What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-04 compared with 2022-11-07 · 200 added, 331 removed, 384 unchanged (58% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

The Company franchises and operates McDonald’s restaurants, which serve a locally relevant menu of quality food and beverages in communities across more than 100 countries.

Of the 40,535 McDonald's restaurants at March 31, 2023, 95% were franchised.

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

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

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

In addition, there is the International Developmental Licensed Markets & Corporate segment, which includes the results of over 75 countries, as well as Corporate activities.

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

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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 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 the second quarter 2022.

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

Impact of COVID-19 Restrictions on the Business

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

Strategic Direction

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.

The Strategy reflects the Company’s 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 heart of our Strategy.

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

• Purpose to feed and foster communities;

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

• 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.

The following purpose, mission and values underpin the Company’s success and are at the heart of the Strategy.

Through its size and scale, the Company embraces and prioritizes its role and commitment to the communities in which it operates through its purpose to feed and foster communities, and its mission to create delicious feel-good moments for everyone.

The Company is guided by five core values that define who it is and how it runs its business across the three-legged stool of franchisees, suppliers and employees:

Serve - 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;

Family - We get better together.

The Company believes that its people, all around the world, set it apart and bring these values to life on a daily basis.

Growth Pillars

The following growth pillars — MCD — are rooted in the Company’s identity, build on historic strengths and articulate areas of further opportunity.

The following growth pillars, M-C-D, build on the Company’s historic strengths and articulate areas of further opportunity.

Under the Strategy, the Company will:

• 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 uncertain 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.

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

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

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.

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

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

This is exemplified by campaigns that elevate the entire brand and continue to be repeated and scaled around the globe, such as the Famous Orders platform and the Raise Your Arches campaign.

• C ommit to the Core menu by tapping into customer demand for the familiar and focusing on serving the Company’s iconic products, such as its World Famous Fries, the Big Mac, Chicken McNuggets and the McFlurry.

Globally, the Company possesses over 10 of these "billion-dollar brand equities." The Company continues to improve on its classics, including by implementing a series of operational and formulation changes designed to deliver hotter, juicer, tastier burgers across the globe.

While leaning into core icons like Chicken McNuggets, the Company will continue to focus on scaling emerging equities such as the McSpicy and McCrispy Chicken Sandwiches.

This is exemplified by the U.S.

leveraging learnings from the U.K., Canada and Germany to relaunch its Crispy Chicken Sandwich under the McCrispy global equity umbrella.

The Company also continues to see a significant opportunity with coffee, demonstrated by markets leveraging the McCafé brand, customer experience, value and quality to drive long-term growth.

• D ouble Down on the 4D's:

Digital, Delivery and Drive Thru by leveraging competitive strengths and building a powerful digital experience growth engine to enhance the customer experience.

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 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 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.

Digital, Delivery, Drive Thru and, the recently added, Restaurant Development by leveraging the Company’s competitive strengths and building a powerful digital experience growth engine to deliver a personalized and convenient customer experience.

To unlock further growth, the Company expects to continue to accelerate the pace of restaurant openings and technology innovation so that whenever and however customers choose to interact with McDonald’s, they can enjoy a fast, easy experience that meets their needs.

In the first quarter of 2023, digital channels (the mobile app, delivery and kiosk) comprised almost 40% of Systemwide sales in the Company’s top six markets.

This represented over $7.5 billion in digital Systemwide sales and growth of over $2.0 billion, or 30%, compared to 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.

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

A recent digital enhancement piloting in the U.S.

enables crew to begin assembling a customer’s mobile order prior to their arrival at the restaurant to expedite service and elevate customer satisfaction.

Additionally, the Company has successful loyalty programs in 50 markets around the world, including all of its top six markets.

The Company’s loyalty customers have proven to be highly engaged, with nearly 50 million active loyalty members across the Company’s top six markets during the first quarter of 2023, including over 28 million in the U.S.

Delivery is now offered in over 35,000 restaurants across about 100 markets, representing over 85% of McDonald’s restaurants.

The Company is continuing to build on and enhance the delivery experience for customers, including by adding the ability to place a delivery order on the McDonald's mobile app (a feature that is now available in some of the Company’s largest markets, including the U.S., the U.K., Canada and Australia).

The Company has also put in place long-term strategic partnerships with delivery providers such as UberEats, DoorDash, Just Eat Takeaway.com and Deliveroo.

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

◦ Drive Thru:

The Company has drive thru locations in over 26,000 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 meeting customers’ demand for flexibility and choice.

The Company has drive thru locations in over 26,000 restaurants globally, including nearly 95% of the approximately 13,500 locations in the U.S.

This channel remains a competitive advantage, and the Company expects 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 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 economic and operating environments to meet consumer demands.

and International Operated Markets will include a drive thru.

◦ Restaurant Development:

The Company expects to continue to accelerate the pace of restaurant openings, with plans to open approximately 1,900 new restaurants across the globe in 2023, which will contribute to nearly 4% unit growth (net of closures).

The Company believes there is opportunity for further growth in many of its largest markets and to explore new formats under the McDonald’s brand over the coming years.

Foundational to the Strategy is keeping the customer and restaurant crew at the center of everything the Company does, along with a relentless focus on running great restaurants, empowering its people and modernizing ways of working through Accelerating the Organization .

These efforts, coupled with investments in innovation, are designed to enhance the customer experience and deliver long-term profitable growth for all stakeholders.

The Strategy is aligned with the Company’s capital allocation philosophy of investing in opportunities to grow the business (through new restaurants and reinvesting in existing restaurants) and returning free cash flow to shareholders over time through dividends and share repurchases.

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

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.

First Quarter 2023 Financial Performance

Global comparable sales increased 12.6% for the quarter, reflecting strong comparable sales of 12.6% across each segment.

comparable sales results benefited from strategic menu price increases and positive comparable guest count growth.

Successful operational execution in McDonald’s restaurants, effective marketing campaigns featuring the core menu and continued digital and delivery growth contributed to strong comparable sales results.

• International Operated Markets segment results reflected strong comparable sales across the Big Five* and the majority of other markets.

• International Developmental Licensed Markets segment results reflected strong comparable sales led by Japan, along with all geographic regions.

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

• Consolidated revenues increased 4% (8% in constant currencies).

• Systemwide sales increased 9% (13% in constant currencies).

• Consolidated operating income increased 10% (14% in constant currencies).

• Diluted earnings per share was $2.45, an increase of 66% (72% in constant currencies).

Excluding $0.18 per share of current year restructuring charges related to Accelerating the Organization , diluted earnings per share was $2.63, an increase of 15% (19% in constant currencies) when also excluding prior year charges detailed in the Net Income and Diluted Earnings Per Share section on page 19 of this report.

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.

*Australia, Canada, France, Germany and the U.K.

are collectively referred to as the "Big Five" international markets.

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.

• 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.

Management reviews and analyzes business results excluding the effect of foreign currency translation, impairment and other 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.

• Comparable sales and comparable guest counts are compared to the same period in the prior year and represent sales and transactions, respectively, 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 that remain closed in Ukraine).

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.

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

Comparable sales exclude the impact of currency translation and the sales of any market considered hyperinflationary (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.

Beginning in the first quarter of 2023, McDonald's excluded results from Argentina and Lebanon in the calculation of comparable sales due to hyperinflation (Venezuela continues to be excluded).

Comparable sales are driven by changes in guest counts and average check, the latter of which is affected by changes in pricing and product mix.

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CONSOLIDATED OPERATING RESULTS

Quarter Ended Nine Months Ended

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

Quarter Ended

Dollars in millions, except per share data March 31, 2023

Amount Increase/

(Decrease) Amount Increase/

Sales by Company-operated restaurants $ 2,224.3 (3) %

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Other 553.3 (5)

Other operating (income) expense, net 12.5 n/m 959.1 n/m

Other operating (income) expense, net 128.6 n/m

Total operating costs and expenses 3,365.4 —

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Interest expense 329.7 15

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

Nonoperating (income) expense, net (64.3) n/m

Income before provision for income taxes 2,267.0 47

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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.

