the market.

The Company recorded a charge for the quarter of $ 1.2 billion, comprised primarily of the write-off of the Company’s net investment in Russia, along with related cumulative foreign currency translation losses.

Restaurants remained closed in Russia through the completion of the sale in mid-June.

Restaurant Information

The following table presents restaurant information by ownership type:

Restaurants at March 31, 2022 2021

Restaurants at June 30, 2022 2021

Conventional franchised 21,621 21,519

4 unchanged sentences

Total Systemwide restaurants 39,696 * 39,396

Company-operated restaurants include 827 restaurants in Russia and Ukraine that were temporarily closed during the first quarter 2022 due to the ongoing military conflict in the region.

The results of operations of restaurant businesses purchased and sold in transactions with franchisees were not material either individually or in the aggregate to the condensed consolidated financial statements for the periods prior to purchase and sale.

*Reflects the sale of over 850 restaurants in Russia in the second quarter of 2022, most of which were Company-operated.

The results of operations of restaurant businesses purchased and sold in transactions with franchisees were not material either individually or in the aggregate to the accompanying condensed consolidated financial statements for the periods prior to purchase and sale.

Per Common Share Information

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 5.0 million shares and 5.2 million shares for the quarters 2022 and 2021, respectively.

Share-based compensation awards that would have been antidilutive, and therefore were not included in the calculation of diluted weighted-average shares, totaled 1.7 million shares and 3.6 million shares for the quarters 2022 and 2021, respectively.

Diluted earnings per common share is calculated as 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 4.5 million shares and 5.5 million shares for the quarters ended 2022 and 2021, respectively, and 4.8 million shares and

5.4 million shares for the six months ended 2022 and 2021, respectively.

Share-based compensation awards that would have been antidilutive, and therefore were not included in the calculation of diluted weighted-average shares, totaled 1.6 million shares and 3.0 million shares for the quarters ended 2022 and 2021, respectively, and 1.6 million shares and 3.0 million shares for the six months ended 2022 and 2021, respectively.

Recent Accounting Pronouncements

19 unchanged sentences

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 recent military conflict between Russia and Ukraine has created significant uncertainty and risk in these McDonald’s markets.

As such, the Company conducted an analysis after temporarily suspending operations in Russia and Ukraine during the first quarter of 2022.

The Company continues to monitor the economic uncertainty, while assessing the financial impact and outlook for restaurant operations in these markets.

As a result of the Company's analysis, and in consideration of the totality of events and circumstances, there was no impairment recorded during the first quarter of 2022.

As of March 31, 2022, the Company’s net investment in Russia and Ukraine was approximately $ 600 million, primarily consisting of building and equipment assets.

In addition, there was approximately $ 725 million of cumulative foreign currency translation losses reflected in the AOCI section of the condensed consolidated statement of shareholder’s equity at March 31, 2022.

The effective income tax rate was 28.3 % and 21.3 % for the quarters ended 2022 and 2021, respectively.

The tax rate for the quarter ended 2022 was impacted by the non-deductibility for tax purposes of the $ 500 million of nonoperating expense to reserve for a potential settlement related to an international tax matter.

Excluding the impacts of the $ 500 million of nonoperating expense and current and prior year strategic gains and charges, the effective income tax rate was 21.3 % and 20.9 % for the quarters ended 2022 and 2021, respectively.

Although the Company completed the sale of its business in Russia in mid-June of 2022, the ongoing war between Russia and Ukraine continues to present uncertainty and risk to the Company's operations in Ukraine.

The Company temporarily closed restaurants in Ukraine during the first quarter of 2022, and restaurants remained closed throughout the second quarter.

The Company continues to monitor the economic uncertainty, while assessing the financial impact and outlook for restaurant operations in this market.

As such, the Company conducted an analysis during the second quarter of 2022.

Based on the Company’s analysis and review of current circumstances, there was no impairment recorded during the second quarter of 2022.

As of June 30, 2022, the Company’s net investment in Ukraine was approximately $ 110 million, primarily consisting of building and equipment assets.

