MANAGEMENT’S VIEW OF THE BUSINESS
In analyzing business trends, management reviews results on a constant currency
basis and considers a variety of performance and financial measures which are
considered to be non-GAAP, including comparable sales growth, Systemwide sales
growth, after-tax return on invested capital from continuing operations, free
cash flow and free cash flow conversion rate, as described below. Management
believes these measures are important in understanding the financial performance
of the Company.
•Constant currency results exclude the effects of foreign currency translation
and are calculated by translating current year results at prior year average
exchange rates. Management reviews and analyzes business results excluding the
effect of foreign currency translation, impairment and other strategic charges
and gains, as well as material regulatory and other income tax impacts, and
bases incentive compensation plans on these results because the Company believes
this better represents underlying business trends.
•Comparable sales are compared to the same period in the prior year and
represent sales at all restaurants, whether operated by the Company or by
franchisees, in operation at least thirteen months including those temporarily
closed. Some of the reasons restaurants may be temporarily closed include
reimaging or remodeling, rebuilding, road construction and natural disasters
(including restaurants temporarily closed due to COVID-19). Comparable sales
exclude the impact of currency translation and the sales of any market
considered hyper-inflationary (generally identified as those markets whose
cumulative inflation rate over a three-year period exceeds 100%), which
management believes more accurately reflects the underlying business trends.
Comparable sales are driven by changes in guest counts and average check, the
latter of which is affected by changes in pricing and product mix.
•Systemwide sales include sales at all restaurants, whether operated by the
Company or by franchisees. This includes sales from digital channels, which are
comprised of the mobile app, delivery and kiosk at both Company-operated and
franchised restaurants. While franchised sales are not recorded as revenues by
the Company, management believes the information is important in understanding
the Company's financial performance because these sales are the basis on which
the Company calculates and records franchised revenues and are indicative of the
financial health of the franchisee base. The Company's revenues consist of sales
by Company-operated restaurants and fees from franchised restaurants operated by
conventional franchisees, developmental licensees and affiliates. Changes in
Systemwide sales are primarily driven by comparable sales and net restaurant
unit expansion.
•The Company's after-tax return on invested capital ("ROIC") from continuing
operations is a metric that management believes measures capital-allocation
effectiveness over time. Other companies may calculate ROIC differently,
limiting the usefulness of the measure for comparisons with other companies.
Refer to the reconciliation in Exhibit 99.1 to this Form 10-K for further
information on the Company's calculation of ROIC.
•Free cash flow, defined as cash provided by operations less capital
expenditures, and free cash flow conversion rate, defined as free cash flow
divided by net income, are measures reviewed by management in order to evaluate
the Company's ability to convert net profits into cash resources, after
reinvesting in the core business, that can be used to pursue opportunities to
enhance shareholder value. Refer to the reconciliations in Exhibit 99.1 to this
Form 10-K for further information on the Company's calculations of free cash
flow and free cash flow conversion rate.
2021 FINANCIAL PERFORMANCE
In 2021, global comparable sales increased 17.0%, primarily due to strong sales performance across all segments from continued execution of the Accelerating theArches strategy, as well as recovery from the impact of COVID-19 in the prior year. •Comparable sales in theU.S. increased 13.8%, benefiting primarily from strong average check growth, successful menu and marketing promotions and growth in digital channels, which benefited from the launch of the Company's loyalty program.
•Comparable sales in the International Operated segment increased 21.6%,
reflecting positive comparable sales across all markets, primarily driven by the
•Comparable sales in the International Developmental Licensed segment increased
16.6%, reflecting positive comparable sales across all geographic regions.
In addition to the comparable sales results, the Company had the following
financial results in 2021:
•Consolidated revenues increased 21% (18% in constant currencies) to
billion
•Systemwide sales increased 21% (18% in constant currencies) to
•Consolidated operating income increased 41% (38% in constant currencies) to$10.4 billion . Refer to the Operating Income section on page 17 of this Form 10-K for additional details. •Operating margin, defined as operating income as a percent of total revenues, increased from 38.1% in 2020 to 44.6% in 2021. Excluding net strategic gains detailed in the Operating Income section on page 17 of this Form 10-K, operating margin increased from 36.7% in 2020 to 43.4% in 2021.
•Diluted earnings per share of
currencies). Refer to the Net Income and Diluted Earnings Per Share section on
page 12 of this Form 10-K for additional details.
McDonald's Corporation 2021 Annual Report 8
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•Cash provided by operations was
year.
•Capital expenditures of
existing restaurants and, to a lesser extent, to new restaurant openings.
•Free cash flow was
•Across the System, nearly 1,500 new restaurants (including those in
developmental licensee and affiliate markets) were opened.
•The Company increased its quarterly cash dividend per share by 7% to$1.38 for the fourth quarter, equivalent to an annual dividend of$5.52 per share. The Company returned a total of$4.8 billion to shareholders through share repurchases and dividends in 2021.
STRATEGIC DIRECTION
In late 2020, the Company announced the Accelerating theArches growth strategy (the "Strategy"). The Strategy, which encompasses all aspects ofMcDonald's business as the leading global omni-channel restaurant brand, reflects a refreshed purpose, updated values and growth pillars that build on the Company's competitive advantages. The Company's values, which underpin its success and are at the very heart of its Strategy, are discussed further in the Purpose, Mission and Values section on page 4 of this Form 10-K. In 2021, the Company made strides as it maximized the MCD growth pillars to create seamless, memorable customer experiences. Additionally, the creation of the Customer Experience Team brought together teams responsible for global marketing, digital, restaurant development and operations, enablingMcDonald's to create an unparalleled customer experience at each physical and digital customer touchpoint.
