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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
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For the quarterly period ended |
September 30, 2022
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OR
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☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
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For the transition period from
to
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Commission File Number 1-5231
McDONALD’S CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
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Delaware |
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36-2361282 |
(State or Other Jurisdiction of
Incorporation or Organization) |
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(I.R.S. Employer
Identification No.) |
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110 North Carpenter Street |
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60607 |
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Chicago, |
Illinois |
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(Address of Principal Executive Offices) |
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(Zip Code) |
(630) 623-3000
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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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.
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Large Accelerated Filer
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Accelerated Filer |
☐ |
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Non-accelerated Filer
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Smaller Reporting Company |
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Emerging Growth Company
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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.
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Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes ☐
No ☒
732,423,892
(Number of shares of common stock
outstanding as of 9/30/2022)
McDONALD’S CORPORATION
___________________________
INDEX
_______
All trademarks used herein are the property of their respective
owners and are used with permission.
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
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CONDENSED CONSOLIDATED BALANCE SHEET |
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(unaudited) |
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In millions, except per share data |
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September 30,
2022 |
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December 31,
2021 |
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Assets |
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Current assets |
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Cash and equivalents |
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2,828.3 |
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4,709.2 |
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Accounts and notes receivable |
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1,889.9 |
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1,872.4 |
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Inventories, at cost, not in excess of market |
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43.4 |
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55.6 |
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Prepaid expenses and other current assets |
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979.2 |
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511.3 |
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Total current assets |
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5,740.8 |
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7,148.5 |
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Other assets |
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Investments in and advances to affiliates |
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963.8 |
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1,201.2 |
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Goodwill |
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2,651.3 |
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2,782.5 |
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Miscellaneous |
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4,254.6 |
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4,449.5 |
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Total other assets |
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7,869.7 |
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8,433.2 |
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Lease right-of-use asset, net |
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12,192.8 |
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13,552.0 |
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Property and equipment |
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Property and equipment, at cost |
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39,096.8 |
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41,916.6 |
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Accumulated depreciation and amortization |
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(16,398.5) |
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(17,196.0) |
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Net property and equipment |
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22,698.3 |
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24,720.6 |
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Total assets |
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$ |
48,501.6 |
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$ |
53,854.3 |
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Liabilities and shareholders’ equity |
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Current liabilities |
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Accounts payable |
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794.8 |
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1,006.8 |
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Lease liability |
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654.9 |
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705.5 |
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Income taxes |
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386.3 |
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360.7 |
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Other taxes |
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203.6 |
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236.7 |
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Accrued interest |
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318.4 |
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363.3 |
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Accrued payroll and other liabilities |
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1,128.1 |
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1,347.0 |
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Total current liabilities |
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3,486.1 |
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4,020.0 |
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Long-term debt |
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34,866.2 |
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35,622.7 |
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Long-term lease liability |
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11,766.8 |
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13,020.9 |
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Long-term income taxes |
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1,085.0 |
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1,896.8 |
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Deferred revenues - initial franchise fees |
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727.8 |
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738.3 |
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Other long-term liabilities |
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990.8 |
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1,081.0 |
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Deferred income taxes |
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2,145.1 |
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2,075.6 |
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Shareholders’ equity (deficit) |
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Preferred stock, no par value; authorized – 165.0 million shares;
issued – none
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— |
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— |
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Common stock, $0.01 par value; authorized – 3.5 billion shares;
issued – 1,660.6 million shares
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16.6 |
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16.6 |
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Additional paid-in capital |
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8,460.1 |
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8,231.6 |
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Retained earnings |
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58,752.0 |
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57,534.7 |
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Accumulated other comprehensive income (loss) |
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(2,559.7) |
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(2,573.7) |
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Common stock in treasury, at cost; 928.2 and 915.8 million
shares
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(71,235.2) |
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(67,810.2) |
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Total shareholders’ equity (deficit) |
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(6,566.2) |
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(4,601.0) |
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Total liabilities and shareholders’ equity (deficit) |
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$ |
48,501.6 |
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$ |
53,854.3 |
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See Notes to condensed consolidated financial
statements.
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CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) |
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Quarters Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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In millions, except per share data |
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2022 |
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2021 |
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2022 |
