What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-08-04 compared with 2022-05-02 · 251 added, 165 removed, 429 unchanged (49% 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 communities across 118 countries.

Of the 40,344 McDonald's restaurants at March 31, 2022, 37,552, or 93%, were franchised.

Of the 39,696 McDonald's restaurants at June 30, 2022, 37,664, or 95%, were franchised.

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, including Global Brand Standards defined in 2021, and is of fundamental importance to overall performance and to protecting the McDonald’s brand.

The business relationship between the Company and its independent franchisees is supported by adhering to standards and policies, including McDonald's 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.

As of April 1, 2022, the Company completed the sale of Dynamic Yield and will no longer record third-party revenues related to this business.

As of April 1, 2022, the Company completed the sale of Dynamic Yield and no longer records third-party revenues related to this business.

Conventional Franchise

Under a conventional franchise arrangement, the Company generally owns or secures a long-term lease on the land and building for the restaurant location and the franchisee pays for equipment, signs, seating and décor.

The Company believes that ownership of real estate, combined with the co-investment by franchisees, enables us to achieve restaurant performance levels that are among the highest in the industry.

The Company believes that ownership of real estate, combined with the co-investment by franchisees, enables it to achieve restaurant performance levels that are among the highest in the industry.

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 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 the Company's brand through the development of modernized, more attractive and higher revenue generating restaurants.

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

The Company requires franchisees to meet rigorous standards and generally does not work with passive investors.

6 unchanged sentences

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.

Impact of Russia-Ukraine Military Conflict

During the first quarter of 2022, McDonald's announced it was temporarily suspending operations and closing restaurants in Russia and Ukraine.

The temporary closures were effective at the end of February in Ukraine and mid-March in Russia.

The Company is supporting its businesses in these markets through the continuation of employee salaries and lease payments as well as providing support to the Company's supply chain in the region.

There will likely be negative impacts on revenue and income as long as the military conflict continues.

The Company is monitoring the evolving situation, analyzing options and expects to provide direction no later than the end of the second quarter.

Impact of the War in Ukraine

During the first quarter of 2022, McDonald’s temporarily closed restaurants in Russia and Ukraine due to the ongoing war in the region.

Restaurants remained closed in Russia through the Company's sale of its Russian business in mid-June, and restaurants remained closed in Ukraine throughout the second quarter.

In order to ensure a successful transfer of the business in Russia to a buyer, the Company continued to pay employees and make lease payments through the date of the signed sale agreement.

Impact of COVID-19 Restrictions on the Business

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

COVID-19 resurgences continued to result in instances of government restrictions on restaurant operations, primarily in China.

Strategic Direction

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

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

The Company’s growth strategy, Accelerating the Arches (the “Strategy”), encompasses all aspects of McDonald’s business as the leading global omni-channel restaurant brand.

The Strategy reflects our purpose, mission and values, as well as 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.

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

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

7 unchanged sentences

This also includes enhancing digital capabilities that provide a more personal connection with customers.

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

The Company is committed to a marketing strategy that highlights value at every tier of the menu, as affordability remains a cornerstone of the McDonald’s brand and is especially important to our customers in difficult economic environments.

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

1 unchanged sentence

The Company recognizes there is significant opportunity to expand its chicken offerings by leveraging line extensions of customer favorites, such as the Crispy Chicken Sandwich that launched in the U.S.

in 2021 and the Chicken Big Mac and McSpicy limited time offerings that were featured in several markets around the world in 2021 and 2022.

in 2021 and the McSpicy limited time offerings that were featured in several markets around the world in 2021 and 2022.

The Company is implementing a series of operational and formulation changes designed to improve upon the great taste of our burgers.

3 unchanged sentences

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 quarter of 2022, digital channels (the mobile app, delivery and kiosk) comprised more than 30% of Systemwide sales in our top six markets, representing more than $5 billion of Systemwide sales and a nearly 60% increase over the prior year:

In the second quarter of 2022, digital channels (the mobile app, delivery and kiosk) comprised nearly one-third of Systemwide sales in our top six markets, representing more than $6 billion of Systemwide sales and an increase of more than 40% over the prior year:

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

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

The Company has successful loyalty programs in over 40 markets around the world, including the U.S., France, Germany, Canada and Australia.

The Company expects the U.K.

loyalty program to fully launch later this year, completing the roll-out of loyalty programs across its top six markets.

The Company has continued to expand the number of restaurants offering delivery to over 33,000, representing over 80% of McDonald's restaurants.

Delivery sales have grown significantly over the past few years, and the Company is continuing to build on this progress and enhance the delivery experience for customers by adding the ability to order on the McDonald’s app.

The Company has successful loyalty programs in nearly 50 markets around the world and, with the July 2022 launch of MyMcDonald’s Rewards in the U.K., the Company has completed the roll-out of loyalty programs to its top six markets.

The Company’s loyalty customers have proven to be highly engaged, with nearly 22 million active U.S.

loyalty members in the last 90-days.

The Company has continued to expand the number of restaurants offering delivery to over 33,000, representing nearly 85% of McDonald's restaurants.

This capability is now available in the U.K., and the Company plans to expand this capability to the U.S., Canada and Australia in 2022.

In addition to existing long-term strategic partnerships with UberEats and DoorDash, the Company entered a long-term strategic partnership with Just Eat Takeaway.com in March 2022.

These partnerships are expected to benefit the Company and its customers and franchisees by optimizing operation efficiencies and creating a seamless customer experience.

The Company now has long-term strategic partnerships with UberEats, DoorDash, Just Eat Takeaway.com and Deliveroo.

These partnerships are expected to benefit the Company and its customers and franchisees by optimizing operational efficiencies and creating a seamless customer experience.

◦ 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 remains a competitive advantage, and we expect that it will become even more critical to meet customers’ demand for flexibility and choice.

This channel remains a competitive advantage, and we expect that it will become even more critical to meeting customers’ demand for flexibility and choice.

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

and International Operated Markets segments will include a drive thru.

Foundational to the Accelerating the Arches Strategy is keeping the customer and restaurant crew at the center of everything we do, along with a relentless focus on running great restaurants.