In addition, there was approximately $ 140 million of cumulative foreign currency translation losses reflected in the AOCI section of the condensed consolidated statement of shareholder’s equity at June 30, 2022.

The effective income tax rate was 15.7 % and 6.6 % for the quarters ended 2022 and 2021, respectively, and 22.3 % and 13.2 % for the six months ended 2022 and 2021, respectively.

The effective tax rate for both periods of 2022 reflected tax audit settlements and the remeasurement of income tax reserves associated with global tax audit progression, as well as the sale of Dynamic Yield and the Company's business in Russia.

The effective tax rate for both periods of 2021 included a benefit related to the remeasurement of deferred taxes as a result of a change in the U.K.

statutory income tax rate.

As of June 30, 2022 and December 31, 2021, the Company’s gross unrecognized tax benefits totaled $ 640.0 million and $ 1,504.9 million, respectively.

The Company continues to engage with various tax jurisdictions to resolve tax audits.

In the quarter, the Company finalized and settled certain tax examinations and remeasured other income tax reserves based on audit progression.

The following table presents a reconciliation of the beginning and ending amounts of unrecognized tax benefits:

In millions 2022

Balance at January 1 $ 1,504.9

Decreases for positions taken in prior years ( 572.1 )

Increases for positions taken in prior years 49.8

Increases for positions in the current year 19.4

Decreases due to settlements with taxing authorities ( 362.0 )

Decreases due to the lapsing of statutes of limitations —

Balance at June 30 $ 640.0

Fair Value Measurements

1 unchanged sentence

Fair value disclosures are reflected in a three-level hierarchy, maximizing the use of observable inputs and minimizing the use of unobservable inputs.

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, 2021 Annual Report on Form 10-K.

At March 31, 2022, the fair value of the Company’s debt obligations was estimated at $ 35.4 billion, compared to a carrying amount of $ 34.0 billion.

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

There were no significant changes to the valuation techniques used to measure fair value as described in the Company's December 31, 2021 Annual Report on Form 10-K.

At June 30, 2022, the fair value of the Company’s debt obligations was estimated at $ 33.7 billion, compared to a carrying amount of $ 34.6 billion.

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

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

5 unchanged sentences

Derivative Assets Derivative Liabilities

In millions Balance Sheet Classification March 31, 2022 December 31, 2021 Balance Sheet Classification March 31, 2022 December 31, 2021

In millions Balance Sheet Classification June 30, 2022 December 31, 2021 Balance Sheet Classification June 30, 2022 December 31, 2021

Derivatives designated as hedging instruments

13 unchanged sentences

Total derivatives $ 410.8 $ 289.6 $ ( 60.9 ) $ ( 7.9 )

The following table presents the pre-tax amounts from derivative instruments affecting income and AOCI for the quarters ended March 31, 2022 and 2021, respectively:

The following table presents the pre-tax amounts from derivative instruments affecting income and AOCI for the six months ended June 30, 2022 and 2021, respectively:

Location of gain or loss

20 unchanged sentences

The Company enters into fair value hedges to reduce the exposure to changes in fair values of certain liabilities.

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, 2022, the carrying amount of fixed-rate debt that was effectively converted was an equivalent notional amount of $ 1.0 billion, which included a decrease of $ 41.3 million of cumulative hedging adjustments.

For the quarter ended March 31, 2022, the Company recognized a $ 46.1 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.

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

At June 30, 2022, the carrying amount of fixed-rate debt that was effectively converted was an equivalent notional amount of $ 1.0 billion, which included a decrease of $ 60.9 million of cumulative hedging adjustments.

For the six months ended June 30, 2022, the Company recognized a $ 65.7 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 up to the next 18 months for certain exposures and are denominated in various currencies.

As of March 31, 2022, the Company had foreign currency derivatives outstanding with an equivalent notional amount of $ 1.4 billion that hedged a portion of forecasted foreign currency denominated cash flows.

As of June 30, 2022, the Company had foreign currency derivatives outstanding with an equivalent notional amount of $ 1.5 billion that hedged a portion of forecasted foreign currency denominated cash flows.

