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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended
June 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from             to            
Commission File Number 1-5231
McDONALD’S CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Delaware
 
36-2361282
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
 
110 North Carpenter Street
Chicago, Illinois
 
60607
(Address of Principal Executive Offices)
 
(Zip Code)
(630) 623-3000
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.01 par value
MCD
New York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes    No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes    No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
 
Accelerated Filer
 
 
 
 
Non-accelerated Filer
 
Smaller Reporting Company
 
 
 
 
 
Emerging Growth Company
 
 
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes    No  
744,102,514
(Number of shares of common stock
outstanding as of 6/30/2020)
 
 
 
 
 



McDONALD’S CORPORATION
___________________________
INDEX
_______
 
 
 
Page Reference
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 1A – Risk Factors
 
 
 
 
Item 6 – Exhibits
 
 
All trademarks used herein are the property of their respective owners and are used with permission.

2


PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEET
 
 
 
 
 
 
 
 
(unaudited)
 
 
 
In millions, except per share data
 
June 30,
2020
 
 
December 31,
2019
Assets
 
 
 
 
 
Current assets
 
 
 
 
 
Cash and equivalents
 
$
3,255.7

 
 
$
898.5

Accounts and notes receivable
 
2,852.6

 
 
2,224.2

Inventories, at cost, not in excess of market
 
42.6

 
 
50.2

Prepaid expenses and other current assets
 
458.5

 
 
385.0

Total current assets
 
6,609.4

 
 
3,557.9

Other assets
 
 
 
 
 
Investments in and advances to affiliates
 
1,278.1

 
 
1,270.3

Goodwill
 
2,671.9

 
 
2,677.4

Miscellaneous
 
2,547.2

 
 
2,584.0

Total other assets
 
6,497.2

 
 
6,531.7

Lease right-of-use asset, net
 
13,002.3

 
 
13,261.2

Property and equipment
 
 
 
 
 
Property and equipment, at cost
 
39,137.4

 
 
39,050.9

Accumulated depreciation and amortization
 
(15,307.4
)
 
 
(14,890.9
)
Net property and equipment
 
23,830.0

 
 
24,160.0

Total assets
 
$
49,938.9

 
 
$
47,510.8

Liabilities and shareholders’ equity
 
 
 
 
 
Current liabilities
 
 
 
 
 
Short-term borrowings
 
$
1,000.0

 
 
$

Accounts payable
 
538.4

 
 
988.2

Lease liability
 
681.2

 
 
621.0

Income taxes
 
302.8

 
 
331.7

Other taxes
 
247.4

 
 
247.5

Accrued interest
 
316.1

 
 
337.8

Accrued payroll and other liabilities
 
1,073.6

 
 
1,035.7

Current maturities of long-term debt
 
3,086.6

 
 
59.1

Total current liabilities
 
7,246.1

 
 
3,621.0

Long-term debt
 
34,675.6

 
 
34,118.1

Long-term lease liability
 
12,478.9

 
 
12,757.8

Long-term income taxes
 
1,871.3

 
 
2,265.9

Deferred revenues - initial franchise fees
 
664.2

 
 
660.6

Other long-term liabilities
 
916.7

 
 
979.6

Deferred income taxes
 
1,549.2

 
 
1,318.1

Shareholders’ equity (deficit)
 
 
 
 
 
Preferred stock, no par value; authorized – 165.0 million shares; issued – none
 

 
 

Common stock, $.01 par value; authorized – 3.5 billion shares; issued – 1,660.6 million shares
 
16.6

 
 
16.6

Additional paid-in capital
 
7,780.0

 
 
7,653.9

Retained earnings
 
52,660.8

 
 
52,930.5

Accumulated other comprehensive income (loss)
 
(2,806.3
)
 
 
(2,482.7
)
Common stock in treasury, at cost; 916.5 and 914.3 million shares
 
(67,114.2
)
 
 
(66,328.6
)
Total shareholders’ equity (deficit)
 
(9,463.1
)
 
 
(8,210.3
)
Total liabilities and shareholders’ equity (deficit)
 
$
49,938.9

 
 
$
47,510.8

See Notes to condensed consolidated financial statements.

3


CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarters Ended
 
 
Six Months Ended
 
 
June 30,
 
 
June 30,
In millions, except per share data
 
2020
 
 
2019
 
 
2020
 
 
2019
Revenues
 
 
 
 
 
 
 
 
 
 
 
Sales by Company-operated restaurants
 
$
1,593.7

 
 
$
2,400.4

 
 
$
3,619.5

 
 
$
4,640.9

Revenues from franchised restaurants
 
2,088.0

 
 
2,940.9

 
 
4,696.0

 
 
5,656.0

Other revenues
 
79.8

 
 
68.5

 
 
160.4

 
 
137.0

Total revenues
 
3,761.5

 
 
5,409.8

 
 
8,475.9

 
 
10,433.9

Operating costs and expenses
 
 
 
 
 
 
 
 
 
 
 
Company-operated restaurant expenses
 
1,448.4

 
 
1,967.1

 
 
3,201.2

 
 
3,853.3

Franchised restaurants-occupancy expenses
 
524.5

 
 
544.7

 
 
1,078.7

 
 
1,077.8

Other restaurant expenses
 
63.3

 
 
55.4

 
 
128.8

 
 
108.7

Selling, general & administrative expenses
 
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization
 
71.0

 
 
63.2

 
 
144.5

 
 
124.6

Other
 
576.0

 
 
469.9

 
 
1,092.3

 
 
907.6

Other operating (income) expense, net
 
117.2

 
 
35.6

 
 
175.7

 
 
(6.0
)
Total operating costs and expenses
 
2,800.4

 
 
3,135.9

 
 
5,821.2

 
 