The Company believes this Strategy builds on our inherent strengths by harnessing our competitive advantages while leveraging our size, scale and agility to adapt and adjust to uncertain operating environments and meet consumer demands.

Foundational to Accelerating the Arches is keeping the customer and restaurant crew at the center of everything we do, along with a relentless focus on running great restaurants.

The Company believes the Strategy builds on our inherent strengths by harnessing our competitive advantages while leveraging our size, scale and agility to adapt and adjust to uncertain operating environments to meet consumer demands.

The Strategy is supported by a strong global senior leadership team aimed at executing against the MCD growth pillars and accelerating the Company’s broad-based business momentum.

The Company believes the employee experience is critical to its success and, in 2022, implemented Global Brand Standards which are designed to create a culture of safety for both employees and customers in McDonald’s restaurants around the world.

These efforts, coupled with investment in innovation, are designed to enhance the customer experience and deliver long-term profitable growth, which is aligned with the Company’s capital allocation philosophy of investing in new restaurants and opportunities to grow the business, reinvesting in existing restaurants, and returning all free cash flow to shareholders over time through dividends and share repurchases.

First Quarter 2022 Financial Performance

Global comparable sales increased 11.8% for the quarter.

comparable sales increased 3.5%.

Comparable sales growth was driven by strategic menu price increases, strong marketing promotions featuring the core menu and growth in digital channels, which continued to benefit from the prior year launch of the Company's loyalty program — "MyMcDonald’s Rewards."

• International Operated Markets segment comparable sales increased 20.4%.

Strong operating performance and the continued reduction of COVID-related government restrictions in most markets drove positive comparable sales across the segment, led by strong comparable sales in France and the U.K.

• International Developmental Licensed Markets segment comparable sales increased 14.7%.

The quarter reflected strong comparable sales driven by Japan and Brazil, partly offset by negative comparable sales in China due to continued COVID-19 resurgences and related government restrictions.

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

• Consolidated revenues increased 11% (14% in constant currencies).

• Systemwide sales increased 10% (14% in constant currencies).

• Consolidated operating income increased 1% (3% in constant currencies).

The Company temporarily suspended operations during the quarter in Russia and Ukraine as a result of the military conflict in the region.

Results included $27 million of costs

related to the continuation of employee salaries, lease and supplier payments, as well as $100 million of costs for inventory in the Company's supply chain that likely will be disposed of due to restaurants being temporarily closed.

Excluding these current year costs and prior year strategic gains of $135 million, primarily related to the sale of McDonald's Japan stock, consolidated operating income increased 14% (18% in constant currencies).

• Diluted earnings per share was $1.48, a decrease of 28% (27% in constant currencies).

Excluding the costs to support the Company's businesses in Russia and Ukraine of $0.13 per share, as well as a nonoperating expense to reserve for a potential settlement related to an international tax matter of $0.67 per share for the quarter 2022, diluted earnings per share for the quarter was $2.28, an increase of 19% (22% in constant currencies) when also excluding strategic gains of $0.13 per share for the quarter 2021.

These efforts, coupled with investments in innovation, are designed to enhance the customer experience and deliver long-term profitable growth, which is aligned with the Company’s capital allocation philosophy of investing in new restaurants and opportunities to grow the business, reinvesting in existing restaurants, and returning all free cash flow to shareholders over time through dividends and share repurchases.

Second Quarter and Six Months 2022 Financial Performance

Global comparable sales increased 9.7% for the quarter and 10.7% for the six months.

comparable sales increased 3.7% for the quarter and 3.6% for the six months.

Comparable sales growth for both periods was driven by strategic menu price increases and value offerings across both our everyday menu and digital offerings, as well as strong marketing promotions.

• International Operated Markets segment comparable sales increased 13.0% for the quarter and 16.4% for the six months.

Strong operating performance in both periods drove positive comparable sales across the segment, led by very strong positive comparable sales in France and Germany.

• International Developmental Licensed Markets segment comparable sales increased 16.0% for the quarter and 15.3% for the six months.

Both periods reflected strong comparable sales driven by Brazil and Japan, partly offset by negative comparable sales in China due to continued COVID-19 resurgences and related government restrictions.

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

• Consolidated revenues decreased 3% (increased 3% in constant currencies) for the quarter and increased 3% (8% in constant currencies) for the six months.

• Systemwide sales increased 4% (10% in constant currencies) for the quarter and 7% (12% in constant currencies) for the six months.

• Consolidated operating income decreased 36% (30% in constant currencies) for the quarter and 19% (15% in constant currencies) for the six months.

Excluding current year charges related to the sale of the Company's business in Russia and a gain related to the Company's sale of Dynamic Yield, as well as prior year net gains, primarily related to the sale of McDonald's Japan stock, consolidated operating income was flat (increased 7% in constant currencies) for the quarter and increased 6% (12% in constant currencies) for the six months.

• Diluted earnings per share for the quarter was $1.60, a decrease of 46% (41% in constant currencies) and $3.08, a decrease of 38% (35% in constant currencies) for the six months.

Excluding current and prior year items detailed in the Net Income and Diluted Earnings Per Share section on page 22 of this report, diluted earnings per share for the quarter was $2.55, an increase of 8% (14% in constant currencies) and $4.83, an increase of 13% (18% in constant currencies) for the six months.

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:

The Following Definitions Apply to these Terms as Used Throughout this Report:

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

1 unchanged sentence

• Comparable sales are compared to the same period in the prior year and represent sales at all restaurants, whether operated by the Company or by franchisees, in operation at least thirteen months including those temporarily closed.

Some of the reasons restaurants may be temporarily closed include reimaging or remodeling, rebuilding, road construction, natural disasters and acts of war, terrorism or other hostilities (including restaurants temporarily closed due to COVID-19, as well as those in Russia and Ukraine).

Restaurants in Russia were treated as permanently closed as of April 1, 2022 and therefore excluded from the calculation of comparable sales for the quarter.

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.

