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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
September 30, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to            
    
Commission File Number 1-5231
McDONALD’S CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Delaware   36-2361282
(State or Other Jurisdiction of
Incorporation or Organization)
  (I.R.S. Employer
Identification No.)
110 North Carpenter Street   60607
Chicago, Illinois
(Address of Principal Executive Offices)   (Zip Code)
(630) 623-3000
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each 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  
732,423,892
(Number of shares of common stock
outstanding as of 9/30/2022)


McDONALD’S CORPORATION
___________________________
INDEX
_______
 
 
  Page Reference
3
4
5
6
7
9
Item 1 – Legal Proceedings
Item 1A – Risk Factors
Item 6 – Exhibits
All trademarks used herein are the property of their respective owners and are used with permission.
2

PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
In millions, except per share data September 30,
2022
December 31,
2021
Assets
Current assets
Cash and equivalents 2,828.3  4,709.2 
Accounts and notes receivable 1,889.9  1,872.4 
Inventories, at cost, not in excess of market 43.4  55.6 
Prepaid expenses and other current assets 979.2  511.3 
Total current assets 5,740.8  7,148.5 
Other assets
Investments in and advances to affiliates 963.8  1,201.2 
Goodwill 2,651.3  2,782.5 
Miscellaneous 4,254.6  4,449.5 
Total other assets 7,869.7  8,433.2 
Lease right-of-use asset, net 12,192.8  13,552.0 
Property and equipment
Property and equipment, at cost 39,096.8  41,916.6 
Accumulated depreciation and amortization (16,398.5) (17,196.0)
Net property and equipment 22,698.3  24,720.6 
Total assets $ 48,501.6  $ 53,854.3 
Liabilities and shareholders’ equity
Current liabilities
Accounts payable 794.8  1,006.8 
Lease liability 654.9  705.5 
Income taxes 386.3  360.7 
Other taxes 203.6  236.7 
Accrued interest 318.4  363.3 
Accrued payroll and other liabilities 1,128.1  1,347.0 
Total current liabilities 3,486.1  4,020.0 
Long-term debt 34,866.2  35,622.7 
Long-term lease liability 11,766.8  13,020.9 
Long-term income taxes 1,085.0  1,896.8 
Deferred revenues - initial franchise fees 727.8  738.3 
Other long-term liabilities 990.8  1,081.0 
Deferred income taxes 2,145.1  2,075.6 
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 8,460.1  8,231.6 
Retained earnings 58,752.0  57,534.7 
Accumulated other comprehensive income (loss) (2,559.7) (2,573.7)
Common stock in treasury, at cost; 928.2 and 915.8 million shares
(71,235.2) (67,810.2)
Total shareholders’ equity (deficit) (6,566.2) (4,601.0)
Total liabilities and shareholders’ equity (deficit) $ 48,501.6  $ 53,854.3 
See Notes to condensed consolidated financial statements.
3

CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Quarters Ended Nine Months Ended
  September 30, September 30,
In millions, except per share data 2022 2021 2022 2021
Revenues
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.
4

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.
5

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.
6


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.

7

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.




8

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

McDonald’s Corporation, the registrant, together with its subsidiaries, is referred to herein as the "Company." The Company, its franchisees and suppliers, are referred to herein as the "System."
Basis of Presentation
The accompanying condensed consolidated financial statements should be read in conjunction with the Consolidated Financial Statements contained in the Company’s December 31, 2021 Annual Report on Form 10-K. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation have been included. The results for the quarter and 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.



9


Recent Accounting Pronouncements Not Yet Adopted

Reference Rate Reform

In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting" (“ASU 2020-04”). The pronouncement provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate and other interbank offered rates to alternative reference rates. The guidance was effective upon issuance and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The adoption of ASU 2020-04 will not have a material impact on the Company's consolidated financial statements.

Updates to Significant Accounting Policies
Long-lived Assets and Goodwill

Long-lived assets and Goodwill are typically reviewed for impairment annually in the fourth quarter and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable or if an indicator of impairment exists. 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 






10


Fair Value Measurements
The Company measures certain financial assets and liabilities at fair value. Fair value disclosures are reflected in a three-level hierarchy, maximizing the use of observable inputs and minimizing the use of unobservable inputs. There were no significant changes to the valuation techniques used to measure fair value as described in the Company's December 31, 2021 Annual Report on Form 10-K.
At 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.
11

Financial Instruments and Hedging Activities
The Company is exposed to global market risks, including the effect of changes in interest rates and foreign currency fluctuations. The Company uses foreign currency denominated debt and derivative instruments to mitigate the impact of these changes. The Company does not hold or issue derivatives for trading purposes.
The following table presents the fair values of derivative instruments included on the condensed consolidated balance sheet:
   Derivative 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.




12

Fair Value Hedges
The Company enters into fair value hedges to reduce the exposure to changes in fair values of certain liabilities. The Company enters into fair value hedges that convert a portion of its fixed rate debt into floating rate debt by the use of interest rate swaps. At 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.
13

Franchise Arrangements
Revenues from franchised restaurants consisted of:
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:
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.
14

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.
15

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
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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.
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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.
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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.

19

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  10,460.8 
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 
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  1,771.9 
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  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  1,212.5 
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
20

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)















21

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) % % $ 2.68  $ 2.76  (3) % %
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  % 11  % $ 7.51  $ 7.05  % 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.


22

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  % %
International Operated Markets 1,220.2  1,754.0  (30) (21)
International Developmental Licensed Markets & Corporate 191.0  188.9  17 
Total $ 2,124.8  $ 2,598.4  (18) % (11) %
Franchised revenues      
U.S. $ 1,699.9  $ 1,562.7  % %
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  % 12  %
Total Company-operated sales and Franchised revenues      
U.S. $ 2,413.5  $ 2,218.2  % %
International Operated Markets 2,784.8  3,340.1  (17) (5)
International Developmental Licensed Markets & Corporate 597.7  550.3  22 
Total $ 5,796.0  $ 6,108.6  (5) % %
Total Other revenues $ 76.1  $ 92.7  (18) % (14) %
Total Revenues $ 5,872.1  $ 6,201.3  (5) % %
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  % %
International Operated Markets 3,924.0  4,769.0  (18) (9)
International Developmental Licensed Markets & Corporate 558.8  537.6  16 
Total $ 6,540.0  $ 7,248.6  (10) % (3) %
Franchised revenues      
U.S. $ 4,856.8  $ 4,550.9  % %
International Operated Markets 4,464.1  4,141.0  19 
International Developmental Licensed Markets & Corporate 1,139.9  1,001.9  14  22 
Total $ 10,460.8  $ 9,693.8  % 14  %
Total Company-operated sales and Franchised revenues      
U.S. $ 6,914.0  $ 6,492.9  % %
International Operated Markets 8,388.1  8,910.0  (6)
International Developmental Licensed Markets & Corporate 1,698.7  1,539.5  10  20 
Total $ 17,000.8  $ 16,942.4  —  % %
Total Other revenues $ 255.3  $ 271.4  (6) % (3) %
Total Revenues $ 17,256.1  $ 17,213.8  —  % %
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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.










































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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. % % % %
International Operated Markets (8) 12 
International Developmental Licensed Markets & Corporate 22  11  21 
Total % % % 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:

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  % %
International Operated Markets 8,896.9  9,212.8  (3) 10 
International Developmental Licensed Markets & Corporate 7,574.8  6,981.9  22 
Total $ 28,309.9  $ 27,349.7  % 11  %
Ownership type
Conventional franchised $ 20,671.0  $ 20,199.7  % %
Developmental licensed 4,778.0  4,078.8  17  30 
Foreign affiliated 2,860.9  3,071.2  (7)
Total $ 28,309.9  $ 27,349.7  % 11  %
Nine Months Ended September 30, 2022 2021 Inc/ (Dec) Inc/ (Dec)
Excluding
Currency
Translation
U.S. $ 33,866.0  $ 32,419.7  % %
International Operated Markets 25,704.9  24,444.4  16 
International Developmental Licensed Markets & Corporate 21,517.2  19,296.1  12  21 
Total $ 81,088.1  $ 76,160.2  % 12  %
Ownership type
Conventional franchised $ 59,266.9  $ 56,535.9  % %
Developmental licensed 13,471.2  10,924.2  23  32 
Foreign affiliated 8,350.0  8,700.1  (4)
Total $ 81,088.1  $ 76,160.2  % 12  %
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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.

RESTAURANT MARGINS
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  % 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  % %
International Operated Markets 1,527.1  1,657.9  (8)
International Developmental Licensed Markets & Corporate n/m n/m n/m n/m
Total $ 3,427.3  $ 3,407.6  % %
Amount Inc/ (Dec) Inc/ (Dec)
Excluding
Currency
Translation
Nine Months Ended September 30, 2022 2021
Franchised
U.S. $ 3,927.8  $ 3,667.0  % %
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  %