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2021 |
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Revenues |
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|
|
|
|
|
|
|
|
|
|
|
Sales by Company-operated restaurants |
|
$ |
2,124.8 |
|
|
|
$ |
2,598.4 |
|
|
|
$ |
6,540.0 |
|
|
|
$ |
7,248.6 |
|
|
Revenues from franchised restaurants |
|
3,671.2 |
|
|
|
3,510.2 |
|
|
|
10,460.8 |
|
|
|
9,693.8 |
|
|
Other revenues |
|
76.1 |
|
|
|
92.7 |
|
|
|
255.3 |
|
|
|
271.4 |
|
|
Total revenues |
|
5,872.1 |
|
|
|
6,201.3 |
|
|
|
17,256.1 |
|
|
|
17,213.8 |
|
|
Operating costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Company-operated restaurant expenses |
|
1,779.6 |
|
|
|
2,108.4 |
|
|
|
5,508.6 |
|
|
|
5,947.0 |
|
|
Franchised restaurants-occupancy expenses |
|
589.0 |
|
|
|
592.6 |
|
|
|
1,761.6 |
|
|
|
1,743.2 |
|
|
Other restaurant expenses |
|
57.4 |
|
|
|
68.9 |
|
|
|
187.6 |
|
|
|
204.4 |
|
|
Selling, general & administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
93.3 |
|
|
|
84.1 |
|
|
|
279.0 |
|
|
|
243.2 |
|
|
Other |
|
576.4 |
|
|
|
559.6 |
|
|
|
1,771.9 |
|
|
|
1,622.4 |
|
|
Other operating (income) expense, net |
|
12.5 |
|
|
|
(198.8) |
|
|
|
959.1 |
|
|
|
(505.3) |
|
|
Total operating costs and expenses |
|
3,108.2 |
|
|
|
3,214.8 |
|
|
|
10,467.8 |
|
|
|
9,254.9 |
|
|
Operating income |
|
2,763.9 |
|
|
|
2,986.5 |
|
|
|
6,788.3 |
|
|
|
7,958.9 |
|
|
Interest expense |
|
306.2 |
|
|
|
293.7 |
|
|
|
884.1 |
|
|
|
890.2 |
|
|
Nonoperating (income) expense, net |
|
(78.5) |
|
|
|
1.4 |
|
|
|
417.7 |
|
|
|
48.6 |
|
|
Income before provision for income taxes |
|
2,536.2 |
|
|
|
2,691.4 |
|
|
|
5,486.5 |
|
|
|
7,020.1 |
|
|
Provision for income taxes |
|
554.6 |
|
|
|
541.5 |
|
|
|
1,212.5 |
|
|
|
1,113.7 |
|
|
Net income |
|
$ |
1,981.6 |
|
|
|
$ |
2,149.9 |
|
|
|
$ |
4,274.0 |
|
|
|
$ |
5,906.4 |
|
|
Earnings per common share-basic |
|
$ |
2.70 |
|
|
|
$ |
2.88 |
|
|
|
$ |
5.79 |
|
|
|
$ |
7.91 |
|
|
Earnings per common share-diluted |
|
$ |
2.68 |
|
|
|
$ |
2.86 |
|
|
|
$ |
5.75 |
|
|
|
$ |
7.86 |
|
|
Dividends declared per common share |
|
$ |
1.38 |
|
|
|
$ |
2.67 |
|
|
|
$ |
4.14 |
|
|
|
$ |
5.25 |
|
|
Weighted-average shares outstanding-basic |
|
734.9 |
|
|
|
747.1 |
|
|
|
738.3 |
|
|
|
746.5 |
|
|
Weighted-average shares outstanding-diluted |
|
739.5 |
|
|
|
752.6 |
|
|
|
743.0 |
|
|
|
751.9 |
|
See Notes to condensed consolidated financial
statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended |
|
|
Nine Months Ended |
|
|
September 30, |
|
|
September 30, |
|
In millions |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Net income |
|
$ |
1,981.6 |
|
|
|
$ |
2,149.9 |
|
|
|
$ |
4,274.0 |
|
|
|
$ |
5,906.4 |
|
|
Other comprehensive income (loss), net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) recognized in accumulated other comprehensive
income ("AOCI"), including net investment hedges
|
(369.5) |
|
|
|
(132.8) |
|
|
|
(644.3) |
|
|
|
(172.7) |
|
|
Reclassification of (gain) loss to net income |
— |
|
|
|
14.3 |
|
|
|
504.1 |
|
|
|
34.7 |
|
|
Foreign currency translation adjustments-net of tax
benefit (expense) of $(198.7), $(66.1), $(435.7) and
$(133.7)
|
(369.5) |
|
|
|
(118.5) |
|
|
|
(140.2) |
|
|
|
(138.0) |
|
|
Cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) recognized in AOCI |
101.4 |
|
|
|
26.8 |
|
|
|
231.8 |
|
|
|
48.7 |
|
|
Reclassification of (gain) loss to net income |
(42.5) |
|
|
|
4.0 |
|
|
|
(70.9) |
|
|
|
32.4 |
|
|
Cash flow hedges-net of tax benefit (expense) of $(16.9), $(9.2),
$(46.2) and $(24.1)
|
58.9 |
|
|
|
30.8 |
|
|
|
160.9 |
|
|
|
81.1 |
|
|
Defined benefit pension plans: |
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) recognized in AOCI |
(0.7) |
|
|
|
0.1 |
|
|
|
(0.6) |
|
|
|
0.9 |
|
|
Reclassification of (gain) loss to net income |
(2.0) |
|
|
|
(4.4) |
|
|
|
(6.1) |
|
|
|
(20.4) |
|
|
Defined benefit pension plans-net of tax benefit (expense)
of $0.0, $0.0, $0.1 and $0.1
|
(2.7) |
|
|
|
(4.3) |
|
|
|
(6.7) |
|
|
|
(19.5) |
|
|
Total other comprehensive income (loss), net of tax |
(313.3) |
|
|
|
(92.0) |
|
|
|
14.0 |
|
|
|
(76.4) |
|
|
Comprehensive income |
|
$ |
1,668.3 |
|
|
|
$ |
2,057.9 |
|
|
|
$ |
4,288.0 |
|
|
|
$ |
5,830.0 |
|
See Notes to condensed consolidated financial
statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended |
|
Nine Months Ended |
|
|
|
|
September 30, |
|
September 30, |
|
|
In millions |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
|
Operating activities |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1,981.6 |
|
|
$ |
2,149.9 |
|
|
$ |
4,274.0 |
|
|
$ |
5,906.4 |
|
|
|
Adjustments to reconcile to cash provided by operations |
|
|
|
|
|
|
|
|
|
|
Charges and credits: |
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
465.6 |
|
|
469.2 |
|
|
1,407.5 |
|
|
1,386.5 |
|
|
|
Deferred income taxes |
|
(196.3) |
|
|
(45.8) |
|
|
(383.1) |
|
|
(416.2) |
|
|
|
Share-based compensation |
|
38.3 |
|
|
34.1 |
|
|
130.9 |
|
|
97.9 |
|
|
|
Other |
|
(45.6) |
|
|
(163.6) |
|
|
260.6 |
|
|
(364.8) |
|
|
|
Changes in working capital items |
|
190.3 |
|
|
174.0 |
|
|
(504.6) |
|
|
(134.8) |
|
|
|
Cash provided by operations |
|
2,433.9 |
|
|
2,617.8 |
|
|
5,185.3 |
|
|
6,475.0 |
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
(531.2) |
|
|
(501.5) |
|
|
(1,370.3) |
|
|
(1,352.8) |
|
|
|
Purchases of restaurant businesses |
|
(152.3) |
|
|
(28.6) |
|
|
(349.5) |
|
|
(116.7) |
|
|
|
Sales of restaurant and other businesses |
|
33.1 |
|
|
60.1 |
|
|
401.3 |
|
|
141.9 |
|
|
|
Sales of property |
|
11.1 |
|
|
41.3 |
|
|
22.3 |
|
|
97.9 |
|
|
|
Other |
|
(93.8) |
|
|
43.8 |
|
|
(310.6) |
|
|
186.7 |
|
|
|
Cash used for investing activities |
|
(733.1) |
|
|
(384.9) |
|
|
(1,606.8) |
|
|
(1,043.0) |
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
|
|
Net short-term borrowings |
|
(305.4) |
|
|
(0.3) |
|
|
10.7 |
|
|
7.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term financing issuances |
|
1,500.0 |
|
|
— |
|
|
3,374.5 |
|
|
— |
|
|
|
Long-term financing repayments |
|
(0.4) |
|
|
(0.4) |
|
|
(2,201.8) |
|
|
(1,739.4) |
|
|
|
Treasury stock purchases |
|
(869.2) |
|
|
(17.7) |
|
|
(3,406.9) |
|
|
(42.2) |
|
|
|
Common stock dividends |
|
(1,014.7) |
|
|
(963.9) |
|
|
(3,056.7) |
|
|
(2,889.5) |
|
|
|
Proceeds from stock option exercises |
|
62.4 |
|
|
66.6 |
|
|
168.3 |
|
|
198.6 |
|
|
|
Other |
|
80.9 |
|
|
(11.7) |
|
|
48.7 |
|
|
(32.7) |
|
|
|
Cash used for financing activities |
|
(546.4) |
|
|
(927.4) |
|
|
(5,063.2) |
|
|
(4,497.6) |
|
|
|
Effect of exchange rates on cash and cash equivalents |
|
(198.6) |
|
|
(49.1) |
|
|
(396.2) |
|
|
(77.7) |
|
|
|
Cash and equivalents increase (decrease) |
|
955.8 |
|
|
1,256.4 |
|
|
(1,880.9) |
|
|
856.7 |
|
|
|
Cash and equivalents at beginning of period |
|
1,872.5 |
|
|
3,049.4 |
|
|
4,709.2 |
|
|
3,449.1 |
|
|
|
Cash and equivalents at end of period |
|
$ |
2,828.3 |
|
|
$ |
4,305.8 |
|
|
$ |
2,828.3 |
|
|
$ |
4,305.8 |
|
|
See Notes to condensed consolidated financial
statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED) |
|
For the nine months ended September 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 |
|
|
|
|
|
|
5,906.4 |
|
|
|
|
|
|
|
|
|
|
|
|
5,906.4 |
|
Other comprehensive income (loss),
net of tax |
|
|
|
|
|
|
|
|
(19.5) |
|
|
81.1 |
|
|
(138.0) |
|
|
|
|
|
|
(76.4) |
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,830.0 |
|
|
Common stock cash dividends
($5.25 per share)
|
|
|
|
|
|
|
(3,916.8) |
|
|
|
|
|
|
|
|
|
|
|
|
(3,916.8) |
|
|
Treasury stock purchases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.2) |
|
|
(59.0) |
|
|
(59.0) |
|
|
Share-based compensation |
|
|
|
|
97.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97.9 |
|
|
Stock option exercises and other |
|
|
|
|
124.3 |
|
|
|
|
|
|
|
|
|
|
2.0 |
|
|
73.5 |
|
|
197.8 |
|
|
Balance at September 30, 2021 |
1,660.6 |
|
|
16.6 |
|
|
8,125.8 |
|
|
55,897.7 |
|
|
(307.1) |
|
|
(30.2) |
|
|
(2,325.9) |
|
|
(913.4) |
|
|
(67,051.9) |
|
|
(5,675.0) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED) |
|
For the nine months ended September 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 |
|
|
|
|
|
|
4,274.0 |
|
|
|
|
|
|
|
|
|
|
|
|
4,274.0 |
|
Other comprehensive income (loss),
net of tax |
|
|
|
|
|
|
|
|
(6.7) |
|
|
160.9 |
|
|
(140.2) |
|
|
|
|
|
|
14.0 |
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,288.0 |
|
|
Common stock cash dividends
($4.14 per share)
|
|
|
|
|
|
|
(3,056.7) |
|
|
|
|
|
|
|
|
|
|
|
|
(3,056.7) |
|
|
Treasury stock purchases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14.1) |
|
|
(3,486.8) |
|
|
(3,486.8) |
|
|
Share-based compensation |
|
|
|
|
130.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
130.9 |
|
|
Stock option exercises and other |
|
|
|
|
97.6 |
|
|
|
|
|
|
|
|
|
|
1.7 |
|
|
61.8 |
|
|
159.4 |
|
|
Balance at September 30, 2022 |
1,660.6 |
|
|
$ |
16.6 |
|
|
$ |
8,460.1 |
|
|
$ |
58,752.0 |
|
|
$ |
(186.2) |
|
|
$ |
136.1 |
|
|
$ |
(2,509.6) |
|
|
(928.2) |
|
|
$ |
(71,235.2) |
|
|
$ |
(6,566.2) |
|
See Notes to condensed consolidated financial
statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED) |
|
For the quarter ended September 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 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) |
|
|
Net income |
|
|
|
|
|
|
2,149.9 |
|
|
|
|
|
|
|
|
|
|
|
|
2,149.9 |
|
Other comprehensive income (loss),
net of tax |
|
|
|
|
|
|
|
|
(4.3) |
|
|
30.8 |
|
|
(118.5) |
|
|
|
|
|
|
(92.0) |
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,057.9 |
|
|
Common stock cash dividends
($2.67 per share)
|
|
|
|
|
|
|
(1,991.2) |
|
|
|
|
|
|
|
|
|
|
|
|
(1,991.2) |
|
|
Treasury stock purchases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.1) |
|
|
(34.5) |
|
|
(34.5) |
|
|
Share-based compensation |
|
|
|
|
34.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34.1 |
|
|
Stock option exercises and other |
|
|
|
|
45.7 |
|
|
|
|
|
|
|
|
|
|
0.5 |
|
|
21.0 |
|
|
66.7 |
|
|
Balance at September 30, 2021 |
1,660.6 |
|
|
$ |
16.6 |
|
|
$ |
8,125.8 |
|
|
$ |
55,897.7 |
|
|
$ |
(307.1) |
|
|
$ |
(30.2) |
|
|
$ |
(2,325.9) |
|
|
(913.4) |
|
|
$ |
(67,051.9) |
|
|
$ |
(5,675.0) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED) |
|
|
|
|
|
|
|
|
|
|
|
|
For the quarter ended September 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 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) |
|
|
Net income |
|
|
|
|
|
|
1,981.6 |
|
|
|
|
|
|
|
|
|
|
|
|
1,981.6 |
|
Other comprehensive income (loss),
net of tax |
|
|
|
|
|
|
|
|
(2.7) |
|
|
58.9 |
|
|
(369.5) |
|
|
|
|
|
|
(313.3) |
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,668.3 |
|
|
Common stock cash dividends
($1.38 per share)
|
|
|
|
|
|
|
(1,014.7) |
|
|
|
|
|
|
|
|
|
|
|
|
(1,014.7) |
|
|
Treasury stock purchases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3.7) |
|
|
(949.1) |
|
|
(949.1) |
|
|
Share-based compensation |
|
|
|
|
38.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
38.3 |
|
Stock option exercises and other |
|
|
|
|
43.1 |
|
|
|
|
|
|
|
|
|
|
0.4 |
|
|
17.7 |
|
|
60.8 |
|
|
Balance at September 30, 2022 |
1,660.6 |
|
|
$ |
16.6 |
|
|
$ |
8,460.1 |
|
|
$ |
58,752.0 |
|
|
$ |
(186.2) |
|
|
$ |
136.1 |
|
|
$ |
(2,509.6) |
|
|
(928.2) |
|
|
$ |
(71,235.2) |
|
|
$ |
(6,566.2) |
|
See Notes to condensed consolidated financial
statements.