GROWTH PILLARS
The growth pillars, rooted in the Company's identity, MCD, build on historic strengths and articulate areas of further opportunity. Under the Strategy, the Company will: •Maximize our Marketing by investing in new, culturally relevant approaches, such as our Famous Orders platform, to effectively communicate the story of our brand, food and purpose. This also includes enhancing digital capabilities that provide a more personal connection with customers. The Company is committed to a marketing strategy that highlights value at every tier of the menu, as affordability remains a cornerstone of theMcDonald's brand. •Commit to the Core by tapping into customer demand for the familiar and focusing on serving delicious burgers, chicken and coffee. The Company is prioritizing chicken and beef offerings, as we expect they represent the largest growth opportunities. The Company recognizes there is significant opportunity to expand its chicken offerings by leveraging line extensions of customer favorites, such as the new Crispy Chicken Sandwich that launched in theU.S. in 2021 and the McSpicy Chicken Sandwich, which is now in many markets around the world. The Company is also implementing a series of operational and formulation changes designed to improve upon the great taste of our burgers. We also see a significant opportunity with coffee, and markets are leveraging the McCafé brand, experience, value and quality to drive long-term growth. •Double Down on the 3D's: Digital, Delivery and Drive Thru by leveraging competitive strengths and building a powerful digital experience growth engine to enhance the customer experience. To unlock further growth, the Company is continuing to accelerate technology innovation so that, however customers choose to interact withMcDonald's , they can enjoy a fast, easy experience that meets their needs. Notably, 2021 Systemwide sales from digital channels (which are comprised of the mobile app, delivery and kiosk) exceeded$18 billion , or over 25% of Systemwide sales in our top six markets. •Digital: The Company's digital experience growth engine - "MyMcDonald's" - is transforming its offerings across drive thru, takeaway, delivery, curbside pick-up and dine-in with digital enhancements. Through the digital tools, customers can access tailored offers, participate in a loyalty program, order through the mobile app and receiveMcDonald's food through the channel of their choice. The Company has successful loyalty programs in over 40 markets around the world, including "MyMcDonald's Rewards" in theU.S. ,Germany andCanada , each of which launched in 2021. The Company expects to complete the roll-out of loyalty programs across its top six markets in the first half of 2022. Just six months after its launch, MyMcDonald's Rewards in theU.S. has enrolled 30 million members, with over 21 million active loyalty members earning rewards. •Delivery: The Company has expanded the number of restaurants offering delivery to over 33,000, representing over 80% ofMcDonald's restaurants, and delivery sales have grown significantly over the past few years. The Company is continuing to build on this progress and enhance the delivery experience for customers by adding the ability to order on theMcDonald's app and optimizing operations with a focus on speed and accuracy. In 2021, the Company entered into long-term strategic partnerships with two of its largest global delivery providers, UberEats and DoorDash, which are expected to benefit both customers and franchisees. •Drive Thru: The Company has drive thru locations in over 25,000 restaurants globally, including nearly 95% of the 13,000+ locations in theU.S. This channel remains of heightened importance, and we expect that it will become even more critical to meet customers' demand for flexibility and choice. The Company is building on its drive thru advantage, as the vast majority of new restaurant openings in theU.S. and International Operated Markets will include a drive thru.McDonald's Corporation 2021 Annual Report 9
-------------------------------------------------------------------------------- Foundational to the Accelerating the Arches Strategy is keeping the customer at the center of everything we do, along with a relentless focus on running great restaurants. The Company believes this Strategy builds on our inherent strengths by harnessing our competitive advantages while leveraging our size, scale and agility to adapt and adjust to operating conditions and consumer demands. These efforts, coupled with investment in innovation, are designed to enhance the customer experience and deliver long-term profitable growth, which is aligned with the Company's capital allocation philosophy of investing in new restaurants and opportunities to grow the business, reinvesting in existing restaurants, and returning all free cash flow to shareholders over time through dividends and share repurchases. OUTLOOK
Based on current conditions, the following information is provided to assist in
forecasting the Company’s results for 2022.
•The Company expects net restaurant unit expansion will contribute about 1.5% to
2022 Systemwide sales growth, in constant currencies.
•The Company expects full year 2022 selling, general & administrative expenses
of between 2.2% and 2.3% of Systemwide sales.
•The Company expects operating margin percent to be in the low-to-mid 40% range.
•Based on current interest and foreign currency exchange rates, the Company
expects interest expense for the full year 2022 to be relatively flat to 2021.
•Under current tax legislation, the Company expects the effective income tax rate for the full year 2022 to be in the 20% to 22% range. Some volatility may result in a quarterly tax rate outside of the annual range. •The Company expects 2022 capital expenditures to be approximately$2.2 to$2.4 billion , about half of which will be directed towards new restaurant unit expansion across theU.S. and International Operated Markets. About 40% will be dedicated to theU.S. business, most of which will go towards reinvestment, including the completion of restaurant modernization efforts. Globally, the Company expects to open over 1,800 restaurants. The Company will open over 500 restaurants in theU.S. and International Operated Markets segments, and developmental licensees and affiliates will contribute capital towards over 1,300 restaurant openings in their respective markets. The Company expects over 1,400 net restaurant additions in 2022. •The Company expects to achieve a free cash flow conversion rate greater than 90%.McDonald's Corporation 2021 Annual Report 10
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CONSOLIDATED OPERATING RESULTS
The following discussion should be read in conjunction with the consolidated financial statements and accompanying notes beginning on page 38 of this Form 10-K. This section generally discusses 2021 and 2020 items and the year-to-year comparisons between the years endedDecember 31, 2021 and 2020. Discussions of 2019 items and the year-to-year comparisons between the years endedDecember 31, 2020 and 2019 are not included in this Form 10-K and can be found in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of the Company's Annual Report on Form 10-K for the year endedDecember 31, 2020 , filed with theSEC onFebruary 23, 2021 .
Impact of COVID-19 Restrictions on the Business
As a result of COVID-19, throughout 2020 and 2021, markets experienced varying
levels of government restrictions on restaurant operating hours, limited dine-in
capacity, dining room closures and, primarily in 2020, some instances of full
restaurant closures. The Company has applied appropriate precautionary measures,
including following the guidance of expert health authorities, and will continue
to adapt and enhance its approach in order to protect the safety and well-being
of its customers and people. As most revenues and the Company's share of net
results in equity investments are based on sales results, consumer sentiment and
government restrictions as a result of COVID-19 may continue to have an impact
on results.
Operating results
2021 2020 2019
Dollars and shares in millions, except per Increase/
share data Amount (decrease) Amount Increase/ (decrease) Amount
Revenues
Sales by Company-operated restaurants $ 9,787 20 % $ 8,139 (14 %) $
9,421
Revenues from franchised restaurants 13,085 22 10,726 (8) 11,656 Other revenues 351 2 343 19 288 Total revenues 23,223 21 19,208 (10) 21,365 Operating costs and expenses Company-operated restaurant expenses 8,047 15 6,981 (10)
7,761
Franchised restaurants-occupancy expenses 2,335 6 2,208 -
2,201
Other restaurant expenses 260 (2) 267 19
224
Selling, general & administrative expenses Depreciation and amortization 330 10 301 14 262 Other 2,378 6 2,245 14 1,967 Other operating (income) expense, net (483) n/m (118) 2
(120)
Total operating costs and expenses 12,867 8 11,884 (3) 12,295 Operating income 10,356 41 7,324 (19) 9,070 Interest expense 1,186 (3) 1,218 9 1,122 Nonoperating (income) expense, net 42 n/m (35) 50
(70)
Income before provision for income taxes 9,128 49 6,141 (23)
8,018
Provision for income taxes 1,583 12 1,410 (29) 1,993 Net income$ 7,545 59 %$ 4,731 (21 %)$ 6,025 Earnings per common share-diluted$ 10.04 59 %$ 6.31 (20 %) $
7.88
Weighted-average common shares outstanding-
diluted 751.8 - % 750.1 (2 %) 764.9
n/m Not meaningful
McDonald's Corporation 2021 Annual Report 11
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IMPACT OF FOREIGN CURRENCY TRANSLATION ON REPORTED RESULTS
While changes in foreign currency exchange rates affect reported results,
services in local currencies, financing in local currencies and hedging certain
foreign-denominated cash flows.
