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Financial Instruments and Hedging Activities | 9 Months Ended
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Sep. 30, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Financial Instruments and Hedging Activities | 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 |  |  | $ | 193.1 |  |  |  |  | $ | (12.5 | ) |  | $ | (4.9 | )
Total derivatives |  | $ | 245.2 |  |  | $ | 224.7 |  |  |  |  | $ | (44.6 | ) |  | $ | (11.3 | )
The following table presents the pre-tax amounts from derivative instruments affecting income and AOCI for the nine months ended September 30, 2020 and 2019, respectively:
| Location of Gain or Loss Recognized in Income on Derivative |  | Gain (Loss) Recognized in AOCI |  | Gain (Loss) Reclassified into Income from AOCI |  | Gain (Loss) Recognized in Income on Derivative
In millions |  |  | 2020 |  | 2019 |  | 2020 |  | 2019 |  | 2020 |  | 2019
Foreign currency | Nonoperating income/expense |  | $ | (18.8 | ) |  | $ | 43.5 |  |  | $ | 11.3 |  |  | $ | 40.3 |  |  |  |  |
Interest rate | Interest expense |  | (90.8 | ) |  |  |  |  | (3.8 | ) |  | (1.0 | ) |  |  |  |
Cash flow hedges |  | $ | (109.6 | ) |  | $ | 43.5 |  |  | $ | 7.5 |  |  | $ | 39.3 |  |  |  |  |
Foreign currency denominated debt | Nonoperating income/expense |  | $ | (396.8 | ) |  | $ | 766.6 |  |  | $ | 17.6 |  |  |  |  |  |  |
Foreign currency derivatives | Nonoperating income/expense |  | 2.1 |  |  | 11.9 |  |  |  |  |  |  |  |  |
Foreign currency derivatives(1) | Interest expense |  |  |  |  |  |  |  |  |  | $ | 11.0 |  |  | $ | 8.0 |
Net investment hedges |  | $ | (394.7 | ) |  | $ | 778.5 |  |  | $ | 17.6 |  |  |  |  | $ | 11.0 |  |  | $ | 8.0 |
Foreign currency | Nonoperating income/expense |  |  |  |  |  |  |  |  |  | $ | (17.2 | ) |  | $ | 5.2 |
Equity | Selling, general & administrative expenses |  |  |  |  |  |  |  |  |  | 27.2 |  |  | 70.5 |
Equity | Other operating income/expense, net |  |  |  |  |  |  |  |  |  | (5.6 | ) |  |
Undesignated derivatives |  |  |  |  |  |  |  |  |  | $ | 4.4 |  |  | $ | 75.7 |
(1)The amount of gain (loss) recognized in income related to components excluded from effectiveness testing.
Fair Value Hedges The Company enters into fair value hedges to reduce the exposure to changes in fair values of certain liabilities. The Company enters into fair value hedges that convert a portion of its fixed rate debt into floating rate debt by use of interest rate swaps. At September 30, 2020, the carrying amount of fixed-rate debt that was effectively converted was $1.0 billion, which included an increase of $37.9 million of cumulative hedging adjustments. For the nine months ended September 30, 2020, the Company recognized a $25.8 million gain on the fair value of interest rate swaps, and a corresponding loss on the fair value of the related hedged debt instrument to interest expense. Cash Flow Hedges The Company enters into cash flow hedges to reduce the exposure to variability in certain expected future cash flows. To protect against the reduction in value of forecasted foreign currency cash flows (such as royalties denominated in foreign currencies), the Company uses foreign currency forwards to hedge a portion of anticipated exposures. The hedges cover the next 18 months for certain exposures and are denominated in various currencies. To protect against the variability of interest rates of an anticipated bond issuance, the Company may use treasury locks to hedge a portion of the expected future cash flows. As of September 30, 2020, the Company had derivatives outstanding with an equivalent notional amount of $1.1 billion that hedged a portion of forecasted foreign currency denominated cash flows. Based on market conditions at September 30, 2020, the $78.0 million in cumulative cash flow hedging losses, after tax, is not expected to have a significant effect on earnings over the next 12 months. Net Investment Hedges The Company primarily uses foreign currency denominated debt (third party and intercompany) to hedge its investments in certain foreign subsidiaries and affiliates. Realized and unrealized translation adjustments from these hedges are included in shareholders' equity in the foreign currency translation component of Other comprehensive income ("OCI") and offset translation adjustments on the underlying net assets of foreign subsidiaries and affiliates, which also are recorded in OCI. As of September 30, 2020, $12.7 billion of the Company's third party foreign currency denominated debt and $0.6 billion of intercompany foreign currency denominated debt was designated to hedge investments in certain foreign subsidiaries and affiliates. Undesignated Derivatives The Company enters into certain derivatives that are not designated for hedge accounting, therefore the changes in the fair value of these derivatives are recognized immediately in earnings together with the gain or loss from the hedged balance sheet position. As an example, the Company enters into equity derivative contracts, including total return swaps, to hedge market-driven changes in certain of its supplemental benefit plan liabilities. Changes in the fair value of these derivatives are recorded in Selling, general & administrative expenses together with the changes in the supplemental benefit plan liabilities. The Company may also use certain derivatives to mitigate the share price risk related to its sale of stock in McDonald’s Japan. The changes in the fair value of the undesignated derivatives used for the most recent sale transaction were recognized immediately in earnings in Other Operating (income) expense, net. In addition, the Company uses foreign currency forwards to mitigate the change in fair value of certain foreign currency denominated assets and liabilities. The changes in the fair value of these derivatives are recognized in Nonoperating (income) expense, net, along with the currency gain or loss from the hedged balance sheet position. Credit Risk The Company is exposed to credit-related losses in the event of non-performance by its derivative counterparties. The Company did not have significant exposure to any individual counterparty at September 30, 2020 and has master agreements that contain netting arrangements. For financial reporting purposes, the Company presents gross derivative balances in the financial statements and supplementary data, including for counterparties subject to netting arrangements. Some of these agreements also require each party to post collateral if credit ratings fall below, or aggregate exposures exceed, certain contractual limits. At September 30, 2020, the Company was required to post an immaterial amount of collateral due to the negative fair value of certain derivative positions. The Company's counterparties were not required to post collateral on any derivative position, other than on certain hedges of the Company’s supplemental benefit plan liabilities where the counterparties were required to post collateral on their liability positions.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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