What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-08-04 compared with 2021-05-05 · 241 added, 177 removed, 426 unchanged (50% of the section changed)

1 unchanged sentence

The Company franchises and operates McDonald’s restaurants, which serve a locally-relevant menu of quality food and beverages in 119 countries.

Of the 39,160 restaurants at March 31, 2021, 36,484 were franchised, which is 93% of McDonald's restaurants.

Of the 39,396 restaurants at June 30, 2021, 36,717 were franchised, which is 93% of McDonald's restaurants.

The Company’s reporting segments are aligned with its strategic priorities and reflect how management reviews and evaluates operating performance.

3 unchanged sentences

The optimal ownership structure for an individual restaurant, trading area or market (country) is based on a variety of factors, including the availability of individuals with entrepreneurial experience and financial resources, as well as the local, legal and regulatory environment in critical areas such as property ownership and franchising.

The business relationship between McDonald’s and its independent franchisees is supported by adhering to standards and policies and is of fundamental importance to overall performance and to protecting the McDonald’s brand.

The business relationship between McDonald’s and its independent franchisees is supported by adhering to standards and policies, including our newly defined Global Brand Standards, and is of fundamental importance to overall performance and to protecting the McDonald’s brand.

The Company is primarily a franchisor and believes franchising is paramount to delivering great-tasting food, locally relevant customer experiences and driving profitability.

8 unchanged sentences

The Company’s Other revenues are comprised of technology fees paid by franchisees, revenues from brand licensing arrangements and third-party revenues for the Dynamic Yield business.

COVID-19 resurgences throughout the quarter and six months have resulted in instances of government restrictions on restaurant operating hours, limited dine-in capacity and, in some cases, dining room closures.

The Company has continued to follow the guidance of expert health authorities to apply the appropriate precautionary measures to protect the health and safety of our people and our customers and expects some operating restrictions in various markets so long as the COVID-19 pandemic continues.

Conventional Franchise

8 unchanged sentences

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.

As most revenues are based on a percent of sales, the Company expects that consumer sentiment and government regulations as a result of COVID-19 may continue to have a negative impact on revenue in the near term.

Developmental License or Affiliate

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The Company generally does not invest any capital under a developmental license or affiliate arrangement, and it receives a royalty based on a percent of sales, and generally receives initial fees upon the opening of a new restaurant or grant of a new license.

While developmental license and affiliate arrangements are largely the same, affiliate arrangements are used in a limited number of foreign markets (primarily China and Japan) within the International Developmental Licensed Markets segment and a limited number of individual restaurants within the International Operated Markets segment, where the Company also has an equity investment and records its share of net results in Equity in earnings of unconsolidated affiliates.

As both royalty revenues and the Company's share of net results in equity investments are based on sales results, the Company may continue to experience a negative impact to revenues and Equity in earnings of unconsolidated affiliates as a result of COVID-19 in the near term.

While developmental license and affiliate arrangements are largely the same, affiliate arrangements are used in a limited number of foreign markets (primarily China and Japan) within the International Developmental Licensed Markets segment as well as a limited number of individual restaurants within the International Operated Markets segment, where the Company also has an equity investment and records its share of net results in Equity in earnings of unconsolidated affiliates.

Strategic Direction

2 unchanged sentences

Purpose, Mission, & Values

Our values underpin our success and are at the very heart of our Strategy.

The Company embraces and prioritizes its role and commitments to the communities in which it operates through our:

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• Core values that define who we are and how we run our business.

Our values underpin our success and are at the very heart of our Strategy.

In addition to the Company’s financial performance, beginning in 2021, the Company incorporated quantitative metrics into the Company's annual incentive compensation plan.

For 2021, executives will be measured on their ability to champion our core values, improve diversity representation within leadership roles for both women and historically underrepresented groups, and create a strong culture of inclusion.

In addition, in April, the Company defined a set of Global Brand Standards designed to reinforce a culture of safety and inclusion.

All McDonald’s restaurants across the globe, including Company-owned and franchised locations, will be required to uphold these standards.

Growth Pillars

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Under the Strategy, the Company will:

• M aximize our Marketing by investing in new, culturally relevant approaches to effectively communicate the story of our brand, food and purpose.

This will focus on enhanced digital capabilities that provide a more personal connection with customers.

• M aximize 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 focuses on enhancing digital capabilities that provide a more personal connection with customers.

The Company is also committed to a marketing strategy that highlights value at every tier of the menu, as affordability remains a cornerstone of the McDonald’s brand.

• C ommit to the Core by tapping into customer demand for the familiar and focusing on serving delicious burgers, chicken and coffee.

The Company will prioritize chicken and beef offerings as we expect they represent the largest growth opportunities.

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 the U.S.

at the end of February 2021.

The Company will also implement 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 will leverage the McCafe brand, experience, value and quality to drive long-term growth.

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 McCafe brand, experience, value and quality to drive long-term growth.

• D ouble Down on the 3D's:

Digital, Delivery and Drive Thru by leveraging competitive strengths and building a powerful digital experience growth engine that provides a fast, easy experience for our customers.

To unlock further growth, the Company will accelerate technology innovation so that when customers interact with McDonald’s, they can enjoy a fast, easy experience that meets their needs.

The Company’s digital experience growth engine, “MyMcDonald’s” will transform its digital offerings across drive thru, takeaway, delivery, curbside pick-up and dine-in.

Through the digital tools across this platform, customers will receive tailored offers, be able to participate in a new loyalty program and order and receive McDonald's food through the channel of their choice.

The Company expects to have elements of “MyMcDonald’s” across its top six markets by the end of 2021, featuring loyalty programs in several of those markets, including a U.S.

loyalty program launch later in 2021.

Across these top six markets, digital sales exceeded $10 billion or nearly 20% of Systemwide sales in 2020.

Over the past three years, the Company has expanded the number of McDonald’s restaurants offering delivery to over 30,000 or 75% of its restaurants, and delivery sales have grown significantly.

The Company will build on this progress and enhance the delivery experience for customers by adding the ability to order on the McDonald’s app, which is already available in several markets around the world, and optimizing operations with a focus on speed and accuracy.

To unlock further growth, the Company is continuing to accelerate technology innovation so that, however customers choose to interact with McDonald’s, they can enjoy a fast, easy experience that meets their needs.

In the first half of 2021, Systemwide sales from digital channels (which are comprised of the mobile app, delivery and kiosk) were nearly $8 billion across our top six markets, a 70% increase versus the first half of last year.

