What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-11-02 compared with 2021-08-04 · 189 added, 191 removed, 476 unchanged (44% 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 39,396 restaurants at June 30, 2021, 36,717 were franchised, which is 93% of McDonald's restaurants.

Of the 39,676 restaurants at September 30, 2021, 36,986 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.

Significant reportable segments include the United States ("U.S.") and International Operated Markets.

In addition, throughout this report we present the International Developmental Licensed Markets & Corporate segment, which includes markets in over 80 countries, as well as Corporate activities.

In addition, we have the International Developmental Licensed Markets & Corporate segment, which includes markets in over 80 countries, as well as Corporate activities.

McDonald’s franchised restaurants are owned and operated under one of the following structures - conventional franchise, developmental license or affiliate.

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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.

COVID-19 continued to result in some instances of government restrictions on restaurant operating hours, limited dine-in capacity and, in some cases, dining room closures.

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

Conventional Franchise

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Franchisees are responsible for reinvesting capital in their businesses over time.

In addition, to accelerate implementation of certain initiatives, the Company may co-invest with franchisees to fund improvements to their restaurants or their operating systems.

In addition, to accelerate implementation of certain initiatives, the Company may co-invest with franchisees to fund improvements to their restaurants or operating systems.

These investments, developed in collaboration with franchisees, are designed to cater to consumer preferences, improve local business performance and increase the value of our brand through the development of modernized, more attractive and higher revenue generating restaurants.

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Developmental License or Affiliate

Under a developmental license or affiliate arrangement, licensees are responsible for operating and managing the business, providing capital (including the real estate interest) and developing and opening new restaurants.

Under a developmental license or affiliate arrangement, licensees are responsible for operating and managing their businesses, providing capital (including the real estate interest) and developing and opening new restaurants.

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.

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In 2020, the Company announced the Accelerating the Arches (the “Strategy”) growth strategy.

The Strategy encompasses all aspects of McDonald’s business as the leading global omni-channel restaurant brand, and includes a refreshed purpose, updated values, and growth pillars that build on the Company’s competitive advantages.

Purpose, Mission, & Values

The Strategy, which encompasses all aspects of McDonald’s business as the leading global omni-channel restaurant brand, reflects a refreshed purpose, updated values and growth pillars that build on the Company’s competitive advantages.

Purpose, Mission and Values

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

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• Purpose to feed and foster communities;

• Mission to create delicious feel-good moments for everyone, and

• Mission to create delicious feel-good moments for everyone;

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

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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.

in February 2021.

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.

We also see a significant opportunity with coffee, and markets are leveraging the McCafé brand, experience, value and quality to drive long-term growth.

• D ouble Down on the 3D's:

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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.

In the first nine months of 2021, Systemwide sales from digital channels (which are comprised of the mobile app, delivery and kiosk) were about $13 billion, or over 20% of Systemwide sales in our top six markets.

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

Through the digital tools across these platforms, customers can receive tailored offers, 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.

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

and Germany in the third quarter of 2021 and expects to complete the roll-out of loyalty programs across its top six markets in the first half of 2022.

Since its launch in July, the U.S.

loyalty program has enrolled 21 million members, with over 15 million active loyalty members earning rewards.

Over the past three years, the Company has expanded the number of McDonald’s restaurants offering delivery to over 32,000, or approximately 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 and optimizing operations with a focus on speed and accuracy.

◦ Drive Thru:

The Company has drive thru locations in over 25,000 restaurants globally, including nearly 95% of the over 13,000 locations in the U.S.

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.

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

The Company is building on its drive thru advantage, as the vast majority of new restaurant openings in 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 to improve speed of service and enhance the customer experience.

The Company’s Strategy is underpinned by a relentless focus on running great restaurants and leveraging our size, scale and agility to adapt and adjust to operating conditions and consumer demands.

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.

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.

This is aligned with the Company’s capital allocation philosophy of first reinvesting in the business to drive profitable growth and then returning all free cash flow to shareholders over time.

Third Quarter and Nine Months 2021 Financial Performance

Global comparable sales increased 12.7% for the quarter and 18.8% for the nine months.

comparable sales increased 9.6% for the quarter and 16.1% for the nine months.