7 unchanged sentences

CONSOLIDATED OPERATING RESULTS

Quarter Ended

Dollars in millions, except per share data March 31, 2022

Quarter Ended Six Months Ended

Dollars in millions, except per share data June 30, 2022 June 30, 2022

Amount Increase/

(Decrease) Amount Increase/

Sales by Company-operated restaurants $ 2,112.8 (15) % $ 4,415.2 (5) %

9 unchanged sentences

Other 611.2 7 1,195.5 12

Other operating (income) expense, net 60.5 n/m

Other operating (income) expense, net 886.1 n/m 946.6 n/m

Total operating costs and expenses 4,006.6 25 7,359.6 22

14 unchanged sentences

Benefit/ (Cost)

Quarters Ended March 31, 2022 2021 2022

Quarters Ended June 30, 2022 2021 2022

Revenues $ 5,718.4 $ 5,887.9 $ (344.9)

5 unchanged sentences

Earnings per share-diluted $ 1.60 $ 2.95 $ (0.15)

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

Benefit/ (Cost)

Six Months Ended June 30, 2022 2021 2022

Revenues $ 11,384.0 $ 11,012.5 $ (546.8)

Company-operated margins 686.2 811.6 (40.4)

Franchised margins 5,617.0 5,033.0 (232.5)

Selling, general & administrative expenses 1,381.2 1,221.9 24.3

Operating income 4,024.4 4,972.4 (206.1)

Net income 2,292.4 3,756.5 (122.4)

Earnings per share-diluted $ 3.08 $ 5.00 $ (0.16)

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

Net Income and Diluted Earnings per Share

1 unchanged sentence

Foreign currency translation had a negative impact of $0.15 on diluted earnings per share.

Results for 2022 included the following:

• $127 million, or $0.13 per share, of pre-tax operating expenses incurred to support the Company's businesses in Russia and Ukraine.

Included in this amount were $27 million related to the continuation of employee salaries, lease and supplier payments as well as $100 million for inventory in the Company's supply chain that likely will be disposed of due to restaurants being temporarily closed

• $500 million, or $0.67 per share, of nonoperating expense to reserve for a potential settlement related to an international tax matter

Results for 2021 included the following:

• $135 million of pre-tax strategic gains, or $0.13 per share, primarily related to the sale of McDonald’s Japan stock

For the six months, net income decreased 39% (36% in constant currencies) to $2,292.4 million, and diluted earnings per share decreased 38% (35% in constant currencies) to $3.08.

Foreign currency translation had a negative impact of $0.16 on diluted earnings per share.

NET INCOME AND EARNINGS PER SHARE-DILUTED RECONCILIATION

Quarters Ended March 31,

Dollars in millions, except per share data

Quarters Ended June 30,

Net Income Earnings per share - diluted

2 unchanged sentences

GAAP $ 1,188.0 $ 2,219.3 (46) % (42) % $ 1.60 $ 2.95 (46) % (41) %

Strategic (gains)/charges 102.1 (98.9) 0.13 (0.13)

Settlement reserve 500.0 — 0.67 —

(Gains)/charges 668.6 (70.8) 0.90 (0.10)

Change in U.K statutory tax rate — (363.7) — (0.48)

France tax settlement 37.2 — 0.05 —

Non-GAAP $ 1,893.8 $ 1,784.8 6 % 13 % $ 2.55 $ 2.37 8 % 14 %

Excluding strategic charges and gains and a nonoperating expense to reserve for a potential settlement related to an international tax matter, net income and diluted earnings per share for the quarter each increased 19% (22% in constant currencies).

During the quarter, the Company repurchased 6.2 million shares of stock for $1.5 billion.

Additionally, the Company paid a quarterly dividend of $1.38 per share, or $1.0 billion.

Six Months Ended June 30,

Net Income Earnings per share - diluted

2022 2021 Inc/ (Dec) Inc/ (Dec)

Translation 2022 2021 Inc/ (Dec) Inc/ (Dec)

GAAP $ 2,292.4 $ 3,756.5 (39) % (36) % $ 3.08 $ 5.00 (38) % (35) %

(Gains)/charges 770.7 (169.7) 1.03 (0.23)

Change in U.K statutory tax rate — (363.7) — (0.48)

France tax settlement 537.2 — 0.72 —

Non-GAAP $ 3,600.3 $ 3,223.1 12 % 17 % $ 4.83 $ 4.29 13 % 18 %

Results for 2022 included the following:

• Pre-tax charges of $1.2 billion, or $1.30 per share, for the quarter and $1.3 billion, or $1.43 per share, for the six months, related to the sale of the Company's business in Russia

• Pre-tax gain of $271 million, or $0.40 per share, for the quarter and six months, related to the Company's sale of its Dynamic Yield business

• $37 million, or $0.05 per share, for the quarter and $537 million, or $0.72 per share, for the six months, of nonoperating expense related to the settlement of a tax audit in France

Results for 2021 included the following:

• Net pre-tax gains of $98 million, or $0.10 per share, for the quarter and $233 million, or $0.23 per share, for the six months, primarily related to the sale of McDonald's Japan stock

• $364 million, or $0.48 per share, for the quarter and six months related to the remeasurement of deferred taxes as a result of a change in the U.K.

statutory income tax rate

During the quarter, the Company repurchased 4.2 million shares of stock for $1.0 billion, bringing total purchases for the six months to 10.4 million shares or $2.5 billion.

Additionally, the Company paid a quarterly dividend of $1.38 per share, or $1.0 billion, bringing total dividends paid for the six months to $2.0 billion.

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

2 unchanged sentences

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, 2022.

As of April 1, 2022, the Company completed the sale of Dynamic Yield and no longer records third-party revenues related to this business.

Franchised restaurants represented 95% of McDonald's restaurants worldwide at June 30, 2022.

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.

Dollars in millions

Quarters Ended March 31, 2022 2021 Inc/ (Dec) Inc/ (Dec)

Quarters Ended June 30, 2022 2021 Inc/ (Dec) Inc/ (Dec)

Company-operated sales

15 unchanged sentences

Total Revenues $ 5,718.4 $ 5,887.9 (3) % 3 %

• Total Company-operated sales and franchised revenues increased 10% (14% in constant currencies) for the quarter.

Revenues in the quarter benefited from strong sales performance across all segments and were driven by France and the U.K.

in the International Operated Markets segment.

In the International Developmental Licensed Markets segment, the quarter reflected strong sales performance across all geographic regions, with China continuing to be impacted by COVID-19 resurgences and related government restrictions.

