What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-11-07 compared with 2022-08-04 · 185 added, 150 removed, 530 unchanged (39% 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 39,696 McDonald's restaurants at June 30, 2022, 37,664, or 95%, were franchised.

Of the 39,980 McDonald's restaurants at September 30, 2022, 37,930, or 95%, were franchised.

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

9 unchanged sentences

Having Company-owned and operated restaurants provides Company personnel with a venue for restaurant operations training experience.

In addition, in Company-owned and operated restaurants, and in collaboration with franchisees, the Company is able to further develop and refine operating standards, marketing concepts and product and pricing strategies that will ultimately benefit McDonald’s restaurants.

In addition, in our Company-owned and operated restaurants, and in collaboration with franchisees, the Company is able to further develop and refine operating standards, marketing concepts and product and pricing strategies that will ultimately benefit McDonald’s restaurants.

The Company’s revenues consist of sales by Company-operated restaurants and fees from restaurants operated by franchisees.

1 unchanged sentence

These fees, along with occupancy and operating rights, are stipulated in franchise/license agreements that generally have 20-year terms.

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 no longer records third-party revenues related to this business.

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, for periods prior to its sale on April 1, 2022, third - party revenues for the Company's Dynamic Yield business.

Conventional Franchise

14 unchanged sentences

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.

Restaurants remained closed in Russia through the Company's sale of its Russian business in the second quarter 2022.

Beginning in September 2022, the Company began reopening certain restaurants in Ukraine.

Impact of COVID-19 Restrictions on the Business

8 unchanged sentences

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

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

• Core Values that define who we are and how we run our business across the three-legged stool of McDonald’s franchisees, suppliers, and employees:

we put our customers and people first,

◦ Inclusion :

we open our doors to everyone,

◦ Integrity :

we do the right thing,

◦ Community :

we are good neighbors, and

we get better together.

Growth Pillars

1 unchanged sentence

Under the Strategy, the Company will:

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

• M aximize our Marketing by investing in new, culturally relevant approaches grounded in Fan Truths, such as the Famous Orders platform, to effectively communicate the story of our brand, food and purpose.

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

The Company is committed to a marketing strategy that highlights value at every tier of the menu, as affordability remains a cornerstone of 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 McSpicy limited time offerings that were featured in several markets around the world in 2021 and 2022.

in 2021, and emerging equities, such as 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 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:

In the third quarter of 2022, digital channels (the mobile app, delivery and kiosk) comprised

over one-third of Systemwide sales in our top six markets, representing nearly $7 billion of Systemwide sales, an increase of approximately 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 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.

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 mobile app.

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.

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

The Company has successful loyalty programs in about 50 markets around the world, including its top six markets.

The Company’s loyalty customers have proven to be highly engaged, with over 43 million active loyalty members in the last 90-days, including over 25 million in the U.S., as of September 30, 2022.

The Company has continued to expand the number of restaurants offering delivery to over 34,000, representing over 85% of McDonald's restaurants.

Delivery is available in about 100 markets, and the Company is continuing to build on and enhance the delivery experience for customers by adding the ability to order on the mobile app.

This capability is now available in the U.K., is currently rolling out in the U.S.

and the Company plans to expand this capability to Canada and Australia before the end of 2022.

The Company also 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.

5 unchanged sentences

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.

1 unchanged sentence

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.

Third Quarter and Nine Months 2022 Financial Performance

Global comparable sales increased 9.5% for the quarter and 10.3% for the nine months.

comparable sales increased 6.1% for the quarter and 4.5% for the nine months.

Comparable sales growth for both periods was driven by strategic menu price increases and continued digital and delivery growth, as well as successful marketing promotions featuring the core menu.

• International Operated Markets segment comparable sales increased 8.5% for the quarter and 13.5% for the nine months.

Strong operating performance drove positive comparable sales across the segment, led by strong positive comparable sales in France and Germany for both periods, with the quarter also benefiting from strong positive comparable sales in Australia.

• International Developmental Licensed Markets segment comparable sales increased 16.7% for the quarter and 15.9% for the nine 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 related government restrictions.

In addition to the comparable sales results, the Company had the following financial results for the quarter and nine months, which were negatively impacted by foreign currency translation due to the weakening of all major currencies against the U.S.

• Consolidated revenues decreased 5% (increased 2% in constant currencies) for the quarter and were flat (increased 6% in constant currencies) for the nine months.

