What changed in this filing

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Item 1. Financial Statements

2024-08-08 compared with 2024-05-08 · 107 added, 42 removed, 343 unchanged (30% 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,

2024 December 31,

48 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 2024 2023 2024 2023

25 unchanged sentences

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

Quarters Ended

Quarters Ended Six Months Ended

June 30, June 30,

In millions 2024 2023 2024 2023

4 unchanged sentences

income ("AOCI"), including net investment hedges

28 40 ( 87 ) 55

Reclassification of (gain) loss to net income 41 — 41 —

1 unchanged sentence

benefit (expense) of $( 29 ), $ 18 , $( 122 ) and $ 54

69 40 ( 46 ) 55

Cash flow hedges:

2 unchanged sentences

Cash flow hedges-net of tax benefit (expense) of $( 1 ), $ 1 , $( 13 ) and $ 5

2 ( 2 ) 39 ( 20 )

Defined benefit pension plans:

3 unchanged sentences

of $ 1 , $ 0 , $ 1 and $ 1

— ( 3 ) 1 ( 5 )

Total other comprehensive income (loss), net of tax 71 35 ( 6 ) 30

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

Quarters Ended

Quarters Ended Six Months Ended

June 30, June 30,

In millions 2024 2023 2024 2023

18 unchanged sentences

Financing activities

Net short-term borrowings ( 339 ) 13

Net short-term borrowings (repayments) ( 2 ) ( 158 ) ( 341 ) ( 144 )

Long-term financing issuances 1,731 — 1,731 1,054

11 unchanged sentences

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)

For the quarter ended March 31, 2023

For the six months ended June 30, 2023

issued Accumulated other

18 unchanged sentences

Stock option exercises and other 94 1.6 55 149

Balance at March 31, 2023 1,660.6 $ 17 $ 8,636 $ 60,235 $ ( 299 ) $ 14 $ ( 2,204 ) ( 930.5 ) $ ( 72,174 ) $ ( 5,776 )

For the quarter ended March 31, 2024

Balance at June 30, 2023 1,660.6 $ 17 $ 8,736 $ 61,437 $ ( 303 ) $ 11 $ ( 2,164 ) ( 931.9 ) $ ( 72,733 ) $ ( 4,999 )

For the six months ended June 30, 2024

issued Accumulated other

18 unchanged sentences

Stock option exercises and other 73 1.3 48 121

Balance at June 30, 2024 1,660.6 $ 17 $ 9,055 $ 65,026 $ ( 367 ) $ 33 $ ( 2,129 ) ( 943.3 ) $ ( 76,459 ) $ ( 4,824 )

See Notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)

For the quarter ended June 30, 2023

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, 2023 1,660.6 $ 17 $ 8,636 $ 60,235 $ ( 299 ) $ 14 $ ( 2,204 ) ( 930.5 ) $ ( 72,174 ) $ ( 5,776 )

Net income 2,310 2,310

Other comprehensive income (loss),

net of tax ( 3 ) ( 2 ) 40 35

Comprehensive income 2,345

Common stock cash dividends

($ 1.52 per share)

( 1,109 ) ( 1,109 )

Treasury stock purchases ( 2.0 ) ( 579 ) ( 579 )

Share-based compensation 45 45

Stock option exercises and other 55 0.6 20 75

Balance at June 30, 2023 1,660.6 $ 17 $ 8,736 $ 61,437 $ ( 303 ) $ 11 $ ( 2,164 ) ( 931.9 ) $ ( 72,733 ) $ ( 4,999 )

For the quarter ended June 30, 2024

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, 2024 1,660.6 $ 17 $ 9,001 $ 64,203 $ ( 367 ) $ 32 $ ( 2,198 ) ( 939.9 ) $ ( 75,520 ) $ ( 4,833 )

Net income 2,022 2,022

Other comprehensive income (loss),

net of tax — 2 69 71

Comprehensive income 2,093

Common stock cash dividends

($ 1.67 per share)

( 1,199 ) ( 1,199 )

Treasury stock purchases ( 3.5 ) ( 946 ) ( 946 )

Share-based compensation 38 38

Stock option exercises and other 15 0.1 7 22

Balance at June 30, 2024 1,660.6 $ 17 $ 9,055 $ 65,026 $ ( 367 ) $ 33 $ ( 2,129 ) ( 943.3 ) $ ( 76,459 ) $ ( 4,824 )

See Notes to condensed consolidated financial statements.

4 unchanged sentences

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

The results for the quarter ended March 31, 2024 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, 2024 do not necessarily indicate the results that may be expected for the full year.

Change in Presentation

6 unchanged sentences

The following table presents restaurant information by ownership type:

Restaurants at March 31, 2024 2023

Restaurants at June 30, 2024 2023

Conventional franchised 21,892 21,719

7 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 4.1 million shares and 4.6 million shares for the quarters 2024 and 2023, respectively.

