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, 2022

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		60607
Chicago,	Illinois
(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  ☒

735,717,271

(Number of shares of common stock

outstanding as of June 30, 2022)

McDONALD’S CORPORATION

___________________________

INDEX

_______

	Page
Part I. Financial Information
Item 1 – Financial Statements
Condensed Consolidated Balance Sheet, June 30, 2022 (unaudited) and December 31, 2021	3
Condensed Consolidated Statement of Income (unaudited), quarters and six months ended June 30, 2022 and 2021	4
Condensed Consolidated Statement of Comprehensive Income (unaudited), quarters and six months ended June 30, 2022 and 2021	5
Condensed Consolidated Statement of Cash Flows (unaudited), quarters and six months ended June 30, 2022 and 2021	6
Condensed Consolidated Statement of Shareholders' Equity (unaudited), quarters and six months ended June 30, 2022 and 2021	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	39
Item 4 – Controls and Procedures	39
Part II. Other Information
Item 1 – Legal Proceedings	41
Item 1A – Risk Factors	41
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 6 – Exhibits	42
Signature	44

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, 2022		December 31, 2021
Assets
Current assets
Cash and equivalents	$	1,872.5	$	4,709.2
Accounts and notes receivable	1,836.7		1,872.4
Inventories, at cost, not in excess of market	43.3		55.6
Prepaid expenses and other current assets	1,166.8		511.3
Total current assets	4,919.3		7,148.5
Other assets
Investments in and advances to affiliates	1,074.0		1,201.2
Goodwill	2,722.4		2,782.5
Miscellaneous	4,403.4		4,449.5
Total other assets	8,199.8		8,433.2
Lease right-of-use asset, net	12,794.2		13,552.0
Property and equipment
Property and equipment, at cost	40,114.3		41,916.6
Accumulated depreciation and amortization	(16,779.8)		(17,196.0)
Net property and equipment	23,334.5		24,720.6
Total assets	$	49,247.8	$	53,854.3
Liabilities and shareholders’ equity
Current liabilities
Accounts payable	$	739.4	$	1,006.8
Lease liability	689.6		705.5
Income taxes	503.8		360.7
Other taxes	215.9		236.7
Accrued interest	312.8		363.3
Accrued payroll and other liabilities	1,018.6		1,347.0
Total current liabilities	3,480.1		4,020.0
Long-term debt	34,576.5		35,622.7
Long-term lease liability	12,319.4		13,020.9
Long-term income taxes	1,236.1		1,896.8
Deferred revenues - initial franchise fees	733.0		738.3
Other long-term liabilities	1,022.8		1,081.0
Deferred income taxes	2,249.7		2,075.6
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	8,378.7		8,231.6
Retained earnings	57,785.1		57,534.7
Accumulated other comprehensive income (loss)	(2,246.4)		(2,573.7)
Common stock in treasury, at cost; 924.9 and 915.8 million shares	(70,303.8)		(67,810.2)
Total shareholders’ equity (deficit)	(6,369.8)		(4,601.0)
Total liabilities and shareholders’ equity (deficit)	$	49,247.8	$	53,854.3

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	2022		2021		2022		2021
Revenues
Sales by Company-operated restaurants	$	2,112.8	$	2,488.7	$	4,415.2	$	4,650.2
Revenues from franchised restaurants	3,526.8		3,306.2		6,789.6		6,183.6
Other revenues	78.8		93.0		179.2		178.7
Total revenues	5,718.4		5,887.9		11,384.0		11,012.5
Operating costs and expenses
Company-operated restaurant expenses	1,769.8		2,021.0		3,729.0		3,838.6
Franchised restaurants-occupancy expenses	588.6		579.1		1,172.6		1,150.6
Other restaurant expenses	57.9		68.3		130.2		135.5
Selling, general & administrative expenses
Depreciation and amortization	93.0		83.1		185.7		159.1
Other	611.2		572.4		1,195.5		1,062.8
Other operating (income) expense, net	886.1		(127.1)		946.6		(306.5)
Total operating costs and expenses	4,006.6		3,196.8		7,359.6		6,040.1
Operating income	1,711.8		2,691.1		4,024.4		4,972.4
Interest expense	290.6		296.5		577.9		596.5
Nonoperating (income) expense, net	12.1		18.6		496.2		47.2
Income before provision for income taxes	1,409.1		2,376.0		2,950.3		4,328.7
Provision for income taxes	221.1		156.7		657.9		572.2
Net income	$	1,188.0	$	2,219.3	$	2,292.4	$	3,756.5
Earnings per common share-basic	$	1.61	$	2.97	$	3.10	$	5.03
Earnings per common share-diluted	$	1.60	$	2.95	$	3.08	$	5.00
Dividends declared per common share	$	1.38	$	1.29	$	2.76	$	2.58
Weighted-average shares outstanding-basic	737.5		746.6		740.0		746.2
Weighted-average shares outstanding-diluted	742.0		752.1		744.8		751.6

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	2022		2021		2022		2021
Net income	$	1,188.0	$	2,219.3	$	2,292.4	$	3,756.5
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments:
Gain (loss) recognized in accumulated other comprehensive income ("AOCI"), including net investment hedges	(190.6)		47.8		(274.8)		(39.9)
Reclassification of (gain) loss to net income	504.1		9.7		504.1		20.4
Foreign currency translation adjustments-net of tax benefit (expense) of (178.0), 22.7, (237.0) and (67.6)	313.5		57.5		229.3		(19.5)
Cash flow hedges:
Gain (loss) recognized in AOCI	103.0		(1.2)		130.4		21.9
Reclassification of (gain) loss to net income	(18.3)		13.4		(28.4)		28.4
Cash flow hedges-net of tax benefit (expense) of (24.3), (3.7), (29.3) and (14.9)	84.7		12.2		102.0		50.3
Defined benefit pension plans:
Gain (loss) recognized in AOCI	—		0.1		0.1		0.8
Reclassification of (gain) loss to net income	(2.7)		(5.1)		(4.1)		(16.0)
Defined benefit pension plans-net of tax benefit (expense) of 0.1, 0.1, 0.1 and 0.1	(2.7)		(5.0)		(4.0)		(15.2)
Total other comprehensive income (loss), net of tax	395.5		64.7		327.3		15.6
Comprehensive income	$	1,583.5	$	2,284.0	$	2,619.7	$	3,772.1

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	2022		2021		2022		2021
Operating activities
Net income	$	1,188.0	$	2,219.3	$	2,292.4	$	3,756.5
Adjustments to reconcile to cash provided by operations
Charges and credits:
Depreciation and amortization	462.2		463.4		941.9		917.3
Deferred income taxes	(136.3)		(368.9)		(186.8)		(370.4)
Share-based compensation	38.3		36.5		92.6		63.8
Other	234.2		(71.2)		306.2		(201.2)
Changes in working capital items	(1,168.3)		(545.9)		(694.9)		(308.8)
Cash provided by operations	618.1		1,733.2		2,751.4		3,857.2
Investing activities
Capital expenditures	(437.9)		(482.6)		(839.1)		(851.3)
Purchases of restaurant businesses	(110.5)		(49.4)		(197.2)		(88.1)
Sales of restaurant and other businesses	351.7		52.2		368.2		81.8
Sales of property	6.3		23.8		11.2		56.6
Other	(128.8)		42.5		(216.8)		142.9
Cash used for investing activities	(319.2)		(413.5)		(873.7)		(658.1)
Financing activities
Net short-term borrowings	310.1		1.4		316.1		7.9
Long-term financing issuances	1,874.5		—		1,874.5		—
Long-term financing repayments	(850.8)		(401.2)		(2,201.4)		(1,739.0)
Treasury stock purchases	(1,031.2)		(3.0)		(2,537.7)		(24.5)
Common stock dividends	(1,016.9)		(963.3)		(2,042.0)		(1,925.6)
Proceeds from stock option exercises	47.2		72.9		105.9		132.0
Other	(19.6)		(13.1)		(32.2)		(21.0)
Cash used for financing activities	(686.7)		(1,306.3)		(4,516.8)		(3,570.2)
Effect of exchange rates on cash and cash equivalents	(75.4)		16.3		(197.6)		(28.6)
Cash and equivalents increase (decrease)	(463.2)		29.7		(2,836.7)		(399.7)
Cash and equivalents at beginning of period	2,335.7		3,019.7		4,709.2		3,449.1
Cash and equivalents at end of period	$	1,872.5	$	3,049.4	$	1,872.5	$	3,049.4

See Notes to condensed consolidated financial statements.

6

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
For the six months ended June 30, 2021
	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, 2020	1,660.6		$	16.6		$	7,903.6	$	53,908.1		$	(287.6)		$	(111.3)		$	(2,187.9)	(915.2)	$	(67,066.4)		$	(7,824.9)
Net income								3,756.5															3,756.5
Other comprehensive income (loss),     net of tax											(15.2)			50.3			(19.5)						15.6
Comprehensive income																							3,772.1
Common stock cash dividends     ($2.58 per share)								(1,925.6)															(1,925.6)
Treasury stock purchases																			(0.1)	(24.5)			(24.5)
Share-based compensation						63.8																	63.8
Stock option exercises and other						78.6													1.5	52.5			131.1
Balance at June 30, 2021	1,660.6		$	16.6		$	8,046.0	$	55,739.0		$	(302.8)		$	(61.0)		$	(2,207.4)	(913.8)	$	(67,038.4)		$	(5,808.0)

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
For the six months ended June 30, 2022
	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, 2021	1,660.6		$	16.6		$	8,231.6	$	57,534.7		$	(179.5)		$	(24.8)		$	(2,369.4)	(915.8)	$	(67,810.2)		$	(4,601.0)
Net income								2,292.4															2,292.4
Other comprehensive income (loss),     net of tax											(4.0)			102.0			229.3						327.3
Comprehensive income																							2,619.7
Common stock cash dividends     ($2.76 per share)								(2,042.0)															(2,042.0)
Treasury stock purchases																			(10.4)	(2,537.7)			(2,537.7)
Share-based compensation						92.6																	92.6
Stock option exercises and other						54.5													1.3	44.1			98.6
Balance at June 30, 2022	1,660.6		$	16.6		$	8,378.7	$	57,785.1		$	(183.5)		$	77.2		$	(2,140.1)	(924.9)	$	(70,303.8)		$	(6,369.8)

7

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
For the quarter ended June 30, 2021
	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, 2021	1,660.6		$	16.6		$	7,959.1	$	54,483.0		$	(297.8)		$	(73.2)		$	(2,264.9)	(914.5)	$	(67,058.3)		$	(7,235.5)
Net income								2,219.3															2,219.3
Other comprehensive income (loss),     net of tax											(5.0)			12.2			57.5						64.7
Comprehensive income																							2,284.0
Common stock cash dividends     ($1.29 per share)								(963.3)															(963.3)
Treasury stock purchases																			—	(3.0)			(3.0)
Share-based compensation						36.5																	36.5
Stock option exercises and other						50.4													0.7	22.9			73.3
Balance at June 30, 2021	1,660.6		$	16.6		$	8,046.0	$	55,739.0		$	(302.8)		$	(61.0)		$	(2,207.4)	(913.8)	$	(67,038.4)		$	(5,808.0)

For the quarter ended June 30, 2022
	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, 2022	1,660.6		$	16.6		$	8,307.1	$	57,614.0		$	(180.8)		$	(7.5)		$	(2,453.6)	(921.1)	$	(69,286.6)		$	(5,990.8)
Net income								1,188.0															1,188.0
Other comprehensive income (loss),     net of tax											(2.7)			84.7			313.5						395.5
Comprehensive income																							1,583.5
Common stock cash dividends     ($1.38 per share)								(1,016.9)															(1,016.9)
Treasury stock purchases																			(4.3)	(1,031.2)			(1,031.2)
Share-based compensation						38.3																	38.3
Stock option exercises and other						33.3													0.5	14.0			47.3
Balance at June 30, 2022	1,660.6		$	16.6		$	8,378.7	$	57,785.1		$	(183.5)		$	77.2		$	(2,140.1)	(924.9)	$	(70,303.8)		$	(6,369.8)

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, 2021 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, 2022 do not necessarily indicate the results that may be expected for the full year.

In the first quarter of 2022, the Company temporarily closed restaurants in Russia and Ukraine due to the ongoing war in the region. Restaurants remained closed in Ukraine throughout the second quarter.

During the second quarter of 2022, the Company completed the sale of its Russian business, resulting in a total exit from the market. The Company recorded a charge for the quarter of $1.2 billion, comprised primarily of the write-off of the Company’s net investment in Russia, along with related cumulative foreign currency translation losses. Restaurants remained closed in Russia through the completion of the sale in mid-June.

Restaurant Information

The following table presents restaurant information by ownership type:

Restaurants at June 30,	2022		2021
Conventional franchised	21,621		21,519
Developmental licensed	7,918		7,753
Foreign affiliated	8,125		7,445
Total Franchised	37,664		36,717
Company-operated	2,032		2,679
Total Systemwide restaurants	39,696	*	39,396

*Reflects the sale of over 850 restaurants in Russia in the second quarter of 2022, most of which were Company-operated.

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 accompanying condensed consolidated financial statements for the periods prior to purchase and sale.

Per Common Share Information

Diluted earnings per common share is calculated as net income divided by diluted weighted-average shares. Diluted weighted-average shares include weighted-average shares outstanding plus the dilutive effect of share-based compensation, calculated using the treasury stock method, of 4.5 million shares and 5.5 million shares for the quarters ended 2022 and 2021, respectively, and 4.8 million shares and

5.4 million shares for the six months ended 2022 and 2021, respectively. Share-based compensation awards that would have been antidilutive, and therefore were not included in the calculation of diluted weighted-average shares, totaled 1.6 million shares and 3.0 million shares for the quarters ended 2022 and 2021, respectively, and 1.6 million shares and 3.0 million shares for the six months ended 2022 and 2021, respectively.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

Leases

In July 2021, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") No. 2021-05, "Leases (Topic 842): Lessors—Certain Leases with Variable Lease Payments" ("ASU 2021-05"). The pronouncement amends the current guidance on classification for a lease that includes variable lease payments that do not depend on an index or rate. Under the amended guidance, a lessor must classify as an operating lease any lease that would otherwise be classified as a sales-type or direct financing lease and that would result in the recognition of a selling loss at lease commencement. ASU 2021-05 is effective for fiscal years beginning after December 15, 2021, including applicable interim periods. The Company adopted the new standard effective January 1, 2022. The adoption of this standard did not have a material effect on the Company’s consolidated financial statements.

9

Recent Accounting Pronouncements Not Yet Adopted

Reference Rate Reform

In March 2020, the FASB issued ASU No. 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 adoption of ASU 2020-04 will not have a material impact on the Company's consolidated financial statements.

Updates to Significant Accounting Policies

Long-lived Assets and Goodwill

Long-lived assets and Goodwill are typically reviewed for impairment annually in the fourth quarter and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable or if an indicator of impairment exists. Although the Company completed the sale of its business in Russia in mid-June of 2022, the ongoing war between Russia and Ukraine continues to present uncertainty and risk to the Company's operations in Ukraine. The Company temporarily closed restaurants in Ukraine during the first quarter of 2022, and restaurants remained closed throughout the second quarter. The Company continues to monitor the economic uncertainty, while assessing the financial impact and outlook for restaurant operations in this market. As such, the Company conducted an analysis during the second quarter of 2022. Based on the Company’s analysis and review of current circumstances, there was no impairment recorded during the second quarter of 2022.

As of June 30, 2022, the Company’s net investment in Ukraine was approximately $110 million, primarily consisting of building and equipment assets. In addition, there was approximately $140 million of cumulative foreign currency translation losses reflected in the AOCI section of the condensed consolidated statement of shareholder’s equity at June 30, 2022.

Income Taxes

The effective income tax rate was 15.7% and 6.6% for the quarters ended 2022 and 2021, respectively, and 22.3% and 13.2% for the six months ended 2022 and 2021, respectively. The effective tax rate for both periods of 2022 reflected tax audit settlements and the remeasurement of income tax reserves associated with global tax audit progression, as well as the sale of Dynamic Yield and the Company's business in Russia. The effective tax rate for both periods of 2021 included a benefit related to the remeasurement of deferred taxes as a result of a change in the U.K. statutory income tax rate.

As of June 30, 2022 and December 31, 2021, the Company’s gross unrecognized tax benefits totaled $640.0 million and $1,504.9 million, respectively. The Company continues to engage with various tax jurisdictions to resolve tax audits. In the quarter, the Company finalized and settled certain tax examinations and remeasured other income tax reserves based on audit progression. The following table presents a reconciliation of the beginning and ending amounts of unrecognized tax benefits:

In millions	2022
Balance at January 1	$	1,504.9
Decreases for positions taken in prior years	(572.1)
Increases for positions taken in prior years	49.8
Increases for positions in the current year	19.4
Decreases due to settlements with taxing authorities	(362.0)
Decreases due to the lapsing of statutes of limitations	—
Balance at June 30	$	640.0

10

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. There were no significant changes to the valuation techniques used to measure fair value as described in the Company's December 31, 2021 Annual Report on Form 10-K.

At June 30, 2022, the fair value of the Company’s debt obligations was estimated at $33.7 billion, compared to a carrying amount of $34.6 billion. The fair value of debt obligations is based upon quoted market prices, classified as Level 2 within the valuation hierarchy. The carrying amount of cash and equivalents and notes receivable approximate fair value.

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, 2022		December 31, 2021		Balance Sheet Classification	June 30, 2022		December 31, 2021
Derivatives designated as hedging instruments
Foreign currency	Prepaid expenses and other current assets	$	107.5	$	42.4	Accrued payroll and other liabilities	$	—	$	(3.3)
Interest rate	Prepaid expenses and other current assets	66.1		0.3		Accrued payroll and other liabilities	—		—
Foreign currency	Miscellaneous other assets	43.8		28.0		Other long-term liabilities	—		(0.5)
Interest rate	Miscellaneous other assets	—		8.6		Other long-term liabilities	(60.9)		(4.1)
Total derivatives designated as hedging instruments		$	217.4	$	79.3		$	(60.9)	$	(7.9)
Derivatives not designated as hedging instruments
Equity	Prepaid expenses and other current assets	$	1.0	$	9.5	Accrued payroll and other liabilities	$	—	$	—
Foreign currency	Prepaid expenses and other current assets	7.0		0.5		Accrued payroll and other liabilities	—		—
Equity	Miscellaneous other assets	185.4		200.3
Total derivatives not designated as hedging instruments		$	193.4	$	210.3		$	—	$	—
Total derivatives		$	410.8	$	289.6		$	(60.9)	$	(7.9)

    The following table presents the pre-tax amounts from derivative instruments affecting income and AOCI for the six months ended June 30, 2022 and 2021, respectively:

	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		2022		2021		2022		2021		2022		2021
Foreign currency	Nonoperating income/expense	$	101.8	$	28.4	$	38.8	$	(33.7)
Interest rate	Interest expense	66.1		—		(2.2)		(3.1)
Cash flow hedges		$	167.9	$	28.4	$	36.6	$	(36.8)
Foreign currency denominated debt	Nonoperating income/expense	$	1,015.2	$	274.0	$	—	$	32.4
Foreign currency derivatives	Nonoperating income/expense	27.4		26.5
Foreign currency derivatives(1)	Interest expense									$	4.4	$	7.3
Net investment hedges		$	1,042.6	$	300.5	$	—	$	32.4	$	4.4	$	7.3
Foreign currency	Nonoperating income/expense									$	6.5	$	4.5
Equity	Selling, general & administrative expenses									(23.3)		43.7
Equity	Other operating income/expense, net									—		(16.3)
Undesignated derivatives										$	(16.8)	$	31.9
(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 the use of interest rate swaps. At June 30, 2022, the carrying amount of fixed-rate debt that was effectively converted was an equivalent notional amount of $1.0 billion, which included a decrease of $60.9 million of cumulative hedging adjustments. For the six months ended June 30, 2022, the Company recognized a $65.7 million loss on the fair value of interest rate swaps, and a corresponding gain on the fair value of the related hedged debt instrument to interest expense.

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 up to the next 18 months for certain exposures and are denominated in various currencies. As of June 30, 2022, the Company had foreign currency derivatives outstanding with an equivalent notional amount of $1.5 billion that hedged a portion of forecasted foreign currency denominated cash flows.

To protect against the variability of interest rates on anticipated bond issuances, the Company may use treasury locks to hedge a portion of expected future cash flows. As of June 30, 2022, the Company had derivatives outstanding with a notional amount of $500 million that hedge a portion of forecasted cash flows.

Based on market conditions at June 30, 2022, the $77.2 million in cumulative cash flow hedging gains, after tax, is not expected to have a significant effect on the Company's earnings over the next 12 months.

Net Investment Hedges

The Company uses foreign currency denominated debt (third-party and intercompany) and foreign currency derivatives 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, 2022, $12.5 billion of the Company's third-party foreign currency denominated debt, $882.5 million of the Company's intercompany foreign currency denominated debt and $239.8 million of foreign currency derivatives were designated to hedge investments in certain foreign subsidiaries and affiliates.

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. Changes in the fair value of these derivatives are recognized in Nonoperating (income) expense, net, together 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, 2022 and has master agreements that contain netting arrangements. For financial reporting purposes, the Company presents gross derivative balances in its financial statements and supplementary data, including for counterparties subject to netting arrangements. Some of these agreements also require each party to post collateral if credit ratings fall below, or aggregate exposures exceed, certain contractual limits. At June 30, 2022, the Company was required to post an immaterial amount of collateral due to the negative fair value of certain derivative positions. 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	2022		2021		2022		2021
Rents	$	2,275.2	$	2,125.7	$	4,356.3	$	3,951.8
Royalties	1,239.6		1,167.8		2,408.3		2,206.5
Initial fees	12.0		12.7		25.0		25.3
Revenues from franchised restaurants	$	3,526.8	$	3,306.2	$	6,789.6	$	6,183.6

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, 2022.

•International Operated Markets - comprised of markets or countries in which the Company operates and franchises restaurants, including Australia, Canada, France, Germany, Italy, the Netherlands, Spain and the U.K. The segment is 89% franchised as of June 30, 2022. During the second quarter of 2022, the Company completed the sale of its business in Russia.

•International Developmental Licensed Markets & Corporate - comprised primarily of developmental licensee and affiliate markets in the McDonald’s System. Corporate activities are also reported in this segment. The segment is 98% franchised as of June 30, 2022.

The following table presents the Company’s revenues and operating income by segment:

	Quarters Ended				Six Months Ended
	June 30,				June 30,
In millions	2022		2021		2022		2021
Revenues
U.S.	$	2,410.0	$	2,278.8	4,585.6		$	4,354.3
International Operated Markets	2,747.5		3,078.7		5,669.6		$	5,634.9
International Developmental Licensed Markets & Corporate	560.9		530.4		1,128.8		1,023.3
Total revenues	$	5,718.4	$	5,887.9	$	11,384.0	$	11,012.5
Operating Income
U.S.	$	1,319.9	$	1,267.5	$	2,470.9	$	2,393.0
International Operated Markets	136.3		1,272.0		$	1,265.5	$	2,225.8
International Developmental Licensed Markets & Corporate	255.6		151.6		288.0		353.6
Total operating income*