• Systemwide sales increased 2% (9% in constant currencies) for the quarter and 5% (11% in constant currencies) for the nine months.

• Consolidated operating income decreased 7% (increased 1% in constant currencies) for the quarter and decreased 15% (9% in constant currencies) for the nine months.

Excluding the current and prior year charges and gains detailed in the Operating Income & Operating Margin section on page 29 of this report, consolidated operating income decreased 4% (increased 4% in constant currencies) for the quarter and increased 2% (9% in constant currencies) for the nine months.

• Diluted earnings per share was $2.68 for the quarter, a decrease of 6% (flat in constant currencies) and $5.75 for the nine months, a decrease of 27% (22% in constant currencies).

Excluding the current and prior year charges and gains detailed in the Net Income and Diluted Earnings Per Share section on page 23 of this report, diluted earnings per share for the quarter decreased 3% (increased 4% in constant currencies) and increased 7% (12% in constant currencies) for the nine 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.

3 unchanged sentences

• 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 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.

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

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 Six Months Ended

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

Quarter Ended Nine Months Ended

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

Amount Increase/

15 unchanged sentences

Interest expense 306.2 4 884.1 (1)

Nonoperating (income) expense, net 12.1 (36) 496.2 n/m

Nonoperating (income) expense, net (78.5) n/m 417.7 n/m

Income before provision for income taxes 2,536.2 (6) 5,486.5 (22)

5 unchanged sentences

Impact of Foreign Currency Translation

The impact of foreign currency translation on consolidated operating results for both periods reflected the weakening of all major currencies against the U.S.

Dollar, driven by the Euro, British Pound and Australian Dollar.

While changes in foreign currency exchange rates affect reported results, McDonald's mitigates exposures, where practical, by purchasing goods and services in local currencies, financing in local currencies and hedging certain foreign-denominated cash flows.

3 unchanged sentences

Benefit/ (Cost)

Quarters Ended June 30, 2022 2021 2022

Quarters Ended September 30, 2022 2021 2022

Revenues $ 5,872.1 $ 6,201.3 $ (464.4)

6 unchanged sentences

Benefit/ (Cost)

Six Months Ended June 30, 2022 2021 2022

Nine Months Ended September 30, 2022 2021 2022

Revenues $ 17,256.1 $ 17,213.8 $ (1,011.2)

5 unchanged sentences

Earnings per share-diluted $ 5.75 $ 7.86 $ (0.36)

• 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

For the quarter, net income decreased 46% (42% in constant currencies) to $1,188.0 million, and diluted earnings per share decreased 46% (41% in constant currencies) to $1.60.

For the quarter, net income decreased 8% (1% in constant currencies) to $1,981.6 million, and diluted earnings per share decreased 6% (flat in constant currencies) to $2.68.

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

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.

For the nine months, net income decreased 28% (23% in constant currencies) to $4,274.0 million, and diluted earnings per share decreased 27% (22% in constant currencies) to $5.75.

Foreign currency translation had a negative impact of $0.36 on diluted earnings per share.

Results for 2022 included the following:

• Pre-tax charges of $1,281 million, or $1.44 per share, for the nine 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 nine months, related to the Company's sale of its Dynamic Yield business

• $537 million, or $0.72 per share, for the nine 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 $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

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

statutory income tax rate

NET INCOME AND EARNINGS PER SHARE-DILUTED RECONCILIATION

Dollars in millions, except per share data

Quarters Ended June 30,

Quarters Ended September 30,

Net Income Earnings per share - diluted

3 unchanged sentences

(Gains)/charges — (73.7) — (0.10)

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

Change in U.K.

statutory tax rate — — — —

France tax settlement — — — —

Non-GAAP $ 1,981.6 $ 2,076.2 (5) % 2 % $ 2.68 $ 2.76 (3) % 4 %

Six Months Ended June 30,

Nine Months Ended September 30,

Net Income Earnings per share - diluted

3 unchanged sentences

(Gains)/charges 770.7 (243.4) 1.04 (0.33)

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

Change in U.K.

statutory tax rate — (363.7) — (0.48)

France tax settlement 537.2 — 0.72 —

Non-GAAP $ 5,581.9 $ 5,299.3 5 % 11 % $ 7.51 $ 7.05 7 % 12 %

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.

Results for the quarter and nine months 2022 were negatively impacted by foreign currency translation due to the weakening of all major currencies against the U.S.