Six Months Ended June 30, 2022 2021 Inc/ (Dec) Inc/ (Dec)

Company-operated sales

$ 1,343.6 $ 1,286.5 4 % 4 %

International Operated Markets 2,703.8 3,015.0 (10) (3)

International Developmental Licensed Markets & Corporate 367.8 348.7 5 16

Total $ 4,415.2 $ 4,650.2 (5) % 1 %

Franchised revenues

$ 3,156.9 $ 2,988.2 6 % 6 %

International Operated Markets 2,899.5 2,554.9 13 23

International Developmental Licensed Markets & Corporate 733.2 640.5 14 20

Total $ 6,789.6 $ 6,183.6 10 % 14 %

Total Company-operated sales and Franchised revenues

$ 4,500.5 $ 4,274.7 5 % 5 %

International Operated Markets 5,603.3 5,569.9 1 9

International Developmental Licensed Markets & Corporate 1,101.0 989.2 11 19

Total $ 11,204.8 $ 10,833.8 3 % 8 %

Total Other revenues $ 179.2 $ 178.7 — % 2 %

Total Revenues $ 11,384.0 $ 11,012.5 3 % 8 %

• Total Company-operated sales and franchised revenues decreased 3% (increased 3% in constant currencies) for the quarter and increased 3% (8% in constant currencies) for the six months.

In the International Operated Markets segment, both periods reflected positive sales performance driven by France and Germany.

Company-operated sales growth in constant currencies was more than offset by the impact of restaurant closures in Russia and Ukraine.

Results in the International Developmental Licensed segment for both periods reflected positive sales performance across all geographic regions, with China continuing to be negatively impacted by COVID-19 resurgences and related government restrictions.

Comparable Sales*

The following table presents the percent change in comparable sales for the quarters ended March 31, 2022 and 2021:

The following table presents the percent change in comparable sales for the quarters and six months ended June 30, 2022 and 2021:

Increase/(Decrease)

Quarters Ended March 31,

Quarters Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

3.7 % 25.9 % 3.6 % 19.7 %

International Operated Markets 13.0 75.1 16.4 30.7

1 unchanged sentence

Total 9.7 % 40.5 % 10.7 % 22.6 %

*For both International Operated Markets and Total comparable sales calculations for the second quarter 2022, restaurants in Russia were treated as permanently closed starting April 1, 2022 and therefore excluded from the calculations, and restaurants in Ukraine were treated as temporarily closed and therefore included in the calculations.

Systemwide Sales and Franchised Sales

The following table presents the percent change in Systemwide sales for the quarter ended March 31, 2022:

The following table presents the percent change in Systemwide sales for the quarter and six months ended June 30, 2022:

SYSTEMWIDE SALES*

Quarter Ended March 31, 2022

Quarter Ended June 30, 2022 Six Months Ended June 30, 2022

Inc/ (Dec) Inc/ (Dec)

Translation Inc/ (Dec) Inc/ (Dec)

4 % 4 % 4 % 4 %

International Operated Markets (1) 10 7 16

2 unchanged sentences

* 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.

Results in Russia and Ukraine are included in Systemwide sales for both periods.

Franchised sales are not recorded as revenues by the Company, but are the basis on which the Company calculates and records franchised revenues and are indicative of the financial health of the franchisee base.

The following table presents Franchised sales and the related increases/(decreases):

The following table presents Franchised sales and the related increases/(decreases) for the quarters and six months ended June 30, 2022 and 2021:

FRANCHISED SALES

Dollars in millions

Quarters Ended March 31, 2022 2021 Inc/ (Dec) Inc/ (Dec)

Quarters Ended June 30, 2022 2021 Inc/ (Dec) Inc/ (Dec)

$ 11,598.7 $ 11,174.9 4 % 4 %

7 unchanged sentences

Total $ 27,290.5 $ 25,792.1 6 % 12 %

Six Months Ended June 30, 2022 2021 Inc/ (Dec) Inc/ (Dec)

$ 22,027.8 $ 21,264.7 4 % 4 %

International Operated Markets 16,808.0 15,231.6 10 19

International Developmental Licensed Markets & Corporate 13,942.4 12,314.2 13 20

Total $ 52,778.2 $ 48,810.5 8 % 13 %

Ownership type

Conventional franchised $ 38,595.9 $ 36,336.2 6 % 10 %

Developmental licensed 8,693.2 6,845.4 27 34

Foreign affiliated 5,489.1 5,628.9 (2) 4

Total $ 52,778.2 $ 48,810.5 8 % 13 %

Restaurant Margins

9 unchanged sentences

Amount Inc/ (Dec) Inc/ (Dec)

Quarters Ended March 31, 2022 2021

Quarters Ended June 30, 2022 2021

$ 1,351.6 $ 1,275.8 6 % 6 %

12 unchanged sentences

Total $ 3,281.2 $ 3,194.8 3 % 8 %

Amount Inc/ (Dec) Inc/ (Dec)

Six Months Ended June 30, 2022 2021

$ 2,544.1 $ 2,406.9 6 % 6 %

International Operated Markets 2,350.2 1,998.1 18 27

International Developmental Licensed Markets & Corporate 722.7 628.0 15 21

Total $ 5,617.0 $ 5,033.0 12 % 16 %

Company-operated

$ 210.5 $ 273.2 (23) % (23) %

International Operated Markets 464.7 530.1 (12) (5)

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

Total $ 686.2 $ 811.6 (15) % (10) %

Total restaurant margins

$ 2,754.6 $ 2,680.1 3 % 3 %

International Operated Markets 2,814.9 2,528.2 11 21

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

Total $ 6,303.2 $ 5,844.6 8 % 13 %

n/m Not meaningful

• Total restaurant margins increased $372.2 million, or 14% (17% in constant currencies), for the quarter, reflecting strong sales performance across all segments.

Franchised margins represented nearly 90% of restaurant margin dollars for the quarter.

franchised margins for the quarter reflected higher depreciation costs related to investments in restaurant modernization.

Company-operated margins for the quarter reflected positive sales performance, which was more than offset by significant inflationary impacts on labor and commodities.

• Total restaurant margins included $385.8 million of depreciation and amortization expense for the quarter.

• Total restaurant margins increased $86.4 million, or 3% (8% in constant currencies), for the quarter and $458.6 million, or 8% (13% in constant currencies), for the six months.

Franchised margins represented nearly 90% 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.

• Company-operated margins in the U.S.

and International Operated Markets segment for both periods reflected positive sales performance, which was more than offset by significant inflationary pressures on labor and commodities.

• Company-operated margins in the International Operated Markets segment for both periods were negatively impacted by restaurant closures in Russia and Ukraine.

• Total restaurant margins included depreciation and amortization expense of $368.0 million for the quarter and $753.8 million for the six months.

Selling, General & Administrative Expenses

• Selling, general and administrative expenses increased $110.6 million, or 20% (21% in constant currencies), for the quarter, primarily reflecting costs related to the Company's 2022 Worldwide Owner/Operator Convention, higher long-term incentive-based compensation expense and higher costs for investments in restaurant technology.

• Selling, general and administrative expenses as a percent of Systemwide sales was 2.4% and 2.2% for the quarters ended 2022 and 2021, respectively.

• Selling, general and administrative expenses increased $48.7 million, or 7% (10% in constant currencies), for the quarter and $159.3 million, or 13% (15% in constant currencies), for the six months.

Both periods reflected incremental costs related to the Company's 2022 Worldwide Owner/Operator Convention and proxy contest, as well as higher costs for investments in restaurant technology and the impact of inflationary pressures.

• Selling, general and administrative expenses as a percent of Systemwide sales were 2.4% and 2.3% for the six months ended 2022 and 2021, respectively.

Other Operating (Income) Expense, Net

1 unchanged sentence

Dollars in millions

Quarters Ended

Quarters Ended Six Months Ended

June 30, June 30,

2022 2021 2022 2021

Gains on sales of restaurant businesses $ (8.9) $ (27.1) $ (14.7) $ (44.7)

3 unchanged sentences

Total $ 886.1 $ (127.1) $ 946.6 $ (306.5)

• Gains on sales of restaurant businesses decreased for the quarter primarily due to lower gains in the U.S.

• Equity in earnings of unconsolidated affiliates decreased for the quarter due to lower equity in earnings in Japan as a result of the Company's reduced ownership in McDonald's Japan when compared to the same period in 2021 as well as the impact of continued COVID-19 resurgences and related government restrictions on operating performance in China.

• Asset dispositions and other (income) expense, net for the quarter reflected the increase to fair value of an existing restaurant joint venture in connection with the buyout of a joint venture partner within the International Operated Markets segment.

• Impairment and other strategic charges (gains), net for the quarter reflected $127 million of pre-tax operating expenses incurred to support the Company's businesses in Russia and Ukraine.

Included in this amount were $27 million related to the continuation of employee salaries, lease and supplier payments, as well as $100 million for inventory in the Company's supply chain that likely will be disposed of due to restaurants being temporarily closed.

Results for the quarter 2021 reflected $135 million of pre-tax strategic gains, primarily related to the sale of McDonald’s Japan stock.

• Gains on sales of restaurant businesses decreased for the quarter and six months, primarily due to lower gains in the U.S.

• Equity in earnings of unconsolidated affiliates decreased for both periods, primarily due to the impact of continued COVID-19 resurgences and related government restrictions on operating performance in China.

• Asset dispositions and other (income) expense, net for the six months primarily reflected the increase to fair value of an existing restaurant joint venture in connection with the buyout of a joint venture partner within the International Operated Markets segment.

• Impairment and other strategic charges (gains), net reflected $1.2 billion and $1.3 billion for the quarter and six months, respectively, of pre-tax charges related to the sale of the Company's business in Russia.

Results for both periods also reflected a gain of $271 million related to the Company's sale of its Dynamic Yield business.

Results for the quarter and six months 2021 reflected $98 million and $233 million, respectively, of net gains, primarily related to the sale of McDonald's Japan stock.

Operating Income

1 unchanged sentence

Dollars in millions

Quarters Ended March 31, 2022 2021 Inc/ (Dec) Inc/ (Dec)

Quarters Ended June 30, 2022 2021 Inc/ (Dec) Inc/ (Dec)

$ 1,319.9 $ 1,267.5 4 % 4 %

1 unchanged sentence

International Developmental Licensed Markets & Corporate 255.6 151.6 68 86

Total $ 2,312.6 $ 2,281.3 1 % 3 %

Total operating income $ 1,711.8 $ 2,691.1 (36) % (30) %

Non-GAAP operating income $ 2,594.5 $ 2,593.3 — % 7 %

Six Months Ended June 30, 2022 2021 Inc/ (Dec) Inc/ (Dec)

$ 2,470.9 $ 2,393.0 3 % 3 %

International Operated Markets 1,265.5 2,225.8 (43) (36)

International Developmental Licensed Markets & Corporate 288.0 353.6 (19) (7)

Total operating income $ 4,024.4 $ 4,972.4 (19) % (15) %

Non-GAAP operating income $ 5,034.2 $ 4,739.4 6 % 12 %

Operating margin 35.4 % 45.2 %

1 unchanged sentence

• Operating Income:

Operating income increased $31.3 million, or 1% (3% in constant currencies), for the quarter.

Results for the quarter 2022 reflected $127 million of costs incurred to support the Company's businesses in Russia and Ukraine.

Results for the quarter 2021 included $135 million of pre-tax strategic gains, primarily related to the sale of McDonald's Japan stock.

Excluding current and prior year strategic charges and gains, operating income increased 14% (18% in constant currencies).

The operating income increase for the quarter was driven by strong sales performance, partly offset by higher selling, general and administrative costs.

Operating income decreased $979.3 million, or 36% (30% in constant currencies), for the quarter and $948.0 million, or 19% (15% in constant currencies) for the six months.

Operating income for both periods primarily reflected sales-driven growth in Franchised margins, partly offset by inflationary pressures on labor and commodities in Company-operated restaurant margins.

• International Operated Markets:

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

Excluding charges related to the sale of the Company's business in Russia, operating income increased 1% (13% in constant currencies) for the quarter and 14% (24% in constant currencies) for the six months.

Both periods reflected positive sales performance led by France and Germany, partly offset by the impact of restaurant closures in Russia and Ukraine as well as inflationary pressures on labor and commodities.

• International Developmental Licensed Markets & Corporate:

Excluding prior year strategic gains, the operating income increase for the quarter was driven by strong sales performance, primarily in Japan and Brazil, partly offset by higher Corporate selling, general and administrative expenses.

Results for both periods reflected higher Corporate selling, general and administrative expenses, partly offset by strong sales performance, primarily in Brazil and Japan.

• Operating Margin:

2 unchanged sentences

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

Excluding costs incurred to support the Company's businesses in Russia and Ukraine and prior year strategic gains, the increase in operating margin percent for the quarter was due to strong sales-driven restaurant margin growth, partly offset by higher Corporate selling, general and administrative expenses.

Excluding current year net charges, primarily related to the sale of the Company's business in Russia, and prior year net gains, the increase in non-GAAP operating margin for the six months was due to sales-driven growth in Franchised margins, partly offset by the impact of restaurant closures in Russia and Ukraine and inflationary pressures on Company-operated margins as well as higher Corporate selling, general and administrative expenses.

Interest Expense

• Interest expense decreased 4% (3% in constant currencies) for the quarter primarily due to lower average debt balances.

• Interest expense decreased 2% (flat in constant currencies) for the quarter and 3% (1% in constant currencies) for the six months, primarily due to the impact of foreign currency translation and lower average debt balances, partly offset by higher average interest rates.

Nonoperating (Income) Expense, Net

1 unchanged sentence

Dollars in millions

Quarters Ended

Quarters Ended Six Months Ended

June 30, June 30,

2022 2021 2022 2021

Interest income $ (4.6) $ (2.4) $ (7.2) $ (4.2)

2 unchanged sentences

Total $ 12.1 $ 18.6 $ 496.2 $ 47.2

• Other expense, net included $500 million of nonoperating expense to reserve for a potential settlement related to an international tax matter.

• The effective income tax rate was 28.3% and 21.3% for the quarters ended 2022 and 2021, respectively.

• Excluding the impacts of the $500 million of nonoperating expense to reserve for a potential settlement related to an international tax matter, and current and prior year strategic gains and charges, the effective income tax rate was 21.3% and 20.9% for the quarters ended 2022 and 2021, respectively.

• Other expense, net included $37 million for the quarter and $537 million for the six months of nonoperating expense related to the settlement of a tax audit in France.

• The effective income tax rate was 15.7% and 6.6% for the quarters ended 2022 and 2021, respectively, and 22.3% and 13.2% for the six months 2022 and 2021, respectively.

The effective tax rate for both periods of 2022 reflected approximately $50 million of net tax benefits from the remeasurement of income tax reserves associated with global tax audit progression, partly offset by tax audit settlements.

• Excluding the tax impacts of current and prior year gains and charges, the current year nonoperating expense related to the France tax settlement and the impact of the prior change in the U.K.

statutory income tax rate, the effective income tax rate for the quarters ended 2022 and 2021 was 18.7% and 21.7%, respectively, and 19.9% and 21.3% for the six months ended 2022 and 2021, respectively.

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 $1.7 billion for the first quarter 2022.

Cash provided by operations was flat compared with the first quarter 2021, as lower net income was offset by changes in working capital.

Cash used for investing activities totaled $554.5 million for the first quarter 2022, an increase of $309.9 million compared with the first quarter 2021.

The first quarter 2021 reflects proceeds received from the sale of McDonald's Japan stock.

Cash used for financing activities totaled $3.8 billion for the first quarter 2022, an increase of $1.6 billion compared with the first quarter 2021.

The increase is primarily due to higher share repurchases in 2022.

The military conflict between Russia and Ukraine has led to economic and political uncertainty globally.

The below information is provided to assist in forecasting the Company's results for 2022, and the Company plans to provide updates as situations warrant.

• The Company expects net restaurant unit expansion will contribute about 1.5% to 2022 Systemwide sales growth, in constant currencies.

Cash provided by operations totaled $2.8 billion and exceeded capital expenditures by $1.9 billion for the six months 2022.

Cash provided by operations decreased $1.1 billion compared with the six months 2021, primarily due to payments made related to the settlement of a tax audit in France.

Cash used for investing activities totaled $873.7 million for the six months 2022, an increase of $215.6 million compared with the six months 2021.

Investing activities reflect higher purchases of restaurant businesses in the six months 2022, proceeds from the sale of Dynamic Yield in 2022 and proceeds from the sale of McDonald's Japan stock in 2021.

Cash used for financing activities totaled $4.5 billion for the six months 2022, an increase of $946.6 million compared with the six months 2021.

The increase is primarily due to $2.5 billion of higher treasury stock purchases in the six months 2022, partly offset by $1.7 billion of higher net debt repayments in the six months 2021.

Based on current conditions, the following is provided to assist in forecasting the Company's future results for 2022.

• Excluding the closure of all restaurants in Russia, the Company expects net restaurant unit expansion will contribute about 1.5% to 2022 Systemwide sales growth, in constant currencies.

• The Company expects full year 2022 selling, general and administrative expenses of about 2.3% of Systemwide sales.

• The Company expects 2022 operating margin percent to be in the low-to-mid 40% range.

• The Company expects 2022 operating margin to be in the 40% range as a result of charges related to the sale of the Company's business in Russia.

Excluding impairment and other charges and gains, the Company expects adjusted operating margin percent to be in the mid 40% range.

• Based on current interest and foreign currency exchange rates, the Company expects interest expense for the full year 2022 to be relatively flat to 2021.

5 unchanged sentences

business, most of which will go towards reinvestment, including the completion of restaurant modernization efforts.

Globally, the Company expects to open approximately 1,700 to 1,800 restaurants.

The Company will open approximately 400 to 500 restaurants in the U.S.

Globally, the Company expects to open over 1,700 restaurants.

The Company will open about 400 restaurants in the U.S.

and International Operated Markets segments, and developmental licensees and affiliates will contribute capital towards over 1,300 restaurant openings in their respective markets.

The Company expects approximately 1,300 to 1,400 net restaurant additions in 2022.

Excluding the closure of all restaurants in Russia, the Company expects more than 1,300 net restaurant additions in 2022.

