x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2016 |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to |
Delaware | 36-2361282 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
One McDonald’s Plaza Oak Brook, Illinois | 60523 | |
(Address of Principal Executive Offices) | (Zip Code) |
Large accelerated filer x | Accelerated filer ¨ | |
Non-accelerated filer ¨ (do not check if a smaller reporting company) | Smaller reporting company ¨ |
Page Reference | |
Item 1 – Financial Statements | |
Condensed consolidated statement of income (unaudited), quarters and nine months ended September 30, 2016 and 2015 | |
Condensed consolidated statement of comprehensive income (unaudited), quarters and nine months ended September 30, 2016 and 2015 | |
Condensed consolidated statement of cash flows (unaudited), quarters and nine months ended September 30, 2016 and 2015 | |
Item 4 – Controls and Procedures | |
Item 1 – Legal Proceedings | |
Item 1A – Risk Factors | |
Item 6 – Exhibits | |
CONDENSED CONSOLIDATED BALANCE SHEET | |||||||||
(unaudited) | |||||||||
In millions, except per share data | September 30, 2016 | December 31, 2015 | |||||||
Assets | |||||||||
Current assets | |||||||||
Cash and equivalents | $ | 2,266.7 | $ | 7,685.5 | |||||
Accounts and notes receivable | 1,349.8 | 1,298.7 | |||||||
Inventories, at cost, not in excess of market | 90.5 | 100.1 | |||||||
Prepaid expenses and other current assets | 595.1 | 558.7 | |||||||
Total current assets | 4,302.1 | 9,643.0 | |||||||
Other assets | |||||||||
Investments in and advances to affiliates | 878.0 | 792.7 | |||||||
Goodwill | 2,504.7 | 2,516.3 | |||||||
Miscellaneous | 1,816.4 | 1,869.1 | |||||||
Total other assets | 5,199.1 | 5,178.1 | |||||||
Property and equipment | |||||||||
Property and equipment, at cost | 37,931.1 | 37,692.4 | |||||||
Accumulated depreciation and amortization | (14,945.4 | ) | (14,574.8 | ) | |||||
Net property and equipment | 22,985.7 | 23,117.6 | |||||||
Total assets | $ | 32,486.9 | $ | 37,938.7 | |||||
Liabilities and shareholders’ equity | |||||||||
Current liabilities | |||||||||
Accounts payable | $ | 852.2 | $ | 874.7 | |||||
Dividends payable | 772.9 | — | |||||||
Income taxes | 561.3 | 154.8 | |||||||
Other taxes | 295.3 | 309.0 | |||||||
Accrued interest | 263.6 | 233.1 | |||||||
Accrued payroll and other liabilities | 1,731.4 | 1,378.8 | |||||||
Total current liabilities | 4,476.7 | 2,950.4 | |||||||
Long-term debt | 26,007.0 | 24,122.1 | |||||||
Other long-term liabilities | 2,248.5 | 2,074.0 | |||||||
Deferred income taxes | 1,378.8 | 1,704.3 | |||||||
Shareholders’ equity | |||||||||
Preferred stock, no par value; authorized – 165.0 million shares; issued – none | — | — | |||||||
Common stock, $.01 par value; authorized – 3.5 billion shares; issued – 1,660.6 million shares | 16.6 | 16.6 | |||||||
Additional paid-in capital | 6,712.8 | 6,533.4 | |||||||
Retained earnings | 45,030.0 | 44,594.5 | |||||||
Accumulated other comprehensive income | (2,622.6 | ) | (2,879.8 | ) | |||||
Common stock in treasury, at cost; 830.2 and 753.8 million shares | (50,760.9 | ) | (41,176.8 | ) | |||||
Total shareholders’ equity | (1,624.1 | ) | 7,087.9 | ||||||
Total liabilities and shareholders’ equity | $ | 32,486.9 | $ | 37,938.7 |
CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) | |||||||||||||||||||
Quarters Ended | Nine Months Ended | ||||||||||||||||||
September 30, | September 30, | ||||||||||||||||||
In millions, except per share data | 2016 | 2015 | 2016 | 2015 | |||||||||||||||
Revenues | |||||||||||||||||||
Sales by Company-operated restaurants | $ | 3,972.1 | $ | 4,282.9 | $ | 11,642.2 | $ | 12,458.1 | |||||||||||
Revenues from franchised restaurants | 2,452.0 | 2,332.2 | 6,950.8 | 6,613.6 | |||||||||||||||
Total revenues | 6,424.1 | 6,615.1 | 18,593.0 | 19,071.7 | |||||||||||||||
Operating costs and expenses | |||||||||||||||||||
Company-operated restaurant expenses | 3,239.5 | 3,607.7 | 9,662.9 | 10,558.3 | |||||||||||||||
Franchised restaurants—occupancy expenses | 437.6 | 416.1 | 1,283.6 | 1,230.7 | |||||||||||||||
Selling, general & administrative expenses | 582.9 | 584.0 | 1,757.0 | 1,759.2 | |||||||||||||||
Other operating (income) expense, net | 26.8 | (23.0 | ) | 114.0 | 258.4 | ||||||||||||||
Total operating costs and expenses | 4,286.8 | 4,584.8 | 12,817.5 | 13,806.6 | |||||||||||||||
Operating income | 2,137.3 | 2,030.3 | 5,775.5 | 5,265.1 | |||||||||||||||
Interest expense | 221.4 | 160.9 | 663.6 | 457.4 | |||||||||||||||
Nonoperating (income) expense, net | 11.4 | (9.0 | ) | (19.2 | ) | (37.2 | ) | ||||||||||||
Income before provision for income taxes | 1,904.5 | 1,878.4 | 5,131.1 | 4,844.9 | |||||||||||||||
Provision for income taxes | 629.1 | 569.2 | 1,638.0 | 1,521.8 | |||||||||||||||
Net income | $ | 1,275.4 | $ | 1,309.2 | $ | 3,493.1 | $ | 3,323.1 | |||||||||||
Earnings per common share-basic | $ | 1.52 | $ | 1.41 | $ | 4.04 | $ | 3.51 | |||||||||||
Earnings per common share-diluted | $ | 1.50 | $ | 1.40 | $ | 4.01 | $ | 3.49 | |||||||||||
Dividends declared per common share | $ | 0.89 | $ | 0.85 | $ | 2.67 | $ | 2.55 | |||||||||||
Weighted-average shares outstanding-basic | 841.4 | 930.3 | 864.7 | 947.9 | |||||||||||||||
Weighted-average shares outstanding-diluted | 847.7 | 934.8 | 871.8 | 952.7 |
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED) | |||||||||||||||||||
Quarters Ended | Nine Months Ended | ||||||||||||||||||
September 30, | September 30, | ||||||||||||||||||
In millions | 2016 | 2015 | 2016 | 2015 | |||||||||||||||
Net income | $ | 1,275.4 | $ | 1,309.2 | $ | 3,493.1 | $ | 3,323.1 | |||||||||||
Other comprehensive income (loss), net of tax | |||||||||||||||||||
Foreign currency translation adjustments: | |||||||||||||||||||
Gain (loss) recognized in accumulated other comprehensive income (AOCI), including net investment hedges | 50.7 | (492.6 | ) | 255.0 | (1,083.1 | ) | |||||||||||||
Reclassification of (gain) loss to net income | — | — | 18.3 | 0.2 | |||||||||||||||
Foreign currency translation adjustments-net of tax benefit (expense) of $30.4, $0.3, $(66.9) and $(92.6) | 50.7 | (492.6 | ) | 273.3 | (1,082.9 | ) | |||||||||||||
Cash flow hedges: | |||||||||||||||||||
Gain (loss) recognized in AOCI | (1.3 | ) | 1.7 | (8.4 | ) | 13.7 | |||||||||||||
Reclassification of (gain) loss to net income | 1.8 | (8.3 | ) | (10.2 | ) | (23.0 | ) | ||||||||||||
Cash flow hedges-net of tax benefit (expense) of $(0.1), $3.8 and $10.6, $5.3 | 0.5 | (6.6 | ) | (18.6 | ) | (9.3 | ) | ||||||||||||
Defined benefit pension plans: | |||||||||||||||||||
Gain (loss) recognized in AOCI | (0.1 | ) | — | (0.9 | ) | (1.4 | ) | ||||||||||||
Reclassification of (gain) loss to net income | 1.1 | 1.7 | 3.4 | 5.8 | |||||||||||||||
Defined benefit pension plans-net of tax benefit (expense) of $0.1, $0.1 and $0.1, $0.7 | 1.0 | 1.7 | 2.5 | 4.4 | |||||||||||||||
Total other comprehensive income (loss), net of tax | 52.2 | (497.5 | ) | 257.2 | (1,087.8 | ) | |||||||||||||
Comprehensive income (loss) | $ | 1,327.6 | $ | 811.7 | $ | 3,750.3 | $ | 2,235.3 |
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) | |||||||||||||||||||
Quarters Ended | Nine Months Ended | ||||||||||||||||||