Impact of foreign currency translation on reported results
Currency translation
Reported amount benefit/(cost)
In millions, except per share data 2021 2020 2019 2021 2020 2019
Revenues $ 23,223 $ 19,208 $ 21,365 $ 488 $ (75) $ (610)
Company-operated margins 1,740 1,158 1,660 42 (1) (51)
Franchised margins 10,750 8,519 9,455 223 32 (256)
Selling, general & administrative expenses 2,708 2,546 2,229 (28) (2) 29
Operating income 10,356 7,324 9,070 231 35 (280)
Net income 7,545 4,731 6,025 150 26 (165)
Earnings per common share-diluted 10.04 6.31 7.88 0.20 0.04 (0.21)
In 2021, results primarily reflected the strengthening of the British Pound,
Euro, Australian Dollar and Canadian Dollar.
NET INCOME AND DILUTED EARNINGS PER COMMON SHARE
In 2021, net income increased 59% (56% in constant currencies) to$7.5 billion and diluted earnings per common share increased 59% (56% in constant currencies) to$10.04 . Foreign currency translation had a positive impact of$0.20 on diluted earnings per share. Results in 2021 reflected stronger operating performance across all segments due to higher sales-driven restaurant margins as the Company continues to execute on its Accelerating the Arches Strategy. Results also benefited from fewer restaurant closures and reduced COVID-related government restrictions compared with the prior year.
Outlined below is additional information for the full year 2021, 2020 and 2019:
Diluted Earnings Per Common Share Reconciliation
Increase/(decrease)
excluding currency
Amount Increase/(decrease) translation
2021 2020 2019 2021 2020 2021 2020
GAAP earnings per share-diluted $ 10.04 $ 6.31 $ 7.88 59 % (20 %) 56 % (20 %)
Strategic (gains) charges (0.28) (0.26)
0.07
Income tax (benefit) cost, net (0.48) -
(0.11)
Non-GAAP earnings per share-diluted$ 9.28 $ 6.05 $ 7.84 53 % (23 %) 50 % (23 %) 2021 results included: •net pre-tax strategic gains of$339 million , or$0.33 per share, primarily related to the sale ofMcDonald's Japan stock. This reduced the Company's ownership to 35% and completed the planned partial divestiture of the Company's ownership inMcDonald's Japan
•$54 million, or
sale of
•$364 million, or$0.48 per share, of income tax benefits which related to the remeasurement of deferred taxes as a result of a change in theU.K. statutory income tax rate 2020 results included:
•net pre-tax strategic gains of
related to the sale of
2019 results included:
•$84 million, or$0.11 per share, of income tax benefit due to regulations issued in the fourth quarter 2019 related to the Tax Cuts and Jobs Act of 2017 ("Tax Act") •net pre-tax strategic charges of$74 million , or$0.07 per share, primarily related to impairment associated with the purchase of the Company's joint venture partner's interest in the India Delhi market, partly offset by gains on the sales of property at the former Corporate headquarters
Excluding the above 2021 and 2020 items, 2021 net income increased 54% (50% in
constant currencies), and diluted earnings per share increased 53% (50% in
constant currencies).
The Company repurchased 3.4 million shares of its stock for
and 4.3 million shares of its stock for
McDonald's Corporation 2021 Annual Report 12
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REVENUES
The Company's revenues consist of sales by Company-operated restaurants and fees from restaurants operated by franchisees, developmental licensees and affiliates. Revenues from conventional franchised restaurants include rent and royalties based on a percent of sales with minimum rent payments, and initial fees. Revenues from restaurants licensed to developmental licensees and affiliates include a royalty based on a percent of sales, and generally include initial fees. The Company's Other revenues are comprised of fees paid by franchisees to recover a portion of costs incurred by the Company for various technology platforms, revenues from brand licensing arrangements to market and sell consumer packaged goods using theMcDonald's brand and third party revenues for the Dynamic Yield business. Franchised restaurants represented 93% ofMcDonald's restaurants worldwide atDecember 31, 2021 . The Company's heavily franchised business model is designed to generate stable and predictable revenue, which is largely a function of franchisee sales and resulting cash flow streams. Revenues Increase/(decrease) excluding currency Amount Increase/(decrease) translation Dollars in millions 2021 2020 2019 2021 2020 2021 2020 Company-operated sales: U.S.$ 2,617 $ 2,395 $ 2,490 9 % (4 %) 9 % (4 %) International Operated Markets 6,456 5,114 6,334 26 (19) 23 (18) International Developmental Licensed Markets & Corporate 715 630 597 13 6 10 7 Total$ 9,788 $ 8,139 $ 9,421 20 % (14 %) 18 % (12 %) Franchised revenues: U.S.$ 6,094 $ 5,261 $ 5,353 16 % (2 %) 16 % (2 %) International Operated Markets 5,638 4,348 5,064 30 (14) 24 (15) International Developmental Licensed Markets & Corporate 1,353 1,117 1,239 21 (10) 20 (8) Total$ 13,085 $ 10,726 $ 11,656 22 % (8 %) 19 % (8 %)Total Company -operated sales and Franchised revenues: U.S.$ 8,711 $ 7,656 $ 7,843 14 % (2 %) 14 % (2 %) International Operated Markets 12,094 9,462 11,398 28 (17) 23 (17) International Developmental Licensed Markets & Corporate 2,068 1,747 1,836 18 (5) 16 (3) Total$ 22,873 $ 18,865 $ 21,077 21 % (10 %) 19 % (10 %) Total Other revenues$ 350 $ 343 $ 288 2 % 19 % - % 19 % Total Revenues$ 23,223 $ 19,208 $ 21,365 21 % (10 %) 18 % (10 %) In 2021, total Company-operated sales and franchised revenues increased 21% (19% in constant currencies). Results reflected strong sales performance across all segments and were driven by theU.K. ,France andRussia in the International Operated Markets segment. The International Developmental Licensed Markets segment reflected strong sales performance across all geographic regions.
TOTAL REVENUES BY SEGMENT
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U.S. International Operated Markets International Developmental Licensed Markets & CorporateMcDonald's Corporation 2021 Annual Report 13 --------------------------------------------------------------------------------
The following tables present comparable sales and Systemwide sales
increases/(decreases):
Comparable sales increases/(decreases)
2021 2020 2019
U.S. 13.8 % 0.4 % 5.0 %
International Operated Markets 21.6 (15.0) 6.1
International Developmental Licensed Markets & Corporate 16.6
(10.5) 7.2 Total 17.0 % (7.7 %) 5.9 % Due to the impact of COVID-19 in 2020, comparable sales growth from 2020 to 2021 may not be fully indicative of the Company's performance. Therefore in 2021, management also analyzed comparable sales growth on a two-year basis as a metric to compare results for 2021 against more normalized sales performance in 2019. The following chart presents comparable sales growth on a two-year basis by segment:
COMPARABLE SALES GROWTH ON A TWO-YEAR BASIS
[[Image Removed: mcd-20211231_g5.jpg]]
Systemwide sales increases/(decreases)*
Increase/(decrease)
excluding currency
translation
2021 2020 2021 2020
U.S. 13 % - % 13 % - %
International Operated Markets 29 (13) 24 (14)
International Developmental Licensed Markets & Corporate 21 (10) 20 (8)
Total 21 % (7 %) 18 % (7 %)
* 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):
Franchised sales
Increase/(decrease)
excluding currency
Amount Increase/(decrease) translation
Dollars in millions 2021 2020 2019 2021 2020 2021 2020 U.S.$ 43,344 $ 38,123 $ 37,923 14 % 1 % 14 % 1 % International Operated Markets 33,097 25,446 28,853 30 (12) 24 (13) International Developmental Licensed Markets & Corporate 26,234 21,609 23,981 21 (10) 21 (8) Total$ 102,675 $ 85,178 $ 90,757 21 % (6 %) 18 % (6 %) Ownership type Conventional franchised$ 75,956 $ 63,297 $ 66,415 20 (5 %) 18 % (5 %) Developmental licensed 15,151 11,781 14,392 29 (18) 28 (14) Foreign affiliated 11,568 10,100 9,950 15 2 13 - Total$ 102,675 $ 85,178 $ 90,757 21 % (6 %) 18 % (6 %)McDonald's Corporation 2021 Annual Report 14
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RESTAURANT MARGINS
Franchised restaurant margins are measured as revenues from franchised
restaurants less franchised restaurant occupancy costs. Franchised revenues
include rent and royalties based on a percent of sales, and initial fees.
Franchised restaurant occupancy costs include lease expense and depreciation, as
the Company generally owns or secures a long-term lease on the land and building
for the restaurant location.
Company-operated restaurant margins are measured as sales from Company-operated
restaurants less costs for food & paper, payroll & employee benefits and
occupancy & other operating expenses necessary to run an individual restaurant.
Company-operated margins exclude costs that are not allocated to individual
restaurants, primarily payroll & employee benefit costs of non-restaurant
support staff, which are included in selling, general and administrative
expenses.
Restaurant margins
Increase/(decrease) excluding currency
Amount Increase/(decrease) translation
Dollars in millions 2021 2020 2019 2021 2020 2021 2020
Franchised:
U.S. $ 4,906 $ 4,097 $ 4,227 20 % (3 %) 20 % (3 %)
International Operated Markets 4,516 3,329 4,018 36 (17) 29 (19)
International Developmental Licensed Markets & 1,328 1,093 1,210 22 (10) 20 (8)
Corporate
Total $ 10,750 $ 8,519 $ 9,455 26 % (10 %) 24 % (10 %)
Company-operated:
U.S. $ 511 $ 405 $ 388 26 % 4 % 26 % 4 %
International Operated Markets 1,208 748 1,266 61 (41) 56 (41)
International Developmental Licensed Markets & n/m n/m n/m n/m n/m n/m n/m
Corporate
Total $ 1,740 $ 1,158 $ 1,660 50 % (30 %) 47 % (30 %)
Total restaurant margins:
U.S. $ 5,417 $ 4,502 $ 4,615 20 % (2 %) 20 % (2 %)
International Operated Markets 5,724 4,077 5,284 40 (23) 34 (24)
International Developmental Licensed Markets & n/m n/m n/m n/m n/m n/m n/m
Corporate
Total $ 12,490 $ 9,677 $ 11,115 29 % (13 %) 26 % (13 %)
n/m Not meaningful
In 2021, total restaurant margins increased 29% (26% in constant currencies),
which reflected strong sales performance across all segments.
Franchised margins represented over 85% of restaurant margin dollars.
Franchised margins in theU.S. reflected higher depreciation costs related to investments in restaurant modernization while benefiting from the comparison to prior year support for marketing provided to franchisees to accelerate recovery and drive growth.
Total restaurant margins included
amortization expenses in 2021.
RESTAURANT MARGINS BY TYPE (In millions)
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McDonald's Corporation 2021 Annual Report 15
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SELLING, GENERAL & ADMINISTRATIVE EXPENSES
Selling, general & administrative expenses
Increase/(decrease)
excluding currency
Amount Increase/(decrease) translation
Dollars in millions 2021 2020 2019 2021 2020 2021 2020 U.S.$ 696 $ 625 $ 587 11 % 7 % 11 % 7 % International Operated Markets 692 700 629 (1) 11 (5) 11 International Developmental Licensed Markets & Corporate(1) 1,320 1,221 1,013 8 20 8 20 Total Selling, General & Administrative Expenses$ 2,708 $ 2,546 $ 2,229 6 % 14 % 5 % 14 % Less: Incentive-Based Compensation(2) 439 158 289 n/m (45 %) n/m (45 %)
Total Excluding Incentive-Based Compensation
$ 1,940 (5 %) 23 % (6 %) 23 %
(1)Includes home office support costs in areas such as facilities, finance,
human resources, investments in strategic technology initiatives, legal,
marketing, restaurant operations, supply chain and training.
(2)Includes all cash incentives and share-based compensation expense.
In 2021, consolidated selling, general & administrative expenses increased 6%
(5% in constant currencies), reflecting an increase in incentive-based
compensation expense driven by stronger than planned operating results and
higher costs for investments in restaurant technology. These results also
benefited from the comparison to the Company’s five-year,
commitment to RMHC, increased investments in brand communications and
incremental marketing contributions in 2020.
Management believes that analyzing selling, general & administrative expenses as a percent of Systemwide sales is meaningful because these costs are incurred to support the overallMcDonald's business.
SELLING, GENERAL & ADMINISTRATIVE EXPENSES AS A PERCENT OF SYSTEMWIDE SALES
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OTHER OPERATING (INCOME) EXPENSE, NET
Other operating (income) expense, net
In millions 2021 2020
2019
Gains on sales of restaurant businesses$ (96) $ (23) $ (127) Equity in earnings of unconsolidated affiliates (177) (117)
(154)
Asset dispositions and other (income) expense, net 75 290
87
Impairment and other charges (gains), net (285) (268) 74 Total$ (483) $ (118) $ (120) McDonald's Corporation 2021 Annual Report 16
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•Gains on sales of restaurant businesses
In 2021, gains on sales of restaurant businesses increased due to a higher
number of restaurant sales, primarily in the
•Equity in earnings of unconsolidated affiliates
In 2021, equity in earnings of unconsolidated affiliates increased due to the recovery from the impact of COVID-19, offset by lower equity in earnings as a result of the reduced ownership inMcDonald's Japan .
•Asset dispositions and other (income) expense, net
Asset dispositions and other (income) expense, net reflected lower bad debt expense and lower restaurant closing costs compared to the prior year, as well as higher gains on strategic property sales and the comparison to prior year payments to distribution centers for obsolete inventory to support franchisee liquidity.
