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MCDONALDS CORP - Quarter Report: 2024 March (Form 10-Q)

Total current liabilities  Long-term debt  Long-term lease liability  Long-term income taxes  Deferred revenues - initial franchise fees  Other long-term liabilities  Deferred income taxes  Shareholders’ equity (deficit)
Preferred stock, par value; authorized – million shares; issued –
  
Common stock, $ par value; authorized – billion shares; issued –  million shares
  Additional paid-in capital  Retained earnings  Accumulated other comprehensive income (loss)()()
Common stock in treasury, at cost; and million shares
()()Total shareholders’ equity (deficit)()()Total liabilities and shareholders’ equity (deficit)$ $ 
See Notes to condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
In millions, except per share data20242023
Revenues
Sales by Company-owned and operated restaurants$ $ 
Revenues from franchised restaurants  
Other revenues  
Total revenues  
Operating costs and expenses
Company-owned and operated restaurant expenses  
Franchised restaurants-occupancy expenses  
Other restaurant expenses  
Selling, general & administrative expenses
Depreciation and amortization  
Other  
Other operating (income) expense, net() 
Total operating costs and expenses  
Operating income  
Interest expense  
Nonoperating (income) expense, net()()
Income before provision for income taxes  
Provision for income taxes  
Net income$ $ 
Earnings per common share-basic$ $ 
Earnings per common share-diluted$ $ 
Dividends declared per common share$ $ 
Weighted-average shares outstanding-basic  
Weighted-average shares outstanding-diluted  
See Notes to condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
In millions20242023
Net income$ $ 
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments:
Gain (loss) recognized in accumulated other comprehensive
income ("AOCI"), including net investment hedges
() 
Reclassification of (gain) loss to net income  
Foreign currency translation adjustments-net of tax
benefit (expense) of $() and $
() 
Cash flow hedges:
Gain (loss) recognized in AOCI ()
Reclassification of (gain) loss to net income ()
Cash flow hedges-net of tax benefit (expense) of $() and $
 ()
Defined benefit pension plans:
Gain (loss) recognized in AOCI  
Reclassification of (gain) loss to net income()()
Defined benefit pension plans-net of tax benefit (expense)
of $ and $
 ()
Total other comprehensive income (loss), net of tax()()
Comprehensive income$ $ 
          

n/m Not meaningful
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Impact of the War in the Middle East
The Company’s Systemwide sales and revenue have continued to be negatively impacted by the war in the Middle East, primarily in the International Developmental Licensed Markets & Corporate segment, where the majority of restaurants are under a developmental license or affiliate arrangement. The Company is monitoring the evolving situation, which it expects to continue to have a negative impact on Systemwide sales and revenue as long as the war continues. 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.
Impact of Foreign Currency Translation
Foreign currency translation did not have a significant impact on consolidated operating results for the quarter.
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 March 31,202420232024
Revenues$6,169 $5,898 $19 
Company-owned and operated margins320 301 1 
Franchised margins3,096 2,990 8 
Selling, general & administrative expenses720 653 (1)
Operating income2,736 2,532 4 
Net income1,929 1,802 (3)
Earnings per share-diluted$2.66 $2.45 $— 
Net Income and Diluted Earnings per Share
Net income increased 7% (7% in constant currencies) to $1,929 million, and diluted earnings per share increased 9% (9% constant currencies) to $2.66. Foreign currency translation had no impact on diluted earnings per share.
Results included pre-tax charges of $35 million, or $0.04 per share, for the three months ended 2024 and $180 million, or $0.18 per share, for the three months ended 2023, primarily related to restructuring charges associated with the Company's internal effort to modernize ways of working (Accelerating the Organization).
Excluding the above items, results reflected positive operating performance driven primarily by higher sales-driven Franchised margins, partly offset by higher Selling, general, and administrative expenses.
During the quarter, the Company paid a quarterly dividend of $1.67 per share, or $1.2 billion. Additionally, the Company repurchased 3.2 million shares of stock for $921 million.

NET INCOME AND EARNINGS PER SHARE-DILUTED RECONCILIATION
Dollars in millions, except per share data
Quarters Ended March 31,
Net IncomeEarnings per share - diluted
20242023Inc/ (Dec)Inc/ (Dec)
Excluding
Currency
Translation		20242023Inc/ (Dec)Inc/ (Dec)
Excluding
Currency
Translation
GAAP$1,929 $1,802 7 %7 %$2.66 $2.45 9 %9 %
(Gains)/charges27 134 0.04 0.18 
Non-GAAP$1,957 $1,936 1 %1 %$2.70 $2.63 2 %2 %




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Revenues
The Company's revenues consist of sales by Company-owned and operated restaurants and fees from restaurants owned and 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 and revenues from brand licensing arrangements to market and sell consumer packaged goods using the McDonald’s brand.
Franchised restaurants represented 95% of McDonald's restaurants worldwide at March 31, 2024. 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. In the first quarter of 2024, the Company provided an insignificant amount of assistance, including royalty relief and/or deferral of cash collection for certain franchisees impacted by the war in the Middle East in the International Developmental Licensed Markets & Corporate segment. This assistance may continue as long as the war continues.
REVENUES    
Dollars in millions    
Quarters Ended March 31,20242023Inc/ (Dec)Inc/ (Dec)
Excluding
Currency
Translation
Company-owned and operated sales    
U.S.$781 $761 3 %3 %
International Operated Markets1,362 1,270 7 6 
International Developmental Licensed Markets & Corporate212 193 10 15 
Total$2,355 $2,224 6 %6 %
Franchised revenues   
U.S.$1,728 $1,679 3 %3 %
International Operated Markets1,585 1,486 7 5 
International Developmental Licensed Markets & Corporate409 423 (3)(1)
Total$3,723 $3,588 4 %3 %
Total Company-owned and operated sales and Franchised revenues   
U.S.$2,509 $2,440 3 %3 %
International Operated Markets2,947 2,756 7 6 
International Developmental Licensed Markets & Corporate621 616 1 4 
Total$6,078 $5,812 5 %4 %
Total Other revenues$91 $86 6 %5 %
Total Revenues$6,169 $5,898 5 %4 %
*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.
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 ended March 31, 2024 and 2023:

FRANCHISED SALES
Dollars in millions
Quarters Ended March 31,20242023Inc/ (Dec)Inc/ (Dec)
Excluding
Currency
Translation
U.S.$12,086 $11,742 3 %3 %
International Operated Markets9,166 8,669 6 4 
International Developmental Licensed Markets7,565 7,640 (1)3 
Total$28,816 $28,051 3 %3 %
Ownership type
Conventional franchised$21,165 $20,346 4 %5 %
Developmental licensed4,611 4,720 (2)(2)
Foreign affiliated3,040 2,985 2 2 
Total$28,816 $28,051 3 %3 %
•Impairment and other charges (gains), net reflected pre-tax charges of $35 million and $180 million for the three months ended 2024 and 2023, respectively, primarily related to restructuring charges associated with Accelerating the Organization.

Operating Income
OPERATING INCOME & OPERATING MARGIN
Dollars in millions
Quarters Ended March 31,20242023Inc/ (Dec)Inc/ (Dec)
Excluding
Currency
Translation
U.S.$1,395 $1,295 8 %8 %
International Operated Markets1,365 1,193 14 13 
International Developmental Licensed Markets & Corporate(25)45 n/mn/m
Total $2,736 $2,532 8 %8 %
Operating margin44.3 %42.9 %
•Operating Income: Operating income increased $204 million, or 8% (8% in constant currencies). Results reflected pre-tax charges of $35 million and $180 million for the three months ended 2024 and 2023, respectively, primarily related to restructuring charges associated with Accelerating the Organization.

OPERATING INCOME & OPERATING MARGIN RECONCILIATION*
Dollars in millions
20242023Inc/ (Dec)Inc/ (Dec)
Excluding
Currency
Translation
GAAP operating income$2,736$2,5328 %8 %
(Gains)/charges35180
Non-GAAP operating income$2,771$2,7132 %2 %
Non-GAAP operating margin44.9 %46.0 %
*Refer to the Impairment and other charges (gains), net line within the Other Operating (Income) Expense, Net section above for details of the charges in this table.

•Excluding the charges for the three months ended 2024 and 2023 shown in the table above, operating income increased 2% (2% in constant currencies). Positive operating results in the U.S. and International Operated Markets segment were primarily due to sales-driven growth in Franchised margins, partly offset by higher Selling, general, and administrative expenses.
•Operating Margin: Operating margin is defined as operating income as a percent of total revenues. The contributions to operating margin differ by segment due to each segment's ownership structure, primarily due to the relative percentage of franchised versus Company-owned and operated restaurants. Additionally, temporary restaurant closures, which vary by segment, impact the contribution of each segment to the consolidated operating margin.
The decrease in non-GAAP operating margin was primarily due to ongoing inflationary cost pressures as well as higher Selling, general and administrative expenses.