September 30, | September 30, | ||||||||||||||||||
In millions | 2016 | 2015 | 2016 | 2015 | |||||||||||||||
Operating activities | |||||||||||||||||||
Net income | $ | 1,275.4 | $ | 1,309.2 | $ | 3,493.1 | $ | 3,323.1 | |||||||||||
Adjustments to reconcile to cash provided by operations | |||||||||||||||||||
Charges and credits: | |||||||||||||||||||
Depreciation and amortization | 370.6 | 387.7 | 1,137.6 | 1,166.0 | |||||||||||||||
Deferred income taxes | (216.0 | ) | (0.1 | ) | (374.7 | ) | 15.2 | ||||||||||||
Share-based compensation | 34.3 | 29.0 | 102.1 | 76.7 | |||||||||||||||
Other | 2.9 | 27.2 | 189.1 | 289.3 | |||||||||||||||
Changes in working capital items | 783.9 | 194.4 | 697.5 | 290.1 | |||||||||||||||
Cash provided by operations | 2,251.1 | 1,947.4 | 5,244.7 | 5,160.4 | |||||||||||||||
Investing activities | |||||||||||||||||||
Capital expenditures | (405.3 | ) | (412.7 | ) | (1,149.6 | ) | (1,221.2 | ) | |||||||||||
Sales and purchases of restaurant businesses and property sales | 103.9 | 38.2 | 421.3 | 136.8 | |||||||||||||||
Other | (49.7 | ) | (44.0 | ) | (82.4 | ) | (29.8 | ) | |||||||||||
Cash used for investing activities | (351.1 | ) | (418.5 | ) | (810.7 | ) | (1,114.2 | ) | |||||||||||
Financing activities | |||||||||||||||||||
Net short-term borrowings | (80.0 | ) | 170.2 | (742.9 | ) | 131.4 | |||||||||||||
Long-term financing issuances | 0.6 | 1.4 | 3,372.7 | 4,229.2 | |||||||||||||||
Long-term financing repayments | (5.7 | ) | (6.2 | ) | (819.6 | ) | (1,052.9 | ) | |||||||||||
Treasury stock purchases | (1,969.8 | ) | (2,392.3 | ) | (9,662.2 | ) | (4,554.1 | ) | |||||||||||
Common stock dividends | (745.1 | ) | (789.1 | ) | (2,285.2 | ) | (2,416.4 | ) | |||||||||||
Proceeds from stock option exercises | 36.1 | 35.7 | 249.9 | 170.9 | |||||||||||||||
Excess tax benefit on share-based compensation | — | 4.6 | — | 30.0 | |||||||||||||||
Other | (11.8 | ) | (2.9 | ) | (3.9 | ) | (22.4 | ) | |||||||||||
Cash used for financing activities | (2,775.7 | ) | (2,978.6 | ) | (9,891.2 | ) | (3,484.3 | ) | |||||||||||
Effect of exchange rates on cash and cash equivalents | 14.4 | (96.3 | ) | 38.4 | (187.3 | ) | |||||||||||||
Cash and equivalents increase (decrease) | (861.3 | ) | (1,546.0 | ) | (5,418.8 | ) | 374.6 | ||||||||||||
Cash and equivalents at beginning of period | 3,128.0 | 3,998.5 | 7,685.5 | 2,077.9 | |||||||||||||||
Cash and equivalents at end of period | $ | 2,266.7 | $ | 2,452.5 | $ | 2,266.7 | $ | 2,452.5 |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
Restaurants at September 30, | 2016 | 2015 | |||
Conventional franchised | 21,456 | 21,009 | |||
Developmental licensed | 5,742 | 5,348 | |||
Foreign affiliated | 3,361 | 3,494 | |||
Total Franchised | 30,559 | 29,851 | |||
Company-operated | 6,056 | 6,554 | |||
Systemwide restaurants | 36,615 | 36,405 |
Derivative Assets | Derivative Liabilities | ||||||||||||||||||
In millions | September 30, 2016 | December 31, 2015 | September 30, 2016 | December 31, 2015 | |||||||||||||||
Total derivatives designated as hedging instruments | $ | 9.7 | $ | 60.9 | $ | (11.3 | ) | $ | (38.9 | ) | |||||||||
Total derivatives not designated as hedging instruments | 131.1 | 144.4 | (16.6 | ) | (5.5 | ) | |||||||||||||
Total derivatives | $ | 140.8 | $ | 205.3 | $ | (27.9 | ) | $ | (44.4 | ) |
Gain (Loss) Recognized in Accumulated OCI | Gain (Loss) Reclassified into Income from Accumulated OCI | Gain (Loss) Recognized in Income on Derivative(1) | |||||||||||||||||||||||||||
In millions | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | |||||||||||||||||||||||
Cash Flow Hedges | $ | (13.6 | ) | $ | 19.7 | $ | 15.6 | $ | 34.3 | — | $ | 22.9 | |||||||||||||||||
Net Investment Hedges | $ | (96.5 | ) | $ | 493.5 | $ | (18.3 | ) | $ | (0.2 | ) | ||||||||||||||||||
Undesignated derivatives | $ | (4.1 | ) | $ | 19.5 |
(1) | Includes amounts excluded from effectiveness testing, ineffectiveness, and undesignated gains (losses). |
• | Fair Value Hedges |
• | Cash Flow Hedges |
• | Net Investment Hedges |
• | Credit Risk |
• | U.S. - the Company's largest segment. |
• | International Lead Markets - established markets including Australia, Canada, France, Germany, the U.K. and related markets. |
• | High Growth Markets - markets the Company believes have relatively higher restaurant expansion and franchising potential including China, Italy, Korea, Poland, Russia, Spain, Switzerland, the Netherlands and related markets. |
• | Foundational Markets & Corporate - the remaining markets in the McDonald's system, each of which the Company believes have the potential to operate under a largely franchised model. Corporate activities are also reported within this segment. |
Quarters Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
In millions | 2016 | 2015 | 2016 | 2015 | |||||||||||
Revenues | |||||||||||||||
U.S. | $ | 2,072.5 | $ | 2,189.3 | $ | 6,215.2 | $ | 6,341.6 | |||||||
International Lead Markets | 1,881.2 | 1,971.6 | 5,452.5 | 5,699.3 | |||||||||||
High Growth Markets | 1,651.3 | 1,645.2 | 4,644.1 | 4,714.4 | |||||||||||
Foundational Markets & Corporate | 819.1 | 809.0 | 2,281.2 | 2,316.4 | |||||||||||
Total revenues | $ | 6,424.1 | $ | 6,615.1 | $ | 18,593.0 | $ | 19,071.7 | |||||||
Operating Income | |||||||||||||||
U.S. | $ | 977.5 | $ | 902.1 | $ | 2,836.6 | $ | 2,559.7 | |||||||
International Lead Markets | 754.1 | 739.5 | 2,127.2 | 2,011.6 | |||||||||||
High Growth Markets | 320.1 | 297.3 | 814.7 | 639.3 | |||||||||||
Foundational Markets & Corporate | 85.6 | 91.4 | (3.0 | ) | 54.5 | ||||||||||
Total operating income | $ | 2,137.3 | $ | 2,030.3 | $ | 5,775.5 | $ | 5,265.1 |
• | Global comparable sales increased 3.5% for the quarter and 4.2% for the nine months, reflecting positive comparable sales in all segments |
• | Due to the impact of refranchising, consolidated revenues decreased 3% (1% in constant currencies) for the quarter and decreased 3% (flat in constant currencies) for the nine months |
• | Consolidated operating income increased 5% (7% in constant currencies) for the quarter and increased 10% (12% in constant currencies) for the nine months, which included restructuring and non-cash impairment charges of $128 million in the quarter and $357 million for the nine months related to the Company’s global G&A and refranchising initiatives. The nine months of 2015 included strategic charges primarily related to store closing costs, restructuring and other asset write-offs totaling $240 million |
• | Diluted earnings per share of $1.50 for the quarter increased 7% (9% in constant currencies) and $4.01 for the nine months increased 15% (17% in constant currencies), which included strategic charges totaling $0.12 per share for the quarter and $.30 per share for the nine months. Excluding the impact of the current and prior year charges, diluted earnings per share increased 16% (17% in constant currencies) for the quarter and 17% (19% in constant currencies) for the nine months |
• | Returned $3.4 billion to shareholders through share repurchases and dividends for the quarter. This brings the cumulative return to shareholders to $27.8 billion against the targeted return of about $30 billion for the three-year period ending 2016. In addition, the Company announced a 6% increase in its dividend beginning in the fourth quarter |