In constant currencies, results for both periods reflected strong operating performance driven by higher sales-driven Franchised margins.

Company-operated margins were negatively impacted for both periods by the permanent restaurant closures in Russia and the temporary restaurant closures in Ukraine, as well as by inflationary cost pressures.

The nine months also reflected an income tax benefit associated with global tax audit progression.

During the quarter, the Company repurchased 3.8 million shares of stock for $949 million, bringing total purchases for the nine months to 14.2 million shares or $3.5 billion.

Additionally, the Company paid a quarterly dividend of $1.38 per share, or $1.0 billion, bringing total dividends paid for the nine months to $3.1 billion.

In October 2022, the Company declared a 10% increase in its quarterly cash dividend to $1.52 per share, payable on December 15, 2022.

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

1 unchanged sentence

Revenues from restaurants licensed to developmental licensees and affiliates include a royalty based on a percent of sales, and generally include initial fees.

The Company’s Other revenues are comprised of fees paid by franchisees to recover a portion of costs incurred by the Company for various technology platforms, revenues from brand licensing arrangements to market and sell consumer packaged goods using the McDonald’s brand, and third-party revenues for the Dynamic Yield 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.

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

Franchised restaurants represented 95% of McDonald's restaurants worldwide at September 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 June 30, 2022 2021 Inc/ (Dec) Inc/ (Dec)

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

Company-operated sales

15 unchanged sentences

Total Revenues $ 5,872.1 $ 6,201.3 (5) % 2 %

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

Nine Months Ended September 30, 2022 2021 Inc/ (Dec) Inc/ (Dec)

Company-operated sales

15 unchanged sentences

Total Revenues $ 17,256.1 $ 17,213.8 — % 6 %

• 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.

• Total Company-operated sales and franchised revenues decreased 5% (increased 2% in constant currencies) for the quarter and were flat (increased 6% in constant currencies) for the nine months.

For both periods, revenues were negatively impacted by foreign currency translation due to the weakening of all major currencies against the U.S.

• In the International Operated Markets segment, both periods reflected positive constant currency sales performance, driven by France and Germany, while results for the quarter also benefited from positive sales performance in Australia.

Company-operated sales growth for both periods was more than offset by the impact of the permanent restaurant closures in Russia and the temporary restaurant closures in Ukraine.

• Results in the International Developmental Licensed segment for both periods reflected positive sales performance across all geographic regions in constant currencies, including China, 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, 2022 and 2021:

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

Increase/(Decrease)

Quarters Ended June 30, Six Months Ended June 30,

Quarters Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

3 unchanged sentences

Total 9.5 % 12.7 % 10.3 % 18.8 %

*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.

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

Restaurants in Ukraine were treated as temporarily closed and therefore included in the calculations.

Beginning in September 2022, the Company began reopening certain restaurants in Ukraine.

Systemwide Sales and Franchised Sales

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

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

SYSTEMWIDE SALES*

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

Quarter Ended September 30, 2022 Nine Months Ended September 30, 2022

Inc/ (Dec) Inc/ (Dec)

4 unchanged sentences

Total 2 % 9 % 5 % 11 %

* 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.

*Unlike comparable sales, the Company has not excluded sales from hyperinflationary markets from Systemwide sales as these sales are the basis on which the Company calculates and records revenues.

2022 results included Ukraine for both periods and Russia for the nine months, while 2021 results included both Russia and Ukraine 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) for the quarters and six months ended June 30, 2022 and 2021:

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

FRANCHISED SALES

Dollars in millions

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

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

$ 11,838.2 $ 11,155.0 6 % 6 %

7 unchanged sentences

Total $ 28,309.9 $ 27,349.7 4 % 11 %

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

Nine Months Ended September 30, 2022 2021 Inc/ (Dec) Inc/ (Dec)

$ 33,866.0 $ 32,419.7 4 % 4 %

8 unchanged sentences

Restaurant Margins

Franchised r estaurant margins are measured as revenues from franchised restaurants less franchised restaurant occupancy costs.

Franchised restaurant margins are measured as revenues from franchised restaurants less franchised restaurant occupancy costs.

Franchised revenues include rent and royalties based on a percent of sales, and initial fees.

Franchised restaurant occupancy costs include lease expense and depreciation, as the Company generally owns or secures a long-term lease on the land and building for the restaurant location.

