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Table of Contents

 
 
 
 
 
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, 2019
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  

759,444,174
(Number of shares of common stock
outstanding as of 6/30/2019)
 
 
 
 
 


Table of Contents


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.


Table of Contents

PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEET
 
 
 
 
 
 
 
 
(unaudited)
 
 
 
In millions, except per share data
 
June 30,
2019
 
 
December 31,
2018
Assets
 
 
 
 
 
Current assets
 
 
 
 
 
Cash and equivalents
 
$
1,134.5

 
 
$
866.0

Accounts and notes receivable
 
2,055.0

 
 
2,441.5

Inventories, at cost, not in excess of market
 
44.2

 
 
51.1

Prepaid expenses and other current assets
 
681.7

 
 
694.6

Total current assets
 
3,915.4

 
 
4,053.2

Other assets
 
 
 
 
 
Investments in and advances to affiliates
 
1,227.3

 
 
1,202.8

Goodwill
 
2,580.5

 
 
2,331.5

Miscellaneous
 
2,449.6

 
 
2,381.0

Total other assets
 
6,257.4

 
 
5,915.3

Lease right-of-use asset, net
 
12,522.8

 
 

Property and equipment
 
 
 
 
 
Property and equipment, at cost
 
38,192.4

 
 
37,193.6

Accumulated depreciation and amortization
 
(14,688.2
)
 
 
(14,350.9
)
Net property and equipment
 
23,504.2

 
 
22,842.7

Total assets
 
$
46,199.8

 
 
$
32,811.2

Liabilities and shareholders’ equity
 
 
 
 
 
Current liabilities
 
 
 
 
 
Accounts payable
 
$
796.8

 
 
$
1,207.9

Lease liability
 
743.4

 
 

Income taxes
 
270.8

 
 
228.3

Other taxes
 
237.9

 
 
253.7

Accrued interest
 
256.1

 
 
297.0

Accrued payroll and other liabilities
 
935.0

 
 
986.6

Total current liabilities
 
3,240.0

 
 
2,973.5

Long-term debt
 
32,654.3

 
 
31,075.3

Long-term lease liability
 
11,895.4

 
 

Long-term income taxes
 
2,281.8

 
 
2,081.2

Deferred revenues - initial franchise fees
 
639.6

 
 
627.8

Other long-term liabilities
 
939.2

 
 
1,096.3

Deferred income taxes
 
1,358.3

 
 
1,215.5

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
 
7,549.5

 
 
7,376.0

Retained earnings
 
51,562.5

 
 
50,487.0

Accumulated other comprehensive income (loss)
 
(2,496.6
)
 
 
(2,609.5
)
Common stock in treasury, at cost; 901.2 and 893.5 million shares
 
(63,440.8
)
 
 
(61,528.5
)
Total shareholders’ equity (deficit)
 
(6,808.8
)
 
 
(6,258.4
)
Total liabilities and shareholders’ equity (deficit)
 
$
46,199.8

 
 
$
32,811.2

See Notes to condensed consolidated financial statements.

3

Table of Contents

CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarters Ended
 
 
Six Months Ended
 
 
June 30,
 
 
June 30,
In millions, except per share data
 
2019
 
 
2018
 
 
2019
 
 
2018
Revenues
 
 
 
 
 
 
 
 
 
 
 
Sales by Company-operated restaurants
 
$
2,400.4

 
 
$
2,594.9

 
 
$
4,640.9

 
 
$
5,130.5

Revenues from franchised restaurants
 
2,940.9

 
 
2,759.0

 
 
5,656.0

 
 
5,362.3

Total revenues
 
5,341.3

 
 
5,353.9

 
 
10,296.9

 
 
10,492.8

Operating costs and expenses
 
 
 
 
 
 
 
 
 
 
 
Company-operated restaurant expenses
 
1,967.1

 
 
2,130.5

 
 
3,853.3

 
 
4,261.4

Franchised restaurants-occupancy expenses
 
544.7

 
 
483.9

 
 
1,077.8

 
 
964.2

Selling, general & administrative expenses
 
533.1

 
 
542.1

 
 
1,032.2

 
 
1,075.2

Other operating (income) expense, net
 
22.5

 
 
(64.9
)
 
 
(34.3
)
 
 
(213.4
)
Total operating costs and expenses
 
3,067.4

 
 
3,091.6

 
 
5,929.0

 
 
6,087.4

Operating income
 
2,273.9

 
 
2,262.3

 
 
4,367.9

 
 
4,405.4

Interest expense
 
284.2

 
 
240.2

 
 
558.3

 
 
477.0

Nonoperating (income) expense, net
 
(18.1
)
 
 
4.0

 
 
(29.5
)
 
 
22.4

Income before provision for income taxes
 
2,007.8

 
 
2,018.1

 
 
3,839.1

 
 
3,906.0

Provision for income taxes
 
490.9

 
 
521.8

 
 
993.8

 
 
1,034.3

Net income
 
$
1,516.9

 
 
$
1,496.3

 
 
$
2,845.3

 
 
$
2,871.7

Earnings per common share-basic
 
$
1.99

 
 
$
1.92

 
 
$
3.73

 
 
$
3.66

Earnings per common share-diluted
 
$
1.97

 
 
$
1.90

 
 
$
3.69

 
 
$
3.62

Dividends declared per common share
 
$
1.16

 
 
$
1.01

 
 
$
2.32

 
 
$
2.02

Weighted-average shares outstanding-basic
 
761.8

 
 
780.0

 
 
763.3

 
 
785.4

Weighted-average shares outstanding-diluted
 
768.7

 
 
787.1

 
 
770.2

 
 
793.0

See Notes to condensed consolidated financial statements.

4

Table of Contents

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarters Ended
 
 
Six Months Ended
 
 
June 30,
 
 
June 30,
In millions
 
2019
 
 
2018
 
 
2019
 
 
2018
Net income
 
$
1,516.9

 
 
$
1,496.3

 
 
$
2,845.3

 
 
$
2,871.7

Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments:
 
 
 
 
 
 
 
 
 
 
 
Gain (loss) recognized in accumulated other comprehensive
income ("AOCI"), including net investment hedges
27.4

 
 
(326.4
)
 
 
70.8

 
 
(300.7
)
Reclassification of (gain) loss to net income
1.2

 
 

 
 
46.8

 
 

Foreign currency translation adjustments-net of tax
benefit (expense) of $27.8, $(143.9), $(32.2) and $(71.6)
28.6

 
 
(326.4
)
 
 
117.6

 
 
(300.7
)
Cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
Gain (loss) recognized in AOCI
1.0

 
 
32.2

 
 
9.2

 
 
24.7

Reclassification of (gain) loss to net income
(8.0
)
 
 
3.6

 
 
(17.0
)
 
 
15.6

Cash flow hedges-net of tax benefit (expense) of $2.0, $(10.5), $2.3 and $(11.7)
(7.0
)
 
 
35.8

 
 
(7.8
)
 
 
40.3

Defined benefit pension plans:
 
 
 
 
 
 
 
 
 
 
 
Gain (loss) recognized in AOCI
0.4

 
 

 
 
0.4

 
 
(1.1
)
Reclassification of (gain) loss to net income
1.5

 
 
2.1

 
 
2.7

 
 
4.9

Defined benefit pension plans-net of tax benefit (expense)
of $0.0, $0.1, $0.0 and $(0.8)
1.9

 
 
2.1

 
 
3.1

 
 
3.8

Total other comprehensive income (loss), net of tax
23.5

 
 
(288.5
)
 
 
112.9

 
 
(256.6
)
Comprehensive income (loss)
 
$
1,540.4

 
 
$
1,207.8

 
 
$
2,958.2

 
 
$
2,615.1

See Notes to condensed consolidated financial statements.

5

Table of Contents

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarters Ended
 
 
Six Months Ended
 
 
June 30,
 
 
June 30,
In millions
 
2019
 
 
2018
 
 
2019
 
 
2018
Operating activities
 
 
 
 
 
 
 
 
 
 
 
Net income
 
$
1,516.9

 
 
$
1,496.3

 
 
$
2,845.3

 
 
$
2,871.7

Adjustments to reconcile to cash provided by operations
 
 
 
 
 
 
 
 
 
 
 
Charges and credits:
 
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization
 
398.3

 
 
365.0

 
 
790.9

 
 
727.9

Deferred income taxes
 
58.0

 
 
54.4

 
 
112.3

 
 
83.6

Share-based compensation
 
28.9

 
 
23.9

 
 
60.5

 
 
63.7

Other
 
14.9

 
 
(90.7
)
 
 
66.4

 
 
(145.6
)
Changes in working capital items
 
(91.5
)
 
 
(510.1
)
 
 
70.7

 
 
(617.3
)
Cash provided by operations
 
1,925.5

 
 
1,338.8

 
 
3,946.1

 
 
2,984.0

Investing activities
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures
 
(597.8
)
 
 
(611.3
)
 
 
(1,113.1
)
 
 
(1,164.1
)
Purchases of restaurant and other businesses
 
(384.8
)
 
 
(11.6
)
 
 
(393.8
)
 
 
(35.3
)
Sales of restaurant businesses
 
68.6

 
 
143.2

 
 
200.5

 
 
329.9

Sales of property
 
68.9

 
 
52.8

 
 
91.2

 
 
124.5

Other
 
(54.9
)
 
 
(63.9
)
 
 
(456.1
)
 
 
(104.9
)
Cash (used for) investing activities
 
(900.0
)
 
 
(490.8
)
 
 
(1,671.3
)
 
 
(849.9
)
Financing activities
 
 
 
 
 
 
 
 
 
 
 
Net short-term borrowings
 
589.1

 
 
239.7

 
 
495.1

 
 
795.7

Long-term financing issuances
 
6.5

 
 
500.5

 
 
2,519.8

 
 
2,000.2

Long-term financing repayments
 
(981.2
)
 
 
(1.2
)
 
 
(1,396.2
)
 
 
(1,002.8
)
Treasury stock purchases
 
(1,067.4
)
 
 
(1,607.2
)
 
 
(2,063.5
)
 
 
(3,240.1
)
Common stock dividends
 
(883.0
)
 
 
(786.1
)
 
 
(1,769.8
)
 
 
(1,583.6
)
Proceeds from stock option exercises
 
139.4

 
 
91.7

 
 
250.0

 
 
167.0

Other
 
0.5

 
 
(1.6
)
 
 
(10.8
)
 
 
(6.8
)
Cash (used for) financing activities
 
(2,196.1
)
 
 
(1,564.2
)
 
 
(1,975.4
)
 
 
(2,870.4
)
Effect of exchange rates on cash and cash equivalents
 
16.0

 
 
(128.3
)
 
 
(30.9
)
 
 
(104.0
)
Cash and equivalents increase (decrease)
 
(1,154.6
)
 
 
(844.5
)
 
 
268.5

 
 
(840.3
)
Cash and equivalents at beginning of period
 
2,289.1

 
 
2,468.0

 
 
866.0

 
 
2,463.8

Cash and equivalents at end of period
 
$
1,134.5

 
 
$
1,623.5

 
 
$
1,134.5

 
 
$
1,623.5

See Notes to condensed consolidated financial statements.

6

Table of Contents

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
For the six months ended June 30, 2018
 
Common stock
issued
 
 
 
 
 
 
Accumulated other
comprehensive income (loss)
 
 
Common stock in
treasury
 
Total
shareholders’
equity
 
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, 2017
1,660.6

 
$
16.6

 
$
7,072.4

 
$
48,325.8

 
$
(190.2
)
 
$
(16.5
)
 
$
(1,971.7
)
 
(866.5
)
 
$
(56,504.4
)
 
$
(3,268.0
)
Net income
 
 
 
 
 
 
2,871.7

 
 
 
 
 
 
 
 
 
 
 
2,871.7

Other comprehensive income (loss),
net of tax
 
 
 
 
 
 
 
 
3.8

 
40.3

 
(300.7
)
 
 
 
 
 
(256.6
)
Comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2,615.1

Adoption of ASC 606 (1)
 
 
 
 
 
 
(450.2
)
 
 
 
 
 
 
 
 
 
 
 
(450.2
)
Adoption of ASU 2016-16 (2)
 
 
 
 
 
 
(57.0
)
 
 
 
 
 
 
 
 
 
 
 
(57.0
)
Common stock cash dividends
($2.02 per share)
 
 
 
 
 
 
(1,583.6
)
 
 
 
 
 
 
 
 
 
 
 
(1,583.6
)
Treasury stock purchases
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(20.8
)
 
(3,336.3
)
 
(3,336.3
)
Share-based compensation
 
 
 
 
63.7

 
 
 
 
 
 
 
 
 
 
 
 
 
63.7

Stock option exercises and other
 
 
 
 
59.1

 
 
 
 
 
 
 
 
 
2.5

 
106.2

 
165.3

Balance at June 30, 2018
1,660.6

 
16.6

 
7,195.2

 
49,106.7

 
(186.4
)
 
23.8

 
(2,272.4
)
 
(884.8
)
 
(59,734.5
)
 
(5,851.0
)
(1) Accounting Standards Codification ("ASC") 606, "Revenue Recognition - Revenue from Contracts with Customers."
(2) Accounting Standards Update ("ASU") 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory."
For the six months ended June 30, 2019
 
Common stock
issued
 
 
 
 
 
 
Accumulated other
comprehensive income (loss)
 
 
Common stock in
treasury
 
Total
shareholders’
equity
 
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
)

See Notes to condensed consolidated financial statements.


7

Table of Contents

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
For the quarter ended June 30, 2018
 
Common stock
issued
 
 
 
 
 
 
Accumulated other
comprehensive income (loss)
 
 
Common stock in
treasury
 
Total
shareholders’
equity
 
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, 2018
1,660.6

 
$
16.6

 
$
7,122.2

 
$
48,396.5

 
$
(188.5
)
 
$
(12.0
)
 
$
(1,946.0
)
 
(875.4
)
 
$
(58,107.6
)
 
$
4,718.8

Net income
 
 
 
 
 
 
1,496.3

 
 
 
 
 
 
 
 
 
 
 
1,496.3

Other comprehensive income (loss),
net of tax
 
 
 
 
 
 
 
 
2.1

 
35.8

 
(326.4
)
 
 
 
 
 
(288.5
)
Comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,207.8

Adoption of ASC 606 (1)
 
 
 
 
 
 


 
 
 
 
 
 
 
 
 
 
 
0.0

Adoption of ASU 2016-16 (2)
 
 
 
 
 
 


 
 
 
 
 
 
 
 
 
 
 
0.0

Common stock cash dividends
($1.01 per share)
 
 
 
 
 
 
(786.1
)
 
 
 
 
 
 
 
 
 
 
 
(786.1
)
Treasury stock purchases
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(10.4
)
 
(1,669.5
)
 
(1,669.5
)
Share-based compensation
 
 
 
 
23.9

 
 
 
 
 
 
 
 
 
 
 
 
 
23.9

Stock option exercises and other
 
 
 
 
49.1

 
 
 
 
 
 
 
 
 
1.0

 
42.6

 
91.7

Balance at June 30, 2018
1,660.6

 
16.6

 
7,195.2

 
49,106.7

 
(186.4
)
 
23.8

 
(2,272.4
)
 
(884.8
)
 
(59,734.5
)
 
(5,851.0
)
(1) ASC 606, "Revenue Recognition - Revenue from Contracts with Customers." There was no impact from this guidance in the second quarter 2019.
(2) ASU 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory." There was no impact from this guidance in the second quarter 2019.
For the quarter ended June 30, 2019
 
Common stock
issued
 
 
 
 
 
 
Accumulated other
comprehensive income (loss)
 
 
Common stock in
treasury
 
Total
shareholders’
equity
 
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
)

See Notes to condensed consolidated financial statements.





8

Table of Contents

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, 2018 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, 2019, do not necessarily indicate the results that may be expected for the full year.

Restaurant Information
The following table presents restaurant information by ownership type:
Restaurants at June 30,
2019
 
2018
Conventional franchised
21,717

 
21,535

Developmental licensed
7,413

 
7,013

Foreign affiliated
6,331

 
5,973

Total Franchised
35,461

 
34,521

Company-operated
2,647

 
2,885

Total Systemwide restaurants
38,108

 
37,406


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 6.9 million shares and 7.1 million shares for the quarters 2019 and 2018, respectively, and 6.9 million shares and 7.6 million shares for the six months 2019 and 2018, respectively. Share-based compensation awards that would have been antidilutive, and therefore were not included in the calculation of diluted weighted-average shares, totaled 1.1 million shares and 2.6 million shares for the quarters 2019 and 2018, respectively, and 2.0 million shares and 2.6 million shares for the six months 2019 and 2018, respectively.

Recent Accounting Pronouncements

Recently Adopted Accounting Standards
Lease Accounting
The Company adopted ASU 2016-02, "Leases (Topic 842)” as of January 1, 2019, using the modified retrospective method. As discussed further in the “Franchise Arrangements” and “Leasing Arrangements” footnotes, the Company is engaged in a significant amount of leasing activity, both from a lessor and a lessee perspective.
The Company has elected the package of practical expedients, which allows the Company to retain the classification of existing leases; therefore, there was minimal initial impact in the Consolidated Statement of Income, and no cumulative adjustment to retained earnings was recognized upon adoption. As the Company enters into new ground leases or as existing ground leases are modified, many of these may be reclassified from operating classification to financing classification, which will change the timing and classification of a portion of lease expense between Operating income and Interest expense. It is not possible to quantify the impact at this time, due to the unknown timing of new leases and lease modifications, however the Company does not expect the impact to be material to any given year. The Company has also made an accounting policy election to keep leases with an initial term of 12 months or less off of the balance sheet. These types of leases primarily relate to leases of office equipment, and are not significant in comparison to the Company’s overall lease portfolio. Payments related to those leases will continue to be recognized in the Consolidated Statement of Income on a straight-line basis over the lease term.
The Company has certain leases subject to index adjustments. Historically, the Company has calculated and disclosed future minimum payments for these leases using the index as of the end of the reporting period. As part of the transition, the Company used the index in effect at transition for adoption of Topic 842 in its disclosure of future minimum lease payments and its calculation of the lease liability. For leases entered into after January 1, 2019, the index at lease inception date will be used to calculate the lease liability until lease modification.

9

Table of Contents

The Company recorded a Right of Use Asset and Lease Liability on the Condensed Consolidated Balance Sheet of $12.5 billion upon adoption. The Lease Liability reflects the present value of the Company's estimated future minimum lease payments over the lease term, which includes options that are reasonably assured of being exercised, discounted using a collateralized incremental borrowing rate. The impact of the new lease guidance is non-cash in nature, therefore, it does not affect the Company’s cash flows.

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, 2018 Annual Report on Form 10-K.
At June 30, 2019, the fair value of the Company’s debt obligations was estimated at $35.5 billion, compared to a carrying amount of $32.7 billion. 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.

10

Table of Contents

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, 2019
 
December 31, 2018
 
Balance Sheet Classification
 
June 30, 2019
 
December 31, 2018
Derivatives designated as hedging instruments
 
 
 
 
 
 
 
 
Foreign currency
Prepaid expenses and other current assets
 
$
21.2

 
$
30.9

 
Accrued payroll and other liabilities
 
$
(1.3
)
 
$
(0.7
)
Interest rate
Prepaid expenses and other current assets
 
 
 
 
 
Accrued payroll and other liabilities
 

 
(0.1
)
Foreign currency
Miscellaneous other assets
 
4.1

 
3.8

 
Other long-term liabilities
 
(1.4
)
 
(1.3
)
Interest rate
Miscellaneous other assets

 
14.0

 

 
Other long-term liabilities
 

 
(11.8
)
Total derivatives designated as hedging instruments
 
$
39.3

 
$
34.7

 
 
 
$
(2.7
)
 
$
(13.9
)
Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
Equity
Prepaid expenses and other current assets


 
$
198.2

 
$
167.1

 
Accrued payroll and other liabilities
 
$
(0.1
)
 
$
(2.7
)
Foreign currency
Prepaid expenses and other current assets


 
6.2

 
4.5

 
Accrued payroll and other liabilities
 
(0.2
)
 

Total derivatives not designated as hedging instruments
 
$
204.4

 
$
171.6

 
 
 
$
(0.3
)
 
$
(2.7
)
Total derivatives