• | Changes in Systemwide sales are driven by comparable sales and net restaurant unit expansion. The Company expects net restaurant additions to add approximately 1 percentage point to 2016 Systemwide sales growth (in constant currencies). |
• | The Company does not generally provide specific guidance on changes in comparable sales. However, as a perspective, assuming no change in cost structure, a 1 percentage point change in comparable sales for either the U.S. or the International Lead Markets would change annual diluted earnings per share by about 4 cents. |
• | With about 75% of McDonald's grocery bill comprised of 10 different commodities, a basket of goods approach is the most comprehensive way to look at the Company's commodity costs. For the full-year 2016, costs for the total basket of goods are expected to decrease about 4.5-5.0% in the U.S. and remain relatively flat in the International Lead Markets. |
• | The Company expects full-year 2016 selling, general and administrative expenses to be relatively flat in constant currencies. Some volatility may be experienced between quarters. |
• | Based on current interest and foreign currency exchange rates, the Company expects interest expense for the full-year 2016 to increase about 40-45% compared with 2015 due to higher average debt balances in connection with the Company's previously-announced plans to optimize its capital structure. |
• | A significant part of the Company's operating income is generated outside the U.S., and about 40% of its total debt is denominated in foreign currencies. Accordingly, earnings are affected by changes in foreign currency exchange rates, particularly the Euro, British Pound, Australian Dollar and Canadian Dollar. Collectively, these currencies represent approximately 65% of the Company's operating income outside the U.S. If all four of these currencies moved by 10% in the same direction, the Company's annual diluted earnings per share would change by up to 25 cents. |
• | The Company expects the effective income tax rate for the full-year 2016 to be in the 31-33% range. Some volatility may be experienced between the quarters resulting in a quarterly tax rate outside of the annual range. |
• | The Company expects capital expenditures for 2016 to be approximately $2.0 billion, less than half of which are expected to be used to open new restaurants. The Company expects to open about 900 restaurants, including about 400 restaurants in affiliated and developmental-licensee markets where the Company does not fund any capital expenditures. The Company expects net additions of about 400 restaurants. The remaining capital is expected to be used to reinvest in existing locations. |
• | The Company continues to optimize its capital structure and expects to return about $30 billion to shareholders for the three-year period ending 2016. The cumulative return through the September 30, 2016 was approximately $28 billion. |
• | The Company expects to refranchise about 4,000 restaurants through 2018 with a long-term goal to become 95% franchised. The majority of the refranchising is expected to take place in the High Growth and Foundational markets. |
• | The Company expects to realize net annual G&A savings of about $500 million from our G&A base of $2.6 billion at the beginning of 2015, the vast majority of which is expected to be realized by the end of 2017. These savings will be realized through our refranchising efforts, streamlining across corporate, segment and market organizations, primarily in non-customer facing functions, and realizing greater efficiencies in the Company's Global Business Services platform. This target excludes the impact of foreign currency changes. We expect to realize a cumulative total of at least $150 million in savings by the end of 2016, with about half of these savings already achieved in 2015. |
• | In connection with executing against our refranchising and G&A targets, we may incur additional strategic charges. |
• | Information in constant currency is 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 and bases incentive compensation plans on these results because they believe this better represents the Company’s underlying business trends. |
• | Systemwide sales include sales at all restaurants, whether operated by the Company or by franchisees. 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. |
• | Comparable sales represent sales at all restaurants and comparable guest counts represent the number of transactions 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 and natural disasters. Comparable sales exclude the impact of currency translation. Comparable sales are driven by changes in guest counts and average check, which is affected by changes in pricing and product mix. Typically, pricing has a greater impact on average check than product mix. Management reviews the increase or decrease in comparable sales and comparable guest counts compared with the same period in the prior year to assess business trends. |
CONSOLIDATED OPERATING RESULTS | |||||||||||||||
Quarter Ended | Nine Months Ended | ||||||||||||||
Dollars in millions, except per share data | September 30, 2016 | September 30, 2016 | |||||||||||||
Amount | Increase/ (Decrease) | Amount | Increase/ (Decrease) | ||||||||||||
Revenues | |||||||||||||||
Sales by Company-operated restaurants | $ | 3,972.1 | (7 | )% | $ | 11,642.2 | (7 | )% | |||||||
Revenues from franchised restaurants | 2,452.0 | 5 | 6,950.8 | 5 | |||||||||||
Total revenues | 6,424.1 | (3 | ) | 18,593.0 | (3 | ) | |||||||||
Operating costs and expenses | |||||||||||||||
Company-operated restaurant expenses | 3,239.5 | (10 | ) | 9,662.9 | (8 | ) | |||||||||
Franchised restaurants—occupancy expenses | 437.6 | 5 | 1,283.6 | 4 | |||||||||||
Selling, general & administrative expenses | 582.9 | 0 | 1,757.0 | 0 | |||||||||||
Other operating (income) expense, net | 26.8 | n/m | 114.0 | (56 | ) | ||||||||||
Total operating costs and expenses | 4,286.8 | (6 | ) | 12,817.5 | (7 | ) | |||||||||
Operating income | 2,137.3 | 5 | 5,775.5 | 10 | |||||||||||
Interest expense | 221.4 | 38 | 663.6 | 45 | |||||||||||
Nonoperating (income) expense, net | 11.4 | n/m | (19.2 | ) | 48 | ||||||||||
Income before provision for income taxes | 1,904.5 | 1 | 5,131.1 | 6 | |||||||||||
Provision for income taxes | 629.1 | 11 | 1,638.0 | 8 | |||||||||||
Net income | $ | 1,275.4 | (3 | )% | $ | 3,493.1 | 5 | % | |||||||
Earnings per common share-basic | $ | 1.52 | 8 | % | $ | 4.04 | 15 | % | |||||||
Earnings per common share-diluted | $ | 1.50 | 7 | % | $ | 4.01 | 15 | % |
IMPACT OF FOREIGN CURRENCY TRANSLATION | ||||||||||||||
Dollars in millions, except per share data | ||||||||||||||
Currency Translation Benefit/ (Cost) | ||||||||||||||
Quarters Ended September 30, | 2016 | 2015 | 2016 | |||||||||||
Revenues | $ | 6,424.1 | $ | 6,615.1 | $ | (113.6 | ) | |||||||
Company-operated margins | 732.6 | 675.2 | (18.5 | ) | ||||||||||
Franchised margins | 2,014.4 | 1,916.1 | (14.3 | ) | ||||||||||
Selling, general & administrative expenses | 582.9 | 584.0 | 4.1 | |||||||||||