6,066.0

Operating income
 
961.1

 
 
2,273.9

 
 
2,654.7

 
 
4,367.9

Interest expense
 
319.1

 
 
284.2

 
 
599.1

 
 
558.3

Nonoperating (income) expense, net
 
(6.7
)
 
 
(18.1
)
 
 
(38.0
)
 
 
(29.5
)
Income before provision for income taxes
 
648.7

 
 
2,007.8

 
 
2,093.6

 
 
3,839.1

Provision for income taxes
 
164.9

 
 
490.9

 
 
502.9

 
 
993.8

Net income
 
$
483.8

 
 
$
1,516.9

 
 
$
1,590.7

 
 
$
2,845.3

Earnings per common share-basic
 
$
0.65

 
 
$
1.99

 
 
$
2.14

 
 
$
3.73

Earnings per common share-diluted
 
$
0.65

 
 
$
1.97

 
 
$
2.12

 
 
$
3.69

Dividends declared per common share
 
$
1.25

 
 
$
1.16

 
 
$
2.50

 
 
$
2.32

Weighted-average shares outstanding-basic
 
743.8

 
 
761.8

 
 
744.3

 
 
763.3

Weighted-average shares outstanding-diluted
 
748.6

 
 
768.7

 
 
749.6

 
 
770.2

See Notes to condensed consolidated financial statements.

4


CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarters Ended
 
 
Six Months Ended
 
 
June 30,
 
 
June 30,
In millions
 
2020
 
 
2019
 
 
2020
 
 
2019
Net income
 
$
483.8

 
 
$
1,516.9

 
 
$
1,590.7

 
 
$
2,845.3

Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments:
 
 
 
 
 
 
 
 
 
 
 
Gain (loss) recognized in accumulated other comprehensive
income ("AOCI"), including net investment hedges
207.1

 
 
27.4

 
 
(259.1
)
 
 
70.8

Reclassification of (gain) loss to net income

 
 
1.2

 
 

 
 
46.8

Foreign currency translation adjustments-net of tax
benefit (expense) of $66.1, $27.8, ($49.2), and ($32.2)
207.1

 
 
28.6

 
 
(259.1
)
 
 
117.6

Cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
Gain (loss) recognized in AOCI
(17.6
)
 
 
1.0

 
 
(57.2
)
 
 
9.2

Reclassification of (gain) loss to net income
(1.7
)
 
 
(8.0
)
 
 
(10.8
)
 
 
(17.0
)
Cash flow hedges-net of tax benefit (expense) of $5.8, $2.0, $20.5, and $2.3
(19.3
)
 
 
(7.0
)
 
 
(68.0
)
 
 
(7.8
)
Defined benefit pension plans:
 
 
 
 
 
 
 
 
 
 
 
Gain (loss) recognized in AOCI
(0.6
)
 
 
0.4

 
 
(2.5
)
 
 
0.4

Reclassification of (gain) loss to net income
2.9

 
 
1.5

 
 
6.0

 
 
2.7

Defined benefit pension plans-net of tax benefit (expense)
of $0.1, $0.0, $0.5, and $0.0
2.3

 
 
1.9

 
 
3.5

 
 
3.1

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

 
 
23.5

 
 
(323.6
)
 
 
112.9

Comprehensive income (loss)
 
$
673.9

 
 
$
1,540.4

 
 
$
1,267.1

 
 
$
2,958.2

See Notes to condensed consolidated financial statements.

5


CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarters Ended
 
Six Months Ended
 
 
 
June 30,
 
June 30,
 
In millions
 
2020
 
2019
 
2020
 
2019
 
Operating activities
 
 
 
 
 
 
 
 
 
Net income
 
$
483.8

 
$
1,516.9

 
$
1,590.7

 
$
2,845.3

 
Adjustments to reconcile to cash provided by operations
 
 
 
 
 
 
 
 
 
Charges and credits:
 
 
 
 
 
 
 
 
 
Depreciation and amortization
 
425.7

 
398.3

 
847.0

 
790.9

 
Deferred income taxes
 
(42.1
)
 
58.0

 
234.3

 
112.3

 
Share-based compensation
 
30.8

 
28.9

 
56.7

 
60.5

 
Other
 
119.2

 
14.9

 
31.3

 
66.4

 
Changes in working capital items
 
(1,230.5
)
 
(91.5
)
 
(1,427.1
)
 
70.7

 
Cash provided by (used for) operations
 
(213.1
)
 
1,925.5

 
1,332.9

 
3,946.1

 
Investing activities
 
 
 
 
 
 
 
 
 
Capital expenditures
 
(305.0
)
 
(597.8
)
 
(787.5
)
 
(1,113.1
)
 
Purchases of restaurant businesses
 
(23.7
)
 
(384.8
)
 
(43.3
)
 
(393.8
)
 
Sales of restaurant businesses
 
1.8

 
68.6

 
27.5

 
200.5

 
Sales of property
 
1.8

 
68.9

 
17.6

 
91.2

 
Other
 
(71.5
)
 
(54.9
)
 
(129.3
)
 
(456.1
)
 
Cash used for investing activities
 
(396.6
)
 
(900.0
)
 
(915.0
)
 
(1,671.3
)
 
Financing activities
 
 
 
 
 
 
 
 
 
Net short-term borrowings
 
(4.1
)
 
589.1

 
107.7

 
495.1

 
Long-term financing issuances
 
0.8

 
6.5

 
5,540.2

 
2,519.8

 
Long-term financing repayments
 
(699.9
)
 
(981.2
)
 
(962.6
)
 
(1,396.2
)
 
Treasury stock purchases
 
(2.3
)
 
(1,067.4
)
 
(904.9
)
 
(2,063.5
)
 
Common stock dividends
 
(929.7
)
 
(883.0
)
 
(1,860.4
)
 
(1,769.8
)
 
Proceeds from stock option exercises
 
57.7

 
139.4

 
157.0

 
250.0

 
Other
 
(0.4
)
 
0.5

 
(121.9
)
 
(10.8
)
 
Cash provided by (used for) financing activities
 
(1,577.9
)
 
(2,196.1
)
 
1,955.1

 
(1,975.4
)
 
Effect of exchange rates on cash and cash equivalents
 
63.5

 
16.0

 
(15.8
)
 
(30.9
)
 
Cash and equivalents increase (decrease)
 
(2,124.1
)
 
(1,154.6
)
 
2,357.2

 
268.5

 
Cash and equivalents at beginning of period
 
5,379.8

 
2,289.1

 
898.5

 
866.0

 
Cash and equivalents at end of period
 
$
3,255.7

 
$
1,134.5

 
$
3,255.7

 
$
1,134.5

 
See Notes to condensed consolidated financial statements.

6


CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
For the six months ended June 30, 2019
 
Common stock
issued
 
 
 
 
 
 
Accumulated other
comprehensive income (loss)
 
 
Common stock in
treasury
 
Total
shareholders’
equity (deficit)
 
Additional
paid-in
capital
 
 
Retained
earnings

Pensions
 
Cash flow
hedges
 
Foreign
currency
translation
 
 
In millions, except per share data
Shares

Amount
 
Shares

 
Amount

Balance at December 31, 2018
1,660.6

 
$
16.6

 
$
7,376.0

 
$
50,487.0

 
$
(216.6
)
 
$
32.4

 
$
(2,425.3
)
 
(893.5
)
 
$
(61,528.5
)
 
$
(6,258.4
)
Net income
 
 
 
 
 
 
2,845.3

 
 
 
 
 
 
 
 
 
 
 
2,845.3

Other comprehensive income (loss),
net of tax
 
 
 
 
 
 
 
 
3.1

 
(7.8
)
 
117.6

 
 
 
 
 
112.9

Comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2,958.2

Common stock cash dividends
($2.32 per share)
 
 
 
 
 
 
(1,769.8
)
 
 
 
 
 
 
 
 
 
 
 
(1,769.8
)
Treasury stock purchases
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(10.8
)
 
(2,047.3
)
 
(2,047.3
)
Share-based compensation
 
 
 
 
60.5

 
 
 
 
 
 
 
 
 
 
 
 
 
60.5

Stock option exercises and other
 
 
 
 
113.0

 
 
 
 
 
 
 
 
 
3.1

 
135.0

 
248.0

Balance at June 30, 2019
1,660.6

 
$
16.6

 
$
7,549.5

 
$
51,562.5

 
$
(213.5
)
 
$
24.6

 
$
(2,307.7
)
 
(901.2
)
 
$
(63,440.8
)
 
$
(6,808.8
)

For the six months ended June 30, 2020
 
Common stock
issued
 
 
 
 
 
 
Accumulated other
comprehensive income (loss)
 
 
Common stock in
treasury
 
Total
shareholders’
equity (deficit)
 
Additional
paid-in
capital
 
 
Retained
earnings

Pensions
 
Cash flow
hedges
 
Foreign
currency
translation
 
 
In millions, except per share data
Shares

Amount
 
Shares

 
Amount

Balance at December 31, 2019
1,660.6

 
$
16.6

 
$
7,653.9

 
$
52,930.5

 
$
(243.7
)
 
$
12.0

 
$
(2,251.0
)
 
(914.3
)
 
$
(66,328.6
)
 
$
(8,210.3
)
Net income
 
 
 
 
 
 
1,590.7

 
 
 
 
 
 
 
 
 
 
 
1,590.7

Other comprehensive income (loss),
net of tax
 
 
 
 
 
 
 

 
3.5

 
(68.0
)
 
(259.1
)
 
 
 
 
 
(323.6
)
Comprehensive income
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
1,267.1

Common stock cash dividends
($2.50 per share)
 
 
 
 
 
 
(1,860.4
)
 
 
 
 
 
 
 
 
 
 
 
(1,860.4
)
Treasury stock purchases
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(4.3
)
 
(871.2
)
 
(871.2
)
Share-based compensation
 
 
 
 
56.7

 
 
 
 
 
 
 
 
 
 
 
 
 
56.7

Stock option exercises and other
 
 
 
 
69.4

 
 
 
 
 
 
 
 
 
2.1

 
85.6

 
155.0

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
)

See Notes to condensed consolidated financial statements.


7


CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
For the quarter ended June 30, 2019
 
Common stock
issued
 
 
 
 
 
 
Accumulated other
comprehensive income (loss)
 
 
Common stock in
treasury
 
Total
shareholders’
equity (deficit)
 
Additional
paid-in
capital
 
 
Retained
earnings

Pensions
 
Cash flow
hedges
 
Foreign
currency
translation
 
 
In millions, except per share data
Shares

Amount
 
Shares

 
Amount

Balance at March 31, 2019
1,660.6

 
$
16.6

 
$
7,438.5

 
$
50,928.6

 
$
(215.4
)
 
$
31.6

 
$
(2,336.3
)
 
(897.1
)
 
$
(62,414.5
)
 
$
(6,550.9
)
Net income
 
 
 
 
 
 
1,516.9

 
 
 
 
 
 
 
 
 
 
 
1,516.9

Other comprehensive income (loss),
net of tax
 
 
 
 
 
 
 
 
1.9

 
(7.0
)
 
28.6

 
 
 
 
 
23.5

Comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,540.4

Common stock cash dividends
($1.16 per share)
 
 
 
 
 
 
(883.0
)
 
 
 
 
 
 
 
 
 
 
 
(883.0
)
Treasury stock purchases
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(5.4
)
 
(1,083.6
)
 
(1,083.6
)
Share-based compensation
 
 
 
 
28.9

 
 
 
 
 
 
 
 
 
 
 
 
 
28.9

Stock option exercises and other
 
 
 
 
82.1

 
 
 
 
 
 
 
 
 
1.3

 
57.3

 
139.4

Balance at June 30, 2019
1,660.6

 
$
16.6

 
$
7,549.5

 
$
51,562.5

 
$
(213.5
)
 
$
24.6

 
$
(2,307.7
)
 
(901.2
)
 
$
(63,440.8
)
 
$
(6,808.8
)

For the quarter ended June 30, 2020
 
Common stock
issued
 
 
 
 
 
 
Accumulated other
comprehensive income (loss)
 
 
Common stock in
treasury
 
Total
shareholders’
equity (deficit)
 
Additional
paid-in
capital
 
 
Retained
earnings

Pensions
 
Cash flow
hedges
 
Foreign
currency
translation
 
 
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
)

See Notes to condensed consolidated financial statements.









8


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
McDonald’s Corporation, the registrant, together with its subsidiaries, is referred to herein as the "Company." The Company, its franchisees and suppliers, are referred to herein as the "System."
Basis of Presentation
The accompanying Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements contained in the Company’s December 31, 2019 Annual Report on Form 10-K. 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, 2020, do not necessarily indicate the results that may be expected for the full year.
Prior to January 1, 2020, the Company presented both expenditures and receipts related to technology fees charged to franchisees and revenues related to certain licensing arrangements within Other operating (income) expense, net, because these activities were not part of the Company’s ongoing major or central operations. Effective January 1, 2020, the Company is presenting the revenues and expenses related to these activities within Other revenues and Other restaurant expenses, respectively, in the Condensed Consolidated Statement of Income. The change in presentation was applied retrospectively to all periods presented and had no effect on Operating income, Net income, or Earnings per share.

Restaurant Information
The following table presents restaurant information by ownership type:
Restaurants at June 30,
2020
 
2019
Conventional franchised
21,822

 
21,717

Developmental licensed
7,685

 
7,413

Foreign affiliated
6,864

 
6,331

Total Franchised
36,371

 
35,461

Company-operated
2,649

 
2,647

Total Systemwide restaurants
39,020

 
38,108


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.

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 4.8 million shares and 6.9 million shares for the quarters 2020 and 2019, respectively, and 5.3 million shares and 6.9 million shares for the six months 2020 and 2019, respectively. Share-based compensation awards that would have been antidilutive, and therefore were not included in the calculation of diluted weighted-average shares, totaled 2.8 million shares and 1.1 million shares for the quarters 2020 and 2019, respectively, and 2.8 million shares and 2.0 million shares for the six months 2020 and 2019, respectively.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

Financial Instruments - Credit Losses

In June 2016, the FASB issued guidance codified in Accounting Standards Codification Topic 326, "Financial Instruments – Credit Losses: Measurements of Credit Losses on Financial Instruments". The standard replaces the incurred loss impairment methodology in prior GAAP with a methodology that instead reflects a current estimate of all expected credit losses on financial assets, including receivables. The guidance requires that an entity measure and recognize expected credit losses at the time the asset is recorded, while considering a broader range of information to estimate credit losses including country specific macroeconomic conditions that correlate with historical loss experience, delinquency trends and aging behavior of receivables, among others. The Company adopted this guidance effective January 1, 2020, prospectively, and the adoption of this standard did not have a material impact to the Condensed Consolidated Financial Statements. The Company had an Allowance for bad debts of $116.7 million as of June 30, 2020 recorded as a reduction to Accounts and notes receivable on the Condensed Consolidated Balance Sheet. Included in this amount were increases in the allowance related to rent and royalty deferrals of $45 million and $92 million for the quarter and six months, respectively. The Company will continue to actively monitor the impact of the COVID-19 pandemic on expected losses.

9


Recent Accounting Pronouncements Not Yet Adopted

Income Taxes

In December 2019, the FASB issued Accounting Standard Update (“ASU”) No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” ("ASU 2019-12"), which simplifies the accounting for income taxes. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, including applicable interim periods. The Company is currently evaluating the impact the adoption of ASU 2019-12 will have on its consolidated financial statements.

Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting" ("ASU 2020-04"). 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 Company is currently evaluating the impact the adoption of ASU 2020-04 will have on its consolidated financial statements.

Updates to Significant Accounting Policies

Revenue recognition

The Company's revenues consist of sales by Company-operated restaurants and fees from restaurants operated by franchisees, developmental licensees and affiliates. Revenues from conventional franchised restaurants include rent and royalties based on a percent of sales with minimum rent payments, and initial fees. Revenues from restaurants licensed to developmental licensees and affiliates include a royalty based on a percent of sales, and generally include initial fees. The Company’s Other revenues are comprised of fees paid by franchisees to recover a portion of costs incurred by the Company for various technology platforms, revenues from brand licensing arrangements to market and sell consumer packaged goods using the McDonald’s brand, and third party revenues for the Dynamic Yield business.
Sales by Company-operated restaurants are recognized on a cash basis at the time of the underlying sale and are presented net of sales tax and other sales-related taxes. Royalty revenues are based on a percent of sales and recognized at the time the underlying sales occur. Rental income includes both minimum rent payments, which are recognized straight-line over the franchise term (with the exception of rent concessions as a result of COVID-19 – refer to the Leasing policy update on page 11), and variable rent payments based on a percent of sales, which are recognized at the time the underlying sales occur. Initial fees are recognized as the Company satisfies the performance obligation over the franchise term, which is generally 20 years.
The Company provides goods or services related to various technology platforms to certain franchisees that are distinct from the franchise agreement because they do not require integration with other goods or services we provide. The Company has determined that it is the principal in these arrangements. Accordingly, the related revenue is presented on a gross basis on the Condensed Consolidated Statement of Income. These revenues are recognized as the goods or services are transferred to the franchisee, and related expenses are recognized as incurred. Brand licensing arrangement revenues are based on a percent of sales and are recognized at the time the underlying sales occur. Dynamic Yield third party revenues are generated from providing software as a service solutions to customers and are recognized over the applicable subscription period as the service is performed.

Long-lived assets, Goodwill and Capitalized Software

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 significant 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 quarter or six months 2020.
In addition to the Long-lived assets and Goodwill impairment analysis, the Company reviews capitalized software for impairment 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, which occurs more regularly throughout the year, such as when new software may be ready for its intended use. Results for the quarter and six months 2020 reflected write-offs of impaired software that were no longer being used of $11.9 million and $26.3 million, respectively.

10



Leasing

The FASB issued guidance for how companies may account for COVID-19 related rent concessions in the form of FASB staff and Board members’ remarks at the April 8, 2020 public meeting and the FASB Staff Q&A issued on April 10, 2020.
The Company elected the practical expedient to account for COVID-19 related rent concessions as if they were part of the enforceable rights and obligations of the parties under the existing lease contract. This was elected for the Company’s entire lessee and lessor portfolio for any rent deferrals or rent abatements. For the lessee portfolio, the Company elected not to remeasure the lease liability and right-of-use asset if a rent deferral or a rent abatement is granted.
The Company deferred collection of approximately $150 million and $450 million of rental income on revenue that was recognized in the quarter and six months, respectively. Rental income includes both minimum rent payments and variable rent payments based on a percent of sales. The extent of the deferrals differs in length by market, but the deferrals primarily impact cash collection in the second quarter of 2020, the vast majority of which is expected to be collected in the third and fourth quarters of 2020.
Refer to the Cash Flow and Liquidity section on page 27 of this Form 10-Q for additional information on deferred collections of rental income as well as royalties.

Fair Value Measurements
The Company measures certain financial assets and liabilities at fair value. 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, 2019 Annual Report on Form 10-K.
At June 30, 2020, the fair value of the Company’s debt obligations was estimated at $43.9 billion, compared to a carrying amount of $38.8 billion, which reflects the new financings during the first quarter of a $1 billion line of credit and $5.5 billion of debt issuances under the Company's existing registration statement on Form S-3 with maturities ranging from 2025 to 2050 and interests rates ranging from 1.45% to 4.20%. The fair value was based upon quoted market prices, Level 2 within the valuation hierarchy. The carrying amounts of cash and equivalents, short-term investments and notes receivable approximate fair value.

11


Financial Instruments and Hedging Activities
The Company is exposed to global market risks, including the effect of changes in interest rates and foreign currency fluctuations. The Company uses foreign currency denominated debt and derivative instruments to mitigate the impact of these changes. The Company does not hold or issue derivatives for trading purposes.
The following table presents the fair values of derivative instruments included on the Condensed Consolidated Balance Sheet:
  
Derivative Assets
 
Derivative Liabilities
In millions
Balance Sheet Classification
 
June 30, 2020
 
December 31, 2019
 
Balance Sheet Classification
 
June 30, 2020
 
December 31, 2019
Derivatives designated as hedging instruments
 
 
 
 
 
 
 
 
Foreign currency
Prepaid expenses and other current assets
 
$
10.4

 
$
10.0

 
Accrued payroll and other liabilities
 
$
(4.9
)
 
$
(5.2
)
Interest rate
Prepaid expenses and other current assets
 
 
 
 
 
Accrued payroll and other liabilities
 

 

Foreign currency
Miscellaneous other assets
 
24.7

 
9.5

 
Other long-term liabilities
 
(2.2
)
 
(1.2
)
Interest rate
Miscellaneous other assets

 
39.3

 
12.1

 
Other long-term liabilities
 


 


Total derivatives designated as hedging instruments
 
$
74.4

 
$
31.6

 
 
 
$
(7.1
)
 
$
(6.4
)
Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
Equity
Prepaid expenses and other current assets


 
$
0.2

 
$
1.6

 
Accrued payroll and other liabilities
 
$

 
$
(0.1
)
Foreign currency
Prepaid expenses and other current assets


 

 
12.4

 
Accrued payroll and other liabilities
 
(0.6
)
 
(4.8
)
Equity
Miscellaneous other assets
 
155.3

 
179.1

 
 
 
 
 
 
Total derivatives not designated as hedging instruments
 
$
155.5

 
$
193.1

 
 
 
$
(0.6
)
 
$
(4.9
)
Total derivatives
 
$
229.9

 
$
224.7

 
 
 
$
(7.7
)
 
$
(11.3
)

    The following table presents the pre-tax amounts from derivative instruments affecting income and AOCI for the six months ended June 30, 2020 and 2019, respectively:
 
Location of Gain or Loss
Recognized in Income on
Derivative
 
Gain (Loss)
Recognized in AOCI
 
Gain (Loss)
Reclassified into Income from AOCI
 
Gain (Loss) Recognized in
Income on Derivative
 
 
 
 
 
 
 
 
In millions
 
 
2020
 
2019
 
2020
 
2019
 
2020
 
2019
Foreign currency
Nonoperating income/expense
 
$
16.4

 
$
11.9

 
$
16.4

 
$
22.6

 
 
 
 
Interest rate
Interest expense
 
(90.8
)
 


 
(2.3
)
 
(0.6
)
 
 
 
 
Cash flow hedges
 
$
(74.4
)
 
$
11.9

 
$
14.1

 
$
22.0

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency denominated debt
Nonoperating income/expense
 
$
91.3

 
$
104.3

 
 
 
 
 
 
 
 
Foreign currency derivatives
Nonoperating income/expense
 
15.0

 
9.2

 
 
 
 
 
 
 
 
Foreign currency derivatives(1)
Interest expense
 
 
 
 
 
 
 
 
 
$
7.3

 
$
5.1

Net investment hedges
 
$
106.3

 
$
113.5

 
 
 
 
 
$
7.3

 
$
5.1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency
Nonoperating income/expense
 
 
 
 
 
 
 
 
 
$
(10.9
)
 
$
(2.9
)
Equity
Selling, general & administrative expenses
 
 
 
 
 
 
 
 
 
(23.6
)
 
61.0

Undesignated derivatives
 
 
 
 
 
 
 
 
 
$
(34.5
)
 
$
58.1

(1)The amount of gain (loss) recognized in income related to components excluded from effectiveness testing.







12



Fair Value Hedges
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 June 30, 2020, the carrying amount of fixed-rate debt that was effectively converted was $1.0 billion, which included an increase of $39.3 million of cumulative hedging adjustments. For the six months ended June 30, 2020, the Company recognized a $27.2 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
The Company enters into cash flow hedges to reduce the exposure to variability in certain expected future cash flows. To protect against the reduction in value of forecasted foreign currency cash flows (such as royalties denominated in foreign currencies), the Company uses foreign currency forwards to hedge a portion of anticipated exposures. The hedges cover the next 18 months for certain exposures and are denominated in various currencies. To protect against the variability of interest rates of an anticipated bond issuance, the Company may use treasury locks to hedge a portion of the expected future cash flows.
As of June 30, 2020, the Company had derivatives outstanding with an equivalent notional amount of $934.9 million that hedged a portion of forecasted foreign currency denominated cash flows.
Based on market conditions at June 30, 2020, the $56.0 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
The Company primarily uses foreign currency denominated debt (third party and intercompany) 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 June 30, 2020, $12.2 billion of the Company's third party foreign currency denominated debt and $0.5 billion of intercompany foreign currency denominated debt was 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. 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. 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.
Credit Risk
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, 2020 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, 2020, 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.

13


Franchise Arrangements
Revenues from franchised restaurants consisted of:
 
 
 
 
 
 
 
 
 
Quarters Ended
 
Six Months Ended
 
June 30,
 
June 30,
In millions
2020
 
2019
 
2020
 
2019
 
 
 
 
 
 
 
 
Rents
$
1,314.9

 
$
1,898.6

 
$
2,983.1

 
$
3,646.2

Royalties
762.0

 
1,031.8

 
1,690.8

 
1,988.5

Initial fees
11.1

 
10.5

 
22.1

 
21.3

Revenues from franchised restaurants
$
2,088.0

 
$
2,940.9

 
$
4,696.0

 
$
5,656.0



Segment Information
The Company operates under an organizational structure with the following global business segments reflecting how management reviews and evaluates operating performance:
U.S. - the Company's largest market. The segment is 95% franchised as of June 30, 2020.
International Operated Markets - comprised of wholly-owned markets, or countries in which the Company operates restaurants, including Australia, Canada, France, Germany, Italy, the Netherlands, Russia, Spain and the U.K. The segment is 84% franchised as of June 30, 2020.
International Developmental Licensed Markets & Corporate - comprised of primarily developmental licensee and affiliate markets in the McDonald’s system. Corporate activities are also reported within this segment. The segment is 98% franchised as of June 30, 2020.
The following table presents the Company’s revenues and operating income by segment:
 
Quarters Ended
 
Six Months Ended
  
June 30,
 
June 30,
In millions
2020
 
2019
 
2020
 
2019
Revenues
 
 
 
 
 
 
 
U.S.
$
1,758.6

 
$
2,043.8

 
$
3,629.6

 
$
3,931.4

International Operated Markets
1,612.5

 
2,904.5

 
4,016.8

 
5,587.2

International Developmental Licensed Markets & Corporate
390.4

 
461.5

 
829.5

 
915.3

Total revenues
$
3,761.5

 
$
5,409.8

 
$
8,475.9

 
$
10,433.9

Operating Income
 
 
 
 
 
 
 
U.S.
$
735.2

 
$
1,048.8

 
1,627.6

 
2,000.7

International Operated Markets
234.8

 
1,218.8

 
1,113.9

 
2,266.8

International Developmental Licensed Markets & Corporate
(8.9
)
 
6.3

 
(86.8
)
 
100.4

Total operating income
$
961.1

 
$
2,273.9

 
2,654.7

 
4,367.9



Subsequent Events
The Company evaluated subsequent events through the date the financial statements were issued and filed with the Securities and Exchange Commission.
In July 2020, the Company announced its plan to divest a portion of our stake in McDonald’s Japan, which is a publicly traded company on the Japan Exchange Group (JASDAQ). The Company currently owns about 49% of McDonald's Japan and we record our share of net results in Equity in earnings of unconsolidated affiliates. We will retain at least a 35% ownership and expect the divestiture will occur gradually over time.
On July 30, 2020 the Company repaid the total $1 billion balance on its line of credit that was classified as Short-term borrowings on the Condensed Consolidated Balance Sheet as of June 30, 2020. The $1 billion line of credit agreement remains in place and the amount remains available to be borrowed.
There were no other subsequent events that required recognition or disclosure.

14


Item  2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
The Company franchises and operates McDonald’s restaurants, which serve a locally-relevant menu of quality food and beverages in 119 countries. Of the 39,020 restaurants at June 30, 2020, 36,371 were franchised, which is 93% of McDonald's restaurants.
The Company’s reporting segments are aligned with its strategic priorities and reflect how management reviews and evaluates operating performance. Significant reportable segments include the United States ("U.S.") and International Operated Markets. In addition, throughout this report we present the International Developmental Licensed Markets & Corporate segment, which includes markets in over 80 countries, as well as Corporate activities.
McDonald’s franchised restaurants are owned and operated under one of the following structures - conventional franchise, developmental license or affiliate. The optimal ownership structure for an individual restaurant, trading area or market (country) is based on a variety of factors, including the availability of individuals with entrepreneurial experience and financial resources, as well as the local, legal and regulatory environment in critical areas such as property ownership and franchising. The business relationship between McDonald’s and its independent franchisees is supported by adhering to standards and policies and is of fundamental importance to overall performance and to protecting the McDonald’s brand.
The Company is primarily a franchisor and believes franchising is paramount to delivering great-tasting food, locally relevant customer experiences and driving profitability. Franchising enables an individual to be their own employer and maintain control over all employment related matters, marketing and pricing decisions, while also benefiting from the strength of McDonald’s global brand, operating system and financial resources.
Directly operating McDonald’s restaurants contributes significantly to our ability to act as a credible franchisor. One of the strengths of the franchising model is that the expertise from operating Company-owned restaurants allows McDonald’s to improve the operations and success of all restaurants while innovations from franchisees can be tested and, when viable, efficiently implemented across relevant restaurants. Company-owned and operated restaurants provide Company personnel with a venue for restaurant operations training experience. In addition, in our Company-owned and operated restaurants, and in collaboration with franchisees, we are able to further develop and refine operating standards, marketing concepts and product and pricing strategies that will ultimately benefit McDonald’s restaurants.
The Company’s revenues consist of sales by Company-operated restaurants and fees from restaurants operated by franchisees. Fees vary by type of site, amount of Company investment, if any, and local business conditions. These fees, along with occupancy and operating rights, are stipulated in franchise/license agreements that generally have 20-year terms. The Company’s Other revenues are comprised of technology fees paid by franchisees, revenues from brand licensing arrangements, and third party revenues for the Dynamic Yield business.
Conventional Franchise
Under a conventional franchise arrangement, the Company generally owns or secures a long-term lease on the land and building for the restaurant location and the franchisee pays for equipment, signs, seating and décor. The Company believes that ownership of real estate, combined with the co-investment by franchisees, enables us to achieve restaurant performance levels that are among the highest in the industry.
Franchisees are responsible for reinvesting capital in their businesses over time. In addition, to accelerate implementation of certain initiatives, the Company may co-invest with franchisees to fund improvements to their restaurants or their operating systems. These investments, developed in collaboration with franchisees, are designed to cater to consumer preferences, improve local business performance, and increase the value of our brand through the development of modernized, more attractive and higher revenue generating restaurants.
The Company requires franchisees to meet rigorous standards and generally does not work with passive investors. The business relationship with franchisees is designed to facilitate consistency and high quality at all McDonald’s restaurants. Conventional franchisees contribute to the Company’s revenue, primarily through the payment of rent and royalties based upon a percent of sales, with specified minimum rent payments, along with initial fees paid upon the opening of a new restaurant or grant of a new franchise. The Company's heavily franchised business model is designed to generate stable and predictable revenue, which is largely a function of franchisee sales, and resulting cash flow streams. As most revenues are based on a percent of sales, the Company expects that temporary restaurant closures, limited operations and dramatic changes in consumer behavior, as a result of COVID-19, will continue to have a significant negative impact on revenues.
Developmental License or Affiliate
Under a developmental license or affiliate arrangement, licensees are responsible for operating and managing the business, providing capital (including the real estate interest) and developing and opening new restaurants. The Company generally does not invest any capital under a developmental license or affiliate arrangement, and it receives a royalty based on a percent of sales, and generally receives initial fees upon the opening of a new restaurant or grant of a new license.

15


While developmental license and affiliate arrangements are largely the same, affiliate arrangements are used in a limited number of foreign markets (primarily China and Japan) where the Company also has an equity investment and records its share of net results in Equity in earnings of unconsolidated affiliates.
As both royalty revenues and the Company's share of net results in equity investments are based on sales results, the Company expects to continue to have a significant negative impact to revenues and Equity in earnings of unconsolidated affiliates as a result of COVID-19.

COVID-19 Impact and Strategic Direction
Driven by our Velocity Growth Plan (the "Plan") the Company delivered strong global comparable sales in 2019 and early 2020. The outbreak of COVID-19 and the resulting operational impact brought on by several related factors, including temporary restaurant closures, limited operations and dramatic changes in consumer behavior, led to a marked decline in sales during the second half of March and early in the second quarter. The Company focused on contactless service and enhancing operating procedures to create a safe environment for both customers and crew. Global monthly comparable sales sequentially improved throughout the second quarter as markets reopened and government restrictions eased. In addition, the Company is:
Capitalizing on our high drive-thru penetration during the COVID-19 pandemic. Our drive-thru presence around the world has proven to be a competitive advantage as markets with a higher percentage of drive-thru are showing quicker recovery.
Focusing on running great restaurants by simplifying operations through a limited menu rooted in our core, iconic menu items and by creating a better customer experience with improved speed of service.
While the Company cannot predict the duration or scope of the COVID-19 pandemic, it has negatively impacted the business and our financial results, condition and outlook. The Company has demonstrated the strategic foresight that will position our business for future success. This includes the Company’s investments in technology and new capabilities through the following initiatives:

Delivery. We now offer delivery in over 27,000 restaurants around the world and our delivery sales are up significantly versus pre-COVID-19 levels. We have been leveraging learnings throughout the System and sharing innovative best practices across our markets, including the use of contactless delivery, to adapt to changing customer behaviors. We continue to see great opportunities with delivery, and are focusing our efforts on encouraging customer order frequency and retention in 2020 and beyond.
Digital. The investments the Company has made over the past several years with our emerging digital customer experience platform; including mobile order and pay and the acquisitions of Dynamic Yield and Apprente, remain a priority for our business. Dynamic Yield has been implemented via outdoor digital menu boards across the U.S. and Australia, offering customers a more customized experience, while Apprente, the conversational interface technology is expected to provide more efficient and accurate ordering in the drive-thru in the future. Our digital investments enable us to give customers more choices and flexibility in how they order, pay, and receive their food during this unprecedented time and will remain important to our business moving forward.
The Company is confident that our customer focus and current prioritization of resources will be important levers as we drive our recovery and we will continue to use our strategic agility to adapt to the evolving environment. While the Plan has served us well and elements of the Plan will continue to be important, we will continue to evolve the strategy as needed to meet the needs of the customer.