The Company’s digital experience growth engine, “MyMcDonald’s” is transforming its digital offerings across drive thru, takeaway, delivery, curbside pick-up and dine-in.

Through the digital tools across this platform, customers receive tailored offers, can participate in a loyalty program and order and receive McDonald's food through the channel of their choice.

The Company already has successful loyalty programs in many markets around the world.

In July, the Company launched its loyalty program “MyMcDonald’s Rewards” in the U.S.

and expects to launch in Germany and Canada before the end of 2021, followed by the U.K.

and Australia in 2022.

Over the past three years, the Company has expanded the number of McDonald’s restaurants offering delivery to nearly 32,000 or 80% of its restaurants, and delivery sales have grown significantly.

The Company is building on this progress and enhancing the delivery experience for customers by adding the ability to order on the McDonald’s app, which is already available in several markets around the world, and optimizing operations with a focus on speed and accuracy.

◦ Drive Thru:

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This channel will remain of heightened importance and we expect that it will become even more critical to meet customers’ demand for flexibility and choice.

The Company will build on its drive thru advantage as the vast majority of new restaurant openings in the U.S.

The Company is building on its drive thru advantage, as the vast majority of new restaurant openings in the U.S.

and International Operated Markets will include a drive thru.

The Company’s Strategy is underpinned by a relentless focus on running great restaurants, including improving speed of service to address customer needs.

The Company’s Strategy is underpinned by a relentless focus on running great restaurants to improve speed of service and enhance the customer experience.

The Company believes this Strategy builds on our inherent strengths by harnessing our competitive advantages and investing in innovations that will enhance the customer experience and deliver long-term growth.

First Quarter 2021 Financial Performance

Global comparable sales increased 7.5% for the quarter with all segments reflecting positive results as we began to lap the significant impact of COVID-19 on our global results beginning in March 2020.

Guest counts remained negative for all segments.

comparable sales increased 13.6%.

Comparable sales results benefited from average check growth with double digit positive comparable sales across all dayparts.

The Company's strong national menu and marketing offerings, as well as growth in delivery and digital platforms, contributed to the comparable sales growth.

• International Operated Markets segment comparable sales increased 0.6%.

Results reflected strong positive comparable sales in the U.K., Australia and Canada, partly offset by significantly negative comparable sales in France and Germany.

Comparable sales in many markets continued to be impacted by varying levels of government imposed COVID-19 restrictions on restaurant operations.

• International Developmental Licensed Markets segment comparable sales increased 6.4%.

Monthly comparable sales results improved sequentially throughout the quarter.

The strong quarterly comparable sales were primarily driven by China and Japan.

In addition to the comparable sales results, the Company had the following financial results in the quarter:

• Consolidated revenues increased 9% (5% in constant currencies)

• Systemwide sales increased 12% (8% in constant currencies)

• Consolidated operating income increased 35% (30% in constant currencies) and included $135 million of strategic gains primarily related to the sale of McDonald's Japan stock.

Excluding these gains, operating income increased 27% (22% in constant currencies).

• Diluted earnings per share increased 39% (35% in constant currencies) to $2.05.

Excluding $0.13 per share of strategic gains, diluted earnings per share was $1.92 for the quarter, an increase of 31% (27% in constant currencies).

Management reviews and analyzes business results excluding the effect of foreign currency translation, as well as impairment and other strategic charges and gains, and bases incentive compensation plans on these results, because the Company believes this better represents underlying business trends.

To put even more emphasis on the customer experience, the Company announced in July 2021 the creation of a collaborative team that combines digital, marketing and operations with a focus on the end-to-end customer experience.

The Company believes this enables us to deliver the seamless, omnichannel experience that our customers want and will transform the way they connect with and experience our brand.

Second Quarter and Six Months 2021 Financial Performance

Global comparable sales increased 40.5% for the quarter and 22.6% for the six months.

comparable sales increased 25.9% for the quarter and 19.7% for the six months.

Comparable sales results for both periods benefited from strong average check growth driven by larger order sizes and menu price increases.

Strong national menu and marketing offerings, as well as growth in delivery and digital platforms, also contributed to the comparable sales growth.

• International Operated Markets segment comparable sales increased 75.1% for the quarter and 30.7% for the six months.

Results for the quarter and six months reflected strong positive comparable sales in the U.K.

and France due to significantly fewer restaurant closures and the continued easing of COVID-19 restrictions.

• International Developmental Licensed Markets segment comparable sales increased 32.3% for the quarter and 18.0% for the six months.

Both periods reflected strong comparable sales in Japan and China, while the quarter also benefited from strong comparable sales in Brazil.

In addition to the comparable sales results, the Company had the following financial results for the quarter and six months 2021:

• Consolidated revenues increased 57% (49% in constant currencies) for the quarter and 30% (25% in constant currencies) for the six months.

• Systemwide sales increased 48% (42% in constant currencies) for the quarter and 29% (24% in constant currencies) for the six months.

• Consolidated operating income increased $1,730 million for the quarter and $2,318 million for the six months.

Results included $98 million and $233 million of net strategic gains for the quarter and six months, respectively, primarily related to the sale of McDonald's Japan stock.

• Diluted earnings per share was $2.95 for the quarter and $5.00 for the six months.

Refer to the Net Income and Diluted Earnings per Share section on page 21 for additional details.

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.

The Following Definitions Apply to these Terms as Used Throughout this Form 10-Q:

• Constant currency results exclude the effects of foreign currency translation and are calculated by translating current year results at prior year average exchange rates.

• 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.

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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, which is affected by changes in pricing and product mix.

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.

• Comparable guest counts represent the number of transactions at all restaurants, whether operated by the Company or by franchisees, in operation at least thirteen months including those temporarily closed.

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Changes in Systemwide sales are primarily driven by comparable sales and net restaurant unit expansion.

• 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.

• 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 (excluding the effect of impairment and other strategic charges and gains, as well as material regulatory and other income tax impacts), 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.