To protect against the variability of interest rates on anticipated bond issuances, the Company may use treasury locks to hedge a portion of expected future cash flows.

As of March 31, 2022, the Company had derivatives outstanding with a notional amount of $ 500 million that hedge a portion of forecasted cash flows.

Based on market conditions at March 31, 2022, the $ 7.5 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, 2022, the Company had derivatives outstanding with a notional amount of $ 500 million that hedge a portion of forecasted cash flows.

Based on market conditions at June 30, 2022, the $ 77.2 million in cumulative cash flow hedging gains, after tax, is not expected to have a significant effect on the Company's earnings over the next 12 months.

Net Investment Hedges

The Company uses foreign currency denominated debt (third-party and intercompany) as well as foreign currency derivatives to hedge its investments in certain foreign subsidiaries and affiliates.

The Company uses foreign currency denominated debt (third-party and intercompany) and foreign currency derivatives to hedge its investments in certain foreign subsidiaries and affiliates.

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, 2022, $ 12.2 billion of the Company's third-party foreign currency denominated debt, $ 1.5 billion of the Company's intercompany foreign currency denominated debt, and $ 267.4 million of foreign currency derivatives were designated to hedge investments in certain foreign subsidiaries and affiliates.

As of June 30, 2022, $ 12.5 billion of the Company's third-party foreign currency denominated debt, $ 882.5 million of the Company's intercompany foreign currency denominated debt and $ 239.8 million of foreign currency derivatives were designated to hedge investments in certain foreign subsidiaries and affiliates.

Undesignated Derivatives

4 unchanged sentences

In addition, the Company uses foreign currency forwards to mitigate the change in fair value of certain foreign currency denominated assets and liabilities.

The changes in the fair value of these derivatives are recognized in Nonoperating (income) expense, net, along with the currency gain or loss from the hedged balance sheet position.

Changes in the fair value of these derivatives are recognized in Nonoperating (income) expense, net, together with the currency gain or loss from the hedged balance sheet position.

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, 2022 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.

The Company did not have significant exposure to any individual counterparty at June 30, 2022 and has master agreements that contain netting arrangements.

For financial reporting purposes, the Company presents gross derivative balances in its 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, 2022, the Company was required to post an immaterial amount of collateral due to the negative fair value of certain derivative positions.

At June 30, 2022, 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 2022 2021 2022 2021

6 unchanged sentences

- the Company's largest market.

The segment is 95 % franchised as of March 31, 2022.

• 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 83 % franchised as of March 31, 2022.

As of March 31, 2022, all Company-owned restaurants in Russia and Ukraine were temporarily closed due to the ongoing military conflict in the region.

The segment is 95 % franchised as of June 30, 2022.

The segment is 89 % franchised as of June 30, 2022.

During the second quarter of 2022, the Company completed the sale of its business in Russia.

• 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 March 31, 2022.

The segment is 98 % franchised as of June 30, 2022.

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 2022 2021 2022 2021

8 unchanged sentences

Total operating income* $ 1,711.8 $ 2,691.1 4,024.4 4,972.4

*Results for 2022 included pre-tax charges of $ 1.2 billion for the quarter and $ 1.3 billion for the six months related to the sale of the Company's business in Russia, as well as $ 271 million of gains in both periods related to the Company's sale of its Dynamic Yield business.

The quarter and six months 2021 reflected $ 98 million and $ 233 million, respectively, of net gains, primarily related to the sale of McDonald's Japan stock.

Subsequent Events

The Company evaluated subsequent events through the date the financial statements were issued and filed with the Securities and Exchange Commission.

On April 1, 2022, the Company completed the sale of Dynamic Yield, a technology company acquired in 2019, which specializes in personalization and decision logic technology.

Dynamic Yield’s technology has been deployed to McDonald’s drive thrus and ordering kiosks in several markets globally.

The Company expects to record a pre-tax gain on the sale of approximately $ 260 million and cash proceeds of approximately $ 320 million (subject to final working capital adjustments) in the second quarter of 2022.

There were no other subsequent events that required recognition or disclosure.

There were no subsequent events that required recognition or disclosure.

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