10-Q 1 mcd-20210930.htm 10-Q mcd-20210930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to            
Commission File Number 1-5231
McDONALD’S CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Delaware 36-2361282
(State or Other Jurisdiction of
Incorporation or Organization)
 (I.R.S. Employer
Identification No.)
110 North Carpenter Street 60607
Chicago,Illinois
(Address of Principal Executive Offices) (Zip Code)
(630) 623-3000
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par valueMCDNew York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes    No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes    No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Accelerated Filer
Non-accelerated Filer
Smaller Reporting Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes    No  
747,245,427
(Number of shares of common stock
outstanding as of 9/30/2021)



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

PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
In millions, except per share dataSeptember 30,
2021
December 31,
2020
Assets
Current assets
Cash and equivalents$4,305.8 $3,449.1 
Accounts and notes receivable1,828.5 2,110.3 
Inventories, at cost, not in excess of market50.1 51.1 
Prepaid expenses and other current assets611.5 632.7 
Total current assets6,795.9 6,243.2 
Other assets
Investments in and advances to affiliates1,171.4 1,297.2 
Goodwill2,744.2 2,773.1 
Miscellaneous4,057.9 3,527.4 
Total other assets7,973.5 7,597.7 
Lease right-of-use asset, net13,528.9 13,827.7 
Property and equipment
Property and equipment, at cost41,423.7 41,476.5 
Accumulated depreciation and amortization(16,995.0)(16,518.3)
Net property and equipment24,428.7 24,958.2 
Total assets$52,727.0 $52,626.8 
Liabilities and shareholders’ equity
Current liabilities
Accounts payable$772.6 $741.3 
Dividends payable1,027.3  
Lease liability 701.5 701.5 
Income taxes259.7 741.1 
Other taxes253.5 227.0 
Accrued interest312.2 388.4 
Accrued payroll and other liabilities1,268.8 1,138.3 
Current maturities of long-term debt500.0 2,243.6 
Total current liabilities5,095.6 6,181.2 
Long-term debt34,628.0 35,196.8 
Long-term lease liability12,986.6 13,321.3 
Long-term income taxes1,878.9 1,970.7 
Deferred revenues - initial franchise fees720.1 702.0 
Other long-term liabilities1,046.6 1,054.1 
Deferred income taxes2,046.2 2,025.6 
Shareholders’ equity (deficit)
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 shares16.6 16.6 
Additional paid-in capital8,125.8 7,903.6 
Retained earnings55,897.7 53,908.1 
Accumulated other comprehensive income (loss)(2,663.2)(2,586.8)
Common stock in treasury, at cost; 913.4 and 915.2 million shares(67,051.9)(67,066.4)
Total shareholders’ equity (deficit)(5,675.0)(7,824.9)
Total liabilities and shareholders’ equity (deficit)$52,727.0 $52,626.8 
See Notes to condensed consolidated financial statements.
3

CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Quarters EndedNine Months Ended
 September 30,September 30,
In millions, except per share data2021202020212020
Revenues
Sales by Company-operated restaurants$2,598.4 $2,286.4 $7,248.6 $5,905.9 
Revenues from franchised restaurants3,510.2 3,044.8 9,693.8 7,740.8 
Other revenues92.7 86.9 271.4 247.3 
Total revenues6,201.3 5,418.1 17,213.8 13,894.0 
Operating costs and expenses
Company-operated restaurant expenses2,108.4 1,876.3 5,947.0 5,077.5 
Franchised restaurants-occupancy expenses592.6 567.9 1,743.2 1,646.6 
Other restaurant expenses68.9 69.2 204.4 198.0 
Selling, general & administrative expenses
Depreciation and amortization84.1 75.8 243.2 220.3 
Other559.6 454.7 1,622.4 1,547.0 
Other operating (income) expense, net(198.8)(152.2)(505.3)23.5 
Total operating costs and expenses3,214.8 2,891.7 9,254.9 8,712.9 
Operating income2,986.5 2,526.4 7,958.9 5,181.1 
Interest expense293.7 310.1 890.2 909.2 
Nonoperating (income) expense, net1.4 (0.8)48.6 (38.8)
Income before provision for income taxes2,691.4 2,217.1 7,020.1 4,310.7 
Provision for income taxes541.5 454.5 1,113.7 957.4 
Net income$2,149.9 $1,762.6 $5,906.4 $3,353.3 
Earnings per common share-basic$2.88 $2.37 $7.91 $4.50 
Earnings per common share-diluted$2.86 $2.35 $7.86 $4.47 
Dividends declared per common share$2.67 $1.25 $5.25 $3.75 
Weighted-average shares outstanding-basic747.1 744.5 746.5 744.4 
Weighted-average shares outstanding-diluted752.6 750.0 751.9 749.8 
See Notes to condensed consolidated financial statements.
4