|
|
|
|
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
nine months ended September 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. Beginning in September 2022, the Company began reopening
certain restaurants in Ukraine.
In June 2022, the Company completed the sale of its Russian
business, resulting in a total exit from the market. The Company
recorded a charge of $1,281 million for the nine months,
comprised primarily of the write-off of the Company’s net
investment in Russia, along with related cumulative foreign
currency translation losses.
Restaurant Information
The following table presents restaurant information by ownership
type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurants at September 30, |
2022 |
|
|
2021 |
|
Conventional franchised |
21,641 |
|
|
|
21,552 |
|
|
Developmental licensed |
8,144 |
|
|
|
7,795 |
|
|
Foreign affiliated |
8,145 |
|
|
|
7,639 |
|
|
Total Franchised |
37,930 |
|
|
|
36,986 |
|
|
Company-operated |
2,050 |
|
|
|
2,690 |
|
|
Total Systemwide restaurants |
39,980 |
|
* |
|
39,676 |
|
*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 4.6 million shares and 5.5
million shares for the quarters 2022 and 2021, respectively, and
4.7 million shares and 5.4 million shares for the nine months 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 1.5 million
shares and 1.4 million shares for the quarters 2022 and 2021,
respectively, and 1.5 million shares and 3.0 million shares for the
nine months 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.
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. During 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 Russia through the
Company's sale of its Russian business in the second quarter 2022.
Beginning in September 2022, the Company began reopening certain
restaurants in Ukraine. While the Company continues to monitor
economic uncertainty resulting from the ongoing war and to assess
the financial impact on restaurant operations in certain regions of
Ukraine, based on its analysis and in consideration of the totality
of events and circumstances, there were no indicators of impairment
during the third quarter of 2022.
As of September 30, 2022, the Company’s net investment in Ukraine
was approximately $75 million, primarily consisting of
building and equipment assets. In addition, there was approximately
$150 million of cumulative foreign currency translation losses
reflected in the AOCI section of the condensed consolidated
statement of shareholder’s equity at September 30,
2022.
Income Taxes
The effective income tax rate was 21.9% and 20.1% for the quarters
2022 and 2021, respectively, and 22.1% and 15.9% for the nine
months 2022 and 2021, respectively. The effective tax rate for the
nine months 2022 reflected the tax impacts of current year pre-tax
charges of $1,281 million related to the sale of the Company's
business in Russia and a pre-tax gain of $271 million related
to the Company's sale of its Dynamic Yield business. The nine
months 2022 also reflected $537 million of nonoperating
expense related to the settlement of a tax audit in
France.
The effective tax rates for the quarter and nine months 2021
reflected the tax impacts of net pre-tax gains of $106 million
and $339 million, respectively, primarily related to the sale
of McDonald's Japan stock as well as a benefit of $364 million
in the nine months related to the remeasurement of deferred taxes
as a result of a change in the U.K. statutory income tax
rate.
As of September 30, 2022 and December 31, 2021, the Company’s gross
unrecognized tax benefits totaled $616.4 million and
$1,504.9 million, respectively. The Company continues to
engage with various tax jurisdictions to resolve tax audits. During
the nine months 2022, 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
|
(575.6) |
|
|
Increases for positions taken in prior years
|
64.3 |
|
|
Increases for positions in the current year
|
30.3 |
|
|
Decreases due to settlements with taxing authorities
|
(407.5) |
|
|
Decreases due to the lapsing of statutes of
limitations
|
— |
|
|
Balance at September 30
|
$ |
616.4 |
|
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 September 30, 2022, the fair value of the Company’s debt
obligations was estimated at $31.9 billion, compared to a carrying
amount of $34.9 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
approximate fair value.
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, 2022 |
|
December 31, 2021 |
|
Balance Sheet Classification |
|
September 30, 2022 |
|
December 31, 2021 |
|
Derivatives designated as hedging instruments |
|
|
|
|
|
|
|
|
|
Foreign currency |
Prepaid expenses and other current assets |
|
$ |
141.3 |
|
|
$ |
42.4 |
|
|
Accrued payroll and other liabilities |
|
$ |
— |
|
|
$ |
(3.3) |
|
|
Interest rate |
Prepaid expenses and other current assets |
|
— |
|
|
0.3 |
|
|
Accrued payroll and other liabilities |
|
— |
|
|
— |
|
|
Foreign currency |
Miscellaneous other assets |
|
76.7 |
|
|
28.0 |
|
|
Other long-term liabilities |
|
— |
|
|
(0.5) |
|
|
Interest rate |
Miscellaneous other assets
|
|
— |
|
|
8.6 |
|
|
Other long-term liabilities |
|
(92.0) |
|
|
(4.1) |
|
|
Total derivatives designated as hedging instruments |
|
$ |
218.0 |
|
|
$ |
79.3 |
|
|
|
|
$ |
(92.0) |
|
|
$ |
(7.9) |
|
|
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
|
|
|
Equity |
Prepaid expenses and other current assets
|
|
$ |
173.8 |
|
|
$ |
9.5 |
|
|
Accrued payroll and other liabilities |
|
$ |
(14.3) |
|
|
$ |
— |
|
|
Foreign currency |
Prepaid expenses and other current assets
|
|
16.4 |
|
|
0.5 |
|
|
Accrued payroll and other liabilities |
|
— |
|
|
— |
|
|
Equity |
Miscellaneous other assets |
|
— |
|
|
200.3 |
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging instruments |
|
$ |
190.2 |
|
|
$ |
210.3 |
|
|
|
|
$ |
(14.3) |
|
|
$ |
— |
|
|
Total derivatives |
|
$ |
408.2 |
|
|
$ |
289.6 |
|
|
|
|
$ |
(106.3) |
|
|
$ |
(7.9) |
|
The following table presents the pre-tax
amounts from derivative instruments affecting income and AOCI for
the nine months ended September 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 |
|
|
$ |
214.5 |
|
|
|
$ |
63.1 |
|
|
|
$ |
94.4 |
|
|
|
$ |
(37.4) |
|
|
|
|
|
|
|
|
Interest rate |
Interest expense |
|
|
83.9 |
|
|
|
— |
|
|
|
(3.0) |
|
|
|
(4.7) |
|
|
|
|
|
|
|
|
Cash flow hedges |
|
|
$ |
298.4 |
|
|
|
$ |
63.1 |
|
|
|
$ |
91.4 |
|
|
|
$ |
(42.1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency denominated debt |
Nonoperating income/expense |
|
|
$ |
1,917.0 |
|
|
|
$ |
574.3 |
|
|
|
|
|
|
$ |
47.1 |
|
|
|
|
|
|
|
|
Foreign currency derivatives |
Nonoperating income/expense |
|
|
37.1 |
|
|
|
31.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency derivatives(1)
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6.6 |
|
|
|
$ |
11.0 |
|
|
Net investment hedges |
|
|
$ |
1,954.1 |
|
|
|
$ |
605.7 |
|
|
|
|
|
|
$ |
47.1 |
|
|
|
$ |
6.6 |
|
|
|
$ |
11.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency |
Nonoperating income/expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
15.9 |
|
|
|
$ |
10.4 |
|
|
Equity |
Selling, general & administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(50.4) |
|
|
|
54.4 |
|
|
Equity |
Other operating income/expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
(7.8) |
|
|
Undesignated derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(34.5) |
|
|
|
$ |
57.0 |
|
|
(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 the use of interest rate swaps. At
September 30, 2022, the carrying amount of fixed-rate debt
that was effectively converted was an equivalent notional amount of
$952.1 million, which included a decrease of $92.0 million of
cumulative hedging adjustments. For the nine months ended
September 30, 2022, the Company recognized a $96.8 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 September 30, 2022, the Company had foreign currency derivatives
outstanding with an equivalent notional amount of $1.4 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 September 30,
2022, the Company did not have any of these derivatives
outstanding.