Operating income | 2,137.3 | 2,030.3 | (26.8 | ) | ||||||||||
Net income | 1,275.4 | 1,309.2 | (19.0 | ) | ||||||||||
Earnings per share-diluted | $ | 1.50 | $ | 1.40 | $ | (0.03 | ) | |||||||
Currency Translation Benefit/ (Cost) | ||||||||||||||
Nine Months Ended September 30, | 2016 | 2015 | 2016 | |||||||||||
Revenues | $ | 18,593.0 | $ | 19,071.7 | $ | (552.2 | ) | |||||||
Company-operated margins | 1,979.3 | 1,899.8 | (70.9 | ) | ||||||||||
Franchised margins | 5,667.2 | 5,382.9 | (87.0 | ) | ||||||||||
Selling, general & administrative expenses | 1,757.0 | 1,759.2 | 21.5 | |||||||||||
Operating income | 5,775.5 | 5,265.1 | (136.8 | ) | ||||||||||
Net income | 3,493.1 | 3,323.1 | (73.8 | ) | ||||||||||
Earnings per share-diluted | $ | 4.01 | $ | 3.49 | $ | (0.08 | ) |
REVENUES | ||||||||||||||
Dollars in millions | ||||||||||||||
Quarters Ended September 30, | 2016 | 2015 | Inc/ (Dec) | Inc/ (Dec) Excluding Currency Translation | ||||||||||
Company-operated sales | ||||||||||||||
U.S. | $ | 910.3 | $ | 1,062.2 | (14 | )% | (14 | )% | ||||||
International Lead Markets | 1,098.8 | 1,233.0 | (11 | ) | (6 | ) | ||||||||
High Growth Markets | 1,441.5 | 1,450.9 | (1 | ) | 2 | |||||||||
Foundational Markets & Corporate | 521.5 | 536.8 | (3 | ) | (2 | ) | ||||||||
Total | $ | 3,972.1 | $ | 4,282.9 | (7 | )% | (5 | )% | ||||||
Franchised revenues | ||||||||||||||
U.S. | $ | 1,162.2 | $ | 1,127.1 | 3 | % | 3 | % | ||||||
International Lead Markets | 782.4 | 738.6 | 6 | 8 | ||||||||||
High Growth Markets | 209.8 | 194.3 | 8 | 9 | ||||||||||
Foundational Markets & Corporate | 297.6 | 272.2 | 9 | 10 | ||||||||||
Total | $ | 2,452.0 | $ | 2,332.2 | 5 | % | 6 | % | ||||||
Total revenues | ||||||||||||||
U.S. | $ | 2,072.5 | $ | 2,189.3 | (5 | )% | (5 | )% | ||||||
International Lead Markets | 1,881.2 | 1,971.6 | (5 | ) | (1 | ) | ||||||||
High Growth Markets | 1,651.3 | 1,645.2 | 0 | 2 | ||||||||||
Foundational Markets & Corporate | 819.1 | 809.0 | 1 | 2 | ||||||||||
Total | $ | 6,424.1 | $ | 6,615.1 | (3 | )% | (1 | )% | ||||||
Nine Months Ended September 30, | 2016 | 2015 | Inc/ (Dec) | Inc/ (Dec) Excluding Currency Translation | ||||||||||
Company-operated sales | ||||||||||||||
U.S. | $ | 2,852.0 | $ | 3,126.6 | (9 | )% | (9 | )% | ||||||
International Lead Markets | 3,250.7 | 3,605.9 | (10 | ) | (6 | ) | ||||||||
High Growth Markets | 4,063.5 | 4,170.5 | (3 | ) | 3 | |||||||||
Foundational Markets & Corporate | 1,476.0 | 1,555.1 | (5 | ) | (1 | ) | ||||||||
Total | $ | 11,642.2 | $ | 12,458.1 | (7 | )% | (3 | )% | ||||||
Franchised revenues | ||||||||||||||
U.S. | $ | 3,363.2 | $ | 3,215.0 | 5 | % | 5 | % | ||||||
International Lead Markets | 2,201.8 | 2,093.4 | 5 | 8 | ||||||||||
High Growth Markets | 580.6 | 543.9 | 7 | 8 | ||||||||||
Foundational Markets & Corporate | 805.2 | 761.3 | 6 | 10 | ||||||||||
Total | $ | 6,950.8 | $ | 6,613.6 | 5 | % | 7 | % | ||||||
Total revenues | ||||||||||||||
U.S. | $ | 6,215.2 | $ | 6,341.6 | (2 | )% | (2 | )% | ||||||
International Lead Markets | 5,452.5 | 5,699.3 | (4 | ) | 0 | |||||||||
High Growth Markets | 4,644.1 | 4,714.4 | (1 | ) | 4 | |||||||||
Foundational Markets & Corporate | 2,281.2 | 2,316.4 | (2 | ) | 2 | |||||||||
Total | $ | 18,593.0 | $ | 19,071.7 | (3 | )% | 0 | % |
• | Revenues: Revenues decreased 3% (1% in constant currencies) for the quarter and decreased 3% (flat in constant currencies) for the nine months. |
• | U.S.: Revenues decreased for the quarter and nine months due to the impact of refranchising, partly offset by positive comparable sales. |
• | International Lead Markets: Revenues decreased for both periods partly due to negative foreign currency translation. In constant currencies, revenues decreased for the quarter and were flat for the nine months due to the impact of refranchising, partly offset by strong sales in the U.K. and positive results in Australia, Canada and Germany. |
• | High Growth Markets: Revenues were flat for the quarter and decreased for the nine months partly due to negative foreign currency translation. In constant currencies, revenues increased for both periods due to positive comparable sales in most markets and continued expansion in Russia. For the quarter, revenues were partly offset by negative comparable sales in China due in part to temporary protests related to events surrounding the South China Sea and comparison against very strong prior year results. |
COMPARABLE SALES | |||||||||||
Increase/ (Decrease) | |||||||||||
Quarters Ended | Nine Months Ended | ||||||||||
September 30, | September 30,* | ||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||
U.S. | 1.3 | % | 0.9 | % | 2.7 | % | (1.2 | )% | |||
International Lead Markets | 3.3 | 4.6 | 3.6 | 3.2 | |||||||
High Growth Markets | 1.5 | 8.9 | 2.2 | 1.4 | |||||||
Foundational Markets & Corporate | 10.1 | 6.1 | 9.6 | (0.9 | ) | ||||||
Total | 3.5 | % | 4.0 | % | 4.2 | % | 0.4 | % |
* | On a consolidated basis, comparable guest counts (the number of transactions at all restaurants, whether operated by the Company or by franchisees, in operation at least thirteen months, including those temporarily closed) decreased 0.1% and 3.1% for the nine months ended 2016 and 2015, respectively. |
SYSTEMWIDE SALES | ||||||||||
Quarter Ended | Nine Months Ended | |||||||||
September 30, 2016 | September 30, 2016 | |||||||||
Inc/ (Dec) | Inc/ (Dec) Excluding Currency Translation | Inc/ (Dec) | Inc/ (Dec) Excluding Currency Translation | |||||||
U.S. | 1 | % | 1 | % | 3 | % | 3 | % | ||
International Lead Markets | 2 | 5 | 2 | 5 | ||||||
High Growth Markets | 3 | 5 | 2 | 6 | ||||||
Foundational Markets & Corporate | 13 | 12 | 7 | 11 | ||||||
Total | 4 | % | 4 | % | 3 | % | 5 | % |
FRANCHISED SALES | ||||||||||||||
Dollars in millions | ||||||||||||||
Quarters Ended September 30, | 2016 | 2015 | Inc/ (Dec) | Inc/ (Dec) Excluding Currency Translation | ||||||||||
U.S. | $ | 8,391.0 | $ | 8,139.9 | 3 | % | 3 | % | ||||||
International Lead Markets | 4,534.1 | 4,290.5 | 6 | 8 | ||||||||||
High Growth Markets | 1,305.4 | 1,216.6 | 7 | 9 | ||||||||||
Foundational Markets & Corporate | 4,126.0 | 3,592.7 | 15 | 14 | ||||||||||
Total* | $ | 18,356.5 | $ | 17,239.7 | 6 | % | 7 | % | ||||||
Nine Months Ended September 30, | 2016 | 2015 | Inc/ (Dec) | Inc/ (Dec) Excluding Currency Translation | ||||||||||
U.S. | $ | 24,356.4 | $ | 23,389.7 | 4 | % | 4 | % | ||||||
International Lead Markets | 12,760.8 | 12,158.6 | 5 | 8 | ||||||||||
High Growth Markets | 3,636.0 | 3,407.9 | 7 | 9 | ||||||||||
Foundational Markets & Corporate | 11,117.8 | 10,247.3 | 8 | 13 | ||||||||||
Total* | $ | 51,871.0 | $ | 49,203.5 | 5 | % | 7 | % |
* | Sales from developmental licensed restaurants and foreign affiliated markets where the Company earns a royalty based on a percent of sales totaled $3,705.6 million and $3,177.4 million for the quarters 2016 and 2015, respectively, and $9,990.0 million and $9,110.1 million for the nine months 2016 and 2015, respectively. Results reflected improved performance in Japan, partly due to the stronger Yen, and improved performance across most markets. These results were partly offset by weaker currencies in Latin America. The remaining balance of franchised sales is derived from conventional franchised restaurants where the Company earns rent and royalties based primarily on a percent of sales. |