Compan y-operated restaurant margins are measured as sales from Company-operated restaurants less costs for food & paper,

payroll & employee benefits and occupancy & other operating expenses necessary to run an individual restaurant.

Company-operated

margins exclude costs that are not allocated to individual restaurants, primarily payroll & employee benefit costs of non-restaurant support staff, which are included in selling, general and administrative expenses.

Company-operated restaurant margins are measured as sales from Company-operated restaurants less costs for food & paper, payroll & employee benefits and occupancy & other operating expenses necessary to run an individual restaurant.

Company-operated margins exclude costs that are not allocated to individual restaurants, primarily payroll & employee benefit costs of non-restaurant support staff, which are included in Selling, general and administrative expenses.

RESTAURANT MARGINS

1 unchanged sentence

Amount Inc/ (Dec) Inc/ (Dec)

Quarters Ended June 30, 2022 2021

Quarters Ended September 30, 2022 2021

$ 1,383.7 $ 1,260.1 10 % 10 %

13 unchanged sentences

Amount Inc/ (Dec) Inc/ (Dec)

Six Months Ended June 30, 2022 2021

Nine Months Ended September 30, 2022 2021

$ 3,927.8 $ 3,667.0 7 % 7 %

13 unchanged sentences

n/m Not meaningful

• 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.

• Total restaurant margins increased $19.7 million, or 1% (8% in constant currencies), for the quarter and $478.3 million, or 5% (11% in constant currencies), for the nine months.

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

• Total restaurant margin growth was negatively impacted in both periods by foreign currency translation due to the weakening of all major currencies against the U.S.

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.

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

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

• Total restaurant margins included depreciation and amortization expense of $367.4 million for the quarter and $1.1 billion for the nine months.

Selling, General & Administrative Expenses

• 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.

• Selling, general and administrative expenses increased $26.0 million, or 4% (7% in constant currencies), for the quarter and $185.3 million, or 10% (12% in constant currencies), for the nine months.

Both periods reflected higher costs for investments in restaurant technology, as well as the impact of inflationary cost pressures.

The nine months also reflected incremental costs related to the Company's 2022 Worldwide Owner/Operator Convention and proxy contest.

• Selling, general and administrative expenses as a percent of Systemwide sales were 2.3% and 2.2% for the nine months ended 2022 and 2021, 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,

2022 2021 2022 2021

2 unchanged sentences

Asset dispositions and other (income) expense, net 68.1 (5.6) 70.8 43.5

Impairment and other strategic charges (gains), net 882.7 (97.8) 1,009.8 (233.0)

Impairment and other charges (gains), net — (106.4) 1,009.8 (339.4)

Total $ 12.5 $ (198.8) $ 959.1 $ (505.3)

• 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.

• Gains on sales of restaurant businesses decreased for both periods, primarily due to fewer restaurant sales in the U.S.

• Equity in earnings of unconsolidated affiliates for the nine months reflected 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 continued impact of COVID-19 related government restrictions in China.

• Asset dispositions and other (income) expense, net for both periods primarily reflected costs incurred to support the Company’s business in Ukraine, higher asset write-offs and the comparison to a prior year gain on the strategic sale of restaurant properties.

Results for the nine months reflected an 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 charges (gains), net for the nine months 2022 reflected $1,281 million of pre-tax charges related to the sale of the Company's business in Russia and a pre-tax gain of $271 million related to the Company's sale of its Dynamic Yield business.

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

Operating Income

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Dollars in millions

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

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

$ 1,326.6 $ 1,254.9 6 % 6 %

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International Developmental Licensed Markets & Corporate 62.9 212.0 (70) (46)

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)

Total $ 2,763.9 $ 2,986.5 (7) % 1 %

Nine Months Ended September 30, 2022 2021 Inc/ (Dec) Inc/ (Dec)

$ 3,797.5 $ 3,647.9 4 % 4 %

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International Developmental Licensed Markets & Corporate 350.9 565.6 (38) (22)

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

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

Total $ 6,788.3 $ 7,958.9 (15) % (9) %

Operating margin 39.3 % 46.2 %

Non-GAAP operating margin 44.2 % 43.0 %

• Operating Income:

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 decreased $222.6 million, or 7% (increased 1% in constant currencies), for the quarter and decreased $1,170.6 million, or 15% (9% in constant currencies), for the nine months.

Results for both periods were negatively impacted by foreign currency translation due to the weakening of all major currencies against the U.S.