•Impairment and other charges (gains), net
In 2021, impairment and other charges (gains), net reflected$339 million of pre-tax strategic gains related to the sale ofMcDonald's Japan stock. These results were partly offset by$54 million of strategic charges primarily related to the sale ofMcD Tech Labs . The results in 2020 reflected$274 million of pre-tax strategic gains related to the sale ofMcDonald's Japan stock. Results for the year 2020 also reflected the write-off of impaired software of$26 million , partly offset by$13 million of income associated with the Company's sale of its business in the India Delhi market. The results in 2019 reflected$99 million of impairment associated with the purchase of the Company's joint venture partner's interest in the India Delhi market, partly offset by$20 million of gains on the sales of property at the former Corporate headquarters. OPERATING INCOME Operating income
Increase/(decrease) excluding currency
Amount Increase/(decrease) translation Dollars in millions 2021 2020 2019 2021 2020 2021 2020 U.S.$ 4,755 $ 3,789 $ 4,069 25 % (7 %) 25 % (7 %) International Operated Markets 5,130 3,315 4,789 55 (31) 48 (32) International Developmental Licensed Markets & Corporate 471 220 212 n/m 4 n/m 12 Total$ 10,356 $ 7,324 $ 9,070 41 % (19 %) 38 % (20 %) Operating margin 44.6 % 38.1 % 42.5 % Non-GAAP operating margin 43.4 % 36.7 % 42.8 % •Operating Income: Operating income increased 41% (38% in constant currencies). Results for the year 2021 reflected$339 million of net strategic gains, primarily related to the sale ofMcDonald's Japan stock, partly offset by$54 million of strategic charges primarily related to the sale ofMcD Tech Labs . Results for 2020 included$268 million of net strategic gains, primarily related to the sale ofMcDonald's Japan stock. Excluding these current year and prior year items, operating income increased 43% (39% in constant currencies) for 2021. •U.S.: The operating income increase was driven by strong sales performance, higher gains on sales of restaurants and the comparison to approximately$100 million of incremental marketing support in the prior year. •International Operated Markets: The operating income increase was driven by strong sales performance, primarily in theU.K. andFrance , as well as lower store closing costs and bad debt expense. Results also reflected the comparison to over$100 million of incremental marketing support in the prior year. •International Developmental Licensed Markets & Corporate: Excluding strategic gains and charges, results reflected strong sales performance across most of the segment and higher Corporate general and administrative expenses due to increased incentive-based compensation expense in the current year. Results also reflected the comparison to the Company's five-year commitment to RMHC and higher investments in brand communications in the prior year.McDonald's Corporation 2021 Annual Report 17
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OPERATING INCOME BY SEGMENT*
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U.S. International Operated Markets International Developmental Licensed Markets & Corporate*
*The IDL segment data in this graphic excludes Corporate activities, which is a
Non-GAAP presentation.
•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-operated restaurants. Additionally, temporary restaurant closures, which vary by segment, impact the contribution of each segment to the consolidated operating margin. Excluding the net strategic gains, the increase in operating margin percent for 2021 was due to strong sales-driven restaurant margin growth and higher other operating income, partly offset by higher incentive-based compensation expense.
NON-GAAP OPERATING MARGIN PERCENT ROLL-FORWARD*
[[Image Removed: mcd-20211231_g11.jpg]]
Non-GAAP operating margin Increase Decrease
*The operating margin roll-forward excludes the strategic gains and charges
previously described.
McDonald's Corporation 2021 Annual Report 18
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INTEREST EXPENSE
Interest expense decreased 3% (4% in constant currencies) and increased 9% (8%
in constant currencies) in 2021 and 2020, respectively. Results in 2021
reflected lower average debt balances.
NONOPERATING (INCOME) EXPENSE, NET
Nonoperating (income) expense, net
In millions 2021 2020 2019 Interest income$ (9) $ (18) $ (37)
Foreign currency and hedging activity 37 (3) (48)
Other expense
14 (14) 15 Total$ 42 $ (35) $ (70) Foreign currency and hedging activity includes net gains or losses on certain hedges that reduce the exposure to variability on certain intercompany foreign currency cash flow streams. PROVISION FOR INCOME TAXES
In 2021, 2020 and 2019 the reported effective income tax rates were 17.3%, 23.0%
and 24.9%, respectively.
Results for 2021 included$364 million of income tax benefits due to a change in theU.K. statutory income tax rate. Excluding the income tax benefits and the tax impact of net strategic gains, the effective income tax rate for the year was 21.1%.
The effective income tax rate for 2020 included
benefits due to new
related to the impact of a tax rate change in the
The effective income tax rate for 2019 reflected$84 million of income tax benefit due to regulations issued in the fourth quarter 2019 related to the Tax Act. Excluding the income tax benefit, the effective income tax rate was 25.9% for the year 2019. Consolidated deferred tax assets, net of valuation allowance, was$6.6 billion in 2021 and$6.5 billion in 2020. Substantially all of the net tax assets are expected to be realized in theU.S. and other profitable markets.
RECENTLY ISSUED ACCOUNTING STANDARDS
Recently issued accounting standards are included on page 43 of this Form 10-K.
CASH FLOWS The Company has a long history of generating significant cash from operations and has substantial credit capacity to fund operating and discretionary spending such as capital expenditures, debt repayments, dividends and share repurchases. Cash provided by operations totaled$9.1 billion in 2021, an increase of$2.9 billion or 46%. Free cash flow was$7.1 billion in 2021, an increase of$2.5 billion or 54%. The Company's free cash flow conversion rate was 94% in 2021 and 98% in 2020. Cash provided by operations increased in 2021 compared to 2020 due to improved operating results and changes in working capital, partly offset by higher income tax payments. Cash used for investing activities totaled$2.2 billion in 2021, an increase of$620 million compared with 2020. The increase was primarily due to higher capital expenditures and purchases of restaurant businesses, partly offset by higher sales of restaurant businesses and property. Cash used for financing activities totaled$5.6 billion in 2021, an increase of$3.3 billion compared with 2020. The increase was primarily due to$1.1 billion in net debt repayments in 2021 compared with$2.2 billion in net debt issuances in 2020. The Company's cash and equivalents balance was$4.7 billion and$3.4 billion at year end 2021 and 2020, respectively. In addition to cash and equivalents on hand and cash provided by operations, the Company can meet short-term funding needs through its continued access to commercial paper borrowings and line of credit agreements.McDonald's Corporation 2021 Annual Report 19 --------------------------------------------------------------------------------
RESTAURANT DEVELOPMENT AND CAPITAL EXPENDITURES
In 2021, the Company opened 1,494 restaurants and closed 661 restaurants. In 2020, the Company opened 977 restaurants and closed 643 restaurants. The increase in openings in 2021 was primarily due to recovery from the impact of COVID-19 in the prior year.
Systemwide restaurants at year end
2021 2020 2019
U.S. 13,438 13,682 13,846
International Operated Markets 10,785 10,560 10,465
International Developmental Licensed Markets & Corporate 15,808 14,956 14,384
Total 40,031 39,198 38,695
RESTAURANTS BY OWNERSHIP TYPE
[[Image Removed: mcd-20211231_g12.jpg]][[Image Removed: mcd-20211231_g13.jpg]][[Image Removed: mcd-20211231_g14.jpg]]
Franchised restaurants Company-operated restaurants
Approximately 93% of the restaurants at year-end 2021 were franchised, including
95% in the
International Developmental Licensed Markets.
Capital expenditures increased$399 million or 24% in 2021 due to higher reinvestment in existing restaurants and an increase in new restaurant openings that required the Company's capital. Capital expenditures decreased$753 million or 31% in 2020 primarily due to lower reinvestment in existing restaurants as a result of COVID-19.McDonald's Corporation 2021 Annual Report 20
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CAPITAL EXPENDITURES BY TYPE (In millions)
[[Image Removed: mcd-20211231_g15.jpg]]
* Primarily corporate equipment and other office-related expenditures.
New restaurant investments in all years were concentrated in markets with strong returns and/or opportunities for long-term growth. Average development costs vary widely by market depending on the types of restaurants built and the real estate and construction costs within each market. These costs, which include land, buildings and equipment, are managed through the use of optimally-sized restaurants, construction and design efficiencies, as well as leveraging the Company's global sourcing network and best practices. Although the Company is not responsible for all costs for every restaurant opened, total development costs for new traditionalMcDonald's restaurants in theU.S. averaged approximately$4.4 million in 2021.
As of
land and 80% of the buildings for restaurants in its consolidated markets.
SHARE REPURCHASES AND DIVIDENDS
In 2021, the Company returned approximately
primarily through dividends paid.
Shares repurchased and dividends
In millions, except per share data 2021 2020 2019 Number of shares repurchased 3.4 4.3
25.0
Shares outstanding at year end 745 745
746
Dividends declared per share$ 5.25 $ 5.04 $ 4.73 Treasury stock purchases (in Shareholders' equity)$ 846 $ 874 $ 4,980 Dividends paid 3,919 3,753
3,582
Total returned to shareholders$ 4,765 $ 4,627
InDecember 2019 , the Company's Board of Directors approved a share repurchase program, effectiveJanuary 1, 2020 , that authorized the purchase of up to$15 billion of the Company's outstanding stock, with no specified expiration date. In 2021, approximately 3.4 million shares were repurchased for$845.5 million , bringing total purchases under the program to approximately 7.7 million shares or$1.7 billion . The Company has paid dividends on its common stock for 46 consecutive years and has increased the dividend amount every year. The 2021 full year dividend of$5.25 per share reflects the quarterly dividend paid for each of the first three quarters of$1.29 per share, with an increase to$1.38 per share paid in the fourth quarter. This 7% increase in the quarterly dividend equates to a$5.52 per share annual dividend and reflects the Company's confidence in the ongoing strength and reliability of its cash flow. As in the past, future dividend amounts will be considered after reviewing profitability expectations and financing needs, and will be declared at the discretion of the Company's Board of Directors.McDonald's Corporation 2021 Annual Report 21
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FINANCIAL POSITION AND CAPITAL RESOURCES
TOTAL ASSETS AND RETURN
Total assets increased$1.2 billion or 2% in 2021, primarily due to an increase in Cash and equivalents driven by improved operating results. Net property and equipment decreased$0.2 billion in 2021, primarily due to depreciation and the impact of foreign exchange rates. Net property and equipment and the Lease right-of-use asset, net represented approximately 46% and approximately 25%, respectively, of total assets at year-end. Approximately 84% of total assets were in theU.S. and International Operated Markets at year-end 2021. The Company's after-tax ROIC from continuing operations is a metric that management believes measures capital-allocation effectiveness over time and was 21.5%, 14.9% and 19.2% as ofDecember 31, 2021 , 2020 and 2019, respectively. The increase from 2020 to 2021 was primarily due to improved operating results and recovery from the impact of COVID-19 as well as lower average debt balances compared to the prior year. Refer to the reconciliation in Exhibit 99.1 to this Form 10-K. FINANCING AND MARKET RISK The Company generally borrows on a long-term basis and is exposed to the impact of interest rate changes and foreign currency fluctuations. Debt obligations atDecember 31, 2021 totaled$35.6 billion , compared with$37.4 billion atDecember 31, 2020 . The net decrease in 2021 was due to net repayments of$1.1 billion and the impact of changes in exchange rates on foreign currency denominated debt of$731 million .
Debt highlights(1)
2021 2020 2019
Fixed-rate debt as a percent of total debt(2,3) 95 % 95 % 92 %
Weighted-average annual interest rate of total debt(3) 3.2 3.2 3.2
Foreign currency-denominated debt as a percent of total debt(2) 36 36 38
Total debt as a percent of total capitalization (total debt and total
Shareholders’ equity)(2)
115 126 131 Cash provided by operations as a percent of total debt(2) 26 17 24
(1)All percentages are as of
interest rate, which is for the year. See reconciliation in Exhibit 99.1.
(2)Based on debt obligations before the effects of fair value hedging adjustments and deferred debt costs. These effects are excluded as they have no impact on the obligation at maturity. See the Debt Financing footnote on page 57 of this Form 10-K.
(3)Includes the effect of interest rate swaps used to hedge debt.
Standard & Poor's and Moody's currently rate the Company's commercial paper A-2 and P-2, respectively, and its long-term debt BBB+ and Baa1, respectively. To access the debt capital markets, the Company relies on credit-rating agencies to assign short-term and long-term credit ratings. Certain of the Company's debt obligations contain cross-acceleration provisions and restrictions on Company and subsidiary mortgages and the long-term debt of certain subsidiaries. There are no provisions in the Company's debt obligations that would accelerate repayment of debt as a result of a change in credit ratings or a material adverse change in the Company's business. InDecember 2019 , the Company's Board of Directors authorized$15 billion of borrowing capacity with no specified expiration date, of which$8.3 billion remains outstanding as ofDecember 31, 2021 . These borrowings may include (i) public or private offering of debt securities; (ii) direct borrowing from banks or other financial institutions; and (iii) other forms of indebtedness. InApril 2020 , the Company's Board of Directors provided additional authorization to issue commercial paper and draw on lines of credit agreements up to$8 billion in addition to the$15 billion authorized as referenced above. In addition to debt securities available through a medium-term notes program registered with theSEC and a Global Medium-Term Notes program, the Company has$4.5 billion available under committed line of credit agreements (see the Debt Financing footnote on page 57 of this Form 10-K). As ofDecember 31, 2021 , the Company's subsidiaries also had$263 million of borrowings outstanding, primarily under uncommitted foreign currency line of credit agreements. The Company uses major capital markets, bank financings and derivatives to meet its financing requirements. The Company manages its debt portfolio in response to changes in interest rates and foreign currency rates by periodically retiring, redeeming and repurchasing debt, terminating swaps and using derivatives. The Company does not hold or issue derivatives for trading purposes. All swaps are over-the-counter instruments. In managing the impact of interest rate changes and foreign currency fluctuations, the Company uses interest rate swaps and finances in the currencies in which assets are denominated. The Company uses foreign currency debt and derivatives to hedge the foreign currency risk associated with certain royalties, intercompany financings and long-term investments in foreign subsidiaries and affiliates. This reduces the impact of fluctuating foreign currencies on cash flows and shareholders' equity. Total foreign currency-denominated debt was$12.8 billion and$13.7 billion for the years endedDecember 31, 2021 and 2020, respectively. In addition, where practical, the Company's restaurants purchase goods and services in local currencies resulting in natural hedges. See the Summary of significant accounting policies footnote related to financial instruments and hedging activities on page 47 of this Form 10-K for additional information regarding the accounting impact and use of derivatives. The Company does not have significant exposure to any individual counterparty and has master agreements that contain netting arrangements. Certain of these agreements also require each party to post collateral if credit ratings fall below, or aggregate exposures exceed, certain contractual limits. AtDecember 31, 2021 , neither the Company nor its counterparties were required to post collateral on any derivative position, other than on hedges of certain of the Company's supplemental benefit plan liabilities where the counterparties were required to post collateral on their liability positions.McDonald's Corporation 2021 Annual Report 22 --------------------------------------------------------------------------------
The Company’s net asset exposure is diversified among a broad basket of
currencies. The Company’s largest net asset exposures (defined as foreign
currency assets less foreign currency liabilities) at year end were as follows:
Foreign currency net asset exposures
In millions of U.S. Dollars 2021 2020 British Pounds Sterling$ 1,293 $ 1,374 Canadian Dollars 904878 Australian Dollars 855913 Russian Ruble 518533 Polish Zloty 427 393 The Company prepared sensitivity analyses of its financial instruments to determine the impact of hypothetical changes in interest rates and foreign currency exchange rates on the Company's results of operations, cash flows and the fair value of its financial instruments. The interest rate analysis assumed a one percentage point adverse change in interest rates on all financial instruments, but did not consider the effects of the reduced level of economic activity that could exist in such an environment. The foreign currency rate analysis assumed that each foreign currency rate would change by 10% in the same direction relative to theU.S. Dollar on all financial instruments; however, the analysis did not include the potential impact on revenues, local currency prices or the effect of fluctuating currencies on the Company's anticipated foreign currency royalties and other payments received from the markets. Based on the results of these analyses of the Company's financial instruments, neither a one percentage point adverse change in interest rates from 2021 levels nor a 10% adverse change in foreign currency rates from 2021 levels would materially affect the Company's results of operations, cash flows or the fair value of its financial instruments. LIQUIDITY AND USES OF CASH The Company generates significant cash from operations and expects available cash and cash equivalents, future operating cash flows and its ability to issue debt to be sufficient to finance its foreseeable operating needs and other cash requirements. Consistent with prior years, the Company expects existing domestic cash and equivalents, domestic cash flows from operations, the ability to issue domestic debt and repatriation of a portion of foreign earnings to continue to be sufficient to fund its domestic operating, investing and financing activities. The Company also continues to expect existing foreign cash and equivalents and foreign cash flows from operations to be sufficient to fund its foreign operating, investing and financing activities. In the future, should more capital be required to fund activities in theU.S. than is generated by domestic operations and is available through the issuance of domestic debt, the Company could elect to repatriate a greater portion of future periods' earnings from foreign jurisdictions.
The Company has significant operations outside the
approximately 65% of its operating income. A significant portion of these
historical earnings have been reinvested in foreign jurisdictions where the
Company has made, and will continue to make, substantial investments to support
the ongoing development and growth of its international operations.
Sources of Liquidity
The Company has long-term revenue and cash flow streams that relate to its franchise arrangements. Minimum rent payments under franchise arrangements are based on the Company's underlying investment in owned sites and parallel the Company's underlying lease obligations and escalations on properties that are leased. The Company believes that control over the real estate enables it to achieve restaurant performance levels that are among the highest in the industry. Refer to the Franchise Arrangements footnote on page 51 of this Form 10-K for additional information on future gross minimum payments due to the Company under existing conventional franchise arrangements. Additionally, the Company is authorized to utilize up to$15 billion of borrowing capacity in various forms by the Board of Directors, of which$8.3 billion remains outstanding as ofDecember 31, 2021 , as well as the ability to issue commercial paper and draw on lines of credit agreements up to$8 billion . Refer to the Financing and Market Risk section on page 22 of this Form 10-K.
Material Cash Requirements and Uses of Cash
Material cash requirements primarily consist of lease obligations (related to both Company-operated and franchised restaurants) and debt obligations. Refer to the Leasing Arrangements footnote on page 52 and the Debt Financing footnote on page 57 of this Form 10-K for more information.
The Company also records liabilities related to supplemental benefit plans
maintained in the
benefits on certain tax positions. Details related to these obligations are
provided in the Employee Benefit Plan footnote on page 56 and the Income Taxes
footnote on page 54 of this Form 10-K.
The Company contracts with vendors and suppliers in the normal course of business. These contracts may include items related to construction projects, inventory, energy, marketing, technology and other services. Generally, these items are shorter term in nature and have no minimum payment requirements. These expenses, along with other standard operating expenses incurred, are funded from operating cash flows and reflected in other areas of this Form 10-K (e.g., franchised margins, Company-operated margins and selling, general & administrative expenses that are reflected in the Consolidated Statement of Income and capital expenditures that are reflected on the Consolidated Statement of Cash Flows). Additionally, the Company has guaranteed certain loans totaling approximately$110 million atDecember 31, 2021 . These guarantees are contingent commitments generally issued by the Company to support borrowing arrangements of the System. AtDecember 31, 2021 , there was no carrying value for obligations under these guarantees in the Consolidated Balance Sheet.McDonald's Corporation 2021 Annual Report 23
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OTHER MATTERS
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management's Discussion and Analysis of Financial Condition and Results of Operations is based upon the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in theU.S. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses as well as related disclosures. On an ongoing basis, the Company evaluates its estimates and judgments based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.
The Company reviews its financial reporting and disclosure practices and
accounting policies quarterly to confirm that they provide accurate and
transparent information relative to the current economic and business
environment. The Company believes that of its significant accounting policies,
the following involve a higher degree of judgment and/or complexity:
•Property and equipment
Property and equipment are depreciated or amortized on a straight-line basis over their useful lives based on management's estimates of the period over which the assets will generate revenue (not to exceed lease term plus options for leased property). The useful lives are estimated based on historical experience with similar assets, taking into account anticipated technological or other changes. Refer to the Property and Equipment section in the Summary of Significant Accounting Policies footnote on page 44 of this Form 10-K and the Property and Equipment footnote on page 51 of this Form 10-K for additional information.
•Leasing Arrangements
The Lease right-of-use asset and Lease liability include an assumption on renewal options that have not yet been exercised by the Company. The Company also uses an incremental borrowing rate in calculating the Lease liability that represents an estimate of the interest rate the Company would incur to borrow on a collateralized basis over the term of a lease within a particular currency environment. Refer to the Leasing section in the Summary of Significant Accounting Policies footnote on page 44 of this Form 10-K and the Leasing Arrangements footnote on page 52 of this Form 10-K for additional information.
•Long-lived assets impairment review
Long-lived assets (including goodwill) are reviewed for impairment annually. If qualitative indicators of impairment are present, such as changes in global and local business and economic conditions, operating costs, inflation, competition, and consumer and demographic trends, the Company will use these and other factors in estimating future cash flows when testing for the recoverability of its long-lived assets. Estimates of future cash flows are highly subjective judgements based on the Company's experience and knowledge of its operations. A key assumption impacting estimated future cash flows is the estimated change in comparable sales. If the Company's estimates or underlying assumptions change in the future, it may be required to record impairment charges. Refer to the Long-lived Assets andGoodwill sections in the Summary of Significant Accounting Policies footnote on page 45 of this Form 10-K for additional information.
•Litigation accruals
In the ordinary course of business, the Company is subject to proceedings, lawsuits and other claims primarily related to competitors, customers, employees, franchisees, government agencies, intellectual property, shareholders and suppliers. The Company is required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable losses. Refer to the Contingencies footnote on page 53 of this Form 10-K for additional information. •Income taxes The Company records a valuation allowance to reduce its deferred tax assets if it is considered more likely than not that some portion or all of the deferred tax assets will not be realized. The Company operates within, and is subject to audit in, multiple taxing jurisdictions. The Company records accruals for the estimated outcomes of these audits, and the accruals may change in the future due to new developments in each matter.
Refer to the Income Taxes section in the Summary of Significant Accounting
Policies footnote on page 46 of this Form 10-K and the Income Taxes footnote on
page 54 of this Form 10-K for additional information.
EFFECTS OF CHANGING PRICES – INFLATION
Broader inflationary pressures in the economy are expected to continue to impact
the restaurant industry through supply chain and labor cost challenges-fueled in
part by pent-up demand, supply chain interruptions and rising energy prices. The
Company has demonstrated an ability to manage these inflationary cost increases
effectively through its rapid inventory turnover, ability to adjust menu prices,
cost controls and substantial property holdings, many of which are at fixed
costs and partly financed by debt made less expensive by inflation.
McDonald's Corporation 2021 Annual Report 24
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Other Key Information
FIVE-YEAR SUMMARY
Years ended December 31,
In millions, except per share and unit
amounts 2021 2020 2019 2018 2017
Consolidated Statement of Income Data
Revenues
Sales by Company-operated restaurants $ 9,787 $ 8,139 $ 9,421 $ 10,013 $ 12,719
Revenues from franchised restaurants 13,085 10,726 11,656 11,012 10,101
Other revenues 351 343 288 233 140
Total revenues 23,223 19,208 21,365 21,258 22,960
Operating income 10,356 7,324 9,070 8,823 9,553
Net income 7,545 4,731 6,025 5,924 5,192
Consolidated Statement of Cash Flows Data
Cash provided by operations $ 9,142 $ 6,265 $ 8,122 $ 6,967 $ 5,551
Cash used for (provided by) investing
activities 2,166 1,546 3,071 2,455 (562)
Capital expenditures 2,040 1,641 2,394 2,742 1,854
Cash used for financing activities 5,596 2,249 4,995 5,950 5,311
Treasury stock purchases(1) 846 874 4,980 5,247 4,651
Common stock dividends 3,919 3,753 3,582 3,256 3,089
Financial Position
Total assets(2) $ 53,854 $ 52,627 $ 47,511 $ 32,811 $ 33,804
Total debt 35,623 37,440 34,177 31,075 29,536
Total shareholders' equity (deficit) (4,601) (7,825) (8,210) (6,258) (3,268)
Shares outstanding 745 745 746 767 794
Per Common Share Data
Earnings-diluted $ 10.04 $ 6.31 $ 7.88 $ 7.54 $ 6.37
Dividends declared 5.25 5.04 4.73 4.19 3.83
Market price at year end 268.07 214.58 197.61 177.57 172.12
Restaurant Information and Other Data
Restaurants at year end
Company-operated restaurants 2,736 2,677 2,636 2,770 3,133
Franchised restaurants 37,295 36,521 36,059 35,085 34,108
Total Systemwide restaurants 40,031 39,198 38,695 37,855 37,241
Franchised sales(3) $ 102,675 $ 85,178 $ 90,757 $ 86,134 $ 78,191
(1)Represents treasury stock purchases as reflected in Shareholders' equity.
Treasury stock purchases decreased from 2019 to 2020 as the Company suspended
its share repurchase program in March 2020 . The Company resumed its share
repurchase program in the third quarter of 2021.
(2)Total assets increased from 2018 to 2019 primarily due to the Company's Lease
right-of-use asset recorded as a result of the adoption of Accounting Standard
Codification ("ASC") Topic 842, "Leases" ("ASC 842").
(3)While franchised sales are not recorded as revenues by the Company,
management believes they are 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. Franchised restaurants represent 93% of McDonald's
restaurants worldwide at December 31, 2021 .
McDonald's Corporation 2021 Annual Report 25
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STOCK PERFORMANCE GRAPH
At least annually,McDonald's considers which companies comprise a readily identifiable investment peer group. The Company is included in published restaurant indices; however, unlike most other companies included in these indices, which have no or limited international operations,McDonald's does business in more than 100 countries and a substantial portion of its revenues and income is generated outside theU.S. In addition, because of its size,McDonald's inclusion in those indices tends to skew the results. Therefore, the Company believes that such a comparison is not meaningful. The Company's market capitalization, trading volume and importance in an industry that is vital to theU.S. economy have resulted inMcDonald's inclusion in the Dow Jones Industrial Average ("DJIA") since 1985. LikeMcDonald's , many DJIA companies generate meaningful revenues and income outside theU.S. and some manage global brands. Thus, the Company believes that the use of the DJIA companies as the group for comparison purposes is appropriate. The following performance graph showsMcDonald's cumulative total shareholder returns (i.e., price appreciation and reinvestment of dividends) relative to theStandard & Poor's 500 Stock Index ("S&P 500 Index") and to the DJIA companies for the five-year period endedDecember 31, 2021 . The graph assumes that the value of an investment inMcDonald's common stock, the S&P 500 Index and the DJIA companies (includingMcDonald's ) was$100 atDecember 31, 2016 . For the DJIA companies, returns are weighted for market capitalization as of the beginning of each period indicated. These returns may vary from those of the DJIA Index, which is not weighted by market capitalization and may be composed of different companies during the period under consideration. [[Image Removed: mcd-20211231_g16.jpg]] Company/Index 12/31/2016 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021McDonald's Corporation $100 $145 $153 $175 $195 $249 S&P 500 Index$100 $122 $116 $153 $181 $233 Dow Jones Industrials$100 $128 $124 $155 $170 $206 Source:S&P Capital IQ McDonald's Corporation 2021 Annual Report 26
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