FRANCHISED AND COMPANY-OPERATED RESTAURANT MARGINS | |||||||||||||||||||
Dollars in millions | |||||||||||||||||||
Percent | Amount | Inc/ (Dec) | Inc/ (Dec) Excluding Currency Translation | ||||||||||||||||
Quarters Ended September 30, | 2016 | 2015 | 2016 | 2015 | |||||||||||||||
Franchised | |||||||||||||||||||
U.S. | 82.7 | % | 83.1 | % | $ | 961.4 | $ | 937.0 | 3 | % | 3 | % | |||||||
International Lead Markets | 81.2 | 80.8 | 635.4 | 596.7 | 6 | 8 | |||||||||||||
High Growth Markets | 71.6 | 72.3 | 150.1 | 140.4 | 7 | 8 | |||||||||||||
Foundational Markets & Corporate | 89.8 | 88.8 | 267.5 | 242.0 | 11 | 11 | |||||||||||||
Total | 82.1 | % | 82.2 | % | $ | 2,014.4 | $ | 1,916.1 | 5 | % | 6 | % | |||||||
Company-operated | |||||||||||||||||||
U.S. | 16.9 | % | 12.4 | % | $ | 153.9 | $ | 132.2 | 16 | % | 16 | % | |||||||
International Lead Markets | 21.6 | 20.8 | 237.9 | 256.8 | (7 | ) | (3 | ) | |||||||||||
High Growth Markets | 17.0 | 14.3 | 245.2 | 207.5 | 18 | 21 | |||||||||||||
Foundational Markets & Corporate | 18.4 | 14.7 | 95.6 | 78.7 | 22 | 23 | |||||||||||||
Total | 18.4 | % | 15.8 | % | $ | 732.6 | $ | 675.2 | 9 | % | 11 | % | |||||||
Percent | Amount | Inc/ (Dec) | Inc/ (Dec) Excluding Currency Translation | ||||||||||||||||
Nine Months Ended September 30, | 2016 | 2015 | 2016 | 2015 | |||||||||||||||
Franchised | |||||||||||||||||||
U.S. | 82.7 | % | 82.5 | % | $ | 2,779.7 | $ | 2,652.1 | 5 | % | 5 | % | |||||||
International Lead Markets | 80.2 | 79.9 | 1,765.8 | 1,673.0 | 6 | 9 | |||||||||||||
High Growth Markets | 69.9 | 71.0 | 406.0 | 385.9 | 5 | 7 | |||||||||||||
Foundational Markets & Corporate | 88.9 | 88.3 | 715.7 | 671.9 | 7 | 11 | |||||||||||||
Total | 81.5 | % | 81.4 | % | $ | 5,667.2 | $ | 5,382.9 | 5 | % | 7 | % | |||||||
Company-operated | |||||||||||||||||||
U.S. | 15.9 | % | 14.7 | % | $ | 454.4 | $ | 460.5 | (1 | )% | (1 | )% | |||||||
International Lead Markets | 20.7 | 20.0 | 673.2 | 719.9 | (6 | ) | (2 | ) | |||||||||||
High Growth Markets | 15.3 | 12.6 | 623.4 | 526.6 | 18 | 25 | |||||||||||||
Foundational Markets & Corporate | 15.5 | 12.4 | 228.3 | 192.8 | 18 | 22 | |||||||||||||
Total | 17.0 | % | 15.2 | % | $ | 1,979.3 | $ | 1,899.8 | 4 | % | 8 | % |
• | Franchised: Franchised margin dollars increased $98.3 million or 5% (6% in constant currencies) for the quarter and increased $284.3 million or 5% (7% in constant currencies) for the nine months. Both periods benefited from expansion and refranchising, as well as positive comparable sales performance. |
• | U.S.: The franchised margin percent declined in the quarter and increased for the nine months. Positive comparable sales contributed to both periods, but for the quarter was more than offset by higher occupancy costs. |
• | International Lead Markets: The increase in the franchised margin percent for the quarter and nine months reflected the benefit from positive comparable sales performance, partly offset by refranchising. |
• | High Growth Markets: The decrease in the franchised margin percent for the quarter and nine months was primarily due to refranchising and higher occupancy costs. |
• | Company-operated: Company-operated margin dollars increased $57.4 million or 9% (11% in constant currencies) for the quarter and increased $79.5 million or 4% (8% in constant currencies) for the nine months. |
• | U.S.: The Company-operated margin percent increased for the quarter and nine months. Both periods reflected positive comparable sales and lower commodity costs. The incremental investment in wages and benefits for eligible Company-operated restaurant employees impacted results for the nine months. |
• | International Lead Markets: The Company-operated margin percent increased for the quarter and nine months primarily due to positive comparable sales, partly offset by higher labor and occupancy costs. |
• | High Growth Markets: The Company-operated margin percent increased for the quarter and nine months due to improved restaurant profitability in China, which benefited from recent VAT reform. Higher labor costs across the segment pressured margins for both periods. |
CONSOLIDATED COMPANY-OPERATED RESTAURANT EXPENSES AND MARGINS AS A PERCENT OF SALES | |||||||||||
Quarters Ended | Nine Months Ended | ||||||||||
September 30, | September 30, | ||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||
Food & paper | 31.8 | % | 33.7 | % | 32.1 | % | 33.8 | % | |||
Payroll & employee benefits | 26.1 | 26.5 | 27.0 | 26.5 | |||||||
Occupancy & other operating expenses | 23.7 | 24.0 | 23.9 | 24.5 | |||||||
Total expenses | 81.6 | % | 84.2 | % | 83.0 | % | 84.8 | % | |||
Company-operated margins | 18.4 | % | 15.8 | % | 17.0 | % | 15.2 | % |
• | Selling, general and administrative expenses were flat for the quarter and nine months benefiting from negative foreign currency translation. In constant currencies, selling, general and administrative expenses increased 1% for the quarter and nine months. These results were due to higher incentive-based compensation costs reflecting improved Company performance, partly offset by lower employee-related costs resulting from the Company's recent restructuring initiatives. The nine months also included costs associated with the 2016 Worldwide Owner/Operator Convention. |
• | For the nine months, selling, general and administrative expenses as a percent of revenues increased to 9.4% for 2016 compared with 9.2% for 2015, and as a percent of Systemwide sales decreased to 2.8% for 2016 compared with 2.9% for 2015. |
OTHER OPERATING (INCOME) EXPENSE, NET | |||||||||||||||
Dollars in millions | |||||||||||||||
Quarters Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Gains on sales of restaurant businesses | $ | (70.1 | ) | $ | (20.2 | ) | $ | (219.6 | ) | $ | (84.1 | ) | |||
Equity in (earnings) losses of unconsolidated affiliates | (26.7 | ) | 8.2 | (25.2 | ) | 95.9 | |||||||||
Asset dispositions and other (income) expense, net | (4.0 | ) | (17.5 | ) | 1.6 | 85.3 | |||||||||
Impairment and other charges, net | 127.6 | 6.5 | 357.2 | 161.3 | |||||||||||
Total | $ | 26.8 | $ | (23.0 | ) | $ | 114.0 | $ | 258.4 |
• | Gains on sales of restaurant businesses increased for the quarter and nine months, primarily in the U.S. |
• | Equity in earnings of unconsolidated affiliates increased for the quarter and nine months due to improved performance in Japan. |
• | Asset dispositions and other expense increased for the quarter and decreased for the nine months. The nine months of 2015 included asset write-offs resulting from the decision to close under-performing restaurants, mostly in the U.S. and China. |
• | Impairment and other charges, net increased for the quarter and nine months due to restructuring and non-cash impairment charges related to the Company's global G&A and refranchising initiatives. The nine months of 2015 included strategic charges relating to asset write-offs as part of the Company's refranchising initiative in certain Foundational markets, and global restructuring charges. |
OPERATING INCOME | |||||||||||||
Dollars in millions | |||||||||||||
Quarters Ended September 30, | 2016 | 2015 | Inc/ (Dec) | Inc/ (Dec) Excluding Currency Translation | |||||||||
U.S. | $ | 977.5 | $ | 902.1 | 8 | % | 8 | % | |||||
International Lead Markets | 754.1 | 739.5 | 2 | 5 | |||||||||
High Growth Markets | 320.1 | 297.3 | 8 | 10 | |||||||||
Foundational Markets & Corporate | 85.6 | 91.4 | (6 | ) | (7 | ) | |||||||
Total | $ | 2,137.3 | $ | 2,030.3 | 5 | % | 7 | % | |||||
Nine Months Ended September 30, | 2016 | 2015 | Inc/ (Dec) | Inc/ (Dec) Excluding Currency Translation | |||||||||
U.S. | $ | 2,836.6 | $ | 2,559.7 | 11 | % | 11 | % | |||||
International Lead Markets | 2,127.2 | 2,011.6 | 6 | 9 | |||||||||
High Growth Markets | 814.7 | 639.3 | 27 | 32 | |||||||||
Foundational Markets & Corporate | (3.0 | ) | 54.5 | n/m | (44 | ) | |||||||
Total | $ | 5,775.5 | $ | 5,265.1 | 10 | % | 12 | % |
• | Operating Income: Operating income increased $107.0 million or 5% (7% in constant currencies) for the quarter and increased $510.4 million or 10% (12% in constant currencies) for the nine months. Both periods were impacted by strategic charges of $128 million in the quarter and $357 million for the nine months. The nine months of 2015 included strategic charges primarily related to store closing costs, restructuring and other asset write-offs totaling $240 million. |
• | U.S.: The increase in operating income for the quarter and nine months was primarily due to higher sales-driven franchised margin dollars, improved Company-operated restaurant performance and higher gains from restaurant refranchising, partly offset by strategic charges. In addition, the nine months of 2015 included restructuring and restaurant closing charges. |
• | International Lead Markets: The constant currency operating income increase for the quarter and nine months was primarily due to sales-driven improvements in franchised margin dollars across most markets. |
• | High Growth Markets: The constant currency operating income increase for the quarter and nine months primarily reflected improved restaurant profitability in China. |
• | Foundational Markets and Corporate: The constant currency operating income decrease for the quarter and nine months primarily reflected the impact of restructuring and non-cash impairment charges related to the Company's global G&A and refranchising initiatives. In addition, for the nine months, Corporate selling, general and administrative expenses were higher largely due to the centralization of certain costs. For both periods, results benefited from Japan's strong performance. |
• | Operating Margin: Operating margin is defined as operating income as a percent of total revenues. Operating margin was 31.1% and 27.6% for the nine months ended 2016 and 2015, respectively. |
• | Interest expense increased 38% for the quarter and 45% for the nine months primarily due to higher average debt balances in connection with the Company's previously-announced plans to optimize its capital structure, partly offset by lower average interest rates. |
NONOPERATING (INCOME) EXPENSE, NET | |||||||||||||||
Dollars in millions | |||||||||||||||
Quarters Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Interest Income | $ | 0.8 | $ | (3.2 | ) | $ | (6.0 | ) | $ | (7.2 | ) | ||||
Foreign currency and hedging activity | 4.5 | (10.7 | ) | (23.2 | ) | (45.6 | ) | ||||||||
Other (income) expense, net | 6.1 | 4.9 | 10.0 | 15.6 | |||||||||||
Total | $ | 11.4 | $ | (9.0 | ) | $ | (19.2 | ) | $ | (37.2 | ) |
• | The effective income tax rate was 33.0% and 30.3% for the quarters ended 2016 and 2015, respectively, and 31.9% and 31.4% for the nine months ended 2016 and 2015, respectively. The higher effective tax rate for the quarter was primarily due to lower tax benefits associated with the Company's ongoing foreign cash repatriation, partially offset by a favorable shift in the mix of income. The effective income tax rate for both periods benefited from the early adoption of new accounting guidance related to share-based compensation. |
• | Continue to innovate and differentiate in all aspects of the McDonald’s experience in a way that balances value to our customers with profitability; |
• | Reinvest in our restaurants and identify and develop restaurant sites consistent with our System’s plans for net growth of System-wide restaurants; |
• | Provide clean and friendly environments that deliver a consistent McDonald's experience and demonstrate high service levels; |
• | Drive restaurant improvements that achieve optimal capacity, particularly during peak mealtime hours; and |
• | Manage the complexity of our restaurant operations. |
• | The relative level of our defense costs, which vary from period to period depending on the number, nature and procedural status of pending proceedings; |
• | The cost and other effects of settlements, judgments or consent decrees, which may require us to make disclosures or take other actions that may affect perceptions of our brand and products; |
• | Adverse results of pending or future litigation, including litigation challenging the composition and preparation of our products, or the appropriateness or accuracy of our marketing or other communication practices; and |
• | The scope and terms of insurance or indemnification protections that we may have. |
• | The continuing unpredictable global economic and market conditions; |
• | Governmental action or inaction in light of key indicators of economic activity or events that can significantly influence financial markets, particularly in the United States which is the principal trading market for our common stock, and media reports and commentary about economic or other matters, even when the matter in question does not directly relate to our business; |
• | Trading activity in our common stock or trading activity in derivative instruments with respect to our common stock or debt securities, which can be affected by market commentary (including commentary that may be unreliable or incomplete); unauthorized disclosures about our performance, plans or expectations about our business; our actual performance and creditworthiness; investor confidence generally; actions by shareholders and others seeking to influence our business strategies; portfolio transactions in our stock by significant shareholders; or trading activity that results from the ordinary course rebalancing of stock indices in which McDonald’s may be included, such as the S&P 500 Index and the Dow Jones Industrial Average; |
• | The impact of our stock repurchase program or dividend rate; and |
• | The impact on our results of corporate actions and market and third-party perceptions and assessments of such actions, such as those we may take from time to time as we review our corporate structure and strategies in light of business, legal and tax considerations. |
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1) | ||||||||||
July 1-31, 2016 | 10,222,961 | $ | 122.04 | 10,222,961 | $ | 6,766,217,434 | ||||||||
August 1-31, 2016 | 7,155,219 | 117.13 | 7,155,219 | 5,928,146,730 | ||||||||||
September 1-30, 2016 | 5,939,352 | 115.75 | 5,939,352 | 5,240,643,503 | ||||||||||
Total | 23,317,532 | $ | 118.93 | 23,317,532 |
* | 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, among other types of transactions and arrangements. |
(1) | On December 3, 2015, the Company’s Board of Directors approved a share repurchase program, effective January 1, 2016, that authorizes the purchase of up to $15 billion of the Company’s outstanding common stock with no specified expiration date. |
Exhibit Number | Description | ||||||
(3) | (a) | Restated Certificate of Incorporation, effective as of June 14, 2012, incorporated herein by reference from Exhibit 3(a) of Form 10-Q (File No. 001-05231), for the quarter ended June 30, 2012. | |||||
(b) | By-Laws, as amended and restated with effect as of October 26, 2015, incorporated herein by reference from Exhibit 3(b) of Form 8-K (File No. 001-05231), filed October 28, 2015. | ||||||
(4) | Instruments defining the rights of security holders, including Indentures:* | ||||||
(a) | Senior Debt Securities Indenture, dated as of 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 as of 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) | Directors’ Deferred Compensation Plan, effective as of January 1, 2008, incorporated herein by reference from Exhibit 99.4 of Form 8-K (File No. 001-05231), filed December 4, 2007.** | ||||||
(i) | Directors’ Deferred Compensation Plan, amended and restated effective as of May 26, 2016, incorporated herein by reference from Exhibit 10(i) of Form 10-Q (File No. 001-05231), for the quarter ended June 30, 2016.** | ||||||
(b) | McDonald’s Excess Benefit and Deferred Bonus Plan, effective January 1, 2011, as amended and restated March 22, 2010, incorporated herein by reference from Exhibit 10(b) of Form 10-Q (File No. 001-05231), for the quarter ended March 31, 2010.** | ||||||
(c) | McDonald’s Corporation Supplemental Profit Sharing and Savings Plan, effective as of 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 as of 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.** | ||||||
(d) | 1992 Stock Ownership Incentive Plan, as amended and restated January 1, 2001, incorporated herein by reference from Exhibit 10(e) of Form 10-Q (File No. 001-05231), for the quarter ended March 31, 2001.** | ||||||
(i) | First Amendment to McDonald’s Corporation 1992 Stock Ownership Incentive Plan, as amended and restated, effective as of February 14, 2007, incorporated herein by reference from Exhibit 10(e)(i) of Form 10-Q (File No. 001-05231), for the quarter ended March 31, 2007.** | ||||||
(e) | McDonald’s Corporation Amended and Restated 2001 Omnibus Stock Ownership Plan, effective July 1, 2008, incorporated herein by reference from Exhibit 10(h) of Form 10-Q (File No. 001-05231), for the quarter ended June 30, 2009.** | ||||||
(i) | First Amendment to the McDonald’s Corporation Amended and Restated 2001 Omnibus Stock Ownership Plan, incorporated herein by reference from Exhibit 10(h)(i) of Form 10-K (File No. 001-05231), for the year ended December 31, 2008.** | ||||||
(ii) | Second Amendment to the McDonald’s Corporation Amended and Restated 2001 Omnibus Stock Ownership Plan as amended, effective February 9, 2011, incorporated herein by reference from Exhibit 10(h)(ii) of Form 10-K (File No. 001-05231), for the year ended December 31, 2010.** | ||||||
(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 2009 Cash Incentive Plan, effective as of May 27, 2009, incorporated herein by reference from Exhibit 10(j) of Form 10-Q (File No. 001-05231), for the quarter ended June 30, 2009.** | ||||||
Exhibit Number | Description | ||||||
(h) | McDonald’s Corporation Target Incentive Plan, effective January 1, 2013, incorporated herein by reference from Exhibit 10(j) of Form 10-Q (File No. 001-05231), for the quarter ended March 31, 2013.** | ||||||
(i) | McDonald’s Corporation Cash Performance Unit Plan, effective February 13, 2013, incorporated herein by reference from Exhibit 10(k) of Form 10-Q (File No. 001-05231), for the quarter ended March 31, 2013.** | ||||||
(j) | Form of Executive Stock Option Grant Agreement in connection with the Amended and Restated 2001 Omnibus Stock Ownership Plan, as amended, incorporated herein by reference from Exhibit 10(j) of Form 10-K (File No. 001-05231), for the year ended December 31, 2011.** | ||||||
(k) | Form of Executive Stock Option Award Agreement in connection with the 2012 Omnibus Stock Ownership Plan, incorporated herein by reference from Exhibit 10(n) of Form 10-Q (File No. 001-05231), for the quarter ended March 31, 2013.** | ||||||
(l) | McDonald’s Corporation Severance Plan, as Amended and Restated, effective September 30, 2015, incorporated herein by reference from Exhibit 10(o) of Form 10-Q (File No. 001-05231), for the quarter ended September 30, 2015.** | ||||||
(i) | First Amendment to the McDonald's Corporation Severance Plan, effective June 1, 2016, incorporated herein by reference from Exhibit 10(l)(i) of Form 10-Q (File No. 001-05231), for the quarter ended June 30, 2016.** | ||||||
(ii) | Second Amendment to the McDonald's Corporation Severance Plan, effective June 1, 2016, incorporated herein by reference from Exhibit 10(l)(ii) of Form 10-Q (File No. 001-05231), for the quarter ended June 30, 2016.** | ||||||
(iii) | Third Amendment to the McDonald's Corporation Severance Plan, effective as of July 15, 2016, incorporated herein by reference from Exhibit 10(l)(iii) of Form 10-Q (File No. 001-05231), for the quarter ended June 30, 2016.** | ||||||
(m) | Form of McDonald’s Corporation Tier I Change of Control Employment Agreement, incorporated herein by reference from Exhibit 10(i) of Form 10-Q (File No. 001-05231), for the quarter ended September 30, 2008.** | ||||||
(n) | Description of Restricted Stock Units granted to Andrew J. McKenna, incorporated herein by reference from Exhibit 10(r) of Form 10-Q (File No. 001-05231), for the quarter ended September 30, 2015.** | ||||||
(o) | Assignment Agreement between Douglas Goare and the Company, effective January 1, 2012, incorporated herein by reference from Exhibit 10(x) of Form 10-K (File No. 001-05231), for the year ended December 31, 2013.** | ||||||
(p) | Assignment Agreement between David Hoffmann and the Company, effective April 13, 2011, incorporated herein by reference from Exhibit 10(y) of Form 10-Q (File No. 001-05231), for the quarter ended March 31, 2014. ** | ||||||
(i) | 2015 Extension of the Assignment Agreement between David Hoffmann and the Company, dated as of January 7, 2015, incorporated herein by reference from Exhibit 10(w)(i) of Form 10-Q (File No. 001-05231), for the quarter ended March 31, 2015.** | ||||||
(q) | Form of 2014 Executive Stock Option Award Agreement in connection with the 2012 Omnibus Stock Ownership Plan, incorporated herein by reference from Exhibit 10(z) of Form 10-Q (File No. 001-05231), for the quarter ended March 31, 2014.** | ||||||
(r) | Retirement Agreement between Timothy Fenton and the Company, dated July 9, 2014, incorporated herein by reference from Exhibit 10(z) of Form 10-Q (File No. 001-05231), for the quarter ended September 30, 2014.** | ||||||