16


Second Quarter and Six Months 2020 Financial Performance
Global comparable sales increased 7.2% for the two months ended February 2020, with all segments benefiting from Leap Day. Globally, sales results began to markedly decline during the second half of March due to COVID-19. Throughout the second quarter of 2020, the U.S., International Operated Markets segment and global monthly comparable sales results sequentially improved as markets reopened restaurants and governments eased restrictions. Global comparable sales decreased 23.9% for the quarter and 14.0% for the six months.
U.S. comparable sales decreased 8.7% for the quarter and 4.5% for the six months. Comparable sales results for the second quarter of 2020 continued to benefit from strong average check growth. Comparable guest counts remained negative, particularly at the breakfast daypart.
International Operated Markets segment comparable sales decreased 41.4% for the quarter and 24.8% for the six months. Both periods were heavily impacted by temporary restaurant closures and limited operations, particularly in the U.K. and France.
International Developmental Licensed Markets segment comparable sales decreased 24.2% for the quarter and 14.4% for the six months. The second quarter results were primarily impacted by temporary restaurant closures across nearly all geographies, most notably in Latin America. Results for the quarter and six months reflected continued negative comparable sales in China. Results for both periods also reflected positive comparable sales in Japan.
In addition to the comparable sales results, the Company had the following financial results for the quarter and six months 2020:
Consolidated revenues decreased 30% (29% in constant currencies) for the quarter and 19% (17% in constant currencies) for the six months.
Systemwide sales decreased 24% (23% in constant currencies) for the quarter and 14% (13% in constant currencies) for the six months.
Consolidated operating income decreased 58% (57% in constant currencies) for the quarter and 39% (38% in constant currencies) for the six months.
Diluted earnings per share decreased 67% (66% in constant currencies) to $0.65 for the quarter and decreased 43% (42% in constant currencies) to $2.12 for the six months. Refer to the Net Income and Diluted Earnings per Share section on page 19 for additional details.

Management reviews and analyzes business results excluding the effect of foreign currency translation, impairment and other strategic charges and gains, as well as income tax provision adjustments related to the Tax Cuts and Jobs Act of 2017 ("Tax Act"), and bases incentive compensation plans on these results, because the Company believes this better represents underlying business trends.
The Following Definitions Apply to these Terms as Used Throughout this Form 10-Q:
Constant currency results exclude the effects of foreign currency translation and are calculated by translating current year results at prior year average exchange rates. Management reviews and analyzes business results excluding the effect of foreign currency translation, impairment and other strategic charges and gains, as well as income tax provision adjustments related to the Tax Act, and bases incentive compensation plans on these results, because the Company believes this better represents underlying business trends.
Comparable sales are compared to the same period in the prior year and represent sales at all restaurants, whether operated by the Company or by franchisees, in operation at least thirteen months including those temporarily closed. Some of the reasons restaurants may be temporarily closed include reimaging or remodeling, rebuilding, road construction and natural disasters (which includes restaurants temporarily closed due to COVID-19 in 2020). Comparable sales exclude the impact of currency translation, and, since 2017, also exclude sales from Venezuela due to its hyper-inflation. Management generally identifies hyper-inflationary markets as those markets whose cumulative inflation rate over a three-year period exceeds 100%. Management believes that these exclusions more accurately reflect the underlying business trends. Comparable sales are driven by changes in guest counts and average check, which is affected by changes in pricing and product mix. The goal is to achieve a relatively balanced contribution from both guest counts and average check.
Comparable guest counts represent the number of transactions at all restaurants, whether operated by the Company or by franchisees, in operation at least thirteen months including those temporarily closed.
Systemwide sales include sales at all restaurants, whether operated by the Company or by franchisees. While franchised sales are not recorded as revenues by the Company, management believes the information is important in understanding the Company's financial performance, because these sales are the basis on which the Company calculates and records franchised revenues and are indicative of the financial health of the franchisee base. The Company's revenues consist solely of sales by Company-operated restaurants and fees from franchised restaurants operated by conventional franchisees, developmental licensees and affiliates.


17


CONSOLIDATED OPERATING RESULTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter Ended
 
Six Months Ended
Dollars in millions, except per share data
June 30, 2020
 
June 30, 2020
 
Amount
 
 
Increase/
(Decrease)

 
Amount
 
 
Increase/
(Decrease)

Revenues
 
 
 
 
 
 
 
 
 
Sales by Company-operated restaurants
 
$
1,593.7

 
(34
)%
 
 
$
3,619.5

 
(22
)%
Revenues from franchised restaurants
 
2,088.0

 
(29
)
 
 
4,696.0

 
(17
)
Other revenues
 
79.8

 
16

 
 
160.4

 
17

Total revenues
 
3,761.5

 
(30
)
 
 
8,475.9

 
(19
)
Operating costs and expenses
 
 
 
 
 
 
 
 
 
Company-operated restaurant expenses
 
1,448.4

 
(26
)
 
 
3,201.2