CONSOLIDATED OPERATING RESULTS

Quarter Ended

Dollars in millions, except per share data March 31, 2021

Quarter Ended Six Months Ended

Dollars in millions, except per share data June 30, 2021 June 30, 2021

Amount Increase/

(Decrease) Amount Increase/

Sales by Company-operated restaurants $ 2,488.7 56 % $ 4,650.2 28 %

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Other 572.4 (1) 1,062.8 (3)

Other operating (income) expense, net (179.4) n/m

Other operating (income) expense, net (127.1) n/m (306.5) n/m

Total operating costs and expenses 3,196.8 14 6,040.1 4

Operating income 2,281.3 35

Operating income 2,691.1 n/m 4,972.4 87

Interest expense 296.5 (7) 596.5 0

Nonoperating (income) expense, net 28.6 n/m

Income before provision for income taxes 1,952.7 35

Nonoperating (income) expense, net 18.6 n/m 47.2 n/m

Income before provision for income taxes 2,376.0 n/m 4,328.7 n/m

Provision for income taxes 156.7 (5) 572.2 14

Net income $ 1,537.2 39 %

Earnings per common share-basic $ 2.06 38 %

Earnings per common share-diluted $ 2.05 39 %

Net income $ 2,219.3 n/m $ 3,756.5 n/m

Earnings per common share-basic $ 2.97 n/m $ 5.03 n/m

Earnings per common share-diluted $ 2.95 n/m $ 5.00 n/m

n/m Not meaningful

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Benefit/ (Cost)

Quarters Ended March 31, 2021 2020 2021

Quarters Ended June 30, 2021 2020 2021

Revenues $ 5,887.9 $ 3,761.5 $ 279.2

5 unchanged sentences

Earnings per share-diluted $ 2.95 $ 0.65 $ 0.13

• The impact of foreign currency translation on consolidated operating results for the quarter primarily reflected the strengthening of the Euro and Australian Dollar.

Benefit/ (Cost)

Six Months Ended June 30, 2021 2020 2021

Revenues $ 11,012.5 $ 8,475.9 $ 434.0

Company-operated margins 811.6 418.3 35.5

Franchised margins 5,033.0 3,617.3 209.1

Selling, general & administrative expenses 1,221.9 1,236.8 (26.7)

Operating income 4,972.4 2,654.7 216.8

Net income 3,756.5 1,590.7 143.3

Earnings per share-diluted $ 5.00 $ 2.12 $ 0.19

• The impact of foreign currency translation on consolidated operating results for the quarter and six months primarily reflected the strengthening of the Euro, British Pound and Australian Dollar.

Net Income and Diluted Earnings per Share

For the quarter, net income increased 39% (35% in constant currencies) to $1,537.2 million, and diluted earnings per share increased 39% (35% in constant currencies) to $2.05.

For the quarter, net income was $2,219.3 million, and diluted earnings per share was $2.95.

Foreign currency translation had a positive impact of $0.13 on diluted earnings per share.

Results for the quarter reflected stronger operating performance in the U.S.

due to higher sales-driven restaurant margins.

Results for the quarter included $135 million of pre-tax strategic gains, or $0.13 per share, primarily related to the sale of McDonald’s Japan stock, which reduced the Company's ownership by an additional 3%.

For the six months, net income was $3,756.5 million, and diluted earnings per share was $5.00.

Foreign currency translation had a positive impact of $0.19 on diluted earnings per share.

Results for the quarter and six months reflected stronger operating performance across all segments due to higher sales-driven restaurant margins as a result of fewer restaurant closures and the easing of COVID-19 restrictions compared with the prior year.

Results for the quarter included the following:

• Net pre-tax strategic gains of $98 million, or $0.10 per share, primarily related to the sale of McDonald's Japan stock

• $364 million, or $0.48 per share, of income tax benefits related to the remeasurement of deferred taxes as a result of a change in the U.K.

statutory income tax rate

Results for the six months included the following:

• Net pre-tax strategic gains of $233 million, or $0.23 per share, primarily related to the sale of McDonald's Japan stock

• $364 million, or $0.48 per share, of income tax benefits related to the remeasurement of deferred taxes as a result of a change in the U.K.

statutory income tax rate

EARNINGS PER SHARE-DILUTED RECONCILIATION

Quarters Ended March 31,

Quarters Ended June 30, Six Months Ended June 30,

2021 2020 Inc/ (Dec) Inc/ (Dec)

GAAP earnings per share-diluted $ 2.05 $ 1.47 39 % 35 %

Strategic gains (0.13) —

Non-GAAP earnings per share-diluted $ 1.92 $ 1.47 31 % 27 %

Excluding the strategic gains, for the quarter net income increased 30% (26% in constant currencies) and diluted earnings per share increased 31% (27% in constant currencies).

Diluted weighted average shares outstanding were relatively flat with the prior year.

In early March 2020, the Company suspended its share repurchase program.

The share repurchase activity in the current quarter relates to shares withheld for taxes under the Company's equity compensation program.

For the quarter, these shares withheld for tax purposes totaled 0.1 million shares of stock for $21.5 million.

In the first quarter, the Company paid a quarterly dividend of $1.29 per share, or $962.3 million.

RESTAURANT UPDATE

The Company has continued to follow the guidance of expert health authorities to ensure the appropriate precautionary steps are taken to protect the health and safety of our people and our customers.

As a result of COVID-19 resurgences, throughout the quarter there have been numerous instances of government restrictions on restaurant operating hours, limited dine-in capacity and, in some cases, mandated dining room closures particularly in the International Operated Markets.

These restrictions are impacting most of the Company's markets across Europe, particularly those with fewer drive thru restaurant locations.

The Company expects some restrictions in various markets so long as the COVID-19 pandemic continues.

Translation 2021 2020 Inc/ (Dec) Inc/ (Dec)

GAAP earnings per share-diluted $ 2.95 $ 0.65 n/m % n/m % $ 5.00 $ 2.12 n/m % n/m %

Strategic (gains) charges (0.10) 0.01 (0.23) 0.01

Income tax benefits (0.48) — (0.48) —

Non-GAAP earnings per share-diluted $ 2.37 $ 0.66 n/m % n/m % $ 4.29 $ 2.13 n/m % n/m %

n/m Not meaningful

Excluding the strategic gains and income tax benefits, net income was $1,784.8 million and diluted earnings per share was $2.37 for the quarter, and net income was $3,223.1 million and diluted earnings per share was $4.29 for the six months.

In the second quarter, the Company paid a quarterly dividend of $1.29 per share, or $963.3 million, bringing total dividends paid for the six months to $1.9 billion.

The Company's revenues consist of sales by Company-operated restaurants and fees from restaurants operated by franchisees, developmental licensees and affiliates.