Share-based compensation awards that would have been antidilutive, and therefore were not included in the calculation of diluted weighted-average shares, totaled 2.1 million shares and 2.3 million shares for the quarters 2024 and 2023, 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 3.2 million shares and 4.7 million shares for the quarters ended 2024 and 2023, respectively, and 3.7 million shares and 4.6 million shares for the six months ended 2024 and 2023, respectively.

Share-based compensation awards that would have been antidilutive, and therefore were not included in the calculation of diluted weighted-average shares, totaled 3.2 million shares and 1.2 million shares for the quarters ended 2024 and 2023, respectively, and 2.2 million shares and 2.1 million shares for the six months ended 2024 and 2023, respectively.

Recent Accounting Pronouncements

17 unchanged sentences

Accelerating the Organization is designed to unlock further growth as the Company focuses on becoming faster, more innovative and more efficient for its customers and people.

The Company incurred $ 44 million of charges related to Accelerating the Organization in the three months ended March 31, 2024.

The Company incurred $ 101 million of charges related to Accelerating the Organization in the six months ended June 30, 2024.

These charges were recorded in the Other operating (income) expense, net line within the consolidated statement of income, and primarily recorded within the Corporate segment.

For the period presented, restructuring charges primarily consisted of professional services and consulting activities.

For the period presented, restructuring charges primarily consisted of professional services costs.

There were no significant non-cash impairment charges included in the amounts listed in the table below.

The following table summarizes the balance of accrued expenses related to this strategic initiative (in millions):

Employee Termination Benefits Costs to Terminate Contracts Other Related Costs Total

Employee Termination Benefits Costs to Terminate Contracts Professional Services and Other Costs Total

Accrued Balance at Beginning of Year $ 41 $ 11 $ 7 $ 59

3 unchanged sentences

Accrued Balance at March 31, 2024 $ 27 $ 6 $ 6 $ 39

Restructuring Costs Incurred ( 1 ) — 58 57

Cash Payments ( 5 ) ( 1 ) ( 50 ) ( 56 )

Other Non-Cash Items — — — —

Accrued Balance at June 30, 2024 $ 21 $ 5 $ 14 $ 40

The Company continues to evolve its ways of working by driving efficiency and effectiveness across the organization, primarily led by its Global Business Services organization.

Transformation efforts under Accelerating the Organization will continue to result in various restructuring charges as the strategy progresses through its anticipated end date of 2027.

The Company expects to incur up to $ 250 million of restructuring charges in 2024, primarily related to consulting activities.

Transformation efforts under Accelerating the Organization will continue to result in various restructuring charges as the strategy progresses through its anticipated completion during 2027.

The Company expects to incur approximately $ 250 million of restructuring charges in 2024, primarily related to professional services costs.

Equity Method Investments

The Company has various investments accounted for using the equity method.

Under the equity method of accounting, the Company records our proportionate share of the net income or loss of each equity method investee, with a corresponding change to the carrying value of the investment.

Under the equity method of accounting, the Company records its proportionate share of the net income or loss of each equity method investee, with a corresponding change to the carrying value of the investment.

The carrying value of the investment is also adjusted for any dividends received and the effect of foreign exchange.

The Company records its proportionate share of net income or loss within the Other operating (income) expense, net line on the consolidated statement of net income.

The carrying value of the investments are recorded within the Miscellaneous other assets line on the consolidated balance sheet.

The carrying value of the investments are recorded within the Investments in and advances to affiliates line on the consolidated balance sheet.

The Company’s primary equity method investments include partial ownership in Grand Foods Holding, an entity that operates and manages McDonald's business in mainland China, Hong Kong and Macau, and partial ownership in McDonald’s Japan Holdings Co., Ltd, an entity that operates and manages McDonald’s business in Japan.

2 unchanged sentences

The following table summarizes the amounts related to the Company’s primary equity method investees during the periods presented.

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

In Millions Percentage Ownership Fair Value (Level 1) Carrying Amount Percentage Ownership Fair Value (Level 1) Carrying Amount

4 unchanged sentences

As such, the Company remains a minority partner and will continue to account for the investment under the equity method.

As of March 31, 2024, the aggregate carrying amount of our investments in these equity method investees exceeded our proportionate share of the net assets of these equity method investees by $ 1,448 million.

As of June 30, 2024, the aggregate carrying amount of the Company's investments in these equity method investees exceeded its proportionate share of the net assets of these equity method investees by $ 1.5 billion.

This difference is not amortized.

Management has concluded that there are no indicators of impairment related to these investments.

The following table summarizes the amounts recorded related to the Company's primary equity method investments during the periods presented.

Quarters Ended March 31,

The following table summarizes the amounts recorded related to the Company's primary equity method investments during the six months ended June 30, 2024 and June 30, 2023, respectively.

Six Months Ended June 30,

In Millions 2024 2023

3 unchanged sentences

Dividends Received $ 13 $ 14

The effective income tax rate was 19.9 % and 20.5 % for the quarters ended 2024 and 2023, respectively.

The effective income tax rate was 20.9 % and 18.0 % for the quarters ended 2024 and 2023, respectively, and 20.4 % and 19.1 % for the six months ended 2024 and 2023, respectively.

The effective tax rate for both periods of 2023 reflected an income tax benefit of $ 55 million related to the remeasurement of a deferred tax liability.

Fair Value Measurements

6 unchanged sentences

There were no significant changes to the valuation techniques used to measure fair value as described in the Company's December 31, 2023 Annual Report on Form 10-K.

At March 31, 2024, the fair value of the Company’s debt obligations was estimated at $ 35.7 billion, compared to a carrying amount of $ 37.4 billion.

At June 30, 2024, the fair value of the Company’s debt obligations was estimated at $ 36.4 billion, compared to a carrying amount of $ 38.5 billion.

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

6 unchanged sentences

Derivative Assets Derivative Liabilities

In millions Balance Sheet Classification March 31, 2024 December 31, 2023 Balance Sheet Classification March 31, 2024 December 31, 2023

In millions Balance Sheet Classification June 30, 2024 December 31, 2023 Balance Sheet Classification June 30, 2024 December 31, 2023

Derivatives designated as hedging instruments

13 unchanged sentences

Total derivatives $ 181 $ 210 $ ( 78 ) $ ( 118 )

The following table presents the pre-tax amounts from derivative instruments affecting income and AOCI for the three months ended March 31, 2024 and 2023, respectively:

The following table presents the pre-tax amounts from derivative instruments affecting income and AOCI for the six months ended June 30, 2024 and 2023, respectively:

Location of gain or loss

20 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, 2024, 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 $ 64 million of cumulative hedging adjustments.

For the three months ended March 31, 2024, the Company recognized a $ 2 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, 2024, the carrying amount of fixed-rate debt that was effectively converted was an equivalent notional amount of $ 763 million, which included a decrease of $ 58 million of cumulative hedging adjustments.

For the six months ended June 30, 2024, the Company recognized a $ 4 million gain on the fair value of interest rate swaps, and a corresponding loss 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, 2024, the Company had derivatives outstanding with an equivalent notional amount of $ 1.9 billion that hedged a portion of forecasted foreign currency denominated cash flows.

Based on market conditions at March 31, 2024, the $ 32 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 June 30, 2024, the Company had derivatives outstanding with an equivalent notional amount of $ 2.2 billion that hedged a portion of forecasted foreign currency denominated cash flows.

Based on market conditions at June 30, 2024, the $ 33 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 March 31, 2024, $ 13.1 billion of the Company's third-party foreign currency denominated debt, $ 542 million of the Company's intercompany foreign currency denominated debt and $ 565 million of foreign currency derivatives were designated to hedge investments in certain foreign subsidiaries and affiliates.

Undesignated Derivatives

As of June 30, 2024, $ 13.6 billion of the Company's third-party foreign currency denominated debt, $ 539 million of the Company's intercompany foreign currency denominated debt and $ 1.7 billion of foreign currency derivatives were designated to hedge investments in certain foreign subsidiaries and affiliates.

Undesignated Hedges

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

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 March 31, 2024 and has master agreements that contain netting arrangements.

The Company did not have significant exposure to any individual counterparty at June 30, 2024 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, 2024, the Company was required to post $78 million of collateral due to the negative fair value of certain derivative positions.

At June 30, 2024, the Company was required to post $ 61 million 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 2024 2023 2024 2023

6 unchanged sentences

- the Company's largest market.

The segment is 95 % franchised as of March 31, 2024.

The segment is 95 % franchised as of June 30, 2024.

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

The segment is 89 % franchised as of March 31, 2024 .

The segment is 89 % franchised as of June 30, 2024.

• International Developmental Licensed Markets & Corporate - comprised primarily of developmental licensee and affiliate markets in the McDonald’s System, including equity method investments in China and Japan.

Corporate activities are also reported in this segment.

The segment is 98 % franchised as of March 31, 2024.

The segment is 98 % franchised as of June 30, 2024.

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 2024 2023 2024 2023

9 unchanged sentences

Subsequent Events

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

There were no subsequent events that required recognition or disclosure.

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

On July 2, 2024, the Company completed the acquisition of Alonyal Limited, which owns and operates 228 McDonald’s restaurants in Israel.

As a result of this acquisition, McDonald’s will now consolidate the financial statements of Alonyal Limited into its results.

Revenues from these restaurants will now be reflected as Company-owned and operated sales, rather than royalties charged to the former developmental licensee partner based on a percentage of sales being recorded within Franchised revenue.

The Company will continue to report results from this market within the International Developmental Licensed Markets & Corporate segment.

The Company is currently in the process of accounting for this transaction and expects to complete its preliminary allocation of the purchase consideration to the assets acquired and liabilities assumed by the end of the third quarter of 2024.

There were no other 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