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

Strong menu and marketing promotions contributed to the comparable sales growth, as well as growth in digital channels, which benefited from the launch of the Company's loyalty program, "MyMcDonald’s Rewards," during the quarter.

• International Operated Markets segment comparable sales increased 13.9% for the quarter and 23.6% for the nine months.

Results for both periods reflected very strong positive comparable sales in the U.K.

as well as positive comparable sales in Canada and France, driven by strong operating performance and significantly fewer restaurant closures with the easing of COVID-19 restrictions.

Restrictions in the quarter muted comparable sales in Australia.

• International Developmental Licensed Markets segment comparable sales increased 16.7% for the quarter and 17.5% for the nine months.

Both periods reflected strong positive comparable sales in Japan and Latin America.

Results for the nine months were also driven by strong positive comparable sales in China, which were partly offset in the quarter due to the impact of COVID-19 resurgences.

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

• Consolidated revenues increased 14% (13% in constant currencies) for the quarter and 24% (20% in constant currencies) for the nine months.

• Systemwide sales increased 16% (14% in constant currencies) for the quarter and 24% (20% in constant currencies) for the nine months.

• Consolidated operating income increased 18% (17% in constant currencies) to $2,987 million for the quarter and 54% (49% in constant currencies) to $7,959 million for the nine months.

Refer to the Operating Income section on page 27 for additional details.

• Diluted earnings per share was $2.86 for the quarter and $7.86 for the nine months.

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

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• Systemwide sales include sales at all restaurants, whether operated by the Company or by franchisees.

This includes sales from digital channels, which are comprised of the mobile app, delivery and kiosk at both Company-operated and franchised restaurants.

While franchised sales are not recorded as revenues by the Company, management believes the information is important in understanding the Company's financial performance because these sales are the basis on which the Company calculates and records franchised revenues and are indicative of the financial health of the franchisee base.

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CONSOLIDATED OPERATING RESULTS

Quarter Ended Six Months Ended

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

Quarter Ended Nine Months Ended

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

Amount Increase/

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Other 559.6 23 1,622.4 5

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

Other operating (income) expense, net (198.8) (31) (505.3) n/m

Total operating costs and expenses 3,214.8 11 9,254.9 6

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

Operating income 2,986.5 18 7,958.9 54

Interest expense 293.7 (5) 890.2 (2)

Nonoperating (income) expense, net 1.4 n/m 48.6 n/m

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

Income before provision for income taxes 2,691.4 21 7,020.1 63

Provision for income taxes 541.5 19 1,113.7 16

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

Net income $ 2,149.9 22 % $ 5,906.4 76 %

Earnings per common share-basic $ 2.88 22 % $ 7.91 76 %

Earnings per common share-diluted $ 2.86 22 % $ 7.86 76 %

n/m Not meaningful

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Benefit/ (Cost)

Quarters Ended June 30, 2021 2020 2021

Quarters Ended September 30, 2021 2020 2021

Revenues $ 6,201.3 $ 5,418.1 $ 87.9

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Benefit/ (Cost)

Six Months Ended June 30, 2021 2020 2021

Nine Months Ended September 30, 2021 2020 2021

Revenues $ 17,213.8 $ 13,894.0 $ 521.9

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Earnings per share-diluted $ 7.86 $ 4.47 $ 0.23

• 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.

• The impact of foreign currency translation on consolidated operating results for both periods in 2021 primarily reflected the strengthening of the British Pound, Euro and Australian Dollar.

Net Income and Diluted Earnings per Share

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

For the quarter, net income increased 22% (21% in constant currencies) to $2,149.9 million, and diluted earnings per share increased 22% (20% in constant currencies) to $2.86.

Foreign currency translation had a positive impact of $0.04 on diluted earnings per share.

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

For the nine months, net income increased 76% (71% in constant currencies) to $5,906.4 million, and diluted earnings per share increased 76% (71% in constant currencies) to $7.86.

Foreign currency translation had a positive impact of $0.23 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.

Results for 2021 included the following:

• Net pre-tax strategic gains of $106 million, or $0.10 per share, for the quarter and $339 million, or $0.33 per share, for the nine months, primarily related to the sale of McDonald's Japan stock, which completed the planned partial divestiture of the Company's ownership in McDonald’s Japan

• $364 million, or $0.48 per share, for the nine months 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 2020 included the following:

• Net pre-tax strategic gains of $139 million, or $0.13 per share, for the quarter and $125 million, or $0.12 per share, for the nine months, primarily related to the sale of McDonald's Japan stock

EARNINGS PER SHARE-DILUTED RECONCILIATION

Quarters Ended June 30, Six Months Ended June 30,

Quarters Ended September 30, Nine Months Ended September 30,

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

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

GAAP earnings per share-diluted $ 2.86 $ 2.35 22 % 20 % $ 7.86 $ 4.47 76 % 71 %

Strategic gains (0.10) (0.13) (0.33) (0.12)

Income tax benefits — — (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.

Non-GAAP earnings per share-diluted $ 2.76 $ 2.22 24 % 23 % $ 7.05 $ 4.35 62 % 57 %

Excluding the strategic gains, net income for the quarter increased 25% (23% in constant currencies) and diluted earnings per share increased 24% (23% in constant currencies).

For the nine months, net income and diluted earnings per share each increased 62% (57% in constant currencies) after excluding the net strategic gains and income tax benefits.

In the third quarter, the Company paid a quarterly dividend of $1.29 per share, or $964 million, bringing total dividends paid for the nine months to $2.9 billion.

Additionally, the Company declared a 7% increase in its quarterly cash dividend to $1.38 per share, payable on December 15, 2021, and announced the resumption of its share repurchase program.

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 June 30, 2021.

Franchised restaurants represented 93% of McDonald's restaurants worldwide at September 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.

COVID-19 continued to result in some instances of government restrictions on restaurant operating hours, limited dine-in capacity and, in some cases, dining room closures.

Dollars in millions

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

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

Company-operated sales

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Total Revenues $ 6,201.3 $ 5,418.1 14 % 13 %

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

Nine Months Ended September 30, 2021 2020 Inc/ (Dec) Inc/ (Dec)

Company-operated sales

15 unchanged sentences

Total Revenues $ 17,213.8 $ 13,894.0 24 % 20 %

• 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.

• Total Company-operated sales and franchised revenues increased 15% (13% in constant currencies) for the quarter and 24% (20% in constant currencies) for the nine months.

Revenues in both periods benefited from strong sales performance across all segments and was driven by the U.K., Russia and France in the International Operated Markets segment and by Latin America and Japan in the International Developmental Licensed Markets segment.

China also had a positive impact on revenue growth in both periods in the International Developmental Licensed Markets segment as a result of restaurant expansion.

Comparable Sales

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

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

Increase/(Decrease)

Quarters Ended June 30, Six Months Ended June 30,

Quarters Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

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Systemwide Sales and Franchised Sales

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

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

SYSTEMWIDE SALES*

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

Quarter Ended September 30, 2021 Nine Months Ended September 30, 2021

Inc/ (Dec) Inc/ (Dec)

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Dollars in millions

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

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

$ 11,155.0 $ 10,180.3 10 % 10 %

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Total $ 27,349.7 $ 23,629.5 16 % 15 %

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

Nine Months Ended September 30, 2021 2020 Inc/ (Dec) Inc/ (Dec)

$ 32,419.7 $ 27,943.9 16 % 16 %

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Amount Inc/ (Dec) Inc/ (Dec)

Quarters Ended June 30, 2021 2020

Quarters Ended September 30, 2021 2020

$ 1,260.1 $ 1,122.1 12 % 12 %

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

International Operated Markets 1,302.4 1,059.9 23 20

International Developmental Licensed Markets & Corporate 355.1 294.9 21 20

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$ 126.6 $ 118.7 7 % 7 %

International Operated Markets 312.1 57.1 n/m n/m

International Operated Markets 355.5 289.5 23 20

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

Total $ 467.7 $ 145.3 n/m n/m

Total $ 490.0 $ 410.1 19 % 17 %

Total restaurant margins

$ 1,386.7 $ 1,240.8 12 % 12 %

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

International Operated Markets 1,657.9 1,349.4 23 20

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

1 unchanged sentence

Amount Inc/ (Dec) Inc/ (Dec)

Six Months Ended June 30, 2021 2020

Nine Months Ended September 30, 2021 2020

$ 3,667.0 $ 2,966.1 24 % 24 %

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$ 399.8 $ 282.5 42 % 42 %

International Operated Markets 530.1 254.8 n/m 94

International Operated Markets 885.6 544.3 63 55

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

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n/m Not meaningful

• 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.

• Total restaurant margins increased $520.6 million or 18% (16% in constant currencies) for the quarter and $2,329.6 million or 34% (29% in constant currencies) for the nine months, reflecting strong sales performance across all segments.

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

franchised margins for both periods in 2021 reflected higher depreciation costs related to investments in restaurant modernization, while the nine months benefited from the comparison to prior year support provided for marketing to accelerate recovery and drive growth.

• Total restaurant margins included $383.2 million and $1,138.8 million of depreciation and amortization expense for the quarter and nine months, respectively.

Selling, General & Administrative Expenses

• 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.

• Selling, general and administrative expenses increased $113.2 million or 21% (21% in constant currencies) for the quarter and $98.3 million or 6% (4% in constant currencies) for the nine months.

Both periods reflected an increase in incentive-based compensation expense driven by stronger than planned operating results and higher costs for investments in restaurant technology.

Results for the nine months benefited from the comparison to incremental marketing contributions in the prior year.

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

Other Operating (Income) Expense, Net

1 unchanged sentence

Dollars in millions

Quarters Ended Six Months Ended

June 30, June 30,

Quarters Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

4 unchanged sentences

Total $ (198.8) $ (152.2) $ (505.3) $ 23.5

• 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.

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

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

Results for both periods were partly offset by lower equity in earnings in Japan as a result of the Company's reduced ownership in McDonald's Japan when compared to 2020.

• Asset dispositions and other (income) expense, net decreased for the quarter and nine months.

Both periods reflected a gain on the strategic sale of restaurant properties and the benefit from comparison to prior year costs related to the closings of certain McDonald's Walmart store locations in the U.S.

The nine months 2020 also reflected a net increase of reserves for bad debts as well as payments to distribution centers for obsolete inventory to support franchisee liquidity.

• Impairment and other charges (gains), net for the quarter and nine months 2021 reflected $106 million and $339 million, respectively, primarily due to strategic gains related to the sale of McDonald’s Japan stock, which reduced the Company's total ownership to 35%.

Results for the quarter and nine months 2020 reflected $139 million of pre-tax strategic gains related to the sale of McDonald's Japan stock.

The nine months 2020 also reflected the write-off of impaired software of $26 million, partly offset by $13 million of income associated with the Company's sale of its business in the India Delhi market.

Operating Income

1 unchanged sentence

Dollars in millions

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

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

$ 1,254.9 $ 1,078.3 16 % 16 %

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)

International Operated Markets 1,519.6 1,197.9 27 24

International Developmental Licensed Markets & Corporate 212.0 250.2 (15) (15)

Total $ 2,986.5 $ 2,526.4 18 % 17 %

Nine Months Ended September 30, 2021 2020 Inc/ (Dec) Inc/ (Dec)

$ 3,647.9 $ 2,705.9 35 % 35 %

6 unchanged sentences

• Operating Income:

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.

Operating income increased $460.1 million or 18% (17% in constant currencies) for the quarter and $2,777.8 million or 54% (49% in constant currencies) for the nine months.

Results for 2021 included $106 million and $339 million for the quarter and nine months, respectively, of net strategic gains primarily related to the sale of McDonald's Japan stock.

Results for the quarter and nine months 2020 included $139 million and $125 million, respectively, of net strategic gains, primarily related to the sale of McDonald's Japan stock.

The operating income increase for the quarter and nine months was driven by strong sales performance and higher gains on sales of restaurant businesses in the current year, while the nine months also reflected the comparison to approximately $100 million of support for marketing to accelerate recovery and drive growth in the prior year.

• International Operated Markets:

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

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

The nine months also benefited from comparison to over $100 million of support for marketing to accelerate recovery and drive growth and increased reserves for bad debt in the prior year.

• International Developmental Licensed Markets & Corporate:

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.

Excluding the strategic gains, results for the quarter and nine months reflected strong sales performance across most of the segment and reflected higher Corporate general and administrative expenses due to increased incentive-based compensation expense in the current year.

The nine months also benefited from the comparison to prior year reserves for bad debts.

• Operating Margin:

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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.

Excluding the strategic gains, the increase in operating margin percent for the quarter and nine months was due to strong sales-driven restaurant margin growth and higher other operating income.

Interest Expense

• 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.

• Interest expense decreased 5% (6% in constant currencies) for the quarter and 2% (4% in constant currencies) for the nine months, primarily due to lower average debt balances, partly offset by higher average interest rates and the impact of foreign currency translation.

Nonoperating (Income) Expense, Net

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Dollars in millions

Quarters Ended Six Months Ended

June 30, June 30,

Quarters Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

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Total $ 1.4 $ (0.8) $ 48.6 $ (38.8)

• 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.

• 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.

• 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.

statutory income tax rate and the tax impact of the strategic gains, the non-GAAP effective income tax rate for the nine months was 20.7%.

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 $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

Cash provided by operations totaled $6.5 billion and exceeded capital expenditures by $5.1 billion for the nine months 2021.

Cash provided by operations increased $2.2 billion compared with the nine 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 $1.0 billion for the nine months 2021, a decrease of $139.9 million compared with the nine months 2020.

The decrease was primarily due to higher current year proceeds received from the sale of McDonald's Japan stock, partly offset by higher capital expenditures.

Cash used for financing activities totaled $4.5 billion for the nine months 2021, which included $1.7 billion in debt repayments.

Cash used for financing activities totaled $313.4 million for the nine 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.

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 2021 Systemwide sales growth, in constant currencies, in the 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.

• 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.

• 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.

• The Company expects the effective income tax rate for the fourth quarter to be about 21%.

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

and International Operated Markets.

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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 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.

Globally, the Company expects to open about 1,500 restaurants.

We will open about 425 restaurants in the U.S.

and International Operated Markets segments, and our developmental licensee and affiliates will contribute capital towards approximately 1,075 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.

The Company expects about 650 net restaurant additions in 2021.

The Company expects approximately 800 net restaurant additions in 2021.

• The Company expects to achieve a free cash flow conversion rate greater than 90%.

Recent Accounting Pronouncements

Recent accounting pronouncements are discussed in Part I, Item 1, page 9 of this Form 10-Q.

Recent accounting pronouncements are discussed in the "Recent Accounting Pronouncements" section in Part I, Item 1 of this report.

Risk Factors and Cautionary Statement Regarding Forward-Looking Statements

The information in this report includes forward-looking statements about future events and circumstances and their effects upon revenues, expenses and business opportunities.

The information in this report contains forward-looking statements about future events and circumstances and their effects upon revenues, expenses and business opportunities.

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

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

They reflect our expectations, are not guarantees of performance and speak only as of the date the statement is made.

They reflect our expectations, are not guarantees of performance and speak only as of the dates the statements are made.

Except as required by law, we do not undertake to update such forward-looking statements.

Our business results are subject to a variety of risks, including those that are reflected in the following considerations and risks, as well as elsewhere in our filings with the SEC.

The considerations and risks that follow are organized within relevant headings but may be relevant to other headings as well.

If any of these considerations or risks materialize, our expectations (or the underlying assumptions) may change and our performance may be adversely affected.

You should not rely unduly on forward-looking statements.

Our business results are subject to a variety of risks, including those that are described below and elsewhere in our filings with the SEC.

The risks described below are not the only risks we face.

Additional risks not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business.

If any of these risks materialize or intensify, our expectations (or the underlying assumptions) may change and our performance may be adversely affected.

GLOBAL PANDEMIC

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Health epidemics or pandemics can adversely affect consumer spending and confidence levels and supply availability and costs, as well as the local operations in impacted markets, all of which can affect our financial results, condition and outlook.

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 in certain markets, each of which could continue to adversely affect our business.

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, and has resulted in increased pressure on labor availability and supply chain management.

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, worsening or volatile economic conditions in certain markets, and increased regulatory complexity and compliance costs, 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.

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 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, including, 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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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.

If we are unsuccessful in addressing adverse commentary or perceptions, whether or not accurate, our brand and our financial results may suffer.

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 or our brand, culture, operations, suppliers or franchisees.

If we are unsuccessful in addressing adverse commentary or perceptions, whether or not accurate, our brand and financial results may suffer.

Additionally, the ongoing relevance of our brand may depend on the success of our sustainability initiatives, which require Systemwide coordination and alignment.

We are working to manage risks and costs to us, our franchisees and our supply chain of any effects of climate change, greenhouse gases, and diminishing energy and water resources.

We are working to manage the risks and costs to us, our franchisees and our supply chain of any effects of climate change, greenhouse gases, and diminishing energy and water resources.

These risks include any increased public focus, including by governmental and nongovernmental organizations, on these and other environmental sustainability matters, such as packaging and waste, animal health and welfare, deforestation and land use.

These risks also include any increased pressure to make commitments, set targets or establish additional goals and take actions to meet them, which could expose us to market, operational and execution costs or risks.

Our brand trust also depends on how we address social risks, including through our increased focus on human capital initiatives and diversity, equity and inclusion ( “ DEI”).

We expect our DEI strategy to represent a step change in how we view equitable opportunity across our System.

Additionally, we have announced Global Brand Standards that will apply to McDonald’s operations worldwide, including both Company-owned and franchised restaurants.

Additionally, we have announced Global Brand Standards that will apply to McDonald’s operations worldwide, including both Company-operated and franchised restaurants.

If we are not effective in addressing social and environmental responsibility matters or achieving relevant social or sustainability goals, our brand trust may suffer.

In particular, business incidents or practices, whether actual or perceived, that erode consumer trust or confidence, particularly if such incidents or practices receive considerable publicity or result in litigation, can significantly reduce brand value and have a negative impact on our financial results.

In particular, business incidents or practices, whether actual or perceived, that erode consumer trust or confidence, particularly if they receive considerable publicity or result in litigation, can significantly reduce our brand value and have a negative impact on our financial results.

If we do not anticipate and address evolving consumer preferences and effectively execute our pricing, promotional and marketing plans, our business could suffer.

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In order to do so, we need to anticipate and respond effectively to continuously shifting consumer demographics and trends in food sourcing, food preparation, food offerings and consumer preferences and behaviors in the IEO segment.

If we are not able to predict, or quickly and effectively respond to, these changes, or our competitors predict or respond more effectively, our financial results could be adversely impacted.

If we are not able to predict, or quickly and effectively respond to, these changes, or if our competitors predict or respond more effectively, our financial results could be adversely impacted.

Our ability to build upon our strengths and advantages also depends on the impact of pricing, promotional and marketing plans across the System, and the ability to adjust these plans to respond quickly and effectively to evolving customer preferences, as well as shifting economic and competitive conditions.

Existing or future pricing strategies and marketing plans, as well as the value proposition they represent, are expected to continue to be important components of our business strategy.

however, they may not be successful, or may not be as successful as the efforts of our competitors, and could negatively impact sales, guest counts and market share.

However, they may not be successful, or may not be as successful as the efforts of our competitors, which could negatively impact sales, guest counts and market share.

Additionally, we operate in a complex and costly advertising environment.

Our marketing and advertising programs may not be successful in reaching our customers in the way we intend.

Our success depends in part on whether the allocation of our advertising and marketing resources across different channels, including digital marketing, allows us to reach our customers effectively and efficiently, and in ways that are meaningful to them.

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 success depends in part on whether the allocation of our advertising and marketing resources across different channels, including digital marketing, allows us to reach our customers effectively, efficiently and in ways that are meaningful to them.

If our 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 results.

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We compete primarily in the IEO segment, which is highly competitive.

We also face sustained, intense competition from traditional, fast casual and other competitors, which may include many non-traditional market participants such as convenience stores, grocery stores and coffee shops as well as online retailers.

We expect our environment to continue to be highly competitive, and our results in any particular reporting period may be impacted by a contracting IEO segment or by new or continuing actions, product offerings or consolidation of our competitors and third-party partners, which may have a short- or long-term impact on our results.

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in which we do business or may do business in the future and may never be registered in all of these countries.

It may be costly and time consuming to protect our intellectual property, and the steps we have taken to protect our intellectual property in the U.S.

It may be costly and time consuming to protect our intellectual property, and the steps we have taken to do so in the U.S.

and foreign countries may not be adequate.

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Our international success depends in part on the effectiveness of our strategies and brand-building initiatives to reduce our exposure to such governmental actions.

Additionally, challenges and uncertainties are associated with operating in developing markets, which may entail a relatively higher risk of political instability, economic volatility, crime, corruption and social and ethnic unrest.

Such challenges may be exacerbated in many cases by a lack of an independent and experienced judiciary and uncertainties in how local law is applied and enforced, including in areas most relevant to commercial transactions and foreign investment.

Additionally, there are challenges and uncertainties associated with operating in developing markets, which may entail a relatively higher risk of political instability, economic volatility, crime, corruption and social and ethnic unrest.

In many cases, such challenges may be exacerbated by the lack of an independent and experienced judiciary and uncertainty in how local law is applied and enforced, including in areas most relevant to commercial transactions and foreign investment.

An inability to manage effectively the risks associated with our international operations could have a material adverse effect on our business and financial condition.

We may also face challenges and uncertainties in developed markets.

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.

For example, the U.K.’s exit from the European Union has caused increased regulatory complexities and uncertainty in European economic conditions and 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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Our franchise business model presents a number of risks.

The Company's success as a heavily franchised business relies to a large degree on the financial success and cooperation of our franchisees, including our developmental licensees and affiliates.

Our success as a heavily franchised business relies to a large degree on the financial success and cooperation of our franchisees, including our developmental licensees and affiliates.

Our restaurant margins arise from two sources:

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Business risks affecting our operations also affect our franchisees.

In particular, our franchisees have also been significantly impacted by the COVID-19 pandemic and the volatility associated with the pandemic.

If franchisee sales trends worsen or volatility persists, our financial results will continue to be negatively affected, which may be material.

In particular, our franchisees have also been impacted by the COVID-19 pandemic and the volatility associated with the pandemic.

If franchisee sales trends worsen or volatility persists, our financial results could be negatively affected, which may be material.

Our success also relies on the willingness and ability of our independent franchisees and affiliates to implement major initiatives, which may include financial investment, and to remain aligned with us on operating, value/promotional and capital-intensive reinvestment plans.

The ability of franchisees to contribute to the achievement of our plans is dependent in large part on the availability to them of funding at reasonable interest rates and may be negatively impacted by the financial markets in general, by the creditworthiness of our franchisees or the Company or by banks’ lending practices.

The ability of franchisees to contribute to the achievement of our plans is dependent in large part on the availability to them of funding at reasonable interest rates and may be negatively impacted by the financial markets in general, by their or our creditworthiness or by banks’ lending practices.

If our franchisees are unwilling or unable to invest in major initiatives or are unable to obtain financing at commercially reasonable rates, or at all, our future growth and results of operations could be adversely affected.

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Our potential exposure to reputational and other harm regarding our workplace practices or conditions or those of our independent franchisees or suppliers, including those giving rise to claims of harassment or discrimination (or perceptions thereof) or workplace safety, could have a negative impact on consumer perceptions of us and our business.

Additionally, economic action, such as boycotts, protests, work stoppages or campaigns by labor organizations, could adversely affect us (including our ability to recruit and retain talent) or the franchisees and suppliers that are also part of the McDonald’s System and whose performance may have a material impact on our results.

Additionally, economic action, such as boycotts, protests, work stoppages or campaigns by labor organizations, could adversely affect us (including our ability to recruit and retain talent) or our franchisees and suppliers that are also part of the McDonald’s System and whose performance may have a material impact on our results.

Effective succession planning is important to our continued success.

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However, food safety events, including instances of food-borne illness, occur within the food industry and our System from time to time and could occur in the future.

Instances of food tampering, food contamination or food-borne illness, whether actual or perceived, could adversely affect our brand and reputation as well as our revenues and profits.

Instances of food tampering, food contamination or food-borne illness, whether actual or perceived, could adversely affect our brand and reputation, as well as our financial results.

If we do not effectively manage our real estate portfolio, our operating results may be negatively impacted.

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As we generally secure long-term real estate interests for our restaurants, we have limited flexibility to quickly alter our real estate portfolio.

The competitive business landscape continues to evolve in light of changing business trends;

consumer preferences;

trade area demographics;

consumer use of digital, delivery and drive thru;

local competitive positions and other economic factors.

The competitive business landscape continues to evolve in light of changing business trends, consumer preferences, trade area demographics, consumer use of digital, delivery and drive thru, local competitive positions and other economic factors.

If our restaurants are not located in desirable locations, or if we do not evolve in response to these factors, it could adversely affect Systemwide sales and profitability.

Our real estate values and the costs associated with our real estate operations are also impacted by a variety of other factors, including governmental regulations;

zoning, tax and eminent domain laws;

interest rate levels and the cost of financing.

Our real estate values and the costs associated with our real estate operations are also impacted by a variety of other factors, including governmental regulations, insurance, zoning, tax and eminent domain laws, interest rate levels and the cost of financing.

A significant change in real estate values, or an increase in costs as a result of any of these factors, could adversely affect our operating results.

Information technology system failures or interruptions, or breaches of network security, may impact our operations or cause reputational harm.

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 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.

We are increasingly reliant upon technology systems, such as point-of-sale, technologies that support our 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 or our franchisees’ operations, or our customers’ experience and perceptions.

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.

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.

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

Despite response procedures and measures in place in the event of an incident, a security breach could result in disruptions, shutdowns, or the theft or unauthorized disclosure of such 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.

Our increasing reliance on third-party systems also subjects us to risks faced by those third-party businesses, including operational, security and credit risks.

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.

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Changes in commodity and other operating costs could adversely affect our results of operations.

The profitability of our Company-operated restaurants depends in part on our ability to anticipate and react to changes in commodity costs, including food, paper, supplies, fuel, utilities and distribution, and other operating costs, including labor.

The profitability of our Company-operated restaurants depends in part on our ability to anticipate and react to changes in commodity costs, including food, paper, supplies, fuel, utilities, distribution and other operating costs, including labor.

Any volatility in certain commodity prices or fluctuation in labor costs could adversely affect our operating results by impacting restaurant profitability.

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Our credit ratings may be negatively affected by our results of operations or changes in our debt levels.

As a result, our interest expense, the availability of acceptable counterparties, our ability to obtain funding on favorable terms, collateral requirements and our operating or financial flexibility could all be negatively affected, especially if lenders impose new operating or financial covenants.

As a result, our interest expense, the availability of acceptable counterparties, our ability to obtain funding on favorable terms, our collateral requirements and our operating or financial flexibility could all be negatively affected, especially if lenders impose new operating or financial covenants.

Our operations may also be impacted by regulations affecting capital flows, financial markets or financial institutions, which can limit our ability to manage and deploy our liquidity or increase our funding costs.

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• Governmental action or inaction in light of key indicators of economic activity or events that can significantly influence financial markets, particularly in the U.S., which is the principal trading market for our common stock, and media reports and commentary about economic, trade or other matters, even when the matter in question does not directly relate to our business;

• Trading activity in our common stock or trading activity in derivative instruments with respect to our common stock or debt securities, which can be affected by market commentary (including commentary that may be unreliable or incomplete);

• Trading activity in our common stock, in derivative instruments with respect to our common stock or in our debt securities, which can be affected by market commentary (including commentary that may be unreliable or incomplete);

unauthorized disclosures about our performance, plans or expectations about our business;

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actions by shareholders and others seeking to influence our business strategies;

portfolio transactions in our stock by significant shareholders;

portfolio transactions in our common stock by significant shareholders;

or trading activity that results from the ordinary course rebalancing of stock indices in which McDonald’s may be included, such as the S&P 500 Index and the Dow Jones Industrial Average;

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Events such as severe weather conditions, natural disasters, hostilities and social unrest, among others, can adversely affect our results and prospects.

Severe weather conditions, natural disasters, hostilities and social unrest, climate change or terrorist activities (or expectations about them) can adversely affect consumer spending and confidence levels and supply availability and costs, as well as the local operations in impacted markets, all of which can affect our results and prospects.

Severe weather conditions, natural disasters, hostilities and social unrest, climate change or terrorist activities (or expectations about them) can adversely affect consumer behavior and confidence levels and supply availability and costs, as well as the local operations in impacted markets, all of which can affect our results and prospects.

Climate change may also increase the frequency and severity of such weather-related events and natural disasters.

Our receipt of proceeds under any insurance we maintain with respect to some of these risks may be delayed or the proceeds may be insufficient to cover our losses fully.

Quantitative and Qualitative Disclosures About Market Risk

There were no material changes to the disclosures made in our Annual Report on Form 10-K for the year ended December 31, 2020 regarding this matter.

There were no material changes to the disclosures made in our Annual Report on Form 10-K for the year ended December 31, 2020 regarding these matters.

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