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Interest Expense
•Interest expense increased 13% (12% in constant currencies), primarily due to higher average interest rates as well as higher average debt balances.
Nonoperating (Income) Expense, Net
NONOPERATING (INCOME) EXPENSE, NET
Dollars in millions
Interest income$(47)$(38)
Foreign currency and hedging activity5 (13)
Other (income) expense, net(3)(13)
Total$(45)$(64)
January 1-31, 2024965,270 $296.05 965,270 $5,993,506,118 February 1-29, 20241,012,201 291.97 1,012,201 5,697,978,196 March 1-31, 20241,182,605 287.27 1,182,605 5,358,257,048 Total3,160,076 $291.45 3,160,076 
*    Subject to applicable law, the Company may repurchase shares directly in the open market, in privately negotiated transactions or pursuant to derivative instruments and plans complying with Rule 10b5-1 under the Exchange Act, among other types of transactions and arrangements.

(1)On December 31, 2019, the Company's Board of Directors approved a share repurchase program, effective January 1, 2020, that authorized the purchase of up to $15 billion of the Company's outstanding common stock.

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Item 5. Other Information
Rule 10b5-1 Trading Plans
In accordance with the disclosure requirement set forth in Item 408(a) of Regulation S-K, the following table discloses the officers (as defined in Rule 16a-1(f) under the Exchange Act) and directors who adopted a contract, instruction or written plan for the sale of the Company’s securities intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) during the quarter ended March 31, 2024. Each of these trading plans was adopted during an open trading window.

Name / TitleType of PlanAdoption DateEnd DateAggregate Number of Securities to be SoldPlan Description
Ian Borden / EVP, Global Chief Financial Officer Rule 10b5-1 trading planFebruary 6, 2024February 4, 20257,264Exercise and sale of stock options
Heidi Capozzi / EVP, Global Chief People OfficerRule 10b5-1 trading planFebruary 27, 2024December 5, 20245,200Sale of shares
Marion Gross / EVP, Global Chief Supply Chain OfficerRule 10b5-1 trading planFebruary 27, 2024January 3, 20255,994Exercise and sale of stock options
Desiree Ralls-Morrison / EVP, Global Chief Legal Officer and SecretaryRule 10b5-1 trading planFebruary 27, 2024May 31, 20252,428Sale of shares