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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 the McDonald’s brand, and third-party revenues for the Dynamic Yield business.

Franchised restaurants represented 93% of McDonald's restaurants worldwide at March 31, 2021.

Franchised restaurants represented 93% of McDonald's restaurants worldwide at June 30, 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.

As most revenues are based on a percent of sales, the Company expects that government restrictions as a result of COVID-19 may continue to have a negative impact on revenue in the near term.

The Company granted the deferral of cash collection for certain rent and royalties earned from franchisees in substantially all markets in the first quarter of 2020.

While the Company deferred cash collection, revenue continued to be recognized as sales were incurred.

The extent of the deferrals in 2020 differed in length by market and nearly 95% of the deferrals were collected by March 31, 2021.

Dollars in millions

Quarters Ended March 31, 2021 2020 Inc/ (Dec) Inc/ (Dec)

Quarters Ended June 30, 2021 2020 Inc/ (Dec) Inc/ (Dec)

Company-operated sales

15 unchanged sentences

Total Revenues $ 5,887.9 $ 3,761.5 57 % 49 %

• Total Company-operated sales and franchised revenues increased 9% (5% in constant currencies) for the quarter.

The increase reflected strong sales performance in the U.S.

and the International Developmental Licensed Markets segment driven by China.

Revenues in the International Operated Markets segment were flat with the prior year in constant currencies.

Performance was mixed, with revenue growth impacted by varying levels of government imposed COVID-19 restrictions on restaurant operations.

Results reflected an increase in revenues in the U.K.

and Australia, partly offset by decreases in France and Germany.

In addition, revenues were positively impacted by results in Russia, reflecting both strong comparable sales and unit expansion.

Six Months Ended June 30, 2021 2020 Inc/ (Dec) Inc/ (Dec)

Company-operated sales

$ 1,286.5 $ 1,131.0 14 % 14 %

International Operated Markets 3,015.0 2,188.1 38 31

International Developmental Licensed Markets & Corporate 348.7 300.4 16 7

Total $ 4,650.2 $ 3,619.5 28 % 24 %

Franchised revenues

$ 2,988.2 $ 2,415.9 24 % 24 %

International Operated Markets 2,554.9 1,780.5 43 30

International Developmental Licensed Markets & Corporate 640.5 499.6 28 25

Total $ 6,183.6 $ 4,696.0 32 % 26 %

Total Company-operated sales and Franchised revenues

$ 4,274.7 $ 3,546.9 21 % 21 %

International Operated Markets 5,569.9 3,968.6 40 31

International Developmental Licensed Markets & Corporate 989.2 800.0 24 18

Total $ 10,833.8 $ 8,315.5 30 % 25 %

Total Other revenues $ 178.7 $ 160.4 11 % 8 %

Total Revenues $ 11,012.5 $ 8,475.9 30 % 25 %

• Total Company-operated sales and franchised revenues increased 57% (50% in constant currencies) for the quarter and 30% (25% in constant currencies) for the six months.

Both periods reflected strong sales performance in the International Operated Markets segment driven by the U.K., France and Russia, as well as in the U.S., as government-imposed COVID-19 restrictions were gradually lifted.

Both periods also reflected strong sales performance in the International Developmental Licensed Markets driven by China.

Comparable Sales

The following table presents the percent change in comparable sales for the quarters ended March 31, 2021 and 2020:

The following table presents the percent change in comparable sales for the quarters and six months ended June 30, 2021 and 2020:

Increase/(Decrease)

Quarters Ended March 31,

Quarters Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

25.9 % (8.7) % 19.7 % (4.5) %

International Operated Markets 75.1 (41.4) 30.7 (24.8)

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Systemwide Sales and Franchised Sales

The following table presents the percent change in Systemwide sales for the quarter ended March 31, 2021:

The following table presents the percent change in Systemwide sales for the quarters and six months ended June 30, 2021:

SYSTEMWIDE SALES*

Quarter Ended March 31, 2021

Quarter Ended June 30, 2021 Six Months Ended June 30, 2021

Inc/ (Dec) Inc/ (Dec)

Translation Inc/ (Dec) Inc/ (Dec)

25 % 25 % 19 % 19 %

International Operated Markets 97 78 45 33

1 unchanged sentence

Total 48 % 42 % 29 % 24 %

* Unlike comparable sales, the Company has not excluded hyper-inflationary market results from Systemwide sales as these sales are the basis on which the Company calculates and records revenues.

* Unlike comparable sales, the Company has not excluded sales from hyper-inflationary 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.

2 unchanged sentences

Dollars in millions

Quarters Ended March 31, 2021 2020 Inc/ (Dec) Inc/ (Dec)

Quarters Ended June 30, 2021 2020 Inc/ (Dec) Inc/ (Dec)

$ 11,174.9 $ 8,889.9 26 % 26 %

7 unchanged sentences

Total $ 25,792.1 $ 17,456.5 48 % 42 %

Six Months Ended June 30, 2021 2020 Inc/ (Dec) Inc/ (Dec)

$ 21,264.7 $ 17,763.6 20 % 20 %

International Operated Markets 15,231.6 10,377.6 47 33

International Developmental Licensed Markets & Corporate 12,314.2 9,828.7 25 22

Total $ 48,810.5 $ 37,969.9 29 % 24 %

Ownership type

Conventional franchised $ 36,336.2 $ 28,037.5 30 % 24 %

Developmental licensed 6,845.4 5,284.9 30 27

Foreign affiliated 5,628.9 4,647.5 21 17

Total $ 48,810.5 $ 37,969.9 29 % 24 %

Restaurant Margins

Franchised r estaurant 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.