OPERATING INCOME & OPERATING MARGIN RECONCILIATION*

Dollars in millions

Quarters Ended September 30, Nine Months Ended September 30,

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

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

GAAP operating income $2,763.9 $2,986.5 (7) % 1 % $6,788.3 $7,958.9 (15) % (9) %

Russia sale charge — — 1,280.5 —

Dynamic Yield sale gain — — (270.7) —

Japan stock sale gains — (106.4) — (339.4)

Non-GAAP operating income $2,763.9 $2,880.1 (4) % 4 % $7,798.1 $7,619.5 2 % 9 %

Non-GAAP operating margin 45.2 % 44.3 %

*Refer to the Impairment and other charges (gains), net line within the Other Operating (Income) Expense, Net section on page 28 of this report for details of gains and charges in this table.

• Excluding the current and prior year gains and charges shown in the table above, operating income decreased 4% (increased 4% in constant currencies) for the quarter and increased 2% (9% in constant currencies) for the nine 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:

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.

Constant currency results in both periods reflected positive sales performance led by France and Germany, while results for the quarter also benefited from positive sales performance in Australia.

Results were partly offset by the impact of restaurant closures in Russia and Ukraine as well as inflationary pressures on labor and commodities in Company-operated restaurant margins.

• International Developmental Licensed Markets & Corporate:

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Operating margin is defined as operating income as a percent of total revenues.

The contributions to operating margin differ by segment due to each segment's ownership structure, primarily due to the relative percentage of franchised versus Company-operated restaurants.

The contributions to operating margin differ by segment due to each segment's ownership structure, primarily due to the relative percentage of franchised versus

Company-operated restaurants.

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

Excluding 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.

Excluding the current and prior year items shown in the table above, the increase in non-GAAP operating margin for the nine months was due to sales-driven growth in Franchised margins, partly offset by the impact of the permanent restaurant closures in Russia and the temporary restaurant closures in Ukraine, inflationary cost pressures on Company-operated margins and higher Corporate selling, general and administrative expenses.

Interest Expense

• 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.

• Interest expense increased 4% (8% in constant currencies) for the quarter and decreased 1% (increased 2% in constant currencies) for the nine months.

Both periods benefited from the impact of foreign currency translation and lower average debt balances, with results for the quarter more than offset by higher average interest rates.

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,

2022 2021 2022 2021

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Foreign currency and hedging activity (50.4) 2.9 (88.7) 42.3

Other expense, net 43.7 1.9 541.7 12.0

Other (income) expense, net (17.3) 0.8 524.4 12.8

Total $ (78.5) $ 1.4 $ 417.7 $ 48.6

• 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.

• Foreign currency and hedging activity includes net gains or losses on certain hedges that reduce the exposure to variability on certain intercompany foreign currency cash flow streams.

• Other (income) expense, net for the nine months included $537 million of nonoperating expense related to the settlement of a tax audit in France.

• The effective income tax rate was 21.9% and 20.1% for the quarters ended 2022 and 2021, respectively, and 22.1% and 15.9% for the nine months ended 2022 and 2021, respectively.

• Excluding the tax impacts of current and prior year gains and charges (as described within the Operating Income & Operating Margin Reconciliation on page 29 of this report), the current year nonoperating expense related to the France tax settlement and the prior year impact of a change in the U.K.

statutory income tax rate, the effective income tax rate for the nine months ended 2022 and 2021 was 20.6% and 20.7%, 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 $2.8 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.

Cash provided by operations totaled $5.2 billion and exceeded capital expenditures by $3.8 billion for the nine months 2022.

Cash provided by operations decreased $1.3 billion compared with the nine months 2021, primarily due to the impact of foreign currency rates on operating results and payments made related to the settlement of a tax audit in France.

Cash used for investing activities totaled $1.6 billion for the nine months 2022, an increase of $563.8 million compared with the nine months 2021.

Investing activities reflect higher purchases of restaurant businesses in the nine 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 $5.1 billion for the nine months 2022, an increase of $565.6 million compared with the nine months 2021.

Cash used for financing for the nine months 2022 reflects $3.4 billion in treasury stock purchases and $2.2 billion in debt repayments, partly offset by $3.4 billion in debt issuances.

Cash used for financing for the nine months 2021 reflects $1.7 billion in debt repayments.

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 full year 2022 selling, general and administrative expenses of about 2.3% to 2.4% of Systemwide sales.

• 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.

• Based on current interest and foreign currency exchange rates, the Company expects interest expense for the full year 2022 to increase approximately 2%, driven primarily by higher average interest rates.

• The Company expects the effective income tax rate for the full year 2022 to be in the 21% to 22% range.

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

• The Company expects 2022 capital expenditures to be approximately $2.0 to $2.2 billion, about half of which will be directed towards new restaurant unit expansion across the U.S.

• The Company expects 2022 capital expenditures to be approximately $2.0 billion, about half of which will be directed towards new restaurant unit expansion across the U.S.

and International Operated Markets.

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

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

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

The Company will open about 375 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.

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

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

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

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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 Securities and Exchange Commission.

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.

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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.

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, the impact of changing governmental restrictions, 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.

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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 and enhance the customer experience.

We continue to build upon our investments in technology, restaurant modernization, digital engagement and delivery in order to transform and enhance 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 efforts may not generate expected results.

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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.

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, restaurant modernization, digital engagement and delivery, 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 others, which could have the overall effect of harming our business.

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

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.

For example, in response to the humanitarian crisis caused by the war between Russia and Ukraine, we paused our operations in both countries in March 2022 and sold our Russian business in June 2022.

While we more recently announced plans to reopen certain restaurants in Ukraine, conditions throughout the region remain volatile and unpredictable, which may impact our business.

The war has also exacerbated volatile macroeconomic conditions and increased pressure on our supply chain and the availability and costs of commodities, including energy, 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.

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Business risks affecting our operations also affect our franchisees.

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.

In particular, our franchisees have also been impacted by inflationary pressures and the COVID-19 pandemic.

If franchisee sales trends worsen or any of such impacts persist, 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.

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

Further, increased costs and competition associated with recruiting, motivating and retaining qualified employees, as well as costs associated with promoting awareness of the opportunities of working at McDonald’s restaurants, could have a negative impact on our Company-operated margins and our franchisees’ profitability.

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

and international regulations affecting our workforce, which includes our staff and employees working in our Company-operated restaurants.

These regulations are increasingly focused on employment issues, including wage and hour, healthcare, immigration, retirement and other employee benefits and workplace practices.

Claims of non-compliance with these regulations could result in liability and expense to us.

Further, our System has experienced increased costs and competition associated with recruiting, motivating and retaining qualified employees, as well as costs associated with promoting awareness of the opportunities of working at McDonald’s restaurants.

We and our franchisees are also impacted by increasingly complex U.S.

and international laws and regulations affecting our respective workforces.

These laws and regulations are increasingly focused on, and in certain cases impose requirements with respect to, employment matters such as wages and hours, healthcare, immigration, retirement and other employee benefits and workplace practices.

Such laws and regulations can expose us and our franchisees to increased costs and other effects of compliance, including potential liability, and all such labor and compliance costs could have a negative impact on our Company-operated margins and franchisee profitability.

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.

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Compliance efforts with those regulations may be affected by ordinary variations in food preparation among our own restaurants and the need to rely on the accuracy and completeness of information from third-party suppliers.

We also are subject to increasing public focus, including by governmental and non-governmental organizations, on environmental, social responsibility and corporate governance (“ESG”) initiatives.

We also are subject to increasing public focus, including by governmental and non-governmental organizations, on environmental, social responsibility and corporate governance (“ESG”) matters.

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.

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Litigation and regulatory action concerning our relationship with franchisees and the legal distinction between our franchisees and us for employment law or other purposes, if determined adversely, could increase costs, negatively impact our business operations and the business prospects of our franchisees and subject us to incremental liability for their actions.

Similarly, although our commercial relationships with our suppliers remain independent, there may be attempts to challenge that independence, which, if determined adversely, could also increase costs, negatively impact the business prospects of our suppliers, and subject us to incremental liability for their actions.

Similarly, although our commercial

relationships with our suppliers remain independent, there may be attempts to challenge that independence, which, if determined adversely, could also increase costs, negatively impact the business prospects of our suppliers, and subject us to incremental liability for their actions.

Our results could also be affected by the following:

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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.

Volatility in certain commodity prices and fluctuations in labor costs have adversely affected and in the future could adversely affect our operating results by impacting restaurant profitability.

Volatility in certain commodity prices and fluctuations in labor costs have adversely affected and in the future could adversely affect our operating results by impacting

restaurant profitability.

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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis