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	September 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  ☒

745,110,988

(Number of shares of common stock

outstanding as of 9/30/2020)

McDONALD’S CORPORATION

___________________________

INDEX

_______

	Page Reference
Part I. Financial Information
Item 1 – Financial Statements
Condensed Consolidated Balance Sheet, September 30, 2020 (unaudited) and December 31, 2019	3
Condensed Consolidated Statement of Income (unaudited), quarters and nine months ended September 30, 2020 and 2019	4
Condensed Consolidated Statement of Comprehensive Income (unaudited), quarters and nine months ended September 30, 2020 and 2019	5
Condensed Consolidated Statement of Cash Flows (unaudited), quarters and nine months ended September 30, 2020 and 2019	6
Condensed Consolidated Statement of Shareholders' Equity (unaudited), quarters and nine months ended September 30, 2020 and 2019	7
Notes to Condensed Consolidated Financial Statements (unaudited)	9
Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3 – Quantitative and Qualitative Disclosures About Market Risk	38
Item 4 – Controls and Procedures	38
Part II. Other Information
Item 1 – Legal Proceedings	39
Item 1A – Risk Factors	39
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 6 – Exhibits	40
Signature	42

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	September 30, 2020			December 31, 2019
Assets
Current assets
Cash and equivalents	$	3,683.8		$	898.5
Accounts and notes receivable	2,391.8			2,224.2
Inventories, at cost, not in excess of market	44.2			50.2
Prepaid expenses and other current assets	616.3			385.0
Total current assets	6,736.1			3,557.9
Other assets
Investments in and advances to affiliates	1,283.3			1,270.3
Goodwill	2,715.8			2,677.4
Miscellaneous	2,469.6			2,584.0
Total other assets	6,468.7			6,531.7
Lease right-of-use asset, net	13,276.2			13,261.2
Property and equipment
Property and equipment, at cost	40,088.6			39,050.9
Accumulated depreciation and amortization	(15,870.3		)	(14,890.9		)
Net property and equipment	24,218.3			24,160.0
Total assets	$	50,699.3		$	47,510.8
Liabilities and shareholders’ equity
Current liabilities
Accounts payable	689.0			988.2
Lease liability	718.2			621.0
Income taxes	364.0			331.7
Other taxes	256.6			247.5
Accrued interest	340.2			337.8
Accrued payroll and other liabilities	1,223.4			1,035.7
Current maturities of long-term debt	2,688.8			59.1
Total current liabilities	6,280.2			3,621.0
Long-term debt	35,143.4			34,118.1
Long-term lease liability	12,736.0			12,757.8
Long-term income taxes	1,957.3			2,265.9
Deferred revenues - initial franchise fees	679.8			660.6
Other long-term liabilities	951.5			979.6
Deferred income taxes	1,423.2			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	7,854.7			7,653.9
Retained earnings	53,492.5			52,930.5
Accumulated other comprehensive income (loss)	(2,758.8		)	(2,482.7		)
Common stock in treasury, at cost; 915.5 and 914.3 million shares	(67,077.1		)	(66,328.6		)
Total shareholders’ equity (deficit)	(8,472.1		)	(8,210.3		)
Total liabilities and shareholders’ equity (deficit)	$	50,699.3		$	47,510.8

See Notes to condensed consolidated financial statements.