Compan y-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

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Amount Inc/ (Dec) Inc/ (Dec)

Quarters Ended March 31, 2021 2020

Quarters Ended June 30, 2021 2020

$ 1,275.8 $ 882.7 45 % 45 %

International Operated Markets 868.6 815.3 7 (3)

International Operated Markets 1,129.5 470.5 n/m n/m

International Developmental Licensed Markets & Corporate 321.8 210.3 53 47

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$ 148.1 $ 83.3 78 % 78 %

International Operated Markets 312.1 57.1 n/m n/m

International Developmental Licensed Markets & Corporate n/m n/m n/m n/m

Total $ 467.7 $ 145.3 n/m n/m

Total restaurant margins

$ 1,423.9 $ 966.0 47 % 47 %

International Operated Markets 1,441.6 527.6 n/m n/m

International Developmental Licensed Markets & Corporate n/m n/m n/m n/m

Total $ 3,194.8 $ 1,708.8 87 % 78 %

Amount Inc/ (Dec) Inc/ (Dec)

Six Months Ended June 30, 2021 2020

$ 2,406.9 $ 1,844.0 31 % 31 %

International Operated Markets 1,998.1 1,285.8 55 40

International Developmental Licensed Markets & Corporate 628.0 487.5 29 25

Total $ 5,033.0 $ 3,617.3 39 % 33 %

Company-operated

$ 273.2 $ 163.8 67 % 67 %

International Operated Markets 530.1 254.8 n/m 94

International Developmental Licensed Markets & Corporate n/m n/m n/m n/m

6 unchanged sentences

n/m Not meaningful

• Total restaurant margins increased $323.0 million or 14% (10% in constant currencies) for the quarter.

The increase reflected strong sales performance in the U.S., partly offset by sales declines primarily in France and Germany in the International Operated Markets segment as a result of government imposed COVID-19 restrictions.

The increase in U.S.

franchised margins was partly offset by higher depreciation costs related to investments in restaurant modernization.

• Due to the nature of our operating model, franchised margin expenses (primarily comprised of lease expense and depreciation expense) are mainly fixed, whereas Company-operated restaurant expenses have more variable cost components.

Total restaurant margins included $376.6 million of depreciation and amortization expense for the quarter.

• Franchised margins represented over 85% of restaurant margin dollars for the quarter.

• Total restaurant margins increased $1,486.0 million or 87% (78% in constant currencies) for the quarter and $1,809.0 million or 45% (39% in constant currencies) for the six months, primarily due to strong sales performance across all segments.

Franchised margins represented over 85% of restaurant margin dollars for the quarter and six months.

franchised margins for both periods reflected higher depreciation costs related to investments in restaurant modernization and the comparison to prior year support provided for marketing to accelerate recovery and drive growth.

• Total restaurant margins included $379.0 million and $755.6 million of depreciation and amortization expense for the quarter and six months, respectively.

Selling, General & Administrative Expenses

• Selling, general and administrative expenses decreased $23.4 million or 4% (6% in constant currencies) for the quarter.

The decrease reflected the benefit from comparisons to prior year costs related to the cancellation of the 2020 Worldwide Owner/Operator Convention and contractual obligations as a result of a reduction in scope of certain investments in restaurant technology and research & development.

• Selling, general and administrative expenses as a percent of Systemwide sales was 2.2% and 2.6% for the quarters ended 2021 and 2020, respectively.

• Selling, general and administrative expenses increased $8.5 million or 1% (decreased 1% in constant currencies) for the quarter and decreased $14.9 million or 1% (3% in constant currencies) for the six months.

Both periods reflected a benefit from the comparison to incremental marketing contributions in the prior year, partly offset by higher incentive-based compensation and higher costs for investments in restaurant technology.

• Selling, general and administrative expenses as a percent of Systemwide sales was 2.3% and 3.0% for the six months ended 2021 and 2020, respectively.

Other Operating (Income) Expense, Net

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Dollars in millions

Quarters Ended

Quarters Ended Six Months Ended

June 30, June 30,

2021 2020 2021 2020

Gains on sales of restaurant businesses $ (27.1) $ (0.3) $ (44.7) $ (2.8)

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Asset dispositions and other (income) expense, net 40.6 110.0 49.1 184.4

Impairment and other charges, net (135.2) 1.3

Impairment and other charges (gains), net (97.8) 12.0 (233.0) 13.3

Total $ (127.1) $ 117.2 $ (306.5) $ 175.7

• Gains on sales of restaurant businesses increased for the quarter primarily due to a higher number of restaurant sales, mostly in the U.S.

• Equity in earnings of unconsolidated affiliates increased for the quarter primarily due to improved performance in China.

• Asset dispositions and other expense, net decreased for the quarter primarily due to higher reserves for bad debts in the prior year related to rent and royalty deferrals.

• Impairment and other charges, net for the quarter reflected $128.6 million of strategic gains related to the sale of McDonald’s Japan stock, which reduced the Company's ownership by an additional 3%.

As of March 31, 2021, the Company owned approximately 41% of McDonald's Japan.

Results for the first quarter 2020 reflected the write-off of impaired software that was no longer being used of $14.4 million, mostly offset by $13.0 million of income associated with the Company's sale of its business in the India Delhi market.

Operating Income

• Gains on sales of restaurant businesses increased for the quarter and six months due to a higher number of restaurant sales, primarily in the U.S.

and Australia.

• Equity in earnings of unconsolidated affiliates increased for the quarter and six months due to recovery from the impact of COVID-19 in the prior year.

• Asset dispositions and other expense, net decreased for the quarter and six months.

Prior year results reflected increased reserves for bad debts related to COVID-19 of $45 million for the quarter and $92 million for the six months.

Prior year results for both periods also reflected $31 million of payments to distribution centers for obsolete inventory to support franchisee liquidity.

• Impairment and other charges (gains), net for the quarter and six months 2021 reflected $98 million and $233 million, respectively, primarily due to strategic gains related to the sale of McDonald’s Japan stock, which reduced the Company's total ownership by 3% for the quarter and 6% for the six months.

As of June 30, 2021, the Company owned approximately 38% of McDonald's Japan.

Results for the quarter and six months 2020 reflected the write-off of impaired software of $12 million and $26 million, respectively.

The six months 2020 was partly offset by $13 million of income primarily comprised of a reversal of a reserve associated with the Company's sale of its business in the India Delhi market.

Operating Income

OPERATING INCOME & OPERATING MARGIN

Dollars in millions

Quarters Ended March 31, 2021 2020 Inc/ (Dec) Inc/ (Dec)

Quarters Ended June 30, 2021 2020 Inc/ (Dec) Inc/ (Dec)

$ 1,267.5 $ 735.2 72 % 72 %

International Operated Markets 1,272.0 234.8 n/m n/m

International Developmental Licensed Markets & Corporate 151.6 (8.9) n/m n/m

Total $ 2,691.1 $ 961.1 n/m n/m

Six Months Ended June 30, 2021 2020 Inc/ (Dec) Inc/ (Dec)

$ 2,393.0 $ 1,627.6 47 % 47 %

International Operated Markets 2,225.8 1,113.9 100 81

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Operating margin 45.2 % 31.3 %

Non-GAAP operating Margin 41.9 % n/a

Non-GAAP operating margin 43.0 % 31.5 %

n/m Not meaningful

n/a Not applicable

• Operating Income:

Operating income increased $587.7 million or 35% (30% in constant currencies) for the quarter.

Results included $135 million of strategic gains primarily related to the sale of McDonald's Japan stock.

Excluding the strategic gains, operating income increased 27% (22% in constant currencies).

The operating income increase for the quarter was driven by strong sales performance.

Operating income increased to $2,691.1 million for the quarter and $4,972.4 million for the six months.

Results included $98 million and $233 million for the quarter and six months, respectively, of net strategic gains primarily related to the sale of McDonald's Japan stock.

The operating income increase for the quarter and six months was driven by strong sales performance and higher gains on sales of restaurant businesses in the current year.

• International Operated Markets:

The operating income decrease in constant currencies was primarily due to sales declines in France and Germany, partly offset by increases in Australia, the U.K.

The operating income increase for the quarter and six months was driven by strong sales performance, primarily in the U.K.

• International Developmental Licensed Markets & Corporate:

Excluding the strategic gains, results for the quarter reflected strong sales performance and the benefit from comparisons to prior year G&A costs and reserves for bad debts.

Excluding the strategic gains, results for the quarter and six months reflected strong sales performance driven by Japan and China and the benefit from comparisons to prior year reserves for bad debts, partly offset by higher Corporate general and administrative expenses due to increased incentive-based compensation in the current year.

• Operating Margin:

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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, also impact the contribution of each segment to the consolidated operating margin.

Excluding the strategic gains, the increase in operating margin percent for the quarter was driven by stronger sales performance, higher other operating income and lower G&A costs.

Additionally, temporary restaurant closures, which vary by segment, impact the contribution of each segment to the consolidated operating margin.

Excluding the strategic gains, the increase in operating margin percent for the quarter and six months was driven by stronger sales performance and higher other operating income.

Interest Expense

• Interest expense increased 7% (5% in constant currencies) for the quarter, primarily due to higher average interest rates and the impact of foreign currency translation.

• Interest expense decreased 7% (9% in constant currencies) for the quarter and was flat (decreased 2% in constant currencies) for the six months, primarily due to lower average debt balances partly offset by the impact of foreign currency translation and higher average interest rates.

Nonoperating (Income) Expense, Net

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Dollars in millions

Quarters Ended

Quarters Ended Six Months Ended

June 30, June 30,

2021 2020 2021 2020

Interest income $ (2.4) $ (5.0) $ (4.2) $ (10.4)

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Total $ 18.6 $ (6.7) $ 47.2 $ (38.0)

• The effective income tax rate was 21.3% and 23.4% for the quarters ended 2021 and 2020, respectively.

• The effective income tax rate was 6.6% and 25.4% for the quarters ended 2021 and 2020, respectively, and 13.2% and 24.0% for the six months ended 2021 and 2020, respectively.

• Excluding 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 and the tax impact of the strategic gains, the non-GAAP effective income tax rate was 21.7% for the quarter and 21.3% for the six months.

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 $2.1 billion and exceeded capital expenditures by $1.8 billion for the first quarter 2021.

Cash provided by operations increased $578.0 million compared with the first quarter 2020, primarily due to changes in working capital and improved operating results, partly offset by higher income tax payments.

The Company granted the deferral of cash collections for certain rent and royalties earned from franchisees in substantially all markets in the first quarter of 2020.

While the Company deferred cash collections, revenue continued to be recognized as sales were incurred.

The extent of the deferrals in 2020 differed in length by market and nearly 95% of the deferrals were collected by March 31, 2021.

Cash used for investing activities totaled $244.6 million for the first quarter 2021, a decrease of $273.8 million compared with the first quarter 2020.

The decrease was primarily due to lower capital expenditures and current year proceeds received from the sale of McDonald's Japan stock.

Cash used for financing activities totaled $2.3 billion for the first quarter 2021, which included $1.3 billion in debt repayments.

Cash provided by financing activities totaled $3.5 billion for the first quarter 2020 due to long-term debt issuances of $5.5 billion, which were used to bolster our cash position in anticipation of the adverse macroeconomic and business conditions associated with COVID-19.

Cash provided by operations totaled $3.9 billion and exceeded capital expenditures by $3.0 billion for the six months 2021.

Cash provided by operations increased $2.5 billion compared with the six months 2020, primarily due to improved operating results and changes in working capital, partly offset by higher income tax payments.

Cash used for investing activities totaled $658.1 million for the six months 2021, a decrease of $256.9 million compared with the six months 2020.

The decrease was primarily due to current year proceeds received from the sale of McDonald's Japan stock.

Cash used for financing activities totaled $3.6 billion for the six months 2021, which included $1.7 billion in debt repayments.

Cash provided by financing activities totaled $2.0 billion for the six months 2020 due to long-term debt issuances of $5.5 billion, which were used to bolster our cash position in anticipation of the adverse macroeconomic and business conditions associated with COVID-19.

Outlook for 2021

Based on current conditions, the following information is provided to assist in forecasting the Company's future results for 2021.

• The Company expects 2021 Systemwide sales growth, in constant currencies, in the mid-teens, and expects net restaurant unit expansion to contribute about 1% to 2021 Systemwide sales growth.

Based on current conditions, the following is provided to assist in forecasting the Company's future results for 2021.

• The Company expects 2021 Systemwide sales growth, in constant currencies, in the mid-to-high teens, and expects net restaurant unit expansion to contribute about 1% to 2021 Systemwide sales growth.

• The Company expects operating margin percent to be in the low-to-mid 40% range.

• The Company expects full year 2021 selling, general and administrative expenses of approximately 2.4% of Systemwide sales.

This is revised from our previously provided guidance due to higher incentive-based compensation expense.

• Based on current interest and foreign currency exchange rates, the Company expects interest expense for the full year 2021 to decrease about 1% to 3% due primarily to lower average debt balances as the Company expects to pay down current debt levels to return to pre-COVID-19 leverage ratios.

• The Company expects the effective income tax rate for the full year 2021 to be in the 21% to 23% range.

Some volatility may result in a quarterly tax rate outside of the annual range.

• Based on current interest and foreign currency exchange rates, the Company expects full year 2021 interest expense to decrease about 1% to 3% due primarily to lower average debt balances as the Company expects to reduce current debt levels to return to pre-COVID-19 leverage ratios.

• The Company expects the effective income tax rate for the second half of 2021 to be in the 21% to 23% range.

Some volatility may result in a quarterly tax rate outside of this range.

• The Company expects 2021 capital expenditures to be approximately $2.3 billion, about half of which will be directed towards new unit expansion across the U.S.

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In 2021, about $1.1 billion will be dedicated to our U.S.

business, about $500 million of which will be allocated to over 1,200 restaurant modernization projects.

business, about $550 million of which will be allocated to about 1,300 restaurant modernization projects.

Globally, the Company expects to open over 1,300 restaurants.

We will open nearly 500 restaurants in the U.S.

We will open over 450 restaurants in the U.S.

and International Operated Markets segments, and our developmental licensee and affiliates will contribute capital towards over 850 restaurant openings in their respective markets.

Additionally, the U.S.

expects to close roughly 325 restaurants in 2021;

a majority of which are lower sales volume McDonald's in Walmart locations.

expects to close roughly 325 restaurants in 2021, a majority of which are lower sales volume McDonald's in Walmart locations.

The Company expects about 650 net restaurant additions in 2021.

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Generally speaking, any statement in this report not based upon historical fact is a forward-looking statement.

Forward-looking statements can also be identified by the use of forward-looking words, such as “could,” “should,” “continue,” “estimate,” “forecast,” “intend,” “look,” “may,” “will,” “expect,” “believe,” “anticipate,” “plan,” “remain,” “confident” and “commit” or similar expressions.

Forward-looking statements can also be identified by the use of forward-looking or conditional words, such as “could,” “should,” “can,” “continue,” “estimate,” “forecast,” “intend,” “look,” “may,” “will,” “expect,” “believe,” “anticipate,” “plan,” “remain,” “confident” and “commit” or similar expressions.

In particular, statements regarding our plans, strategies, prospects and expectations regarding our business and industry are forward-looking statements.

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Importantly, the global pandemic resulting from COVID-19 has disrupted global health, economic and market conditions, consumer behavior and McDonald’s global restaurant operations since early 2020.

Local and national governmental mandates or recommendations and public perceptions of the risks associated with the COVID-19 pandemic have caused, and we expect will continue to cause, consumer behavior to change and worsening or volatile economic conditions, each of which could continue to adversely affect our business.

In addition, our global operations have been disrupted to varying degrees and may continue to be disrupted given the unpredictability of the virus, its resurgences and government responses thereto as well as potentially permanent changes to the industry in which we operate.

While we cannot predict the duration or scope of the COVID-19 pandemic, the resurgence of infections or the emergence of new variants in one or more markets, or the impact of vaccines across the globe, the COVID-19 pandemic has negatively impacted our business and is expected to continue to impact our financial results, condition and outlook in a way that may be material.

The COVID-19 pandemic may also heighten other risks disclosed in these Risk Factors, such as, but not limited to, those related to consumer behavior, consumer perceptions of our brand, supply chain interruptions, commodity costs and labor availability and cost.

Local and national governmental mandates or recommendations and public perceptions of the risks associated with the COVID-19 pandemic have caused, and we expect will continue to cause, consumer behavior to change and worsening or volatile economic conditions in certain markets, each of which could continue to adversely affect our business.

In addition, our global operations have been disrupted to varying degrees in different markets and may continue to be disrupted to varying degrees given the unpredictability of the virus, its resurgences and variants and government responses thereto as well as potentially permanent changes to the industry in which we operate.

While we cannot predict the duration or scope of the COVID-19 pandemic, the resurgence of infections or the emergence of new variants in one or more markets, the availability or acceptance of vaccines or vaccination rates across the globe, the COVID-19 pandemic has negatively impacted our business and is expected to continue to impact our financial results, condition and outlook in a way that may be material.

The COVID-19 pandemic may also heighten other risks disclosed in these Risk Factors, such as, but not limited to, those related to consumer behavior, consumer perceptions of our brand, competition, supply chain interruptions, commodity costs and labor availability and cost.

STRATEGY AND BRAND

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• Continue to innovate and differentiate the McDonald's experience, including by preparing and serving our food in a way that balances value and convenience to our customers with profitability;

• Accelerate digital innovation for a fast and easy customer experience;

• Accelerate technology investments for a fast and easy customer experience;

• Continue to run great restaurants by driving efficiencies and expanding capacities while continuing to prioritize health and safety;

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Consumer acceptance of our offerings is subject to change for a variety of reasons, and some changes can occur rapidly.

For example, nutritional, health, environmental

and other scientific studies and conclusions, which constantly evolve and may have contradictory implications, drive popular opinion, litigation and regulation (including initiatives intended to drive consumer behavior) in ways that affect the “informal eating out” (“IEO”) segment or perceptions of our brand, generally or relative to available alternatives.

For example, nutritional, health, environmental and other scientific studies and conclusions, which constantly evolve and may have contradictory implications, drive popular opinion, litigation and regulation (including initiatives intended to drive consumer behavior) in ways that affect the “informal eating out” (“IEO”) segment or perceptions of our brand, generally or relative to available alternatives.

Consumer perceptions may also be affected by adverse commentary from third parties, including through social media or conventional media outlets, regarding the quick-service category of the IEO segment, our brand, our culture, our operations, our suppliers, or our franchisees.

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If the advertising and marketing programs are not successful, or are not as successful as those of our competitors, our sales, guest counts and market share could decrease.

Our investments to enhance the customer experience, including through technology, may not generate the expected returns.

Our investments to enhance the customer experience, including through technology, may not generate the expected results.

Our long-term business objectives depend on the successful Systemwide execution of our strategies.

We continue to build upon our investments in technology and modernization, digital engagement and delivery, in order to transform the customer experience.

As part of these investments, we are placing renewed emphasis on improving our service model and strengthening relationships with customers, in part through digital channels and loyalty initiatives, mobile ordering and payment systems, and enhancing our drive thru technologies, which may not generate expected returns.

We also continue to offer and refine our delivery initiatives, including through growing awareness and trial.

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We may also face challenges and uncertainties in developed markets.

For example, as a result of the U.K.’s exit from the European Union, it is possible that there will be increased regulatory complexities and uncertainty in European or worldwide economic conditions.

For example, the U.K.’s exit from the European Union has caused increased regulatory complexities and uncertainty in European economic conditions, and it is possible that it may also cause uncertainty in worldwide economic conditions.

The decision created volatility in certain foreign currency exchange rates that may or may not continue, and may result in increased supply chain costs for items that are imported from other countries.

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Challenges with respect to labor, including availability and cost, could impact our business and results of operations.

Our success depends in part on our System’s ability to proactively recruit, motivate and retain qualified individuals to work in McDonald's restaurants and to maintain appropriately-staffed restaurants in an intensely competitive environment.

Increased costs associated with recruiting, motivating and retaining qualified employees to work in our Company-operated restaurants, as well as costs to promote awareness of the opportunities of working at McDonald's restaurants, could have a negative impact on our Company-operated margins.

Similar concerns apply to our franchisees.

Our success depends in part on our System’s ability to proactively recruit, motivate and retain qualified individuals to work in McDonald’s restaurants and to maintain appropriately-staffed restaurants in an intensely competitive labor market.

If we or our franchisees are unable to adequately staff McDonald's restaurants, it could negatively impact our operations, including speed of service to customers, and customer satisfaction levels.

The System’s ability to meet its labor needs is generally subject to external factors, including the availability of sufficient workforce in the markets in which we operate, unemployment levels in those markets and prevailing wage rates.

Further, increased costs and competition associated with recruiting, motivating and retaining qualified employees to work in our Company-operated restaurants, as well as costs to promote awareness of the opportunities of working at our restaurants, could have a negative impact on our Company-operated margins.

Similar concerns apply to our franchisees’ profitability.

We are also impacted by the costs and other effects of compliance with U.S.

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We are increasingly reliant upon technology systems, such as point-of-sale, technologies supporting McDonald’s digital and delivery solutions, and technologies that facilitate communication and collaboration with affiliated entities, customers, employees, franchisees, suppliers, service providers or other independent third parties to conduct our business, whether developed and maintained by us or provided by third parties.

Any failure or interruption of these systems could significantly impact our franchisees’ operations, or our customers’ experience and perceptions.

Additionally, we provide certain technology systems to businesses that are unaffiliated with the McDonald’s System and a failure, interruption or breach of these systems may cause harm to those unaffiliated parties, which may result in liability to the Company or reputational harm.

Despite the implementation of security measures, those technology systems could become vulnerable to damage, disability or failures due to theft, fire, power loss, telecommunications failure or other catastrophic events.

Certain technology systems may also become vulnerable, unreliable or inefficient in cases where technology vendors limit or terminate product support and maintenance.

Our increasing reliance on third party systems also present the risks faced by the third party’s business, including the operational, security and credit risks of those parties.

If those systems were to fail or otherwise be unavailable, or if business continuity or disaster recovery plans were not effective, and we were unable to recover in a timely manner, we could experience an interruption in our or our franchisees’ operations.

Furthermore, security incidents or breaches have from time to time occurred and may in the future occur involving our systems, the systems of the parties we communicate or collaborate with (including franchisees), or those of third-party providers.

Any failure or interruption of these systems could significantly impact our operations, our franchisees’ operations, or our customers’ experience and perceptions.

Security incidents or breaches have from time to time occurred and may in the future occur involving our systems, the systems of the parties we communicate or collaborate with (including franchisees), or those of third-party providers.

These may include such things as unauthorized access, phishing attacks, account takeovers, denial of service, computer viruses, introduction of malware or ransomware and other disruptive problems caused by hackers.

These technology systems contain personal, financial and other information that is entrusted to us by our customers, our employees, our franchisees, our business customers and other third parties, as well as financial, proprietary and other confidential information related to our business.

A security breach could result in disruptions, shutdowns, theft or unauthorized disclosure of personal, financial, proprietary or other confidential information.

The actual or alleged occurrence of any of these incidents could result in reputational damage, adverse publicity, loss of consumer confidence, reduced sales and profits, complications in executing our growth initiatives and regulatory and legal risk, including criminal penalties or civil liabilities.

Despite response procedures and measures in place in the event of an incident, a security breach could result in disruptions, shutdowns, theft or unauthorized disclosure of personal, financial, proprietary or other confidential information.

The actual or alleged occurrence of any of these incidents could result in mitigation costs, reputational damage, adverse publicity, loss of consumer confidence, reduced sales and profits, complications in executing our growth initiatives and regulatory and legal risk, including criminal penalties or civil liabilities.

We also provide certain technology systems to businesses that are unaffiliated with the McDonald’s System and a failure, interruption or breach of these systems may cause harm to those unaffiliated parties, which may result in liability to the Company or reputational harm.

Despite the implementation of security measures, any of these technology systems could become vulnerable to damage, disability or failures due to theft, fire, power loss, telecommunications failure or other catastrophic events.

Certain technology systems may also become vulnerable, unreliable or inefficient in cases where technology vendors limit or terminate product support and maintenance.

Our increasing reliance on third-party systems also subjects us to risks faced by the third-party’s business, including the operational, security and credit risks of those parties.

If technology systems were to fail or otherwise be unavailable, or if business continuity or disaster recovery plans were not effective, and we were unable to recover in a timely manner, we could experience an interruption in our or our franchisees’ operations.

LEGAL AND REGULATORY

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Unfavorable general economic conditions could adversely affect our business and financial results.

Our results of operations are substantially affected by economic conditions, which can vary significantly by market and can impact consumer disposable income levels and spending habits.

Our results of operations are substantially affected by economic conditions, including inflationary pressures, which can vary significantly by market and can impact consumer disposable income levels and spending habits.

Economic conditions can also be impacted by a variety of factors including hostilities, epidemics, pandemics and actions taken by governments to manage national and international economic matters, whether through austerity, stimulus measures or trade measures, and initiatives intended to control wages, unemployment, credit availability, inflation, taxation and other economic drivers.

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The commodity markets for some of the ingredients we use, such as beef and chicken, are particularly volatile due to factors such as seasonal shifts, climate conditions, industry demand, international commodity markets, food safety concerns, product recalls and government regulation, all of which are beyond our control and, in many instances, unpredictable.

We can only partially address future price risk through hedging and other activities, and therefore increases in commodity costs could have an adverse impact on our profitability.

Our System can only partially address future price risk through hedging and other activities, and therefore increases in commodity costs could have an adverse impact on our profitability.

A decrease in our credit ratings or an increase in our funding costs could adversely affect our profitability.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis