10-Q 1 mcd-20220630.htm 10-Q mcd-20220630
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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, 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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par valueMCDNew 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
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 dataJune 30,
2022
December 31,
2021
Assets
Current assets
Cash and equivalents$1,872.5 $4,709.2 
Accounts and notes receivable1,836.7 1,872.4 
Inventories, at cost, not in excess of market43.3 55.6 
Prepaid expenses and other current assets1,166.8 511.3 
Total current assets4,919.3 7,148.5 
Other assets
Investments in and advances to affiliates1,074.0 1,201.2 
Goodwill2,722.4 2,782.5 
Miscellaneous4,403.4 4,449.5 
Total other assets8,199.8 8,433.2 
Lease right-of-use asset, net12,794.2 13,552.0 
Property and equipment
Property and equipment, at cost40,114.3 41,916.6 
Accumulated depreciation and amortization(16,779.8)(17,196.0)
Net property and equipment23,334.5 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 taxes503.8 360.7 
Other taxes215.9 236.7 
Accrued interest312.8 363.3 
Accrued payroll and other liabilities1,018.6 1,347.0 
Total current liabilities3,480.1 4,020.0 
Long-term debt34,576.5 35,622.7 
Long-term lease liability12,319.4 13,020.9 
Long-term income taxes1,236.1 1,896.8 
Deferred revenues - initial franchise fees733.0 738.3 
Other long-term liabilities1,022.8 1,081.0 
Deferred income taxes2,249.7 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 capital8,378.7 8,231.6 
Retained earnings57,785.1 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 EndedSix Months Ended
 June 30,June 30,
In millions, except per share data2022202120222021
Revenues
Sales by Company-operated restaurants$2,112.8 $2,488.7 $4,415.2 $4,650.2 
Revenues from franchised restaurants3,526.8 3,306.2 6,789.6 6,183.6 
Other revenues78.8 93.0 179.2 178.7 
Total revenues5,718.4 5,887.9 11,384.0 11,012.5 
Operating costs and expenses
Company-operated restaurant expenses1,769.8 2,021.0 3,729.0 3,838.6 
Franchised restaurants-occupancy expenses588.6 579.1 1,172.6 1,150.6 
Other restaurant expenses57.9 68.3 130.2 135.5 
Selling, general & administrative expenses
Depreciation and amortization93.0 83.1 185.7 159.1 
Other611.2 572.4 1,195.5 1,062.8 
Other operating (income) expense, net886.1 (127.1)946.6 (306.5)
Total operating costs and expenses4,006.6 3,196.8 7,359.6 6,040.1 
Operating income1,711.8 2,691.1 4,024.4 4,972.4 
Interest expense290.6 296.5 577.9 596.5 
Nonoperating (income) expense, net12.1 18.6 496.2 47.2 
Income before provision for income taxes1,409.1 2,376.0 2,950.3 4,328.7 
Provision for income taxes221.1 156.7 657.9 572.2 
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-basic737.5 746.6 740.0 746.2 
Weighted-average shares outstanding-diluted742.0 752.1 744.8 751.6 
See Notes to condensed consolidated financial statements.
4

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
Quarters EndedSix Months Ended
June 30,June 30,
In millions2022202120222021
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 income504.1 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 AOCI103.0 (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 tax395.5 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 EndedSix Months Ended
 June 30,June 30,
In millions2022202120222021
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 amortization462.2 463.4 941.9 917.3 
Deferred income taxes(136.3)(368.9)(186.8)(370.4)
Share-based compensation38.3 36.5 92.6 63.8 
Other234.2 (71.2)306.2 (201.2)
Changes in working capital items(1,168.3)(545.9)(694.9)(308.8)
Cash provided by operations618.1 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 businesses351.7 52.2 368.2 81.8 
Sales of property6.3 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 borrowings310.1 1.4 316.1 7.9 
Long-term financing issuances1,874.5  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 exercises47.2 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 period2,335.7 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
PensionsCash flow
hedges
Foreign
currency
translation
In millions, except per share dataSharesAmountSharesAmount
Balance at December 31, 20201,660.6 $16.6 $7,903.6 $53,908.1 $(287.6)$(111.3)$(2,187.9)(915.2)$(67,066.4)$(7,824.9)
Net income3,756.5 3,756.5 
Other comprehensive income (loss),
    net of tax
(15.2)50.3 (19.5)15.6 
Comprehensive income3,772.1 
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 compensation63.8 63.8 
Stock option exercises and other78.6 1.5 52.5 131.1 
Balance at June 30, 20211,660.6 $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
PensionsCash flow
hedges
Foreign
currency
translation
In millions, except per share dataSharesAmountSharesAmount
Balance at December 31, 20211,660.6 $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 compensation92.6       92.6 
Stock option exercises and other54.5    1.3 44.1 98.6 
Balance at June 30, 20221,660.6 $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
PensionsCash flow
hedges
Foreign
currency
translation
In millions, except per share dataSharesAmountSharesAmount
Balance at March 31, 20211,660.6 $16.6 $7,959.1 $54,483.0 $(297.8)$(73.2)$(2,264.9)(914.5)$(67,058.3)$(7,235.5)
Net income2,219.3 2,219.3 
Other comprehensive income (loss),
    net of tax
(5.0)12.2 57.5 64.7 
Comprehensive income2,284.0 
Common stock cash dividends
    ($1.29 per share)
(963.3)(963.3)
Treasury stock purchases (3.0)(3.0)
Share-based compensation36.5 36.5 
Stock option exercises and other50.4 0.7 22.9 73.3 
Balance at June 30, 20211,660.6 $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
PensionsCash flow
hedges
Foreign
currency
translation
In millions, except per share dataSharesAmountSharesAmount
Balance at March 31, 20221,660.6 $16.6 $8,307.1 $57,614.0 $(180.8)$(7.5)$(2,453.6)(921.1)$(69,286.6)$(5,990.8)
Net income1,188.0 1,188.0 
Other comprehensive income (loss),
    net of tax
(2.7)84.7 313.5 395.5 
Comprehensive income1,583.5 
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 compensation38.3 38.3 
Stock option exercises and other33.3 0.5 14.0 47.3 
Balance at June 30, 20221,660.6 $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 30,20222021
Conventional franchised21,621 21,519 
Developmental licensed7,918 7,753 
Foreign affiliated8,125 7,445 
Total Franchised37,664 36,717 
Company-operated2,032 2,679 
Total Systemwide restaurants39,696 *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 millions2022
Balance at January 1$1,504.9 
Decreases for positions taken in prior years(572.1)
Increases for positions taken in prior years49.8 
Increases for positions in the current year19.4 
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 AssetsDerivative Liabilities
In millionsBalance Sheet ClassificationJune 30, 2022December 31, 2021Balance Sheet ClassificationJune 30, 2022December 31, 2021
Derivatives designated as hedging instruments
Foreign currencyPrepaid expenses and other current assets$107.5 $42.4 Accrued payroll and other liabilities$ $(3.3)
Interest ratePrepaid expenses and other current assets66.1 0.3 Accrued payroll and other liabilities  
Foreign currencyMiscellaneous other assets43.8 28.0 Other long-term liabilities (0.5)
Interest rateMiscellaneous 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
EquityPrepaid expenses and other current assets

$1.0 $9.5 Accrued payroll and other liabilities$ $ 
Foreign currencyPrepaid expenses and other current assets

7.0 0.5 Accrued payroll and other liabilities  
EquityMiscellaneous other assets185.4 200.3   
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 millions202220212022202120222021
Foreign currencyNonoperating income/expense$101.8 $28.4 $38.8 $(33.7)
Interest rateInterest expense66.1  (2.2)(3.1)
Cash flow hedges$167.9 $28.4 $36.6 $(36.8)
Foreign currency denominated debtNonoperating income/expense$1,015.2 $274.0 $ $32.4 
Foreign currency derivativesNonoperating income/expense27.4 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 currencyNonoperating income/expense$6.5 $4.5 
EquitySelling, general & administrative expenses(23.3)43.7 
EquityOther operating income/expense, net
 (16.3)
Undesignated derivatives$(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 EndedSix Months Ended
June 30,June 30,
In millions2022202120222021
Rents$2,275.2 $2,125.7 $4,356.3 $3,951.8 
Royalties1,239.6 1,167.8 2,408.3 2,206.5 
Initial fees12.0 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 EndedSix Months Ended
  
June 30,June 30,
In millions2022202120222021
Revenues
U.S.$2,410.0 $2,278.8 4,585.6 $4,354.3 
International Operated Markets2,747.5 3,078.7 5,669.6 $5,634.9 
International Developmental Licensed Markets & Corporate560.9 530.4 1,128.8