Based on market conditions at September 30, 2022, the $136.1
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 September 30, 2022, $11.7 billion of the Company's
third-party foreign currency denominated debt, $826.5 million of
the Company's intercompany foreign currency denominated debt and
$224.9 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
September 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 September 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.
Franchise Arrangements
Revenues from franchised restaurants consisted of:
|
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|
|
|
|
|
|
|
|
Quarters Ended |
|
Nine Months Ended |
|
September 30, |
|
September 30, |
|
In millions |
2022 |
|
2021 |
|
2022 |
|
2021 |
|
|
|
|
|
|
|
|
|
|
Rents |
$ |
2,357.5 |
|
|
$ |
2,254.1 |
|
|
$ |
6,713.8 |
|
|
$ |
6,205.9 |
|
|
Royalties |
1,300.7 |
|
|
1,243.1 |
|
|
3,709.0 |
|
|
3,449.6 |
|
|
Initial fees |
13.0 |
|
|
13.0 |
|
|
38.0 |
|
|
38.3 |
|
|
Revenues from franchised restaurants |
$ |
3,671.2 |
|
|
$ |
3,510.2 |
|
|
$ |
10,460.8 |
|
|
$ |
9,693.8 |
|
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
September 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 September 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 September 30,
2022.
The following table presents the Company’s revenues and operating
income by segment:
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|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended |
|
Nine Months Ended |
|
|
September 30, |
|
September 30, |
|
In millions |
2022 |
|
2021 |
|
2022 |
|
2021 |
|
Revenues |
|
|
|
|
|
|
|
|
U.S. |
$ |
2,456.6 |
|
|
$ |
2,260.7 |
|
|
$ |
7,042.2 |
|
|
$ |
6,615.0 |
|
|
International Operated Markets |
2,817.8 |
|
|
3,372.7 |
|
|
8,487.4 |
|
|
9,007.6 |
|
|
International Developmental Licensed Markets &
Corporate |
597.7 |
|
|
567.9 |
|
|
1,726.5 |
|
|
1,591.2 |
|
|
Total revenues |
$ |
5,872.1 |
|
|
$ |
6,201.3 |
|
|
$ |
17,256.1 |
|
|
$ |
17,213.8 |
|
|
Operating Income |
|
|
|
|
|
|
|
|
U.S. |
$ |
1,326.6 |
|
|
$ |
1,254.9 |
|
|
$ |
3,797.5 |
|
|
$ |
3,647.9 |
|
|
International Operated Markets |
1,374.4 |
|
|
1,519.6 |
|
|
2,639.9 |
|
|
3,745.4 |
|
|
International Developmental Licensed Markets &
Corporate |
62.9 |
|
|
212.0 |
|
|
350.9 |
|
|
565.6 |
|
|
Total operating income* |
$ |
2,763.9 |
|
|
$ |
2,986.5 |
|
|
$ |
6,788.3 |
|
|
$ |
7,958.9 |
|
*Results for the nine months 2022 included pre-tax charges of
$1,281 million related to the sale of the Company's business
in Russia, as well as $271 million of gains related to the
Company's sale of its Dynamic Yield business. The quarter and nine
months 2021 reflected $106 million and $339 million,
respectively, of net gains, primarily related to the sale of
McDonald's Japan stock.
Subsequent Events
The Company evaluated subsequent events through the date the
financial statements were issued and filed with the Securities and
Exchange Commission. There were no subsequent events that required
recognition or disclosure.
Item 2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Overview
The Company franchises and operates McDonald’s restaurants, which
serve a locally relevant menu of quality food and beverages in
communities across 118 countries. Of the 39,980 McDonald's
restaurants at September 30, 2022, 37,930, or 95%, were
franchised.
The Company’s reporting segments are aligned with its strategic
priorities and reflect how management reviews and evaluates
operating performance. Significant reportable segments include the
United States ("U.S.") and International Operated Markets. In
addition, there is the International Developmental Licensed Markets
& Corporate segment, which includes markets in over 80
countries, as well as Corporate activities.
McDonald’s franchised restaurants are owned and operated under one
of the following structures - conventional franchise, developmental
license or affiliate. The optimal ownership structure for an
individual restaurant, trading area or market (country) is based on
a variety of factors, including the availability of individuals
with entrepreneurial experience and financial resources, as well as
the local legal and regulatory environment in critical areas such
as property ownership and franchising. The business relationship
between the Company and its independent franchisees is supported by
adhering to standards and policies, including McDonald's Global
Brand Standards, and is of fundamental importance to overall
performance and to protecting the McDonald’s brand.
The Company is primarily a franchisor and believes franchising is
paramount to delivering great-tasting food, locally relevant
customer experiences and driving profitability. Franchising enables
an individual to be their own employer and maintain control over
all employment related matters, marketing and pricing decisions,
while also benefiting from the strength of McDonald’s global brand,
operating system and financial resources.
Directly operating McDonald’s restaurants contributes significantly
to the Company's ability to act as a credible franchisor. One of
the strengths of the franchising model is that the expertise from
operating Company-owned restaurants allows McDonald’s to improve
the operations and success of all restaurants while innovations
from franchisees can be tested and, when viable, efficiently
implemented across relevant restaurants. Having Company-owned and
operated restaurants provides Company personnel with a venue for
restaurant operations training experience. In addition, in our
Company-owned and operated restaurants, and in collaboration with
franchisees, the Company is able to further develop and refine
operating standards, marketing concepts and product and pricing
strategies that will ultimately benefit McDonald’s
restaurants.
The Company’s revenues consist of sales by Company-operated
restaurants and fees from restaurants operated by franchisees. Fees
vary by type of site, amount of Company investment, if any, and
local business conditions. These fees, along with occupancy and
operating rights, are stipulated in franchise/license agreements
that generally have 20-year terms. 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, for periods prior to
its sale on April 1, 2022, third-party
revenues for the Company's Dynamic Yield business.
Conventional Franchise
Under a conventional franchise arrangement, the Company generally
owns or secures a long-term lease on the land and building for the
restaurant location and the franchisee pays for equipment, signs,
seating and décor. The Company believes that ownership of real
estate, combined with the co-investment by franchisees, enables it
to achieve restaurant performance levels that are among the highest
in the industry.
Franchisees are responsible for reinvesting capital in their
businesses over time. In addition, to accelerate implementation of
certain initiatives, the Company may co-invest with franchisees to
fund improvements to their restaurants or operating systems. These
investments, developed in collaboration with franchisees, are
designed to cater to consumer preferences, improve local business
performance and increase the value of the McDonald's brand through
the development of modernized, more attractive and higher revenue
generating restaurants.
The Company requires franchisees to meet rigorous standards and
generally does not work with passive investors. The business
relationship with franchisees is designed to facilitate consistency
and high quality at all McDonald’s restaurants. Conventional
franchisees contribute to the Company’s revenue, primarily through
the payment of rent and royalties based upon a percent of sales,
with specified minimum rent payments, along with initial fees paid
upon the opening of a new restaurant or grant of a new franchise.
The Company's heavily franchised business model is designed to
generate stable and predictable revenue, which is largely a
function of franchisee sales, and resulting cash flow
streams.
Developmental License or Affiliate
Under a developmental license or affiliate arrangement, licensees
are responsible for operating and managing their businesses,
providing capital (including the real estate interest) and
developing and opening new restaurants. The Company generally does
not invest any capital under a developmental license or affiliate
arrangement, and it receives a royalty based on a percent of sales,
and generally receives initial fees upon the opening of a new
restaurant or grant of a new license.
While developmental license and affiliate arrangements are largely
the same, affiliate arrangements are used in a limited number of
foreign markets (primarily China and Japan) within the
International Developmental Licensed Markets segment as well as a
limited number of individual restaurants within the International
Operated Markets segment, where the Company also has an equity
investment and records its share of net results in equity in
earnings of unconsolidated affiliates.
Impact of the War in Ukraine
During the first quarter of 2022, McDonald’s temporarily closed
restaurants in Russia and Ukraine due to the ongoing war in the
region. Restaurants remained closed in Russia through the Company's
sale of its Russian business in the second quarter
2022.
Beginning in September 2022, the Company began reopening certain
restaurants in Ukraine.
Impact of COVID-19 Restrictions on the Business
COVID-19 resurgences continued to result in instances of government
restrictions on restaurant operations, primarily in
China.
Strategic Direction
The Company’s growth strategy,
Accelerating the Arches
(the “Strategy”), encompasses all aspects of McDonald’s business as
the leading global omni-channel restaurant brand. The Strategy
reflects our purpose, mission and values, as well as growth pillars
that build on the Company’s competitive advantages.
Purpose, Mission and Values
Our values underpin our success and are at the heart of our
Strategy. The Company embraces and prioritizes its role and
commitments to the communities in which it operates through
our:
•Purpose
to feed and foster communities;
•Mission
to create delicious feel-good moments for everyone;
and
•Core
Values
that define who we are and how we run our business across the
three-legged stool of McDonald’s franchisees, suppliers, and
employees:
◦Serve:
we put our customers and people first,
◦Inclusion:
we open our doors to everyone,
◦Integrity:
we do the right thing,
◦Community:
we are good neighbors, and
◦Family:
we get better together.
Growth Pillars
The following growth pillars — MCD — are rooted in the Company’s
identity, build on historic strengths and articulate areas of
further opportunity. Under the Strategy, the Company
will:
•Maximize
our Marketing
by investing in new, culturally relevant approaches grounded in Fan
Truths, such as the Famous Orders platform, to effectively
communicate the story of our brand, food and purpose. This also
includes enhancing digital capabilities that provide a more
personal connection with customers. The Company is committed to a
marketing strategy that highlights value at every tier of the menu,
as affordability remains a cornerstone of the McDonald’s brand and
is especially important to our customers in uncertain economic
environments.
•Commit
to the Core
menu by tapping into customer demand for the familiar and focusing
on serving delicious burgers, chicken and coffee. The Company
continues to prioritize chicken and beef offerings, as we expect
they represent the largest growth opportunities. The Company
recognizes there is significant opportunity to expand its chicken
offerings by leveraging line extensions of customer favorites, such
as the Crispy Chicken Sandwich that launched in the U.S. in 2021,
and emerging equities, such as the McSpicy limited time offerings
that were featured in several markets around the world in 2021 and
2022. The Company is implementing a series of operational and
formulation changes designed to improve upon the great taste of our
burgers. We also continue to see a significant opportunity with
coffee, and markets are leveraging the McCafé brand, experience,
value and quality to drive long-term growth.
•Double
Down on the 3D's: Digital, Delivery and Drive Thru
by leveraging competitive strengths and building a powerful digital
experience growth engine to enhance the customer experience. To
unlock further growth, the Company is continuing to accelerate
technology innovation so that, however customers choose to interact
with McDonald’s, they can enjoy a fast, easy experience that meets
their needs. In the third quarter of 2022, digital channels (the
mobile app, delivery and kiosk) comprised
over one-third of Systemwide sales in our top six markets,
representing nearly $7 billion of Systemwide sales, an increase of
approximately 40% over the prior year:
◦Digital:
The Company’s digital experience growth engine — “MyMcDonald’s” —
is transforming its offerings across drive thru, takeaway,
delivery, curbside pick-up and dine-in with digital enhancements.
Through the digital tools, customers can access tailored offers,
participate in a loyalty program, order through the mobile app and
receive McDonald's food through the channel of their choice. The
Company has successful loyalty programs in about 50 markets around
the world, including its top six markets. The Company’s loyalty
customers have proven to be highly engaged, with over 43 million
active loyalty members in the last 90-days, including over 25
million in the U.S., as of September 30, 2022.
◦Delivery:
The Company has continued to expand the number of restaurants
offering delivery to over 34,000, representing over 85% of
McDonald's restaurants. Delivery is available in about 100 markets,
and the Company is continuing to build on and enhance the delivery
experience for customers by adding the ability to order on the
mobile app. This capability is now available in the U.K., is
currently rolling out in the U.S. and the Company plans to expand
this capability to Canada and Australia before the end of 2022. The
Company also has long-term strategic partnerships with UberEats,
DoorDash, Just Eat Takeaway.com and Deliveroo. These partnerships
are expected to benefit the Company and its customers and
franchisees by optimizing operational efficiencies and creating a
seamless customer experience.
◦Drive
Thru:
The Company has drive thru locations in over 26,000 restaurants
globally, including nearly 95% of the over 13,000 locations in the
U.S. This channel remains a competitive advantage, and we expect
that it will become even more critical to meeting customers’ demand
for flexibility and choice. The Company continues to build on its
drive thru advantage, as the vast majority of new restaurant
openings in the U.S. and International Operated Markets segments
will include a drive thru.
Foundational to
Accelerating the Arches
is keeping the customer and restaurant crew at the center of
everything we do, along with a relentless focus on running great
restaurants. The Company believes the Strategy builds on our
inherent strengths by harnessing our competitive advantages while
leveraging our size, scale and agility to adapt and adjust to
uncertain economic and operating environments to meet consumer
demands. The Strategy is supported by a strong global senior
leadership team aimed at executing against the MCD growth pillars
and accelerating the Company’s broad-based business
momentum.
The Company believes the employee experience is critical to its
success and, in 2022, implemented Global Brand Standards which are
designed to create a culture of safety for both employees and
customers in McDonald’s restaurants around the world. These
efforts, coupled with investments in innovation, are designed to
enhance the customer experience and deliver long-term profitable
growth, which is aligned with the Company’s capital allocation
philosophy of investing in new restaurants and opportunities to
grow the business, reinvesting in existing restaurants, and
returning all free cash flow to shareholders over time through
dividends and share repurchases.
Third Quarter and Nine Months 2022 Financial
Performance
Global comparable sales increased 9.5% for the quarter and 10.3%
for the nine months.
•U.S.
comparable sales increased 6.1% for the quarter and 4.5% for the
nine months. Comparable sales growth for both periods was driven by
strategic menu price increases and continued digital and delivery
growth, as well as successful marketing promotions featuring the
core menu.
•International
Operated Markets segment comparable sales increased 8.5% for the
quarter and 13.5% for the nine months. Strong operating performance
drove positive comparable sales across the segment, led by strong
positive comparable sales in France and Germany for both periods,
with the quarter also benefiting from strong positive comparable
sales in Australia.
•International
Developmental Licensed Markets segment comparable sales increased
16.7% for the quarter and 15.9% for the nine months. Both periods
reflected strong comparable sales driven by Brazil and Japan,
partly offset by negative comparable sales in China due to
continued COVID-19 related government restrictions.
In addition to the comparable sales results, the Company had the
following financial results for the quarter and nine months, which
were negatively impacted by foreign currency translation due to the
weakening of all major currencies against the U.S.
Dollar:
•Consolidated
revenues decreased 5% (increased 2% in constant currencies) for the
quarter and were flat (increased 6% in constant currencies) for the
nine months.
•Systemwide
sales increased 2% (9% in constant currencies) for the quarter and
5% (11% in constant currencies) for the nine months.
•Consolidated
operating income decreased 7% (increased 1% in constant currencies)
for the quarter and decreased 15% (9% in constant currencies) for
the nine months. Excluding the current and prior year charges and
gains detailed in the Operating Income & Operating Margin
section on page 29 of this report, consolidated operating income
decreased 4% (increased 4% in constant currencies) for the quarter
and increased 2% (9% in constant currencies) for the nine
months.
•Diluted
earnings per share was $2.68 for the quarter, a decrease of 6%
(flat in constant currencies) and $5.75 for the nine months, a
decrease of 27% (22% in constant currencies). Excluding the current
and prior year charges and gains detailed in the Net Income and
Diluted Earnings Per Share section on page 23 of this report,
diluted earnings per share for the quarter decreased 3% (increased
4% in constant currencies) and increased 7% (12% in constant
currencies) for the nine months.
Management reviews and analyzes business results excluding the
effect of foreign currency translation, impairment and other
strategic charges and gains, as well as material regulatory and
other income tax impacts, and bases incentive compensation plans on
these results because the Company believes this better represents
underlying business trends.
The Following Definitions Apply to these Terms as Used Throughout
this Report:
•Constant
currency
results exclude the effects of foreign currency translation and are
calculated by translating current year results at prior year
average exchange rates. Management reviews and analyzes business
results excluding the effect of foreign currency translation,
impairment and other strategic charges and gains, as well as
material regulatory and other income tax impacts, and bases
incentive compensation plans on these results because the Company
believes this better represents underlying business
trends.
•Comparable
sales
are compared to the same period in the prior year and represent
sales at all restaurants, whether operated by the Company or by
franchisees, in operation at least thirteen months including those
temporarily closed. Some of the reasons restaurants may be
temporarily closed include reimaging or remodeling, rebuilding,
road construction, natural disasters and acts of war, terrorism or
other hostilities (including restaurants temporarily closed due to
COVID-19, as well as those that remain closed in Ukraine).
Restaurants in Russia were treated as permanently closed as of
April 1, 2022 and therefore excluded from the calculation of
comparable sales beginning in the second quarter of 2022.