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
Quarters EndedNine Months Ended
September 30,September 30,
In millions2021202020212020
Net income$2,149.9 $1,762.6 $5,906.4 $3,353.3 
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments:
Gain (loss) recognized in accumulated other comprehensive
income ("AOCI"), including net investment hedges
(132.8)56.6 (172.7)(202.5)
Reclassification of (gain) loss to net income14.3 9.0 34.7 9.0 
Foreign currency translation adjustments-net of tax
benefit (expense) of ($66.1), $116.8, ($133.7) and $67.6
(118.5)65.6 (138.0)(193.5)
Cash flow hedges:
Gain (loss) recognized in AOCI26.8 (27.1)48.7 (84.2)
Reclassification of (gain) loss to net income4.0 5.1 32.4 (5.8)
Cash flow hedges-net of tax benefit (expense) of ($9.2), $6.6, ($24.1) and $27.130.8 (22.0)81.1 (90.0)
Defined benefit pension plans:
Gain (loss) recognized in AOCI0.1 0.5 0.9 (2.0)
Reclassification of (gain) loss to net income(4.4)3.4 (20.4)9.4 
Defined benefit pension plans-net of tax benefit (expense)
of $0.0, $0.0, $0.1 and $0.5
(4.3)3.9 (19.5)7.4 
Total other comprehensive income (loss), net of tax(92.0)47.5 (76.4)(276.1)
Comprehensive income$2,057.9 $1,810.1 $5,830.0 $3,077.2 
See Notes to condensed consolidated financial statements.
5

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Quarters EndedNine Months Ended
 September 30,September 30,
In millions2021202020212020
Operating activities
Net income$2,149.9 $1,762.6 $5,906.4 $3,353.3 
Adjustments to reconcile to cash provided by operations
Charges and credits:
Depreciation and amortization469.2 440.1 1,386.5 1,287.1 
Deferred income taxes(45.8)(38.0)(416.2)196.3 
Share-based compensation34.1 7.3 97.9 64.0 
Other(163.6)(56.8)(364.8)(25.5)
Changes in working capital items174.0 824.3 (134.8)(602.8)
Cash provided by operations2,617.8 2,939.5 6,475.0 4,272.4 
Investing activities
Capital expenditures(501.5)(390.2)(1,352.8)(1,177.7)
Purchases of restaurant businesses(28.6)(6.7)(116.7)(50.0)
Sales of restaurant businesses60.1 8.0 141.9 35.5 
Sales of property41.3 0.2 97.9 17.8 
Other43.8 120.8 186.7 (8.5)
Cash used for investing activities(384.9)(267.9)(1,043.0)(1,182.9)
Financing activities
Net short-term borrowings(0.3)(993.4)7.6 (885.7)
Long-term financing issuances 2.8  5,543.0 
Long-term financing repayments(0.4)(451.5)(1,739.4)(1,414.1)
Treasury stock purchases(17.7)(0.7)(42.2)(905.6)
Common stock dividends(963.9)(930.9)(2,889.5)(2,791.3)
Proceeds from stock option exercises66.6 105.3 198.6 262.3 
Other(11.7)(0.1)(32.7)(122.0)
Cash used for financing activities(927.4)(2,268.5)(4,497.6)(313.4)
Effect of exchange rates on cash and cash equivalents(49.1)25.0 (77.7)9.2 
Cash and equivalents increase1,256.4 428.1 856.7 2,785.3 
Cash and equivalents at beginning of period3,049.4 3,255.7 3,449.1 898.5 
Cash and equivalents at end of period$4,305.8 $3,683.8 $4,305.8 $3,683.8 
See Notes to condensed consolidated financial statements.
6


CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
For the nine months ended September 30, 2020
 Common stock
issued
 Accumulated other
comprehensive income (loss)
Common stock in
treasury
Total
shareholders’
equity (deficit)
Additional
paid-in
capital
Retained
earnings
PensionsCash flow
hedges
Foreign
currency
translation
In millions, except per share dataSharesAmountSharesAmount
Balance at December 31, 20191,660.6 $16.6 $7,653.9 $52,930.5 $(243.7)$12.0 $(2,251.0)(914.3)$(66,328.6)$(8,210.3)
Net income3,353.3 3,353.3 
Other comprehensive income (loss),
    net of tax
7.4 (90.0)(193.5)(276.1)
Comprehensive income3,077.2 
Common stock cash dividends
    ($3.75 per share)
(2,791.3)(2,791.3)
Treasury stock purchases(4.3)(871.9)(871.9)
Share-based compensation64.0 64.0 
Stock option exercises and other136.8 3.1 123.4 260.2 
Balance at September 30, 20201,660.6 $16.6 $7,854.7 $53,492.5 $(236.3)$(78.0)$(2,444.5)(915.5)$(67,077.1)$(8,472.1)

For the nine months ended September 30, 2021
 Common stock
issued
 Accumulated other
comprehensive income (loss)
Common stock in
treasury
Total
shareholders’
equity (deficit)
Additional
paid-in
capital
Retained
earnings
PensionsCash flow
hedges
Foreign
currency
translation
In millions, except per share dataSharesAmountSharesAmount
Balance at December 31, 20201,660.6 $16.6 $7,903.6 $53,908.1 $(287.6)$(111.3)$(2,187.9)(915.2)$(67,066.4)$(7,824.9)
Net income 5,906.4      5,906.4 
Other comprehensive income (loss),
    net of tax
    (19.5)81.1 (138.0)  (76.4)
Comprehensive income         5,830.0 
Common stock cash dividends
    ($5.25 per share)
 (3,916.8)     (3,916.8)
Treasury stock purchases     (0.2)(59.0)(59.0)
Share-based compensation97.9       97.9 
Stock option exercises and other124.3    2.0 73.5 197.8 
Balance at September 30, 20211,660.6 $16.6 $8,125.8 $55,897.7 $(307.1)$(30.2)$(2,325.9)(913.4)$(67,051.9)$(5,675.0)

See Notes to condensed consolidated financial statements.

7

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
For the quarter ended September 30, 2020
 Common stock
issued
 Accumulated other
comprehensive income (loss)
Common stock in
treasury
Total
shareholders’
equity (deficit)
Additional
paid-in
capital
Retained
earnings
PensionsCash flow
hedges
Foreign
currency
translation
In millions, except per share dataSharesAmountSharesAmount
Balance at June 30, 20201,660.6 $16.6 $7,780.0 $52,660.8 $(240.2)$(56.0)$(2,510.1)(916.5)$(67,114.2)$(9,463.1)
Net income1,762.6 1,762.6 
Other comprehensive income (loss),
    net of tax
3.9 (22.0)65.6 47.5 
Comprehensive income1,810.1 
Common stock cash dividends
    ($1.25 per share)
(930.9)(930.9)
Treasury stock purchases (0.7)(0.7)
Share-based compensation7.3 7.3 
Stock option exercises and other67.4 1.0 37.8 105.2 
Balance at September 30, 20201,660.6 $16.6 $7,854.7 $53,492.5 $(236.3)$(78.0)$(2,444.5)(915.5)$(67,077.1)$(8,472.1)

For the quarter ended September 30, 2021
 Common stock
issued
 Accumulated other
comprehensive income (loss)
Common stock in
treasury
Total
shareholders’
equity (deficit)
Additional
paid-in
capital
Retained
earnings
PensionsCash flow
hedges
Foreign
currency
translation
In millions, except per share dataSharesAmountSharesAmount
Balance at June 30, 20211,660.6 $16.6 $8,046.0 $55,739.0 $(302.8)$(61.0)$(2,207.4)(913.8)$(67,038.4)$(5,808.0)
Net income2,149.9 2,149.9 
Other comprehensive income (loss),
    net of tax
(4.3)30.8 (118.5)(92.0)
Comprehensive income2,057.9 
Common stock cash dividends
    ($2.67 per share)
(1,991.2)(1,991.2)
Treasury stock purchases(0.1)(34.5)(34.5)
Share-based compensation34.1 34.1 
Stock option exercises and other45.7 0.5 21.0 66.7 
Balance at September 30, 20211,660.6 $16.6 $8,125.8 $55,897.7 $(307.1)$(30.2)$(2,325.9)(913.4)$(67,051.9)$(5,675.0)

See Notes to condensed consolidated financial statements.