Other than as disclosed above, no officer or director adopted, modified, or terminated a contract, instruction or written plan for the purchase or sale of the Company’s securities intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or a non-Rule 10b5-1 trading arrangement.
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Item 6. Exhibits
Exhibit No.
Description
(3)Articles of incorporation; bylaws
(a)
Restated Certificate of Incorporation, effective May 23, 2019, incorporated herein by reference from Exhibit 3(a) of Form 10-Q (File No. 001-05231), for the quarter ended June 30, 2019.
(b)
By-Laws, amended and restated effective January 18, 2023, incorporated herein by reference from Exhibit 3.2 of Form 8-K (File No. 001-05231), filed January 19, 2023.
(4)
Instruments defining the rights of securities holders, including indentures**
(a)
Senior Debt Securities Indenture, dated October 19, 1996, incorporated herein by reference from Exhibit (4)(a) of Form S-3 Registration Statement (File No. 333-14141), filed October 15, 1996.
(b)
Subordinated Debt Securities Indenture, dated October 18, 1996, incorporated herein by reference from Exhibit (4)(b) of Form S-3 Registration Statement (File No. 333-14141), filed October 15, 1996.
(10)
Material contracts
(a)
McDonald’s Corporation Directors’ Deferred Compensation Plan, amended and restated effective December 31, 2021, incorporated herein by reference from Exhibit 10(a) of Form 10-K (File No. 001-05231), for the year ended December 31, 2021.*
(b)
McDonald’s Corporation Board of Directors Deferred Compensation Plan, effective January 1, 2022, incorporated herein by reference from Exhibit 10(b) of Form 10-K (File No. 001-05231), for the year ended December 31, 2021.*
(c)
McDonald’s Deferred Compensation Plan, effective January 1, 2017, incorporated herein by reference from Exhibit 10(b) of Form 10-K (File No. 001-05231), for the year ended December 31, 2016.*
(i)
First Amendment to the McDonald's Deferred Compensation Plan, effective May 1, 2018, incorporated herein by reference from Exhibit 10(b)(i) of Form 10-Q (File No. 001-05231), for the quarter ended September 30, 2018.*
(d)
McDonald’s Amended and Restated Deferred Compensation Plan, effective May 26, 2020, incorporated herein by reference from Exhibit 10(c) of Form 10-Q (File No. 001-05231), for the quarter ended June 30, 2020.*
(i)
(e)
McDonald’s Corporation Supplemental Profit Sharing and Savings Plan, effective September 1, 2001, incorporated herein by reference from Exhibit 10(c) of Form 10-K (File No. 001-05231), for the year ended December 31, 2001.*
(i)
First Amendment to the McDonald’s Corporation Supplemental Profit Sharing and Savings Plan, effective January 1, 2002, incorporated herein by reference from Exhibit 10(c)(i) of Form 10-K (File No. 001-05231), for the year ended December 31, 2002.*
(ii)
Second Amendment to the McDonald’s Corporation Supplemental Profit Sharing and Savings Plan, effective January 1, 2005, incorporated herein by reference from Exhibit 10(c)(ii) of Form 10-K (File No. 001-05231), for the year ended December 31, 2004.*
(f)
McDonald’s Corporation 2012 Omnibus Stock Ownership Plan, effective June 1, 2012, incorporated herein by reference from Exhibit 10(h) of Form 10-Q (File No. 001-05231), for the quarter ended September 30, 2012.*
(g)
McDonald’s Corporation Amended and Restated 2012 Omnibus Stock Ownership Plan, effective May 21, 2020, incorporated herein by reference from Exhibit 10(g) of Form 10-Q (File No. 001-05231), for the quarter ended June 30, 2020.*
(h)
Form of Executive Confidentiality, Intellectual Property and Restrictive Covenant Agreement, incorporated herein by reference from Exhibit 10(o) of Form 10-Q (File No. 001-05231), for the quarter ended March 31, 2017.*
(i)
Form of 2018 Executive Stock Option Award Agreement in connection with the 2012 Omnibus Stock Ownership Plan, incorporated herein by reference from Exhibit 10(q) of Form 10-Q (File No. 001-05231), for the quarter ended March 31, 2018.*
(j)
McDonald’s Corporation Target Incentive Plan, amended and restated effective February 13, 2019, incorporated herein by reference from Exhibit 10(p) of Form 10-Q (File No. 001-05231), for the quarter ended March 31, 2019.*
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(k)
McDonald’s Corporation Officer Severance Plan, amended and restated effective November 1, 2022, incorporated herein by reference from Exhibit 10(l) of Form 10-K (File No. 001-05231), for the year ended December 31, 2022.*
(l)
Form of 2019 Executive Stock Option Award Agreement in connection with the 2012 Omnibus Stock Ownership Plan, incorporated herein by reference from Exhibit 10(r) of Form 10-Q (File No. 001-05231), for the quarter ended March 31, 2019.*
(m)
Separation Agreement and General Release between Stephen Easterbrook and the Company, dated October 31, 2019, incorporated herein by reference from Exhibit 10.1 of Form 8-K filed November 4, 2019.*
(n)
Separation Agreement and General Release between Jerome N. Krulewitch and the Company, dated October 13, 2020, incorporated herein by reference from Exhibit 10(v) of Form 10-K (File No. 001-05231), for the year ended December 31, 2020.*
(o)
(p)
(q)
(31.1)
Rule 13a-14(a) Certification of Chief Executive Officer.
(31.2)
Rule 13a-14(a) Certification of Chief Financial Officer.
(32.1)
Certification pursuant to 18 U.S.C. Section 1350 by the Chief Executive Officer, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(32.2)
Certification pursuant to 18 U.S.C. Section 1350 by the Chief Financial Officer, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(101.INS)
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
(101.SCH)
Inline XBRL Taxonomy Extension Schema Document.
(101.CAL)
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
(101.DEF)
Inline XBRL Taxonomy Extension Definition Linkbase Document.
(101.LAB)
Inline XBRL Taxonomy Extension Label Linkbase Document.
(101.PRE)
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
(104)
Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document.
*Denotes compensatory plan.
**
Certain instruments defining the rights of holders of long-term debt of the Company are omitted pursuant to Item 601(b)(4)(iii) of Regulation S-K. An agreement to furnish a copy of any such instruments upon request has been filed with the SEC.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
McDONALD’S CORPORATION
        (Registrant)
/s/ Ian F. Borden
Date:May 8, 2024Ian F. Borden
Executive Vice President and Global Chief Financial Officer

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