(s) | Retirement and Consulting Agreement between Donald Thompson and the Company, effective March 1, 2015, incorporated herein by reference from Exhibit 99 to Form 8-K (File No. 001-05231), filed on March 3, 2015.** | ||||||
(t) | Form of 2015 Executive Performance-Based Restricted Stock Unit Award Agreement in connection with the 2012 Omnibus Stock Ownership Plan, incorporated herein by reference from Exhibit 10(aa) of Form 10-Q (File No. 001-05231), for the quarter ended March 31, 2015.** | ||||||
(u) | Offer Letter between Christopher Kempczinski and the Company, dated September 23, 2015, incorporated herein by reference from Exhibit 10(u) of Form 10-Q (File No. 001-05231), for the quarter ended June 30, 2016.** | ||||||
(12) | Computation of Ratios. |
Exhibit Number | Description | ||||||
(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. | ||||||
(101.SCH) | XBRL Taxonomy Extension Schema Document. | ||||||
(101.CAL) | XBRL Taxonomy Extension Calculation Linkbase Document. | ||||||
(101.DEF) | XBRL Taxonomy Extension Definition Linkbase Document. | ||||||
(101.LAB) | XBRL Taxonomy Extension Label Linkbase Document. | ||||||
(101.PRE) | XBRL Taxonomy Extension Presentation Linkbase Document. | ||||||
* | Other instruments defining the rights of holders of long-term debt of the registrant, and all of its subsidiaries for which consolidated financial statements are required to be filed and which are not required to be registered with the Commission, are not included herein as the securities authorized under these instruments, individually, do not exceed 10% of the total assets of the registrant and its subsidiaries on a consolidated basis. An agreement to furnish a copy of any such instruments to the Commission upon request has been filed with the Commission. |
** | Denotes compensatory plan. |
McDONALD’S CORPORATION (Registrant) | |||
/s/ Kevin M. Ozan | |||
November 4, 2016 | Kevin M. Ozan | ||
Corporate Executive Vice President and Chief Financial Officer |
Exhibit 12. Computation of Ratios | |||||||||||||||||||||||||||
Ratio of Earnings to Fixed Charges | |||||||||||||||||||||||||||
Dollars in millions | |||||||||||||||||||||||||||
Nine Months | |||||||||||||||||||||||||||
Ended September 30, | Years Ended December 31, | ||||||||||||||||||||||||||
2016 | 2015 | 2015 | 2014 | 2013 | 2012 | 2011 | |||||||||||||||||||||
Earnings available for fixed charges | |||||||||||||||||||||||||||
- Income before provision for income taxes | $ | 5,131.1 | $ | 4,844.9 | $ | 6,555.7 | $ | 7,372.0 | $ | 8,204.5 | $ | 8,079.0 | $ | 8,012.2 | |||||||||||||
- Noncontrolling interest expense in operating results of majority-owned subsidiaries less equity in undistributed operating results of less than 50%-owned affiliates | 10.6 | 5.8 | 7.3 | 6.3 | 9.0 | 11.1 | 13.3 | ||||||||||||||||||||
- Income tax provision (benefit) of 50%-owned affiliates included in income from continuing operations before provision for income taxes | 2.1 | 3.8 | 3.7 | (0.1 | ) | 23.8 | 64.0 | 65.5 | |||||||||||||||||||
- Portion of rent charges (after reduction for rental income from subleased properties) considered to be representative of interest factors* | 260.7 | 274.7 | 365.1 | 374.6 | 374.6 | 358.1 | 339.4 | ||||||||||||||||||||
- Interest expense, amortization of debt discount and issuance costs, and depreciation of capitalized interest* | 688.0 | 479.1 | 660.4 | 596.1 | 548.9 | 550.1 | 520.5 | ||||||||||||||||||||
$ | 6,092.5 | $ | 5,608.3 | $ | 7,592.2 | $ | 8,348.9 | $ | 9,160.8 | $ | 9,062.3 | $ | 8,950.9 | ||||||||||||||
Fixed charges | |||||||||||||||||||||||||||
- Portion of rent charges (after reduction for rental income from subleased properties) considered to be representative of interest factors* | $ | 260.7 | $ | 274.7 | $ | 365.1 | $ | 374.6 | $ | 374.6 | $ | 358.1 | $ | 339.4 | |||||||||||||
- Interest expense, amortization of debt discount and issuance costs* | 675.5 | 466.6 | 643.7 | 579.8 | 532.1 | 532.8 | 503.0 | ||||||||||||||||||||
- Capitalized interest* | 5.4 | 7.2 | 9.4 | 14.8 | 15.6 | 16.1 | 14.0 | ||||||||||||||||||||
$ | 941.6 | $ | 748.5 | $ | 1,018.2 | $ | 969.2 | $ | 922.3 | $ | 907.0 | $ | 856.4 | ||||||||||||||
Ratio of earnings to fixed charges | 6.47 | 7.49 | 7.46 | 8.61 | 9.93 | 9.99 | 10.45 |
* | Includes amounts of the Company and its majority-owned subsidiaries, and one-half of the amounts of 50%-owned affiliates. The Company records interest expense on unrecognized tax benefits in the provision for income taxes. This interest is not included in the computation of fixed charges. |
(1) | I have reviewed this quarterly report on Form 10-Q of McDonald’s Corporation; |
(2) | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
(3) | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
(4) | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
(5) | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/ Stephen J. Easterbrook |
Stephen J. Easterbrook |
President and Chief Executive Officer |
(1) | I have reviewed this quarterly report on Form 10-Q of McDonald’s Corporation; |
(2) | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
(3) | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
(4) | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
(5) | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/ Kevin M. Ozan |
Kevin M. Ozan |
Corporate Executive Vice President and Chief Financial Officer |
/s/ Stephen J. Easterbrook |
Stephen J. Easterbrook |
President and Chief Executive Officer |
/s/ Kevin M. Ozan |
Kevin M. Ozan |
Corporate Executive Vice President and Chief Financial Officer |
P30CL!L[SP&-MO=0KF)39Z SP^)D\-
M_E;#,*PQ8 7#EAM6^$&-S_!^ O#6,^HWB^Y*-V.2%NI+-Y#Z(U[K]*G_RC*K
M/^M*JQ^ZVHL+56^S[4)*PDI+9J\<*AGR:IY<&P& ?02 :T60J*+ VKM3^L[6QUM#NK(4KUDUW2ZU9UN-FNM5"@X
M(P4Z-3#I"2;>[?7U8KUXINN4>.ILRZGN,V?8(1-UMOMU*6_=OU3/_&]G.X6R
MXAO$%SO+'&SWW[_ZC0+;8K>$*].68&70DN88I*UAA" 7M@0Y2] 2O+IEVZ%!
M/1BC7CKV4KAD^MAI3QT8W)/[KN622W-/3UL 8X?FMGG@3V-@8C/\*5?+H#FW
M=4R^1ITP$75]?L],[D'A".:3):025N_T5&?A?FFRY:"DT*SQ?2I\%[J@+S/,;Q<-Z
MV$B>L +>BOX-+3VAM8LM%&]DQ\BL1F[MUQS49*)Z0B#L*\<15Q[W%7273K=^
MH9;VUFYM=F*5N1QO<5+K$'*-J49YD2X?3.NJ%JL/I8-\7G(0O#SD4OC\Y =K*G/
MD5W[+>,3Y"/C_PLP -3>R](-"F5N9'-T
P]J=O'_6N73L@5O1]V6TO0-I!^PC
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M'/6S2.0DR+036A8"P"#>*9PJ^%4#K+ZLKJ
MI60V[O$$.CN+V7PAG\PF
6:PT?B'.,+R[#J#*9TN$$
MV&-F8#$"L')PJ*=221;2B7BEE,HX0_58!JZ\OR1L,".B8"=60FS_\Y\/[F(I
M'D\KJ(QC7_$VG^UNY1BT$E-+D>Y".:[VE3EBL[YXIH+@\WE\I6)GJ-S9H9;R
M.?#M8Y'F(/(T5-31X2LG0@DUGHB$$C$U'DM&(" M'LGFV2;RF4HZG_+YM.[N
MC@+V@5N_F%D4AWH+BTJ8HI IU?O1[5WF^E'TX;-J;/3)^7OCQ]
M;?J.M(4;-JR[:[AY;?H/:>/9L";I+(2)<;'FV3>>#\QLQ]C:Z6^J2
MN@P:_$,#=EBB8]!V.=T@_E7A$6E*6L__XF*\P5P_L+3E;P5:OVRUJ$SKP.&U
M].W_B[+W )"BR!K'ZU5W3PX],SLYY]DXLSNSD87M)>==R2 K"R(@(.PB(J >
M:US! 'J*& XP@""H9(8@H*>>\<0[ X8[T0\]#.MY'HZC'DZ@OD1?(O.$?5>.5;
M_$O"
JC'L?I,+PCNZ'>M[,#T7+N[9G+O;P2O11(]$GODJN
M['F #$#>C>FYN><.,JWGT9ZIF*F.[=F"]G=)SRY213J%R72"4,QGT,:^"B^B
M/_H([D"[/91\B/8H"@[R%6[/(/[]A$-D%?\^VLZ&GCM[WB56I$<(*30#O>@I
M
9Q\C97K(.*N<4[?SEL :S)%!!3HB1R(IJS/29D
MCG@AS& 5>;!*7%\HCR8W5$J%$& ?DC]92 LM!:P):S"8"L&Q$&8#+*4.O[UL5H13@SH:BPXADV A71BY#JZC5_NO
M#BP)+8VN@L[ NM)ML"VZ/W:XM"=B501N@3LCM\0?BFR")^CFR+.E1TM/I/Y9
MVE.J-Q,;N*@Y@5I67E=6EYH5N3*I*5)1CP>L?KS)9N$
BV:9-D-Y9_
M)$64$85'20DLP^@294O
H9#0YGIQ(LD;R5)(>3Z*D @