3

CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
	Quarters Ended						Nine Months Ended
	September 30,						September 30,
In millions, except per share data	2020			2019			2020			2019
Revenues
Sales by Company-operated restaurants	$	2,286.4		$	2,416.6		$	5,905.9		$	7,057.5
Revenues from franchised restaurants	3,044.8			3,014.0			7,740.8			8,670.0
Other revenues	86.9			71.7			247.3			208.7
Total revenues	5,418.1			5,502.3			13,894.0			15,936.2
Operating costs and expenses
Company-operated restaurant expenses	1,876.3			1,967.7			5,077.5			5,821.0
Franchised restaurants-occupancy expenses	567.9			559.5			1,646.6			1,637.3
Other restaurant expenses	69.2			57.5			198.0			166.2
Selling, general & administrative expenses
Depreciation and amortization	75.8			69.0			220.3			193.6
Other	454.7			474.6			1,547.0			1,382.2
Other operating (income) expense, net	(152.2		)	(35.3		)	23.5			(41.3		)
Total operating costs and expenses	2,891.7			3,093.0			8,712.9			9,159.0
Operating income	2,526.4			2,409.3			5,181.1			6,777.2
Interest expense	310.1			280.6			909.2			838.9
Nonoperating (income) expense, net	(0.8		)	(23.5		)	(38.8		)	(53.0		)
Income before provision for income taxes	2,217.1			2,152.2			4,310.7			5,991.3
Provision for income taxes	454.5			544.3			957.4			1,538.1
Net income	$	1,762.6		$	1,607.9		$	3,353.3		$	4,453.2
Earnings per common share-basic	$	2.37		$	2.13		$	4.50		$	5.85
Earnings per common share-diluted	$	2.35		$	2.11		$	4.47		$	5.80
Dividends declared per common share	$	1.25		$	2.41		$	3.75		$	4.73
Weighted-average shares outstanding-basic	744.5			756.6			744.4			761.1
Weighted-average shares outstanding-diluted	750.0			763.9			749.8			768.1

See Notes to condensed consolidated financial statements.

4

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
	Quarters Ended						Nine Months Ended
	September 30,						September 30,
In millions	2020			2019			2020			2019
Net income	$	1,762.6		$	1,607.9		$	3,353.3		$	4,453.2
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments:
Gain (loss) recognized in accumulated other comprehensive income ("AOCI"), including net investment hedges	56.6			(179.1		)	(202.5		)	(108.3		)
Reclassification of (gain) loss to net income	9.0			—			9.0			46.8
Foreign currency translation adjustments-net of tax benefit (expense) of $116.8, ($145.5), $67.6, and ($177.6)	65.6			(179.1		)	(193.5		)	(61.5		)
Cash flow hedges:
Gain (loss) recognized in AOCI	(27.1		)	24.4			(84.2		)	33.6
Reclassification of (gain) loss to net income	5.1			(13.4		)	(5.8		)	(30.4		)
Cash flow hedges-net of tax benefit (expense) of $6.6, ($3.3), $27.1, and ($1.0)	(22.0		)	11.0			(90.0		)	3.2
Defined benefit pension plans:
Gain (loss) recognized in AOCI	0.5			0.1			(2.0		)	0.5
Reclassification of (gain) loss to net income	3.4			1.5			9.4			4.2
Defined benefit pension plans-net of tax benefit (expense) of $0.0, $0.0, $0.5, and $0.0	3.9			1.6			7.4			4.7
Total other comprehensive income (loss), net of tax	47.5			(166.5		)	(276.1		)	(53.6		)
Comprehensive income (loss)	$	1,810.1		$	1,441.4		$	3,077.2		$	4,399.6

See Notes to condensed consolidated financial statements.

5

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
	Quarters Ended						Nine Months Ended
	September 30,						September 30,
In millions	2020			2019			2020			2019
Operating activities
Net income	$	1,762.6		$	1,607.9		$	3,353.3		$	4,453.2
Adjustments to reconcile to cash provided by operations
Charges and credits:
Depreciation and amortization	440.1			413.4			1,287.1			1,204.3
Deferred income taxes	(38.0		)	78.5			196.3			190.8
Share-based compensation	7.3			29.6			64.0			90.1
Other	(56.8		)	(64.2		)	(25.5		)	2.2
Changes in working capital items	824.3			221.5			(602.8		)	292.2
Cash provided by operations	2,939.5			2,286.7			4,272.4			6,232.8
Investing activities
Capital expenditures	(390.2		)	(548.7		)	(1,177.7		)	(1,661.8		)
Purchases of restaurant businesses	(6.7		)	(41.0		)	(50.0		)	(434.8		)
Sales of restaurant businesses	8.0			49.4			35.5			249.9
Sales of property	0.2			21.1			17.8			112.3
Other	120.8			(73.6		)	(8.5		)	(529.7		)
Cash used for investing activities	(267.9		)	(592.8		)	(1,182.9		)	(2,264.1		)
Financing activities
Net short-term borrowings	(993.4		)	(600.7		)	(885.7		)	(105.6		)
Long-term financing issuances	2.8			1,975.0			5,543.0			4,494.8
Long-term financing repayments	(451.5		)	(667.9		)	(1,414.1		)	(2,064.1		)
Treasury stock purchases	(0.7		)	(1,467.8		)	(905.6		)	(3,531.3		)
Common stock dividends	(930.9		)	(876.9		)	(2,791.3		)	(2,646.7		)
Proceeds from stock option exercises	105.3			73.4			262.3			323.4
Other	(0.1		)	(12.7		)	(122.0		)	(23.5		)
Cash used for financing activities	(2,268.5		)	(1,577.6		)	(313.4		)	(3,553.0		)
Effect of exchange rates on cash and cash equivalents	25.0			(73.5		)	9.2			(104.4		)
Cash and equivalents increase	428.1			42.8			2,785.3			311.3
Cash and equivalents at beginning of period	3,255.7			1,134.5			898.5			866.0
Cash and equivalents at end of period	$	3,683.8		$	1,177.3		$	3,683.8		$	1,177.3

See Notes to condensed consolidated financial statements.

6

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
For the nine months ended September 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								4,453.2																				4,453.2
Other comprehensive income (loss), net of tax												4.7				3.2			(61.5		)							(53.6		)
Comprehensive income																												4,399.6
Common stock cash dividends ($4.73 per share)								(3,580.7		)																		(3,580.7		)
Treasury stock purchases																						(17.9	)	(3,571.4		)		(3,571.4		)
Share-based compensation						90.1																						90.1
Stock option exercises and other						153.6																3.9		168.0				321.6
Balance at September 30, 2019	1,660.6		$	16.6		$	7,619.7	$	51,359.5			$	(211.9	)		$	35.6		$	(2,486.8	)	(907.5	)	$	(64,931.9	)		$	(8,599.2	)

For the nine months ended September 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								3,353.3																					3,353.3
Other comprehensive income (loss), net of tax												7.4				(90.0		)		(193.5		)							(276.1		)
Comprehensive income																													3,077.2
Common stock cash dividends ($3.75 per share)								(2,791.3		)																			(2,791.3		)
Treasury stock purchases																							(4.3	)	(871.9		)		(871.9		)
Share-based compensation						64.0																							64.0
Stock option exercises and other						136.8																	3.1		123.4				260.2
Balance at September 30, 2020	1,660.6		$	16.6		$	7,854.7	$	53,492.5			$	(236.3	)		$	(78.0	)		$	(2,444.5	)	(915.5	)	$	(67,077.1	)		$	(8,472.1	)

See Notes to condensed consolidated financial statements.

7

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
For the quarter ended September 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 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	)
Net income								1,607.9																				1,607.9
Other comprehensive income (loss), net of tax												1.6				11.0			(179.1		)							(166.5		)
Comprehensive income																												1,441.4
Common stock cash dividends ($2.41 per share)								(1,810.9		)																		(1,810.9		)
Treasury stock purchases																						(7.1	)	(1,524.1		)		(1,524.1		)
Share-based compensation						29.6																						29.6
Stock option exercises and other						40.6																0.8		33.0				73.6
Balance at September 30, 2019	1,660.6		$	16.6		$	7,619.7	$	51,359.5			$	(211.9	)		$	35.6		$	(2,486.8	)	(907.5	)	$	(64,931.9	)		$	(8,599.2	)

For the quarter ended September 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 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	)
Net income								1,762.6																					1,762.6
Other comprehensive income (loss), net of tax												3.9				(22.0		)		65.6									47.5
Comprehensive income																													1,810.1
Common stock cash dividends ($1.25 per share)								(930.9		)																			(930.9		)
Treasury stock purchases																							—		(0.7		)		(0.7		)
Share-based compensation						7.3																							7.3
Stock option exercises and other						67.4																	1.0		37.8				105.2
Balance at September 30, 2020	1,660.6		$	16.6		$	7,854.7	$	53,492.5			$	(236.3	)		$	(78.0	)		$	(2,444.5	)	(915.5	)	$	(67,077.1	)		$	(8,472.1	)

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 nine months ended September 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 September 30,	2020	2019
Conventional franchised	21,781	21,758
Developmental licensed	7,660	7,473
Foreign affiliated	6,997	6,432
Total Franchised	36,438	35,663
Company-operated	2,658	2,635
Total Systemwide restaurants	39,096	38,298

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 5.5 million shares and 7.3 million shares for the quarters 2020 and 2019, respectively, and 5.4 million shares and 7.0 million shares for the nine 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 1.8 million shares and 0.1 million shares for the quarters 2020 and 2019, respectively, and 1.9 million shares and 0.1 million shares for the nine 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 $85.3 million as of September 30, 2020 recorded as a reduction to Accounts and notes receivable on the Condensed Consolidated Balance Sheet. Included in this amount were net reductions in the allowance related to rent and royalty deferrals of $27 million for the quarter and an increase in the allowance related to rent and royalty deferrals of $66 million for the nine months. 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 anticipates the adoption of ASU 2019-12 will not have a material impact 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 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 nine 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 nine months 2020 reflected write-offs of impaired software that were no longer being used of $26.3 million.

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 $20 million and $470 million of rental income on revenue that was recognized in the quarter and nine months, respectively. Rental income includes both minimum rent payments and variable rent payments based on a percent of sales.

Refer to the Cash Flow and Liquidity section on page 29 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 September 30, 2020, the fair value of the Company’s debt obligations was estimated at $43.4 billion, compared to a carrying amount of $37.8 billion, which reflects $5.5 billion of debt issuances during the first quarter under the Company's existing registration statement on Form S-3 with maturities ranging from 2025 to 2050 and interest rates ranging from 1.45% to 4.20%. The balances at September 30, 2020 also reflect the retirement of $900 million of commercial paper and $1.4 billion of other debt maturities compared with December 31, 2019. In addition, a $1 billion line of credit was entered into during the first quarter of 2020, and subsequently repaid in the third quarter. 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	September 30, 2020		December 31, 2019		Balance Sheet Classification	September 30, 2020			December 31, 2019
Derivatives designated as hedging instruments
Foreign currency	Prepaid expenses and other current assets	$	2.1	$	10.0	Accrued payroll and other liabilities	$	(25.8	)	$	(5.2	)
Interest rate	Prepaid expenses and other current assets					Accrued payroll and other liabilities
Foreign currency	Miscellaneous other assets	15.0		9.5		Other long-term liabilities	(6.3		)	(1.2		)
Interest rate	Miscellaneous other assets	37.9		12.1		Other long-term liabilities
Total derivatives designated as hedging instruments		$	55.0	$	31.6		$	(32.1	)	$	(6.4	)
Derivatives not designated as hedging instruments
Equity	Prepaid expenses and other current assets	$	190.2	$	1.6	Accrued payroll and other liabilities	$	(5.6	)	$	(0.1	)
Foreign currency	Prepaid expenses and other current assets	—		12.4		Accrued payroll and other liabilities	(6.9		)	(4.8		)
Equity	Miscellaneous other assets	—		179.1
Total derivatives not designated as hedging instruments		$	190.2