8

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

McDonald’s Corporation, the registrant, together with its subsidiaries, is referred to herein as the "Company." The Company, its franchisees and suppliers, are referred to herein as the "System."
Basis of Presentation
The accompanying condensed consolidated financial statements should be read in conjunction with the Consolidated Financial Statements contained in the Company’s December 31, 2020 Annual Report on Form 10-K. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation have been included. The results for the quarter and nine months ended September 30, 2021 do not necessarily indicate the results that may be expected for the full year.

Restaurant Information
The following table presents restaurant information by ownership type:
Restaurants at September 30,20212020
Conventional franchised21,552 21,781 
Developmental licensed7,795 7,660 
Foreign affiliated7,639 6,997 
Total Franchised36,986 36,438 
Company-operated2,690 2,658 
Total Systemwide restaurants39,676 39,096 
The results of operations of restaurant businesses purchased and sold in transactions with franchisees were not material either individually or in the aggregate to the condensed consolidated financial statements for the periods prior to purchase and sale.

Per Common Share Information
Diluted earnings per common share is calculated using net income divided by diluted weighted-average shares. Diluted weighted-average shares include weighted-average shares outstanding plus the dilutive effect of share-based compensation, calculated using the treasury stock method, of 5.5 million shares for each of the quarters 2021 and 2020, and 5.4 million shares for each of the nine months 2021 and 2020. Share-based compensation awards that would have been antidilutive, and therefore were not included in the calculation of diluted weighted-average shares, totaled 1.4 million shares and 1.8 million shares for the quarters 2021 and 2020, respectively, and 3.0 million shares and 1.9 million shares for the nine months 2021 and 2020, respectively.
In September 2021, McDonald's Board of Directors declared a 7% increase in the quarterly cash dividend to $1.38 per share of
common stock, resulting in $1.0 billion of dividends payable in December 2021. In addition, the Company resumed its
share repurchase program in September 2021.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

Income Taxes

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (“ASU 2019-12”), which simplifies the accounting for income taxes. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, including applicable interim periods. The Company adopted the new standard effective January 1, 2021. The adoption of the standard did not have a material impact on the Company's condensed consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

Reference Rate Reform

In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting" (“ASU 2020-04”). The pronouncement provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate and other interbank offered rates to alternative reference rates. The guidance was effective upon issuance and may be applied prospectively to contract modifications made and hedging relationships entered into or
9

evaluated on or before December 31, 2022. The adoption of ASU 2020-04 will not have a material impact on the Company's condensed consolidated financial statements.


Income Taxes
The effective income tax rate was 20.1% and 20.5% for the quarters ended 2021 and 2020, respectively, and 15.9% and 22.2% for the nine months ended 2021 and 2020, respectively. The tax rate for the nine months ended 2021 included a benefit of $364 million related to the remeasurement of deferred taxes as a result of a change in the U.K. statutory income tax rate.


Fair Value Measurements
The Company measures certain financial assets and liabilities at fair value. Fair value disclosures are reflected in a three-level hierarchy, maximizing the use of observable inputs and minimizing the use of unobservable inputs. The Company did not have any significant changes to the valuation techniques used to measure fair value as described in the Company's December 31, 2020 Annual Report on Form 10-K.
At September 30, 2021, the fair value of the Company’s debt obligations was estimated at $39.7 billion, compared to a carrying amount of $35.1 billion. These amounts do not include approximately $1.2 billion of additional debt that was issued in October 2021, which will be used to replace upcoming maturities of debt. The additional debt consists of two €500 million Euro-denominated bonds with interest rates of 0.25% and 0.875% and maturity dates of 2028 and 2033, respectively. The fair value of debt obligations is based upon quoted market prices, Level 2 within the valuation hierarchy. The carrying amounts of cash and equivalents and notes receivable approximate fair value.
10

Financial Instruments and Hedging Activities
The Company is exposed to global market risks, including the effect of changes in interest rates and foreign currency fluctuations. The Company uses foreign currency denominated debt and derivative instruments to mitigate the impact of these changes. The Company does not hold or issue derivatives for trading purposes.
The following table presents the fair values of derivative instruments included on the Condensed Consolidated Balance Sheet:
  Derivative AssetsDerivative Liabilities
In millionsBalance Sheet ClassificationSeptember 30, 2021December 31, 2020Balance Sheet ClassificationSeptember 30, 2021December 31, 2020
Derivatives designated as hedging instruments
Foreign currencyPrepaid expenses and other current assets$40.1 $ Accrued payroll and other liabilities$(7.2)$(64.5)
Interest ratePrepaid expenses and other current assets2.1  Accrued payroll and other liabilities  
Foreign currencyMiscellaneous other assets25.3 5.6 Other long-term liabilities(0.1)(15.0)
Interest rateMiscellaneous other assets
18.0 35.8 Other long-term liabilities(0.2) 
Total derivatives designated as hedging instruments$85.5 $41.4  $(7.5)$(79.5)
Derivatives not designated as hedging instruments
EquityPrepaid expenses and other current assets

$ $185.6 Accrued payroll and other liabilities$(2.5)$(8.6)
Foreign currencyPrepaid expenses and other current assets

1.0  Accrued payroll and other liabilities (9.4)
EquityMiscellaneous other assets197.6    
Total derivatives not designated as hedging instruments$198.6 $185.6  $(2.5)$(18.0)
Total derivatives$284.1 $227.0  $(10.0)$(97.5)
    The following table presents the pre-tax amounts from derivative instruments affecting income and AOCI for the nine months ended September 30, 2021 and 2020, respectively:
Location of Gain or Loss
Recognized in Income on
Derivative
Gain (Loss)
Recognized in AOCI
Gain (Loss)
Reclassified into Income from AOCI
Gain (Loss) Recognized in
Income on Derivative
In millions202120202021202020212020
Foreign currencyNonoperating income/expense$63.1 $(18.8)$(37.4)$11.3 
Interest rateInterest expense (90.8)(4.7)(3.8)
Cash flow hedges$63.1 $(109.6)$(42.1)$7.5 
Foreign currency denominated debtNonoperating income/expense$574.3 $(396.8)$47.1 $17.6 
Foreign currency derivativesNonoperating income/expense31.4 2.1 
Foreign currency derivatives(1)
Interest expense$11.0 $11.0 
Net investment hedges$605.7 $(394.7)$47.1 $17.6 $11.0 $11.0 
Foreign currencyNonoperating income/expense$10.4 $(17.2)
EquitySelling, general & administrative expenses54.4 27.2 
EquityOther operating income/expense, net
(7.8)(5.6)
Undesignated derivatives$57.0 $4.4 
(1)The amount of gain (loss) recognized in income related to components excluded from effectiveness testing.




11

Fair Value Hedges
The Company enters into fair value hedges to reduce the exposure to changes in fair values of certain liabilities. The Company enters into fair value hedges that convert a portion of its fixed rate debt into floating rate debt by use of interest rate swaps. At September 30, 2021, the carrying amount of fixed-rate debt that was effectively converted was $1.5 billion, which included an increase of $19.9 million of cumulative hedging adjustments. For the nine months ended September 30, 2021, the Company recognized a $15.9 million loss on the fair value of interest rate swaps, and a corresponding gain on the fair value of the related hedged debt instrument to interest expense.
Cash Flow Hedges
The Company enters into cash flow hedges to reduce the exposure to variability in certain expected future cash flows. To protect against the reduction in value of forecasted foreign currency cash flows (such as royalties denominated in foreign currencies), the Company uses foreign currency forwards to hedge a portion of anticipated exposures. The hedges cover the next 18 months for certain exposures and are denominated in various currencies.
As of September 30, 2021, the Company had derivatives outstanding with an equivalent notional amount of $1.3 billion that hedged a portion of forecasted foreign currency denominated cash flows.
Based on market conditions at September 30, 2021, the $30.2 million in cumulative cash flow hedging losses, after tax, is not expected to have a significant effect on earnings over the next 12 months.
Net Investment Hedges
The Company primarily uses foreign currency denominated debt (third-party and intercompany) to hedge its investments in certain foreign subsidiaries and affiliates. Realized and unrealized translation adjustments from these hedges are included in shareholders' equity in the foreign currency translation component of Other comprehensive income ("OCI") and offset translation adjustments on the underlying net assets of foreign subsidiaries and affiliates, which also are recorded in OCI. As of September 30, 2021, $11.4 billion of the Company's third-party foreign currency denominated debt, $1.2 billion of the Company's intercompany foreign currency denominated debt and $1.1 billion of derivatives were designated to hedge investments in certain foreign subsidiaries and affiliates.
Undesignated Derivatives
The Company enters into certain derivatives that are not designated for hedge accounting. Therefore, the changes in the fair value of these derivatives are recognized immediately in earnings together with the gain or loss from the hedged balance sheet position. As an example, the Company enters into equity derivative contracts, including total return swaps, to hedge market-driven changes in certain of its supplemental benefit plan liabilities. Changes in the fair value of these derivatives are recorded in Selling, general & administrative expenses together with the changes in the supplemental benefit plan liabilities. The Company has also used certain derivatives to mitigate the share price risk related to its sale of stock in McDonald’s Japan.  The changes in the fair value of the undesignated derivatives used for the most recent sale transaction were recognized immediately in earnings in Other Operating (income) expense, net. In addition, the Company uses foreign currency forwards to mitigate the change in fair value of certain foreign currency denominated assets and liabilities. The changes in the fair value of these derivatives are recognized in Nonoperating (income) expense, net, along with the currency gain or loss from the hedged balance sheet position.
Credit Risk
The Company is exposed to credit-related losses in the event of non-performance by its derivative counterparties. The Company did not have significant exposure to any individual counterparty at September 30, 2021 and has master agreements that contain netting arrangements. For financial reporting purposes, the Company presents gross derivative balances in the financial statements and supplementary data, including for counterparties subject to netting arrangements. Some of these agreements also require each party to post collateral if credit ratings fall below, or aggregate exposures exceed, certain contractual limits. At September 30, 2021, neither the Company nor its counterparties were required to post collateral on any derivative position, other than on certain hedges of the Company’s supplemental benefit plan liabilities where the counterparties were required to post collateral on their liability positions.
12

Franchise Arrangements
Revenues from franchised restaurants consisted of:
Quarters EndedNine Months Ended
September 30,September 30,
In millions2021202020212020
Rents$2,254.1 $1,961.7 $6,205.9 $4,944.8 
Royalties1,243.1 1,071.3 3,449.6 2,762.1 
Initial fees13.0 11.8 38.3 33.9 
Revenues from franchised restaurants$3,510.2 $3,044.8 $9,693.8 $7,740.8 


Segment Information
The Company operates under an organizational structure with the following global business segments reflecting how management reviews and evaluates operating performance:
U.S. - the Company's largest market. The segment is 95% franchised as of September 30, 2021.
International Operated Markets - comprised of markets or countries in which the Company operates and franchises restaurants, including Australia, Canada, France, Germany, Italy, the Netherlands, Russia, Spain and the U.K. The segment is 84% franchised as of September 30, 2021.
International Developmental Licensed Markets & Corporate - comprised primarily of developmental licensee and affiliate markets in the McDonald’s System. Corporate activities are also reported in this segment. The segment is 98% franchised as of September 30, 2021.

The following table presents the Company’s revenues and operating income by segment:
Quarters EndedNine Months Ended
  
September 30,September 30,
In millions2021202020212020
Revenues
U.S.$2,260.7 $2,094.2 $6,615.0 $5,723.8 
International Operated Markets3,372.7 2,845.9 9,007.6 6,862.7 
International Developmental Licensed Markets & Corporate567.9 478.0 1,591.2 1,307.5 
Total revenues$6,201.3 $5,418.1 $17,213.8 $13,894.0 
Operating Income
U.S.$1,254.9 $1,078.3 $3,647.9 $2,705.9 
International Operated Markets1,519.6 1,197.9 3,745.4 2,311.8 
International Developmental Licensed Markets & Corporate *212.0 250.2 565.6 163.4 
Total operating income$2,986.5 $2,526.4 $7,958.9 $5,181.1 
*    Results for the quarter and nine months 2021 included $106 million and $339 million, respectively, of net strategic gains primarily related to the sale of McDonald's Japan stock. The quarter and nine months 2020 also included $139 million and $125 million, respectively, of net strategic gains, primarily related to the sale of McDonald's Japan stock. Proceeds were recorded within the other investing activities section of the Condensed Consolidated Statement of Cash Flows.


Subsequent Events
The Company evaluated subsequent events through the date the financial statements were issued and filed with the Securities and Exchange Commission. There were no subsequent events that required recognition or disclosure.