filings.toolsItem 1. Financial Statements
61K characters. Original on sec.gov · Markdown
Item 1. Financial Statements
| CONDENSED CONSOLIDATED BALANCE SHEET | |||||||||||||||||
| (unaudited) | |||||||||||||||||
| In millions, except per share data | September 30, 2021 | December 31, 2020 | |||||||||||||||
| Assets | |||||||||||||||||
| Current assets | |||||||||||||||||
| Cash and equivalents | $ | 4,305.8 | $ | 3,449.1 | |||||||||||||
| Accounts and notes receivable | 1,828.5 | 2,110.3 | |||||||||||||||
| Inventories, at cost, not in excess of market | 50.1 | 51.1 | |||||||||||||||
| Prepaid expenses and other current assets | 611.5 | 632.7 | |||||||||||||||
| Total current assets | 6,795.9 | 6,243.2 | |||||||||||||||
| Other assets | |||||||||||||||||
| Investments in and advances to affiliates | 1,171.4 | 1,297.2 | |||||||||||||||
| Goodwill | 2,744.2 | 2,773.1 | |||||||||||||||
| Miscellaneous | 4,057.9 | 3,527.4 | |||||||||||||||
| Total other assets | 7,973.5 | 7,597.7 | |||||||||||||||
| Lease right-of-use asset, net | 13,528.9 | 13,827.7 | |||||||||||||||
| Property and equipment | |||||||||||||||||
| Property and equipment, at cost | 41,423.7 | 41,476.5 | |||||||||||||||
| Accumulated depreciation and amortization | (16,995.0) | (16,518.3) | |||||||||||||||
| Net property and equipment | 24,428.7 | 24,958.2 | |||||||||||||||
| Total assets | $ | 52,727.0 | $ | 52,626.8 | |||||||||||||
| Liabilities and shareholders’ equity | |||||||||||||||||
| Current liabilities | |||||||||||||||||
| Accounts payable | $ | 772.6 | $ | 741.3 | |||||||||||||
| Dividends payable | 1,027.3 | — | |||||||||||||||
| Lease liability | 701.5 | 701.5 | |||||||||||||||
| Income taxes | 259.7 | 741.1 | |||||||||||||||
| Other taxes | 253.5 | 227.0 | |||||||||||||||
| Accrued interest | 312.2 | 388.4 | |||||||||||||||
| Accrued payroll and other liabilities | 1,268.8 | 1,138.3 | |||||||||||||||
| Current maturities of long-term debt | 500.0 | 2,243.6 | |||||||||||||||
| Total current liabilities | 5,095.6 | 6,181.2 | |||||||||||||||
| Long-term debt | 34,628.0 | 35,196.8 | |||||||||||||||
| Long-term lease liability | 12,986.6 | 13,321.3 | |||||||||||||||
| Long-term income taxes | 1,878.9 | 1,970.7 | |||||||||||||||
| Deferred revenues - initial franchise fees | 720.1 | 702.0 | |||||||||||||||
| Other long-term liabilities | 1,046.6 | 1,054.1 | |||||||||||||||
| Deferred income taxes | 2,046.2 | 2,025.6 | |||||||||||||||
| Shareholders’ equity (deficit) | |||||||||||||||||
| Preferred stock, no par value; authorized – 165.0 million shares; issued – none | — | — | |||||||||||||||
| Common stock, $.01 par value; authorized – 3.5 billion shares; issued – 1,660.6 million shares | 16.6 | 16.6 | |||||||||||||||
| Additional paid-in capital | 8,125.8 | 7,903.6 | |||||||||||||||
| Retained earnings | 55,897.7 | 53,908.1 | |||||||||||||||
| Accumulated other comprehensive income (loss) | (2,663.2) | (2,586.8) | |||||||||||||||
| Common stock in treasury, at cost; 913.4 and 915.2 million shares | (67,051.9) | (67,066.4) | |||||||||||||||
| Total shareholders’ equity (deficit) | (5,675.0) | (7,824.9) | |||||||||||||||
| Total liabilities and shareholders’ equity (deficit) | $ | 52,727.0 | $ | 52,626.8 |
See Notes to condensed consolidated financial statements.
| CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) | |||||||||||||||||||||||||||||||||||
| Quarters Ended | Nine Months Ended | ||||||||||||||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||||||||||||||
| In millions, except per share data | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||||||||
| Revenues | |||||||||||||||||||||||||||||||||||
| Sales by Company-operated restaurants | $ | 2,598.4 | $ | 2,286.4 | $ | 7,248.6 | $ | 5,905.9 | |||||||||||||||||||||||||||
| Revenues from franchised restaurants | 3,510.2 | 3,044.8 | 9,693.8 | 7,740.8 | |||||||||||||||||||||||||||||||
| Other revenues | 92.7 | 86.9 | 271.4 | 247.3 | |||||||||||||||||||||||||||||||
| Total revenues | 6,201.3 | 5,418.1 | 17,213.8 | 13,894.0 | |||||||||||||||||||||||||||||||
| Operating costs and expenses | |||||||||||||||||||||||||||||||||||
| Company-operated restaurant expenses | 2,108.4 | 1,876.3 | 5,947.0 | 5,077.5 | |||||||||||||||||||||||||||||||
| Franchised restaurants-occupancy expenses | 592.6 | 567.9 | 1,743.2 | 1,646.6 | |||||||||||||||||||||||||||||||
| Other restaurant expenses | 68.9 | 69.2 | 204.4 | 198.0 | |||||||||||||||||||||||||||||||
| Selling, general & administrative expenses | |||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 84.1 | 75.8 | 243.2 | 220.3 | |||||||||||||||||||||||||||||||
| Other | 559.6 | 454.7 | 1,622.4 | 1,547.0 | |||||||||||||||||||||||||||||||
| Other operating (income) expense, net | (198.8) | (152.2) | (505.3) | 23.5 | |||||||||||||||||||||||||||||||
| Total operating costs and expenses | 3,214.8 | 2,891.7 | 9,254.9 | 8,712.9 | |||||||||||||||||||||||||||||||
| Operating income | 2,986.5 | 2,526.4 | 7,958.9 | 5,181.1 | |||||||||||||||||||||||||||||||
| Interest expense | 293.7 | 310.1 | 890.2 | 909.2 | |||||||||||||||||||||||||||||||
| Nonoperating (income) expense, net | 1.4 | (0.8) | 48.6 | (38.8) | |||||||||||||||||||||||||||||||
| Income before provision for income taxes | 2,691.4 | 2,217.1 | 7,020.1 | 4,310.7 | |||||||||||||||||||||||||||||||
| Provision for income taxes | 541.5 | 454.5 | 1,113.7 | 957.4 | |||||||||||||||||||||||||||||||
| Net income | $ | 2,149.9 | $ | 1,762.6 | $ | 5,906.4 | $ | 3,353.3 | |||||||||||||||||||||||||||
| Earnings per common share-basic | $ | 2.88 | $ | 2.37 | $ | 7.91 | $ | 4.50 | |||||||||||||||||||||||||||
| Earnings per common share-diluted | $ | 2.86 | $ | 2.35 | $ | 7.86 | $ | 4.47 | |||||||||||||||||||||||||||
| Dividends declared per common share | $ | 2.67 | $ | 1.25 | $ | 5.25 | $ | 3.75 | |||||||||||||||||||||||||||
| Weighted-average shares outstanding-basic | 747.1 | 744.5 | 746.5 | 744.4 | |||||||||||||||||||||||||||||||
| Weighted-average shares outstanding-diluted | 752.6 | 750.0 | 751.9 | 749.8 |
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 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||||||||
| Net income | $ | 2,149.9 | $ | 1,762.6 | $ | 5,906.4 | $ | 3,353.3 | |||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | |||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments: | |||||||||||||||||||||||||||||||||||
| Gain (loss) recognized in accumulated other comprehensive income ("AOCI"), including net investment hedges | (132.8) | 56.6 | (172.7) | (202.5) | |||||||||||||||||||||||||||||||
| Reclassification of (gain) loss to net income | 14.3 | 9.0 | 34.7 | 9.0 | |||||||||||||||||||||||||||||||
| Foreign currency translation adjustments-net of tax benefit (expense) of ($66.1), $116.8, ($133.7) and $67.6 | (118.5) | 65.6 | (138.0) | (193.5) | |||||||||||||||||||||||||||||||
| Cash flow hedges: | |||||||||||||||||||||||||||||||||||
| Gain (loss) recognized in AOCI | 26.8 | (27.1) | 48.7 | (84.2) | |||||||||||||||||||||||||||||||
| Reclassification of (gain) loss to net income | 4.0 | 5.1 | 32.4 | (5.8) | |||||||||||||||||||||||||||||||
| Cash flow hedges-net of tax benefit (expense) of ($9.2), $6.6, ($24.1) and $27.1 | 30.8 | (22.0) | 81.1 | (90.0) | |||||||||||||||||||||||||||||||
| Defined benefit pension plans: | |||||||||||||||||||||||||||||||||||
| Gain (loss) recognized in AOCI | 0.1 | 0.5 | 0.9 | (2.0) | |||||||||||||||||||||||||||||||
| Reclassification of (gain) loss to net income | (4.4) | 3.4 | (20.4) | 9.4 | |||||||||||||||||||||||||||||||
| Defined benefit pension plans-net of tax benefit (expense) of $0.0, $0.0, $0.1 and $0.5 | (4.3) | 3.9 | (19.5) | 7.4 | |||||||||||||||||||||||||||||||
| Total other comprehensive income (loss), net of tax | (92.0) | 47.5 | (76.4) | (276.1) | |||||||||||||||||||||||||||||||
| Comprehensive income | $ | 2,057.9 | $ | 1,810.1 | $ | 5,830.0 | $ | 3,077.2 |
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 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||
| Operating activities | |||||||||||||||||||||||||||||
| Net income | $ | 2,149.9 | $ | 1,762.6 | $ | 5,906.4 | $ | 3,353.3 | |||||||||||||||||||||
| Adjustments to reconcile to cash provided by operations | |||||||||||||||||||||||||||||
| Charges and credits: | |||||||||||||||||||||||||||||
| Depreciation and amortization | 469.2 | 440.1 | 1,386.5 | 1,287.1 | |||||||||||||||||||||||||
| Deferred income taxes | (45.8) | (38.0) | (416.2) | 196.3 | |||||||||||||||||||||||||
| Share-based compensation | 34.1 | 7.3 | 97.9 | 64.0 | |||||||||||||||||||||||||
| Other | (163.6) | (56.8) | (364.8) | (25.5) | |||||||||||||||||||||||||
| Changes in working capital items | 174.0 | 824.3 | (134.8) | (602.8) | |||||||||||||||||||||||||
| Cash provided by operations | 2,617.8 | 2,939.5 | 6,475.0 | 4,272.4 | |||||||||||||||||||||||||
| Investing activities | |||||||||||||||||||||||||||||
| Capital expenditures | (501.5) | (390.2) | (1,352.8) | (1,177.7) | |||||||||||||||||||||||||
| Purchases of restaurant businesses | (28.6) | (6.7) | (116.7) | (50.0) | |||||||||||||||||||||||||
| Sales of restaurant businesses | 60.1 | 8.0 | 141.9 | 35.5 | |||||||||||||||||||||||||
| Sales of property | 41.3 | 0.2 | 97.9 | 17.8 | |||||||||||||||||||||||||
| Other | 43.8 | 120.8 | 186.7 | (8.5) | |||||||||||||||||||||||||
| Cash used for investing activities | (384.9) | (267.9) | (1,043.0) | (1,182.9) | |||||||||||||||||||||||||
| Financing activities | |||||||||||||||||||||||||||||
| Net short-term borrowings | (0.3) | (993.4) | 7.6 | (885.7) | |||||||||||||||||||||||||
| Long-term financing issuances | — | 2.8 | — | 5,543.0 | |||||||||||||||||||||||||
| Long-term financing repayments | (0.4) | (451.5) | (1,739.4) | (1,414.1) | |||||||||||||||||||||||||
| Treasury stock purchases | (17.7) | (0.7) | (42.2) | (905.6) | |||||||||||||||||||||||||
| Common stock dividends | (963.9) | (930.9) | (2,889.5) | (2,791.3) | |||||||||||||||||||||||||
| Proceeds from stock option exercises | 66.6 | 105.3 | 198.6 | 262.3 | |||||||||||||||||||||||||
| Other | (11.7) | (0.1) | (32.7) | (122.0) | |||||||||||||||||||||||||
| Cash used for financing activities | (927.4) | (2,268.5) | (4,497.6) | (313.4) | |||||||||||||||||||||||||
| Effect of exchange rates on cash and cash equivalents | (49.1) | 25.0 | (77.7) | 9.2 | |||||||||||||||||||||||||
| Cash and equivalents increase | 1,256.4 | 428.1 | 856.7 | 2,785.3 | |||||||||||||||||||||||||
| Cash and equivalents at beginning of period | 3,049.4 | 3,255.7 | 3,449.1 | 898.5 | |||||||||||||||||||||||||
| Cash and equivalents at end of period | $ | 4,305.8 | $ | 3,683.8 | $ | 4,305.8 | $ | 3,683.8 |
See Notes to condensed consolidated financial statements.
| CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| For the nine months ended September 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued | Accumulated other comprehensive income (loss) | Common stock in treasury | Total shareholders’ equity (deficit) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Additional paid-in capital | Retained earnings | Pensions | Cash flow hedges | Foreign currency translation | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| In millions, except per share data | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2019 | 1,660.6 | $ | 16.6 | $ | 7,653.9 | $ | 52,930.5 | $ | (243.7) | $ | 12.0 | $ | (2,251.0) | (914.3) | $ | (66,328.6) | $ | (8,210.3) | |||||||||||||||||||||||||||||||||||||||||
| Net income | 3,353.3 | 3,353.3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | 7.4 | (90.0) | (193.5) | (276.1) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Comprehensive income | 3,077.2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock cash dividends ($3.75 per share) | (2,791.3) | (2,791.3) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Treasury stock purchases | (4.3) | (871.9) | (871.9) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | 64.0 | 64.0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock option exercises and other | 136.8 | 3.1 | 123.4 | 260.2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2020 | 1,660.6 | $ | 16.6 | $ | 7,854.7 | $ | 53,492.5 | $ | (236.3) | $ | (78.0) | $ | (2,444.5) | (915.5) | $ | (67,077.1) | $ | (8,472.1) |
| 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) |
See Notes to condensed consolidated financial statements.
| CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| For the quarter ended September 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued | Accumulated other comprehensive income (loss) | Common stock in treasury | Total shareholders’ equity (deficit) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Additional paid-in capital | Retained earnings | Pensions | Cash flow hedges | Foreign currency translation | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| In millions, except per share data | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2020 | 1,660.6 | $ | 16.6 | $ | 7,780.0 | $ | 52,660.8 | $ | (240.2) | $ | (56.0) | $ | (2,510.1) | (916.5) | $ | (67,114.2) | $ | (9,463.1) | |||||||||||||||||||||||||||||||||||||||||
| Net income | 1,762.6 | 1,762.6 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | 3.9 | (22.0) | 65.6 | 47.5 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Comprehensive income | 1,810.1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock cash dividends ($1.25 per share) | (930.9) | (930.9) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Treasury stock purchases | — | (0.7) | (0.7) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | 7.3 | 7.3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock option exercises and other | 67.4 | 1.0 | 37.8 | 105.2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2020 | 1,660.6 | $ | 16.6 | $ | 7,854.7 | $ | 53,492.5 | $ | (236.3) | $ | (78.0) | $ | (2,444.5) | (915.5) | $ | (67,077.1) | $ | (8,472.1) |
| 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) |
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, 2020 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, 2021 do not necessarily indicate the results that may be expected for the full year.
Restaurant Information
The following table presents restaurant information by ownership type:
| Restaurants at September 30, | 2021 | 2020 | |||||||||
| Conventional franchised | 21,552 | 21,781 | |||||||||
| Developmental licensed | 7,795 | 7,660 | |||||||||
| Foreign affiliated | 7,639 | 6,997 | |||||||||
| Total Franchised | 36,986 | 36,438 | |||||||||
| Company-operated | 2,690 | 2,658 | |||||||||
| Total Systemwide restaurants | 39,676 | 39,096 |
The results of operations of restaurant businesses purchased and sold in transactions with franchisees were not material either individually or in the aggregate to the condensed consolidated financial statements for the periods prior to purchase and sale.
Per Common Share Information
Diluted earnings per common share is calculated using net income divided by diluted weighted-average shares. Diluted weighted-average shares include weighted-average shares outstanding plus the dilutive effect of share-based compensation, calculated using the treasury stock method, of 5.5 million shares for each of the quarters 2021 and 2020, and 5.4 million shares for each of the nine months 2021 and 2020. Share-based compensation awards that would have been antidilutive, and therefore were not included in the calculation of diluted weighted-average shares, totaled 1.4 million shares and 1.8 million shares for the quarters 2021 and 2020, respectively, and 3.0 million shares and 1.9 million shares for the nine months 2021 and 2020, respectively.
In September 2021, McDonald's Board of Directors declared a 7% increase in the quarterly cash dividend to $1.38 per share of
common stock, resulting in $1.0 billion of dividends payable in December 2021. In addition, the Company resumed its
share repurchase program in September 2021.
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
Income Taxes
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (“ASU 2019-12”), which simplifies the accounting for income taxes. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, including applicable interim periods. The Company adopted the new standard effective January 1, 2021. The adoption of the standard did not have a material impact on the Company's condensed 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 condensed consolidated financial statements.
Income Taxes
The effective income tax rate was 20.1% and 20.5% for the quarters ended 2021 and 2020, respectively, and 15.9% and 22.2% for the nine months ended 2021 and 2020, respectively. The tax rate for the nine months ended 2021 included a benefit of $364 million related to the remeasurement of deferred taxes as a result of a change in the U.K. statutory income tax rate.
Fair Value Measurements
The Company measures certain financial assets and liabilities at fair value. Fair value disclosures are reflected in a three-level hierarchy, maximizing the use of observable inputs and minimizing the use of unobservable inputs. The Company did not have any significant changes to the valuation techniques used to measure fair value as described in the Company's December 31, 2020 Annual Report on Form 10-K.
At September 30, 2021, the fair value of the Company’s debt obligations was estimated at $39.7 billion, compared to a carrying amount of $35.1 billion. These amounts do not include approximately $1.2 billion of additional debt that was issued in October 2021, which will be used to replace upcoming maturities of debt. The additional debt consists of two €500 million Euro-denominated bonds with interest rates of 0.25% and 0.875% and maturity dates of 2028 and 2033, respectively. The fair value of debt obligations is based upon quoted market prices, Level 2 within the valuation hierarchy. The carrying amounts of cash and equivalents and notes receivable 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, 2021 | December 31, 2020 | Balance Sheet Classification | September 30, 2021 | December 31, 2020 | |||||||||||||||||||||||||||||
| Derivatives designated as hedging instruments | |||||||||||||||||||||||||||||||||||
| Foreign currency | Prepaid expenses and other current assets | $ | 40.1 | $ | — | Accrued payroll and other liabilities | $ | (7.2) | $ | (64.5) | |||||||||||||||||||||||||
| Interest rate | Prepaid expenses and other current assets | 2.1 | — | Accrued payroll and other liabilities | — | — | |||||||||||||||||||||||||||||
| Foreign currency | Miscellaneous other assets | 25.3 | 5.6 | Other long-term liabilities | (0.1) | (15.0) | |||||||||||||||||||||||||||||
| Interest rate | Miscellaneous other assets | 18.0 | 35.8 | Other long-term liabilities | (0.2) | — | |||||||||||||||||||||||||||||
| Total derivatives designated as hedging instruments | $ | 85.5 | $ | 41.4 | $ | (7.5) | $ | (79.5) | |||||||||||||||||||||||||||
| Derivatives not designated as hedging instruments | |||||||||||||||||||||||||||||||||||
| Equity | Prepaid expenses and other current assets | $ | — | $ | 185.6 | Accrued payroll and other liabilities | $ | (2.5) | $ | (8.6) | |||||||||||||||||||||||||
| Foreign currency | Prepaid expenses and other current assets | 1.0 | — | Accrued payroll and other liabilities | — | (9.4) | |||||||||||||||||||||||||||||
| Equity | Miscellaneous other assets | 197.6 | — | ||||||||||||||||||||||||||||||||
| Total derivatives not designated as hedging instruments | $ | 198.6 | $ | 185.6 | $ | (2.5) | $ | (18.0) | |||||||||||||||||||||||||||
| Total derivatives | $ | 284.1 | $ | 227.0 | $ | (10.0) | $ | (97.5) |
The following table presents the pre-tax amounts from derivative instruments affecting income and AOCI for the nine months ended September 30, 2021 and 2020, 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 | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency | Nonoperating income/expense | $ | 63.1 | $ | (18.8) | $ | (37.4) | $ | 11.3 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest rate | Interest expense | — | (90.8) | (4.7) | (3.8) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash flow hedges | $ | 63.1 | $ | (109.6) | $ | (42.1) | $ | 7.5 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency denominated debt | Nonoperating income/expense | $ | 574.3 | $ | (396.8) | $ | 47.1 | $ | 17.6 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency derivatives | Nonoperating income/expense | 31.4 | 2.1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency derivatives(1) | Interest expense | $ | 11.0 | $ | 11.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net investment hedges | $ | 605.7 | $ | (394.7) | $ | 47.1 | $ | 17.6 | $ | 11.0 | $ | 11.0 | |||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency | Nonoperating income/expense | $ | 10.4 | $ | (17.2) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity | Selling, general & administrative expenses | 54.4 | 27.2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity | Other operating income/expense, net | (7.8) | (5.6) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Undesignated derivatives | $ | 57.0 | $ | 4.4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (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, 2021, the carrying amount of fixed-rate debt that was effectively converted was $1.5 billion, which included an increase of $19.9 million of cumulative hedging adjustments. For the nine months ended September 30, 2021, the Company recognized a $15.9 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 the next 18 months for certain exposures and are denominated in various currencies.
