What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-11-07 compared with 2022-08-04 · 60 added, 61 removed, 362 unchanged (25% 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,

2022 December 31,

47 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 2022 2021 2022 2021

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 2022 2021 2022 2021

24 unchanged sentences

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 2022 2021 2022 2021

31 unchanged sentences

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)

For the six months ended June 30, 2021

For the nine months ended September 30, 2021

issued Accumulated other

18 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 )

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)

For the six months ended June 30, 2022

For the nine months ended September 30, 2022

issued Accumulated other

18 unchanged sentences

Stock option exercises and other 97.6 1.7 61.8 159.4

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 )

Balance at September 30, 2022 1,660.6 $ 16.6 $ 8,460.1 $ 58,752.0 $ ( 186.2 ) $ 136.1 $ ( 2,509.6 ) ( 928.2 ) $ ( 71,235.2 ) $ ( 6,566.2 )

See Notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)

For the quarter ended June 30, 2021

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

8 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 )

For the quarter ended June 30, 2022

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 )

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)

For the quarter ended September 30, 2022

issued Accumulated other

7 unchanged sentences

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 )

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 )

Net income 1,981.6 1,981.6

8 unchanged sentences

Stock option exercises and other 43.1 0.4 17.7 60.8

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 )

Balance at September 30, 2022 1,660.6 $ 16.6 $ 8,460.1 $ 58,752.0 $ ( 186.2 ) $ 136.1 $ ( 2,509.6 ) ( 928.2 ) $ ( 71,235.2 ) $ ( 6,566.2 )

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, 2022 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, 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.

Beginning in September 2022, the Company began reopening certain restaurants in Ukraine.

In June 2022, the Company completed the sale of its Russian business, resulting in a total exit from the market.

The Company recorded a charge of $ 1,281 million for the nine months, comprised primarily of the write-off of the Company’s net investment in Russia, along with related cumulative foreign currency translation losses.

Restaurant Information

The following table presents restaurant information by ownership type:

Restaurants at June 30, 2022 2021

Restaurants at September 30, 2022 2021

Conventional franchised 21,641 21,552

8 unchanged sentences

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.

Diluted weighted-average shares include weighted-average shares outstanding plus the dilutive effect of share-based compensation, calculated using the treasury stock method, of 4.6 million shares and 5.5 million shares for the quarters 2022 and 2021, respectively, and 4.7 million shares and 5.4 million shares for the nine months 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 1.5 million shares and 1.4 million shares for the quarters 2022 and 2021, respectively, and 1.5 million shares and 3.0 million shares for the nine months 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.

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.

During 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 Russia through the Company's sale of its Russian business in the second quarter 2022.

Beginning in September 2022, the Company began reopening certain restaurants in Ukraine.

While the Company continues to monitor economic uncertainty resulting from the ongoing war and to assess the financial impact on restaurant operations in certain regions of Ukraine, based on its analysis and in consideration of the totality of events and circumstances, there were no indicators of impairment during the third quarter of 2022.

As of September 30, 2022, the Company’s net investment in Ukraine was approximately $ 75 million, primarily consisting of building and equipment assets.

In addition, there was approximately $ 150 million of cumulative foreign currency translation losses reflected in the AOCI section of the condensed consolidated statement of shareholder’s equity at September 30, 2022.

The effective income tax rate was 21.9 % and 20.1 % for the quarters 2022 and 2021, respectively, and 22.1 % and 15.9 % for the nine months 2022 and 2021, respectively.

The effective tax rate for the nine months 2022 reflected the tax impacts of current year pre-tax charges of $ 1,281 million related to the sale of the Company's business in Russia and a pre-tax gain of $ 271 million related to the Company's sale of its Dynamic Yield business.

The nine months 2022 also reflected $ 537 million of nonoperating expense related to the settlement of a tax audit in France.

The effective tax rates for the quarter and nine months 2021 reflected the tax impacts of net pre-tax gains of $ 106 million and $ 339 million, respectively, primarily related to the sale of McDonald's Japan stock as well as a benefit of $ 364 million in the nine months 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.

As of September 30, 2022 and December 31, 2021, the Company’s gross unrecognized tax benefits totaled $ 616.4 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.

During the nine months 2022, 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

4 unchanged sentences

Decreases due to the lapsing of statutes of limitations

Balance at June 30 $ 640.0

Balance at September 30

Fair Value Measurements

2 unchanged sentences

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.

At September 30, 2022, the fair value of the Company’s debt obligations was estimated at $ 31.9 billion, compared to a carrying amount of $ 34.9 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.

The carrying amount of cash and equivalents a pproximate fair value.

Financial Instruments and Hedging Activities

4 unchanged sentences

Derivative Assets Derivative Liabilities

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

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

Derivatives designated as hedging instruments

13 unchanged sentences

Total derivatives $ 408.2 $ 289.6 $ ( 106.3 ) $ ( 7.9 )

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:

The following table presents the pre-tax amounts from derivative instruments affecting income and AOCI for the nine months ended September 30, 2022 and 2021, 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 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.

At September 30, 2022, the carrying amount of fixed-rate debt that was effectively converted was an equivalent notional amount of $ 952.1 million, which included a decrease of $ 92.0 million of cumulative hedging adjustments.

For the nine months ended September 30, 2022, the Company recognized a $ 96.8 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 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.

As of September 30, 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.

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 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.

As of September 30, 2022, the Company did no t have any of these derivatives outstanding.

Based on market conditions at September 30, 2022, the $ 136.1 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

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, 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.

As of September 30, 2022, $ 11.7 billion of the Company's third-party foreign currency denominated debt, $ 826.5 million of the Company's intercompany foreign currency denominated debt and $ 224.9 million of foreign currency derivatives were designated to hedge investments in certain foreign subsidiaries and affiliates.

Undesignated Derivatives

6 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, 2022 and has master agreements that contain netting arrangements.

The Company did not have significant exposure to any individual counterparty at September 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 June 30, 2022, the Company was required to post an immaterial amount of collateral due to the negative fair value of certain derivative positions.

At September 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 Six Months Ended

June 30, June 30,

Quarters Ended Nine Months Ended

September 30, September 30,

In millions 2022 2021 2022 2021

6 unchanged sentences

- the Company's largest market.

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

The segment is 95 % franchised as of September 30, 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, Spain and the U.K.

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

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

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

1 unchanged sentence

Corporate activities are also reported in this segment.

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

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

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 2022 2021 2022 2021

8 unchanged sentences

Total operating income* $ 2,763.9 $ 2,986.5 $ 6,788.3 $ 7,958.9

*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.

*Results for the nine months 2022 included pre-tax charges of $ 1,281 million related to the sale of the Company's business in Russia, as well as $ 271 million of gains related to the Company's sale of its Dynamic Yield business.

The quarter and nine months 2021 reflected $ 106 million and $ 339 million, respectively, of net gains, primarily related to the sale of McDonald's Japan stock.

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