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

9 unchanged sentences

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.

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

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.

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

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

GLOBAL PANDEMIC

3 unchanged sentences

Local and national governmental mandates or recommendations and public perceptions of the risks associated with the COVID-19 pandemic have caused, and may 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, acceptance or effectiveness of vaccines or vaccination rates across the globe, the pandemic has negatively impacted our business and may continue to negatively impact our financial results, condition and outlook in a way that may be material.

In addition, our global operations have been, and may continue to be, disrupted to varying degrees in different markets 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, the emergence of new variants in one or more markets, or the availability, acceptance or effectiveness of vaccines or vaccination rates across the globe, the pandemic has negatively impacted our business and may continue to negatively 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 labor availability and costs, supply chain interruptions, commodity costs, consumer behavior, consumer perceptions of our brand and competition.

2 unchanged sentences

To drive Systemwide sales, operating income and free cash flow growth, our business strategies must be effective in maintaining and strengthening customer appeal and capturing additional market share.

Whether these strategies are successful depends mainly on our System’s ability to:

Whether these strategies are successful depends mainly on our System’s continued ability to:

• capitalize on our global scale, iconic brand and local market presence to build upon our historic strengths and competitive advantages, such as our marketing, core menu items and digital, delivery and drive thru;

• 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;

• 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 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;

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

• identify and develop restaurant sites consistent with our plans for net growth of Systemwide restaurants;

3 unchanged sentences

Failure to preserve the value and relevance of our brand could have an adverse impact on our financial results.

To be successful in the future, we believe we must preserve, enhance and leverage the value of our brand, including our corporate purpose, mission and values.

To be successful in the future, we believe we must preserve, enhance and leverage the value and relevance of our brand, including our corporate purpose, mission and values.

Brand value is based in part on consumer perceptions, which are affected by a variety of factors, including the nutritional content and preparation of our food, the ingredients we use, the manner in which we source commodities and general business practices across the System, including the people practices at McDonald’s restaurants.

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 continuously 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.

Our business could also be impacted by business incidents or practices, whether actual or perceived, particularly if they receive considerable publicity or result in litigation, as well as by our position or perceived lack of position on environmental, social responsibility, public policy, geopolitical and similar matters.

1 unchanged sentence

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

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

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

Our continued success depends on our System’s ability to build upon our historic strengths and competitive advantages.

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 behavior and preferences, including with respect to the use of digital channels and environmental and social responsibility matters, in the IEO segment.

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.

In order to do so, we need to anticipate and respond effectively to continuously shifting consumer demographics and industry trends in food sourcing, food preparation, food offerings, and consumer behavior and preferences, including with respect to the use of digital channels and environmental and social responsibility matters.

If we are not able to predict, or quickly and effectively respond to, these changes, or if our competitors are able to do so 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 behavior and preferences, as well as shifting economic and competitive conditions.

3 unchanged sentences

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, efficiently and in ways that are meaningful to them.

Our success depends in part on whether the allocation of our advertising and marketing resources across different channels, including digital, 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.

1 unchanged sentence

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 continuing to place 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 results.

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

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

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

Utilizing a third-party delivery service may not have the same level of profitability as a non-delivery transaction, and may introduce additional food quality, food safety and customer satisfaction risks.

4 unchanged sentences

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.

We compete on the basis of product choice, quality, affordability, service and location.

We compete primarily on the basis of product choice, quality, affordability, service and location.

In particular, we believe our ability to compete successfully in the current market environment depends on our ability to improve existing products, successfully develop and introduce new products, price our products appropriately, deliver a relevant customer experience, manage the complexity of our restaurant operations, manage our investments in technology and modernization, and respond effectively to our competitors’ actions or offerings or to unforeseen disruptive actions.

There can be no assurance these strategies will be effective, and some strategies may be effective at improving some metrics while adversely affecting other metrics, which could have the overall effect of harming our business.

There can be no assurance these strategies will be effective, and some strategies may be effective at improving some metrics while adversely affecting others, which could have the overall effect of harming our business.

We may not be able to adequately protect our intellectual property or adequately ensure that we are not infringing the intellectual property of others, which could harm the value of the McDonald’s brand and our business.

3 unchanged sentences

and certain foreign jurisdictions.

The trademarks that we currently use have not been registered in all of the countries outside of the U.S.

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

The trademarks that we currently use have not been, and may never be, registered in all of the countries outside of the U.S.

in which we do business or may do business in the future.

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.

3 unchanged sentences

Any claim of infringement, whether or not it has merit, could be time-consuming, result in costly litigation and harm our business.

We cannot ensure that franchisees and other third parties who hold licenses to our intellectual property will not take actions that hurt the value of our intellectual property.

In addition, we cannot ensure that franchisees and other third parties who hold licenses to our intellectual property will not take actions that hurt the value of our intellectual property.

The global scope of our business subjects us to risks that could negatively affect our business.

4 unchanged sentences

Such disruptions or volatility can also result from acts of war, terrorism or other hostilities.

For example, in response to the recent military conflict between Russia and Ukraine, we have paused our operations in Russia and Ukraine and experienced increased pressure on our supply chain and commodity costs, which we expect to impact our financial results.

The broader impacts of the conflict and related sanctions, including on macroeconomic conditions, geopolitical tensions and consumer demand, may have an adverse impact on our business and financial results.

For example, in response to the recent humanitarian crisis caused by the war in Ukraine and the resulting unpredictable operating environment in Russia, we paused our Ukrainian operations in March 2022 and exited the Russian market by selling our entire restaurant portfolio in June 2022.

The war has also exacerbated volatile macroeconomic conditions and increased pressure on our supply chain and commodity costs, which we expect to continue to impact our financial results.

The broader impacts of the war and related sanctions, including on macroeconomic conditions, geopolitical tensions and consumer demand, may also continue to have an adverse impact on our business and financial results.

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

10 unchanged sentences

Supply chain interruptions and related price increases can adversely affect us as well as our suppliers and franchisees, whose performance may have a significant impact on our results.

Such interruptions and price increases could be caused by shortages, unexpected increases in demand, transportation issues, labor issues, weather-related events, natural disasters, acts of war, terrorism or other hostilities, or other factors beyond the control of us or our suppliers or franchisees.

Such interruptions and price increases could be caused by shortages, inflationary pressures, unexpected increases in demand, transportation-related issues, labor-related issues, technology-related issues, weather-related events, natural disasters, acts of war, terrorism or other hostilities, or other factors beyond the control of us or our suppliers or franchisees.

If we experience interruptions in our System’s supply chain, or if contingency planning is not effective, our costs could increase and/or the availability of products critical to our System’s operations could be limited.

28 unchanged sentences

Effective succession planning is important to our continued success.

Effective succession planning is important to our long-term success.

Failure to effectively identify, develop and retain key personnel, recruit high-quality candidates and ensure smooth management and personnel transitions could disrupt our business and adversely affect our results.

Effective succession planning for management is important to our long-term success.

Failure to effectively identify, recruit, develop and retain key personnel and ensure smooth management and personnel transitions could disrupt our business and adversely affect our results.

Food safety concerns may have an adverse effect on our business.

13 unchanged sentences

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 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.

We are increasingly reliant upon technology systems, such as point-of-sale, that support our business operations, including 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.

1 unchanged sentence

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.

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

Certain of these technology systems contain personal, financial and other information of our customers, employees, franchisees and their employees, suppliers 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.

11 unchanged sentences

Our success depends in part on our ability to manage the impact of regulations and other initiatives that can affect our business plans and operations, which have increased and may continue to increase our costs of doing business and exposure to litigation, governmental investigations or other proceedings.

We are also subject to legal proceedings that may adversely affect our business, including class actions, administrative proceedings, government investigations and proceedings, shareholder proceedings, employment and personal injury claims, landlord/tenant disputes, supplier-related disputes, and claims by current or former franchisees.

We are also subject to legal proceedings that may adversely affect our business, including, but not limited to, class actions, administrative proceedings, government investigations and proceedings, shareholder proceedings, employment and personal injury claims, landlord/tenant disputes, supplier-related disputes, and claims by current or former franchisees.

Regardless of whether claims against us are valid or whether we are found to be liable, claims may be expensive to defend and may divert management’s attention away from operations.

22 unchanged sentences

If we experience any such changes, they could have a significant adverse effect on our reported results for the affected periods.

If we fail to comply with privacy and data collection laws, we could be subject to legal proceedings and penalties, which could negatively affect our financial results or brand perceptions.

We are subject to legal and compliance risks and associated liability related to privacy and data collection, protection and management as it relates to information associated with our technology-related services and platforms made available to business partners, customers, employees, franchisees or other third parties.

For example, the General Data Protection Regulation (“GDPR”) requires entities processing the personal data of individuals in the European Union to meet certain requirements regarding the handling of that data.

We are also subject to U.S.

federal and state and foreign laws and regulations in this area such as the California Consumer Privacy Act (“CCPA”).

These regulations have been subject to frequent change, and there may be markets or jurisdictions that propose or enact new or emerging data privacy requirements in the future.

Failure to comply with GDPR, CCPA or other privacy and data collection laws could result in legal proceedings and substantial penalties and materially adversely impact our financial results or brand perceptions.

If we fail to comply with privacy and data protection laws, we could be subject to legal proceedings and penalties, which could negatively affect our financial results or brand perceptions.

We are subject to legal and compliance risks and associated liability related to privacy and data protection requirements, including those associated with our technology-related services and platforms made available to business partners, customers, employees, franchisees or other third parties.

An increasing number of jurisdictions have enacted new privacy and data protection requirements (including the European Union’s General Data Protection Regulation and various U.S.

state-level laws), and further requirements are likely to be proposed or enacted in the future.

Failure to comply with these privacy and data protection laws could result in legal proceedings and substantial penalties and materially adversely impact our financial results or brand perceptions.

MACROECONOMIC AND MARKET CONDITIONS

2 unchanged sentences

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.

Sustained adverse economic conditions or periodic adverse changes in economic conditions in our markets could pressure our operating performance and our business continuity disruption planning, and our business and financial results may suffer.

Sustained adverse economic conditions or periodic adverse changes in economic conditions put pressure on our operating performance and business continuity disruption planning, and our business and financial results may suffer as a result.

Our results of operations are also affected by fluctuations in currency exchange rates, and unfavorable currency fluctuations could adversely affect reported earnings.

11 unchanged sentences

Many factors affect the volatility and price of our common stock in addition to our operating results and prospects.

The most important of these factors, some of which are beyond our control, are the following:

These factors, some of which are beyond our control, include the following:

• the unpredictable nature of global economic and market conditions;

• governmental action or inaction in light of key indicators of economic activity or events that can significantly influence financial markets, particularly in the 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, 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);

• 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;

3 unchanged sentences

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;

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

• the impact of our stock repurchase program or dividend rate;

• the impact on our results of corporate actions and market and third-party perceptions and assessments of such actions, such as those we may take from time to time as we implement our strategies, including through acquisitions, in light of changing business, legal and tax considerations and evolve our corporate structure.

• the impact of corporate actions and market and third-party perceptions and assessments of such actions, such as those we may take from time to time as we implement our strategies, including through acquisitions, in light of changing business, legal and tax considerations and evolve our corporate structure.

Our business is subject to an increasing focus on ESG matters.

1 unchanged sentence

A failure, whether real or perceived, to address ESG matters or to achieve progress on our ESG initiatives on the anticipated timing or at all, could adversely affect our business, including by heightening other risks disclosed in these Risk Factors, such as those related to consumer behavior, consumer perceptions of our brand, labor availability and costs, supply chain interruptions, commodity costs, and legal and regulatory complexity.

Conversely, our taking a position, whether real or perceived, on ESG, public policy, geopolitical and similar matters could adversely impact our business.

Conversely, our taking a position, whether real or perceived, on ESG, public policy, geopolitical and similar matters could also adversely impact our business.

The standards we set for ourselves regarding ESG matters, and our ability to meet such standards, may also impact our business.

5 unchanged sentences

Severe weather conditions, natural disasters, acts of war, terrorism or other hostilities, social unrest or climate change (or expectations about them) can adversely affect consumer behavior and confidence levels, supply availability and costs and 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.

Climate change may also increase the frequency and severity of 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.

2 unchanged sentences

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