As of September 30, 2021, the Company had derivatives outstanding with an equivalent notional amount of $1.3 billion that hedged a portion of forecasted foreign currency denominated cash flows.
Based on market conditions at September 30, 2021, the $30.2 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, 2021, $11.4 billion of the Company's third-party foreign currency denominated debt, $1.2 billion of the Company's intercompany foreign currency denominated debt and $1.1 billion of 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. The Company has also used 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, 2021 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, 2021, neither the Company nor its counterparties were 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:
| Quarters Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| In millions | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
| Rents | $ | 2,254.1 | $ | 1,961.7 | $ | 6,205.9 | $ | 4,944.8 | |||||||||||||||
| Royalties | 1,243.1 | 1,071.3 | 3,449.6 | 2,762.1 | |||||||||||||||||||
| Initial fees | 13.0 | 11.8 | 38.3 | 33.9 | |||||||||||||||||||
| Revenues from franchised restaurants | $ | 3,510.2 | $ | 3,044.8 | $ | 9,693.8 | $ | 7,740.8 |
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, 2021.
-
International Operated Markets - comprised of markets or countries in which the Company operates and franchises restaurants, including Australia, Canada, France, Germany, Italy, the Netherlands, Russia, Spain and the U.K. The segment is 84% franchised as of September 30, 2021.
-
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, 2021.
The following table presents the Company’s revenues and operating income by segment:
| Quarters Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| In millions | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
| Revenues | |||||||||||||||||||||||
| U.S. | $ | 2,260.7 | $ | 2,094.2 | $ | 6,615.0 | $ | 5,723.8 | |||||||||||||||
| International Operated Markets | 3,372.7 | 2,845.9 | 9,007.6 | 6,862.7 | |||||||||||||||||||
| International Developmental Licensed Markets & Corporate | 567.9 | 478.0 | 1,591.2 | 1,307.5 | |||||||||||||||||||
| Total revenues | $ | 6,201.3 | $ | 5,418.1 | $ | 17,213.8 | $ | 13,894.0 | |||||||||||||||
| Operating Income | |||||||||||||||||||||||
| U.S. | $ | 1,254.9 | $ | 1,078.3 | $ | 3,647.9 | $ | 2,705.9 | |||||||||||||||
| International Operated Markets | 1,519.6 | 1,197.9 | 3,745.4 | 2,311.8 | |||||||||||||||||||
| International Developmental Licensed Markets & Corporate * | 212.0 | 250.2 | 565.6 | 163.4 | |||||||||||||||||||
| Total operating income | $ | 2,986.5 | $ | 2,526.4 | $ | 7,958.9 | $ | 5,181.1 |
- Results for the quarter and nine months 2021 included $106 million and $339 million, respectively, of net strategic gains primarily related to the sale of McDonald's Japan stock. The quarter and nine months 2020 also included $139 million and $125 million, respectively, of net strategic gains, primarily related to the sale of McDonald's Japan stock. Proceeds were recorded within the other investing activities section of the Condensed Consolidated Statement of Cash Flows.
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.
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