McDonald's 10-Q 2023-03-31

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			For the quarterly period ended			March 31, 2023

OR

☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			For the transition period from to

Commission File Number 1-5231

McDONALD’S CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

Delaware									36-2361282
(State or Other Jurisdiction of Incorporation or Organization)									(I.R.S. Employer Identification No.)
110 North Carpenter Street									60607
Chicago,			Illinois
(Address of Principal Executive Offices)									(Zip Code)

(630) 623-3000

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class			Trading Symbol(s)			Name of each exchange on which registered
Common Stock, $0.01 par value			MCD			New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer			☒						Accelerated Filer			☐
Non-accelerated Filer			☐						Smaller Reporting Company			☐
Emerging Growth Company			☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

730,093,896

(Number of shares of common stock

outstanding as of March 31, 2023)

McDONALD’S CORPORATION

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INDEX

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			Page Reference
Part I. Financial Information
Item 1 – Financial Statements
Condensed Consolidated Balance Sheet, March 31, 2023 (unaudited) and December 31, 2022			3
Condensed Consolidated Statement of Income (unaudited), quarters ended March 31, 2023 and 2022			4
Condensed Consolidated Statement of Comprehensive Income (unaudited), quarters ended March 31, 2023 and 2022			5
Condensed Consolidated Statement of Cash Flows (unaudited), quarters ended March 31, 2023 and 2022			6
Condensed Consolidated Statement of Shareholders' Equity (unaudited), quarters ended March 31, 2023 and 2022			7
Notes to Condensed Consolidated Financial Statements (unaudited)			8
Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations			13
Item 3 – Quantitative and Qualitative Disclosures About Market Risk			34
Item 4 – Controls and Procedures			34
Part II. Other Information
Item 1 – Legal Proceedings			36
Item 1A – Risk Factors			36
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds			36
Item 6 – Exhibits			37
Signature			39

All trademarks used herein are the property of their respective owners and are used with permission.

PART I – FINANCIAL INFORMATION

CONDENSED CONSOLIDATED BALANCE SHEET
						(unaudited)
In millions, except per share data						March 31, 2023									December 31, 2022
Assets
Current assets
Cash and equivalents						$	3,708.1								$	2,583.8
Accounts and notes receivable						2,075.5									2,115.0
Inventories, at cost, not in excess of market						51.5									52.0
Prepaid expenses and other current assets						963.6									673.4
Total current assets						6,798.7									5,424.2
Other assets
Investments in and advances to affiliates						1,087.6									1,064.5
Goodwill						2,930.6									2,900.4
Miscellaneous						4,794.8									4,707.2
Total other assets						8,813.0									8,672.1
Lease right-of-use asset, net						12,544.2									12,565.7
Property and equipment
Property and equipment, at cost						41,487.1									41,037.6
Accumulated depreciation and amortization						(17,628.6)									(17,264.0)
Net property and equipment						23,858.5									23,773.6
Total assets						$	52,014.4								$	50,435.6
Liabilities and shareholders’ equity
Current liabilities
Short-term borrowings and current maturities of long-term debt						$	524.2								$	—
Accounts payable						811.8									980.2
Lease liability						668.7									661.1
Income taxes						795.8									274.9
Other taxes						273.0									255.1
Accrued interest						364.6									393.4
Accrued payroll and other liabilities						1,186.6									1,237.4
Total current liabilities						4,624.7									3,802.1
Long-term debt						36,603.7									35,903.5
Long-term lease liability						12,122.6									12,134.4
Long-term income taxes						737.1									791.9
Deferred revenues - initial franchise fees						760.5									757.8
Other long-term liabilities						1,059.4									1,051.8
Deferred income taxes						1,882.5									1,997.5
Shareholders’ equity (deficit)
Preferred stock, no par value; authorized – 165.0 million shares; issued – none						—									—
Common stock, $0.01 par value; authorized – 3.5 billion shares; issued – 1,660.6 million shares						16.6									16.6
Additional paid-in capital						8,635.5									8,547.1
Retained earnings						60,235.0									59,543.9
Accumulated other comprehensive income (loss)						(2,489.4)									(2,486.6)
Common stock in treasury, at cost; 930.5 and 929.3 million shares						(72,173.8)									(71,624.4)
Total shareholders’ equity (deficit)						(5,776.1)									(6,003.4)
Total liabilities and shareholders’ equity (deficit)						$	52,014.4								$	50,435.6

See Notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
						Quarters Ended
						March 31,
In millions, except per share data						2023									2022
Revenues
Sales by Company-operated restaurants						$	2,224.3								$	2,302.4
Revenues from franchised restaurants						3,587.5									3,262.8
Other revenues						86.0									100.4
Total revenues						5,897.8									5,665.6
Operating costs and expenses
Company-operated restaurant expenses						1,923.1									1,959.2
Franchised restaurants-occupancy expenses						598.3									584.0
Other restaurant expenses						62.8									72.3
Selling, general & administrative expenses
Depreciation and amortization						99.3									92.7
Other						553.3									584.3
Other operating (income) expense, net						128.6									60.5
Total operating costs and expenses						3,365.4									3,353.0
Operating income						2,532.4									2,312.6
Interest expense						329.7									287.3
Nonoperating (income) expense, net						(64.3)									484.1
Income before provision for income taxes						2,267.0									1,541.2
Provision for income taxes						464.7									436.8
Net income						$	1,802.3								$	1,104.4
Earnings per common share-basic						$	2.47								$	1.49
Earnings per common share-diluted						$	2.45								$	1.48
Dividends declared per common share						$	1.52								$	1.38
Weighted-average shares outstanding-basic						730.9									742.6
Weighted-average shares outstanding-diluted						735.5									747.6

See Notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
						Quarters Ended
						March 31,
In millions						2023									2022
Net income						$	1,802.3								$	1,104.4
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments:
Gain (loss) recognized in accumulated other comprehensive income ("AOCI"), including net investment hedges						15.0									(84.2)
Reclassification of (gain) loss to net income						—									—
Foreign currency translation adjustments-net of tax benefit (expense) of $35.6 and $(59.0)						15.0									(84.2)
Cash flow hedges:
Gain (loss) recognized in AOCI						(8.5)									27.4
Reclassification of (gain) loss to net income						(8.2)									(10.1)
Cash flow hedges-net of tax benefit (expense) of $4.5 and $(5.0)						(16.7)									17.3
Defined benefit pension plans:
Gain (loss) recognized in AOCI						8.4									0.1
Reclassification of (gain) loss to net income						(9.5)									(1.4)
Defined benefit pension plans-net of tax benefit (expense) of $1.1 and $0.0						(1.1)									(1.3)
Total other comprehensive income (loss), net of tax						(2.8)									(68.2)
Comprehensive income						$	1,799.5								$	1,036.2

See Notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
						Quarters Ended
						March 31,
In millions						2023						2022
Operating activities
Net income						$	1,802.3					$	1,104.4
Adjustments to reconcile to cash provided by operations
Charges and credits:
Depreciation and amortization						490.5						479.7
Deferred income taxes						(86.1)						(50.5)
Share-based compensation						49.7						54.3
Other						(30.8)						72.0
Changes in working capital items						195.1						473.4
Cash provided by operations						2,420.7						2,133.3
Investing activities
Capital expenditures						(503.3)						(401.2)
Purchases of restaurant businesses						(97.6)						(86.7)
Sales of restaurant businesses						20.8						16.5
Sales of property						18.0						4.9
Other						(179.2)						(88.0)
Cash used for investing activities						(741.3)						(554.5)
Financing activities
Net short-term borrowings						12.8						6.0
Long-term financing issuances						1,054.3						—
Long-term financing repayments						—						(1,350.6)
Treasury stock purchases						(578.4)						(1,506.5)
Common stock dividends						(1,111.2)						(1,025.1)
Proceeds from stock option exercises						73.8						58.7
Other						(9.7)						(12.6)
Cash used for financing activities						(558.4)						(3,830.1)
Effect of exchange rates on cash and cash equivalents						3.3						(122.2)
Cash and equivalents increase (decrease)						1,124.3						(2,373.5)
Cash and equivalents at beginning of period						2,583.8						4,709.2
Cash and equivalents at end of period						$	3,708.1					$	2,335.7

See Notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
For the quarter ended March 31, 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																					1,104.4																																				1,104.4
Other comprehensive income (loss), net of tax																											(1.3)						17.3						(84.2)																		(68.2)
Comprehensive income																																																									1,036.2
Common stock cash dividends ($1.38 per share)																					(1,025.1)																																				(1,025.1)
Treasury stock purchases																																													(6.1)						(1,506.5)						(1,506.5)
Share-based compensation															54.3																																										54.3
Stock option exercises and other															21.2																														0.8						30.1						51.3
Balance at March 31, 2022			1,660.6						$	16.6					$	8,307.1					$	57,614.0					$	(180.8)					$	(7.5)					$	(2,453.6)					(921.1)						$	(69,286.6)					$	(5,990.8)

For the quarter ended March 31, 2023
			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, 2022			1,660.6						$	16.6					$	8,547.1					$	59,543.9					$	(298.2)					$	30.7					$	(2,219.1)					(929.3)						$	(71,624.4)					$	(6,003.4)
Net income																					1,802.3																																				1,802.3
Other comprehensive income (loss), net of tax																											(1.1)						(16.7)						15.0																		(2.8)
Comprehensive income																																																									1,799.5
Common stock cash dividends ($1.52 per share)																					(1,111.2)																																				(1,111.2)
Treasury stock purchases																																													(2.2)						(584.5)						(584.5)
Share-based compensation															49.7																																										49.7
Stock option exercises and other															38.7																														1.0						35.1						73.8
Balance at March 31, 2023			1,660.6						$	16.6					$	8,635.5					$	60,235.0					$	(299.3)					$	14.0					$	(2,204.1)					(930.5)						$	(72,173.8)					$	(5,776.1)

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, 2022 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 ended March 31, 2023 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 March 31,			2023									2022
Conventional franchised			21,701									21,558
Developmental licensed			8,289									7,981
Foreign affiliated			8,427									8,013
Total Franchised			38,417									37,552
Company-operated			2,118									2,792
Total Systemwide restaurants			40,535									40,344

Restaurant information reflects the sale of over 850 restaurants in conjunction with the exit of our business 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 5.0 million shares for the quarters 2023 and 2022, respectively. Share-based compensation awards that would have been antidilutive, and therefore were not included in the calculation of diluted weighted-average shares, totaled 2.3 million shares and 1.7 million shares for the quarters 2023 and 2022, respectively.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

There have been no recent accounting pronouncements or changes in accounting pronouncements during the three months ended March 31, 2023 that are of significance or potential significance to the Company.

Accelerating the Organization

In January 2023, the Company announced an evolution of its successful Accelerating the Arches strategy. Enhancements to the strategy include the addition of Restaurant Development to the Company’s growth pillars and an internal effort to modernize ways of working, Accelerating the Organization, both of which are aimed at elevating the Company’s performance. Accelerating the Organization is designed to unlock further growth as the Company modernizes the way it works by focusing on becoming faster, more innovative and more efficient at solving problems for its customers and people.

The Company expects to incur between $200 million and $250 million of expenses related to this strategic initiative in 2023, of which $180 million was incurred in the three months ended March 31, 2023. These expenses were recorded in the Other operating (income) expense, net line within the consolidated statement of income. Restructuring expenses primarily consist of employee termination benefits, costs to terminate contracts, including lease terminations, and professional services and other costs. Professional services and other costs primarily relate to expenses incurred for legal and consulting activities. There were no significant non-cash impairment charges included in the amounts listed in the table below.

The following table summarizes the balance of accrued expenses related to this strategic initiative (in millions):

			Employee Termination Benefits			Costs to Terminate Contracts			Other Related Costs			Total
2023
Beginning Balance			$	—		$	—		$	—		$	—
Restructuring Costs Incurred			110.3			26.9			43.3			180.5
Cash Payments			(1.5)			(1.4)			(0.3)			(3.2)
Other Non-Cash Items			—			—			(14.1)			(14.1)
Accrued Balance at End of Period			$	108.8		$	25.5		$	28.9		$	163.2

Of the $180 million of restructuring costs incurred in the three months ended March 31, 2023, $58 million was recorded in the U.S., $71 million was recorded in the International Operated Markets segment and $51 million was recorded in the International Developmental Licensed Markets & Corporate segment, the majority of which was recorded at Corporate.

Substantially all of the accrued restructuring balance recorded at March 31, 2023, related to the Company’s Accelerating the Organization initiative, is expected to be paid out by the end of 2023.

As part of Accelerating the Organization, the Company is also in the initial stages of developing a strategy that will utilize an enterprise-wide Global Business Services model to deliver business services at scale with greater efficiency. Additional costs will be incurred as the strategy progresses; however, at this point in time these future costs cannot be estimated. The expectation is that the Company will complete the majority of its Global Business Services strategy by the end of 2027.

Income Taxes

The effective income tax rate was 20.5% and 28.3% for the quarters ended March 31, 2023 and 2022, respectively. The tax rate for the quarter ended March 31, 2022 was impacted by the non-deductibility for tax purposes of $500 million of nonoperating expense related to a tax audit in France. Excluding the impacts of the $500 million of nonoperating expense, current year restructuring charges related to Accelerating the Organization and prior year charges, primarily related to Russia, the effective income tax rate was 20.9% and 21.3% for the quarters ended March 31, 2023 and 2022, respectively.

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, 2022 Annual Report on Form 10-K.

At March 31, 2023, the fair value of the Company’s debt obligations was estimated at $35.6 billion, compared to a carrying amount of $37.1 billion. The fair value of debt obligations is based upon quoted market prices, classified as Level 2 within the valuation hierarchy. The carrying amount of cash and equivalents and notes receivable approximate fair value.

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						March 31, 2023						December 31, 2022						Balance Sheet Classification						March 31, 2023						December 31, 2022
Derivatives designated as hedging instruments
Foreign currency			Prepaid expenses and other current assets						$	39.9					$	53.3					Accrued payroll and other liabilities						$	(23.0)					$	(17.9)
Interest rate			Prepaid expenses and other current assets						—						—						Accrued payroll and other liabilities						(1.5)						—
Foreign currency			Miscellaneous other assets						32.3						28.7						Other long-term liabilities						(27.6)						(30.7)
Interest rate			Miscellaneous other assets						—						—						Other long-term liabilities						(79.0)						(91.5)
Total derivatives designated as hedging instruments									$	72.2					$	82.0											$	(131.1)					$	(140.1)
Derivatives not designated as hedging instruments
Equity			Prepaid expenses and other current assets						$	219.3					$	200.5					Accrued payroll and other liabilities						$	(0.1)					$	(1.6)
Foreign currency			Prepaid expenses and other current assets						0.6						—						Accrued payroll and other liabilities						—						—
Equity			Miscellaneous other assets						—						—
Total derivatives not designated as hedging instruments									$	219.9					$	200.5											$	(0.1)					$	(1.6)
Total derivatives									$	292.1					$	282.5											$	(131.2)					$	(141.7)

The following table presents the pre-tax amounts from derivative instruments affecting income and AOCI for the three months ended March 31, 2023 and 2022, 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												2023									2022									2023									2022									2023									2022
Foreign currency			Nonoperating income/expense									$	(9.2)								$	13.5								$	10.3								$	14.1
Interest rate			Interest expense									(1.5)									21.8									0.1									(1.1)
Cash flow hedges												$	(10.7)								$	35.3								$	10.4								$	13.0
Foreign currency denominated debt			Nonoperating income/expense									$	(162.9)								$	259.0																	$	—
Foreign currency derivatives			Nonoperating income/expense									7.6									4.4
Foreign currency derivatives(1)			Interest expense																																													$	5.7								$	2.3
Net investment hedges												$	(155.3)								$	263.4																	$	—								$	5.7								$	2.3
Foreign currency			Nonoperating income/expense																																													$	2.1								$	(4.5)
Equity			Selling, general & administrative expenses																																													$	15.6								$	(21.5)
Undesignated derivatives																																																$	17.7								$	(26.0)
(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 March 31, 2023, the carrying amount of fixed-rate debt that was effectively converted was an equivalent notional amount of $1.2 billion, which included a decrease of $79 million of cumulative hedging adjustments. For the three months ended March 31, 2023, the Company recognized a $12.5 million gain on the fair value of interest rate swaps, and a corresponding loss on the fair value of the related hedged debt instrument to interest expense.

Cash Flow Hedges

The Company enters into cash flow hedges to reduce the exposure to variability in certain expected future cash flows. To protect against the reduction in value of forecasted foreign currency cash flows (such as royalties denominated in foreign currencies), the Company uses foreign currency forwards to hedge a portion of anticipated exposures. The hedges cover up to the next 18 months for certain exposures and are denominated in various currencies. As of March 31, 2023, the Company had foreign currency derivatives outstanding with an equivalent notional amount of $1.6 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 March 31, 2023, the Company had derivatives outstanding with a notional amount of $500 million that hedge a portion of forecasted cash flows.

Based on market conditions at March 31, 2023, the $14 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 March 31, 2023, $13.9 billion of the Company's third-party foreign currency denominated debt, $1.0 billion of the Company's intercompany foreign currency denominated debt and $662 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 March 31, 2023 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 March 31, 2023, the Company was required to post $120 million 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:

			Quarters Ended
			March 31,
In millions			2023						2022
Rents			$	2,269.8					$	2,081.1
Royalties			1,303.0						1,168.7
Initial fees			14.7						13.0
Revenues from franchised restaurants			$	3,587.5					$	3,262.8

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 March 31, 2023.

• 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 March 31, 2023. During the second quarter of 2022, the Company completed the sale of its business in Russia, resulting in a total exit from the market.

• 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 March 31, 2023.

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

			Quarters Ended
			March 31,
In millions			2023						2022
Revenues
U.S.			$	2,487.6					$	2,175.6
International Operated Markets			2,794.8						2,922.1
International Developmental Licensed Markets & Corporate			615.4						567.9
Total revenues			$	5,897.8					$	5,665.6
Operating Income
U.S.			$	1,295.1					$	1,151.0
International Operated Markets			1,192.7						1,129.2
International Developmental Licensed Markets & Corporate			44.6						32.4
Total operating income			$	2,532.4					$	2,312.6

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.