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0000063908-23-000036 Table of Contents 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 60607Chicago, 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) Table of Contents McDONALD’S CORPORATION ___________________________ INDEX _______ 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. 2 Table of Contents PART I – FINANCIAL INFORMATION Item 1. Financial Statements 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. 3 Table of Contents 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. 4 Table of Contents 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. 5 Table of Contents 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. 6 Table of Contents 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 translationIn 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 translationIn 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. 7 Table of Contents 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