Comparable sales exclude the impact of currency translation and the
sales of any market considered hyper-inflationary (generally
identified as those markets whose cumulative inflation rate over a
three-year period exceeds 100%), which management believes more
accurately reflects the underlying business trends. Comparable
sales are driven by changes in guest counts and average check, the
latter of which is affected by changes in pricing and product
mix.
•Systemwide
sales
include sales at all restaurants, whether operated by the Company
or by franchisees. This includes sales from digital channels, which
are comprised of the mobile app, delivery and kiosk at both
Company-operated and franchised restaurants. While franchised sales
are not recorded as revenues by the Company, management believes
the information is important in understanding the Company's
financial performance because these sales are the basis on which
the Company calculates and records franchised revenues and are
indicative of the financial health of the franchisee base. The
Company's revenues consist of sales by Company-operated restaurants
and fees from franchised restaurants operated by conventional
franchisees, developmental licensees and affiliates. Changes in
Systemwide sales are primarily driven by comparable sales and net
restaurant unit expansion.
•Free
cash flow,
defined as cash provided by operations less capital expenditures,
and free cash flow conversion rate, defined as free cash flow
divided by net income, are measures reviewed by management in order
to evaluate the Company’s ability to convert net profits into cash
resources, after reinvesting in the core business, that can be used
to pursue opportunities to enhance shareholder value.
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED OPERATING RESULTS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
Nine Months Ended |
|
Dollars in millions, except per share data |
September 30, 2022 |
|
September 30, 2022 |
|
|
Amount |
|
Increase/
(Decrease) |
|
Amount |
|
Increase/
(Decrease) |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
Sales by Company-operated restaurants |
|
$ |
2,124.8 |
|
|
(18) |
% |
|
|
$ |
6,540.0 |
|
|
(10) |
% |
|
Revenues from franchised restaurants |
|
3,671.2 |
|
|
5 |
|
|
|
10,460.8 |
|
|
8 |
|
|
Other revenues |
|
76.1 |
|
|
(18) |
|
|
|
255.3 |
|
|
(6) |
|
|
Total revenues |
|
5,872.1 |
|
|
(5) |
|
|
|
17,256.1 |
|
|
— |
|
|
Operating costs and expenses |
|
|
|
|
|
|
|
|
|
|
Company-operated restaurant expenses |
|
1,779.6 |
|
|
(16) |
|
|
|
5,508.6 |
|
|
(7) |
|
|
Franchised restaurants-occupancy expenses |
|
589.0 |
|
|
(1) |
|
|
|
1,761.6 |
|
|
1 |
|
|
Other restaurant expenses |
|
57.4 |
|
|
(17) |
|
|
|
187.6 |
|
|
(8) |
|
|
Selling, general & administrative expenses |
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
93.3 |
|
|
11 |
|
|
|
279.0 |
|
|
15 |
|
|
Other |
|
576.4 |
|
|
3 |
|
|
|
1,771.9 |
|
|
9 |
|
|
Other operating (income) expense, net |
|
12.5 |
|
|
n/m |
|
|
959.1 |
|
|
n/m |
|
Total operating costs and expenses |
|
3,108.2 |
|
|
(3) |
|
|
|
10,467.8 |
|
|
13 |
|
|
Operating income |
|
2,763.9 |
|
|
(7) |
|
|
|
6,788.3 |
|
|
(15) |
|
|
Interest expense |
|
306.2 |
|
|
4 |
|
|
|
884.1 |
|
|
(1) |
|
|
Nonoperating (income) expense, net |
|
(78.5) |
|
|
n/m |
|
|
417.7 |
|
|
n/m |
|
Income before provision for income taxes |
|
2,536.2 |
|
|
(6) |
|
|
|
5,486.5 |
|
|
(22) |
|
|
Provision for income taxes |
|
554.6 |
|
|
2 |
|
|
|
1,212.5 |
|
|
9 |
|
|
Net income |
|
$ |
1,981.6 |
|
|
(8) |
% |
|
|
$ |
4,274.0 |
|
|
(28) |
% |
|
Earnings per common share-basic |
|
$ |
2.70 |
|
|
(6) |
% |
|
|
$ |
5.79 |
|
|
(27) |
% |
|
Earnings per common share-diluted |
|
$ |
2.68 |
|
|
(6) |
% |
|
|
$ |
5.75 |
|
|
(27) |
% |
n/m Not meaningful
Impact of Foreign Currency Translation
The impact of foreign currency translation on consolidated
operating results for both periods reflected the weakening of all
major currencies against the U.S. Dollar, driven by the Euro,
British Pound and Australian Dollar.
While changes in foreign currency exchange rates affect reported
results, McDonald's mitigates exposures, where practical, by
purchasing goods and services in local currencies, financing in
local currencies and hedging certain foreign-denominated cash
flows. Results excluding the effect of foreign currency translation
(referred to as constant currency) are calculated by translating
current year results at prior year average exchange
rates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMPACT OF FOREIGN CURRENCY TRANSLATION |
|
|
|
|
|
|
|
|
|
Dollars in millions, except per share data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
Translation
Benefit/ (Cost) |
|
Quarters Ended September 30, |
|
2022 |
|
|
2021 |
|
|
2022 |
|
Revenues |
|
$ |
5,872.1 |
|
|
|
$ |
6,201.3 |
|
|
|
$ |
(464.4) |
|
|
Company-operated margins |
|
345.2 |
|
|
|
490.0 |
|
|
|
(31.8) |
|
|
Franchised margins |
|
3,082.1 |
|
|
|
2,917.6 |
|
|
|
(224.3) |
|
|
Selling, general & administrative expenses |
|
669.7 |
|
|
|
643.7 |
|
|
|
19.7 |
|
|
Operating income |
|
2,763.9 |
|
|
|
2,986.5 |
|
|
|
(243.4) |
|
|
Net income |
|
1,981.6 |
|
|
|
2,149.9 |
|
|
|
(142.5) |
|
|
Earnings per share-diluted |
|
$ |
2.68 |
|
|
|
$ |
2.86 |
|
|
|
$ |
(0.19) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
Translation
Benefit/ (Cost) |
|
Nine Months Ended September 30, |
|
2022 |
|
|
2021 |
|
|
2022 |
|
Revenues |
|
$ |
17,256.1 |
|
|
|
$ |
17,213.8 |
|
|
|
$ |
(1,011.2) |
|
|
Company-operated margins |
|
1,031.4 |
|
|
|
1,301.6 |
|
|
|
(72.2) |
|
|
Franchised margins |
|
8,699.1 |
|
|
|
7,950.6 |
|
|
|
(456.8) |
|
|
Selling, general & administrative expenses |
|
2,050.9 |
|
|
|
1,865.6 |
|
|
|
44.0 |
|
|
Operating income |
|
6,788.3 |
|
|
|
7,958.9 |
|
|
|
(449.5) |
|
|
Net income |
|
4,274.0 |
|
|
|
5,906.4 |
|
|
|
(264.9) |
|
|
Earnings per share-diluted |
|
$ |
5.75 |
|
|
|
$ |
7.86 |
|
|
|
$ |
(0.36) |
|
Net Income and Diluted Earnings per Share
For the quarter, net income decreased 8% (1% in constant
currencies) to $1,981.6 million, and diluted earnings per share
decreased 6% (flat in constant currencies) to $2.68. Foreign
currency translation had a negative impact of
$0.19
on diluted earnings per share.
For the nine months, net income decreased 28% (23% in constant
currencies) to $4,274.0 million, and diluted earnings per share
decreased 27% (22% in constant currencies) to $5.75. Foreign
currency translation had a negative impact of
$0.36
on diluted earnings per share.
Results for 2022 included the following:
•Pre-tax
charges of $1,281 million, or $1.44 per share, for the nine months,
related to the sale of the Company's business in
Russia
•Pre-tax
gain of $271 million, or $0.40 per share, for the nine months,
related to the Company's sale of its Dynamic Yield
business
•$537
million, or $0.72 per share, for the nine months, of nonoperating
expense related to the settlement of a tax audit in
France
Results for 2021 included the following:
•Net
pre-tax gains of $106 million, or $0.10 per share, for the quarter
and $339 million, or $0.33 per share, for the nine months,
primarily related to the sale of McDonald's Japan
stock
•$364
million, or $0.48 per share, for the nine months related to the
remeasurement of deferred taxes as a result of a change in the U.K.
statutory income tax rate
NET INCOME AND EARNINGS PER SHARE-DILUTED
RECONCILIATION
Dollars in millions, except per share data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended September 30, |
|
|
|
Net Income |
|
Earnings per share - diluted |
|
2022 |
|
2021 |
|
Inc/ (Dec) |
|
|
Inc/ (Dec)
Excluding
Currency
Translation |
|
|
2022 |
|
2021 |
|
Inc/ (Dec) |
|
|
Inc/ (Dec)
Excluding
Currency
Translation |
|
|
GAAP |
$ |
1,981.6 |
|
|
$ |
2,149.9 |
|
|
(8) |
|
% |
|
(1) |
|
% |
|
$ |
2.68 |
|
|
$ |
2.86 |
|
|
(6) |
|
% |
|
— |
|
% |
|
(Gains)/charges |
— |
|
|
(73.7) |
|
|
|
|
|
|
|
|
— |
|
|
(0.10) |
|
|
|
|
|
|
|
|
Change in U.K. statutory tax rate |
— |
|
|
— |
|
|
|
|
|
|
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
France tax settlement |
— |
|
|
— |
|
|
|
|
|
|
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
Non-GAAP |
$ |
1,981.6 |
|
|
$ |
2,076.2 |
|
|
(5) |
|
% |
|
2 |
|
% |
|
$ |
2.68 |
|
|
$ |
2.76 |
|
|
(3) |
|
% |
|
4 |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
Net Income |
|
Earnings per share - diluted |
|
2022 |
|
2021 |
|
Inc/ (Dec) |
|
|
Inc/ (Dec)
Excluding
Currency
Translation |
|
|
2022 |
|
2021 |
|
Inc/ (Dec) |
|
|
Inc/ (Dec)
Excluding
Currency
Translation |
|
|
GAAP |
$ |
4,274.0 |
|
|
$ |
5,906.4 |
|
|
(28) |
|
% |
|
(23) |
|
% |
|
$ |
5.75 |
|
|
$ |
7.86 |
|
|
(27) |
|
% |
|
(22) |
|
% |
|
(Gains)/charges |
770.7 |
|
|
(243.4) |
|
|
|
|
|
|
|
|
1.04 |
|
|
(0.33) |
|
|
|
|
|
|
|
|
Change in U.K. statutory tax rate |
— |
|
|
(363.7) |
|
|
|
|
|
|
|
|
— |
|
|
(0.48) |
|
|
|
|
|
|
|
|
France tax settlement |
537.2 |
|
|
— |
|
|
|
|
|
|
|
|
0.72 |
|
|
— |
|
|
|
|
|
|
|
|
Non-GAAP |
$ |
5,581.9 |
|
|
$ |
5,299.3 |
|
|
5 |
|
% |
|
11 |
|
% |
|
$ |
7.51 |
|
|
$ |
7.05 |
|
|
7 |
|
% |
|
12 |
|
% |
Results for the quarter and nine months 2022 were negatively
impacted by foreign currency translation due to the weakening of
all major currencies against the U.S. Dollar. In constant
currencies, results for both periods reflected strong operating
performance driven by higher sales-driven Franchised margins.
Company-operated margins were negatively impacted for both periods
by the permanent restaurant closures in Russia and the temporary
restaurant closures in Ukraine, as well as by inflationary cost
pressures. The nine months also reflected an income tax benefit
associated with global tax audit progression.
During the quarter, the Company repurchased 3.8 million shares of
stock for $949 million, bringing total purchases for the
nine months to 14.2
million shares or $3.5 billion. Additionally, the Company paid a
quarterly dividend of $1.38 per share, or $1.0 billion, bringing
total dividends paid for the
nine months to
$3.1 billion.
In October 2022, the Company declared a 10% increase in its
quarterly cash dividend to $1.52 per share, payable on December 15,
2022.
Revenues
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, for periods prior to
its sale on April 1, 2022, third-party
revenues for the Company's Dynamic Yield business.
Franchised restaurants represented
95% of McDonald's restaurants worldwide at September 30, 2022.
The Company's heavily franchised business model is designed to
generate stable and predictable revenue, which is largely a
function of franchisee sales, and resulting cash flow
streams.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES |
|
|
|
|
|
|
Dollars in millions |
|
|
|
|
|
|
Quarters Ended September 30, |
2022 |
|
2021 |
Inc/ (Dec) |
Inc/ (Dec)
Excluding
Currency
Translation |
|
Company-operated sales |
|
|
|
|
|
|
U.S. |
$ |
713.6 |
|
|
$ |
655.5 |
|
9 |
% |
9 |
% |
|
International Operated Markets |
1,220.2 |
|
|
1,754.0 |
|
(30) |
|
(21) |
|
|
|
|
|
|
|
|
International Developmental Licensed Markets &
Corporate |
191.0 |
|
|
188.9 |
|
1 |
|
17 |
|
|
Total |
$ |
2,124.8 |
|
|
$ |
2,598.4 |
|
(18) |
% |
(11) |
% |
|
Franchised revenues |
|
|
|
|
|
|
U.S. |
$ |
1,699.9 |
|
|
$ |
1,562.7 |
|
9 |
% |
9 |
% |
|
International Operated Markets |
1,564.6 |
|
|
1,586.1 |
|
(1) |
|
13 |
|
|
|
|
|
|
|
|
International Developmental Licensed Markets &
Corporate |
406.7 |
|
|
361.4 |
|
13 |
|
24 |
|
|
Total |
$ |
3,671.2 |
|
|
$ |
3,510.2 |
|
5 |
% |
12 |
% |
|
Total Company-operated sales and Franchised revenues |
|
|
|
|
|
|
U.S. |
$ |
2,413.5 |
|
|
$ |
2,218.2 |
|
9 |
% |
9 |
% |
|
International Operated Markets |
2,784.8 |
|
|
3,340.1 |
|
(17) |
|
(5) |
|
|
|
|
|
|
|
|
International Developmental Licensed Markets &
Corporate |
597.7 |
|
|
550.3 |
|
9 |
|
22 |
|
|
Total |
$ |
5,796.0 |
|
|
$ |
6,108.6 |
|
(5) |
% |
2 |
% |
|
|
|
|
|
|
|
|
Total Other revenues |
$ |
76.1 |
|
|
$ |
92.7 |
|
(18) |
% |
(14) |
% |
|
|
|
|
|
|
|
|
Total Revenues |
$ |
5,872.1 |
|
|
$ |
6,201.3 |
|
(5) |
% |
2 |
% |
|
Nine Months Ended September 30, |
2022 |
|
2021 |
Inc/ (Dec) |
Inc/ (Dec)
Excluding
Currency
Translation |
|
Company-operated sales |
|
|
|
|
|
|
U.S. |
$ |
2,057.2 |
|
|
$ |
1,942.0 |
|
6 |
% |
6 |
% |
|
International Operated Markets |
3,924.0 |
|
|
4,769.0 |
|
(18) |
|
(9) |
|
|
|
|
|
|
|
|
International Developmental Licensed Markets &
Corporate |
558.8 |
|
|
537.6 |
|
4 |
|
16 |
|
|
Total |
$ |
6,540.0 |
|
|
$ |
7,248.6 |
|
(10) |
% |
(3) |
% |
|
Franchised revenues |
|
|
|
|
|
|
U.S. |
$ |
4,856.8 |
|
|
$ |
4,550.9 |
|
7 |
% |
7 |
% |
|
International Operated Markets |
4,464.1 |
|
|
4,141.0 |
|
8 |
|
19 |
|
|
|
|
|
|
|
|
International Developmental Licensed Markets &
Corporate |
1,139.9 |
|
|
1,001.9 |
|
14 |
|
22 |
|
|
Total |
$ |
10,460.8 |
|
|
$ |
9,693.8 |
|
8 |
% |
14 |
% |
|
Total Company-operated sales and Franchised revenues |
|
|
|
|
|
|
U.S. |
$ |
6,914.0 |
|
|
$ |
6,492.9 |
|
6 |
% |
6 |
% |
|
International Operated Markets |
8,388.1 |
|
|
8,910.0 |
|
(6) |
|
4 |
|
|
|
|
|
|
|
|
International Developmental Licensed Markets &
Corporate |
1,698.7 |
|
|
1,539.5 |
|
10 |
|
20 |
|
|
Total |
$ |
17,000.8 |
|
|
$ |
16,942.4 |
|
— |
% |
6 |
% |
|
|
|
|
|
|
|
|
Total Other revenues |
$ |
255.3 |
|
|
$ |
271.4 |
|
(6) |
% |
(3) |
% |
|
|
|
|
|
|
|
|
Total Revenues |
$ |
17,256.1 |
|
|
$ |
17,213.8 |
|
— |
% |
6 |
% |
•Total
Company-operated sales and franchised revenues decreased 5%
(increased 2% in constant currencies) for the quarter and were flat
(increased 6% in constant currencies) for the nine months. For both
periods, revenues were negatively impacted by foreign currency
translation due to the weakening of all major currencies against
the U.S. Dollar.
•In
the International Operated Markets segment, both periods reflected
positive constant currency sales performance, driven by France and
Germany, while results for the quarter also benefited from positive
sales performance in Australia. Company-operated sales growth for
both periods was more than offset by the impact of the permanent
restaurant closures in Russia and the temporary restaurant closures
in Ukraine.
•Results
in the International Developmental Licensed segment for both
periods reflected positive sales performance across all geographic
regions in constant currencies, including China, as a result of
restaurant expansion.
Comparable Sales*
The following table presents the percent change in comparable sales
for the quarters and nine months ended September 30, 2022 and
2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/(Decrease) |
|
|
Quarters Ended September 30, |
Nine Months Ended September 30, |
|
|
2022 |
2021 |
|
2022 |
2021 |
|
U.S. |
6.1 |
% |
9.6 |
% |
|
4.5 |
% |
16.1 |
% |
|
International Operated Markets |
8.5 |
|
13.9 |
|
|
13.5 |
|
23.6 |
|
|
International Developmental Licensed Markets &
Corporate |
16.7 |
|
16.7 |
|
|
15.9 |
|
17.5 |
|
|
Total |
9.5 |
% |
12.7 |
% |
|
10.3 |
% |
18.8 |
% |
*For both International Operated Markets and Total comparable sales
calculations for the nine months 2022, restaurants in Russia were
treated as permanently closed starting April 1, 2022 and therefore
excluded from the calculations. Restaurants in Ukraine were treated
as temporarily closed and therefore included in the calculations.
Beginning in September 2022, the Company began reopening certain
restaurants in Ukraine.
Systemwide Sales and Franchised Sales
The following table presents the percent change in Systemwide sales
for the quarter and nine months ended September 30,
2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SYSTEMWIDE SALES* |
|
|
|
|
|
|
|
|
|
Quarter Ended September 30, 2022 |
|
Nine Months Ended September 30, 2022 |
|
|
Inc/ (Dec) |
|
Inc/ (Dec)
Excluding
Currency
Translation |
|
Inc/ (Dec) |
|
Inc/ (Dec)
Excluding
Currency
Translation |
|
U.S. |
6 |
% |
|
6 |
% |
|
5 |
% |
|
5 |
% |
|
International Operated Markets |
(8) |
|
|
5 |
|
|
1 |
|
|
12 |
|
|
International Developmental Licensed Markets &
Corporate |
8 |
|
|
22 |
|
|
11 |
|
|
21 |
|
|
Total |
2 |
% |
|
9 |
% |
|
5 |
% |
|
11 |
% |
*Unlike comparable sales, the Company has not excluded sales from
hyperinflationary markets from Systemwide sales as these sales are
the basis on which the Company calculates and records revenues.
2022 results included Ukraine for both periods and Russia for the
nine months, while 2021 results included both Russia and Ukraine
for both periods.
Franchised sales are not recorded as revenues by the Company, but
are the basis on which the Company calculates and records
franchised revenues and are indicative of the financial health of
the franchisee base. The following table presents Franchised sales
and the related increases/(decreases) for the quarters and nine
months ended September 30, 2022 and 2021:
|
|
|
|
|
|
|
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|
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|
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|
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|
|
|
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|
|
FRANCHISED SALES |
|
|
|
|
|
|
|
|
|
Dollars in millions |
|
|
|
|
|
|
|
|
|
Quarters Ended September 30, |
|
2022 |
|
2021 |
|
Inc/ (Dec) |
|
Inc/ (Dec)
Excluding
Currency
Translation |
|
U.S. |
|
$ |
11,838.2 |
|
|
$ |
11,155.0 |
|
|
6 |
% |
|
6 |
% |
|
International Operated Markets |
|
8,896.9 |
|
|
9,212.8 |
|
|
(3) |
|
|
10 |
|
|
International Developmental Licensed Markets &
Corporate |
|
7,574.8 |
|
|
6,981.9 |
|
|
8 |
|
|
22 |
|
|
Total |
|
$ |
28,309.9 |
|
|
$ |
27,349.7 |
|
|
4 |
% |
|
11 |
% |
|
|
|
|
|
|
|
|
|
|
Ownership type |
|
|
|
|
|
|
|
|
|
Conventional franchised |
|
$ |
20,671.0 |
|
|
$ |
20,199.7 |
|
|
2 |
% |
|
8 |
% |
|
Developmental licensed |
|
4,778.0 |
|
|
4,078.8 |
|
|
17 |
|
|
30 |
|
|
Foreign affiliated |
|
2,860.9 |
|
|
3,071.2 |
|
|
(7) |
|
|
7 |
|
|
Total |
|
$ |
28,309.9 |
|
|
$ |
27,349.7 |
|
|
4 |
% |
|
11 |
% |
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
2022 |
|
2021 |
|
Inc/ (Dec) |
|
Inc/ (Dec)
Excluding
Currency
Translation |
|
U.S. |
|
$ |
33,866.0 |
|
|
$ |
32,419.7 |
|
|
4 |
% |
|
4 |
% |
|
International Operated Markets |
|
25,704.9 |
|
|
24,444.4 |
|
|
5 |
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
International Developmental Licensed Markets &
Corporate |
|
21,517.2 |
|
|
19,296.1 |
|
|
12 |
|
|
21 |
|
|
Total |
|
$ |
81,088.1 |
|
|
$ |
76,160.2 |
|
|
6 |
% |
|
12 |
% |
|
|
|
|
|
|
|
|
|
|
|
Ownership type |
|
|
|
|
|
|
|
|
|
Conventional franchised |
|
$ |
59,266.9 |
|
|
$ |
56,535.9 |
|
|
5 |
% |
|
9 |
% |
|
Developmental licensed |
|
13,471.2 |
|
|
10,924.2 |
|
|
23 |
|
|
32 |
|
|
Foreign affiliated |
|
8,350.0 |
|
|
8,700.1 |
|
|
(4) |
|
|
5 |
|
|
Total |
|
$ |
81,088.1 |
|
|
$ |
76,160.2 |
|
|
6 |
% |
|
12 |
% |
Restaurant Margins
Franchised restaurant margins are measured as revenues from
franchised restaurants less franchised restaurant occupancy costs.
Franchised revenues include rent and royalties based on a percent
of sales, and initial fees. Franchised restaurant occupancy costs
include lease expense and depreciation, as the Company generally
owns or secures a long-term lease on the land and building for the
restaurant location.
Company-operated restaurant margins are measured as sales from
Company-operated restaurants less costs for food & paper,
payroll & employee benefits and occupancy & other operating
expenses necessary to run an individual restaurant.
Company-operated margins exclude costs that are not allocated to
individual restaurants, primarily payroll & employee benefit
costs of non-restaurant support staff, which are included in
Selling, general and administrative expenses.
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|
RESTAURANT MARGINS |
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|
|
|
|
|
|
|
|
|
|
|
Dollars in millions |
|
|
|
|
Amount |
|
Inc/ (Dec) |
|
Inc/ (Dec)
Excluding
Currency
Translation |
|
Quarters Ended September 30, |
|
|
|
|
2022 |
|
2021 |
|
|
|
Franchised |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
|
|
|
$ |
1,383.7 |
|
|
$ |
1,260.1 |
|
|
10 |
% |
|
10 |
% |
|
International Operated Markets |
|
|
|
|
1,296.6 |
|
|
1,302.4 |
|
|
— |
|
|
14 |
|
|
International Developmental Licensed Markets &
Corporate |
|
|
|
|
401.8 |
|
|
355.1 |
|
|
13 |
|
|
25 |
|
|
Total |
|
|
|
|
$ |
3,082.1 |
|
|
$ |
2,917.6 |
|
|
6 |
% |
|
13 |
% |
|
Company-operated |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
|
|
|
$ |
105.6 |
|
|
$ |
126.6 |
|
|
(17) |
% |
|
(17) |
% |
|
International Operated Markets |
|
|
|
|
230.5 |
|
|
355.5 |
|
|
(35) |
|
|
(27) |
|
|
International Developmental Licensed Markets &
Corporate |
|
|
|
|
n/m |
|
n/m |
|
n/m |
|
n/m |
|
Total |
|
|
|
|
$ |
345.2 |
|
|
$ |
490.0 |
|
|
(30) |
% |
|
(23) |
% |
|
Total restaurant margins |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
|
|
|
$ |
1,489.3 |
|
|
$ |
1,386.7 |
|
|
7 |
% |
|
7 |
% |
|
International Operated Markets |
|
|
|
|
1,527.1 |
|
|
1,657.9 |
|
|
(8) |
|
|
5 |
|
|
International Developmental Licensed Markets &
Corporate |
|
|
|
|
n/m |
|
n/m |
|
n/m |
|
n/m |
|
Total |
|
|
|
|
$ |
3,427.3 |
|
|
$ |
3,407.6 |
|
|
1 |
% |
|
8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount |
|
Inc/ (Dec) |
|
Inc/ (Dec)
Excluding
Currency
Translation |
|
Nine Months Ended September 30, |
|
|
|
|
2022 |
|
2021 |
|
|
|
Franchised |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
|
|
|
$ |
3,927.8 |
|
|
$ |
3,667.0 |
|
|
7 |
% |
|
7 |
% |
|
International Operated Markets |
|
|
|
|
3,646.8 |
|
|
3,300.5 |
|
|
10 |
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Developmental Licensed Markets &
Corporate |
|
|
|
|
1,124.5 |
|
|
983.1 |
|
|
14 |
|
|
22 |
|
|
Total |
|
|
|
|
$ |
8,699.1 |
|
|
$ |
7,950.6 |
|
|
9 |
% |
|
15 |
% |