The impact of foreign currency translation on consolidated operating results for the quarter continued to reflect the weakening of all major currencies against the U.S.

Dollar, including 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.

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Benefit/ (Cost)

Quarters Ended September 30, 2022 2021 2022

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

Company-operated margins 345.2 490.0 (31.8)

Franchised margins 3,082.1 2,917.6 (224.3)

Selling, general & administrative expenses 669.7 643.7 19.7

Operating income 2,763.9 2,986.5 (243.4)

Net income 1,981.6 2,149.9 (142.5)

Earnings per share-diluted $ 2.68 $ 2.86 $ (0.19)

Benefit/ (Cost)

Nine Months Ended September 30, 2022 2021 2022

Quarters Ended March 31, 2023 2022 2023

Revenues $ 5,897.8 $ 5,665.6 $ (215.0)

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Net Income and Diluted Earnings per Share

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 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.

Net income increased 63% (69% in constant currencies) to $1,802.3 million, and diluted earnings per share increased 66% (72% constant currencies) to $2.45.

Foreign currency translation had a negative impact of $0.09 on diluted earnings per share.

Results for 2023 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

• Pre-tax restructuring charges of $180 million, or $0.18 per share, related to Accelerating the Organization

Results for 2022 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

• Pre-tax expenses of $127 million, or $0.13 per share, primarily related to Russia

• $500 million, or $0.67 per share, of nonoperating expense related to the settlement of a tax audit in France

Excluding the above items, results reflected strong operating performance driven primarily by higher sales-driven Franchised margins.

During the quarter, the Company repurchased 2.2 million shares of stock for $584.5 million.

Additionally, the Company paid a quarterly dividend of $1.52 per share, or $1.1 billion.

NET INCOME AND EARNINGS PER SHARE-DILUTED RECONCILIATION

Dollars in millions, except per share data

Quarters Ended September 30,

Net Income Earnings per share - diluted

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

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

GAAP $ 1,981.6 $ 2,149.9 (8) % (1) % $ 2.68 $ 2.86 (6) % — %

(Gains)/charges — (73.7) — (0.10)

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 %

Nine Months Ended September 30,

Quarters Ended March 31,

Net Income Earnings per share - diluted

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(Gains)/charges 134.4 102.1 0.18 0.13

Change in U.K.

statutory tax rate — (363.7) — (0.48)

France tax settlement 537.2 — 0.72 —

Tax settlement — 500.0 — 0.67

Non-GAAP $ 1,936.7 $ 1,706.5 13 % 17 % $ 2.63 $ 2.28 15 % 19 %

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.

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The Company’s Other revenues are comprised of fees paid by franchisees to recover a portion of costs incurred by the Company for various technology platforms, revenues from brand licensing arrangements to market and sell consumer packaged goods using the McDonald’s brand and, for periods prior to its sale on April 1, 2022, third - party revenues for the Company's Dynamic Yield business.

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

Franchised restaurants represented 95% of McDonald's restaurants worldwide at March 31, 2023.

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

Company-operated sales

$ 713.6 $ 655.5 9 % 9 %

International Operated Markets 1,220.2 1,754.0 (30) (21)

International Developmental Licensed Markets & Corporate 191.0 188.9 1 17

Total $ 2,124.8 $ 2,598.4 (18) % (11) %

Franchised revenues

$ 1,699.9 $ 1,562.7 9 % 9 %

International Operated Markets 1,564.6 1,586.1 (1) 13

International Developmental Licensed Markets & Corporate 406.7 361.4 13 24

Total $ 3,671.2 $ 3,510.2 5 % 12 %

Total Company-operated sales and Franchised revenues

$ 2,413.5 $ 2,218.2 9 % 9 %

International Operated Markets 2,784.8 3,340.1 (17) (5)

International Developmental Licensed Markets & Corporate 597.7 550.3 9 22

Total $ 5,796.0 $ 6,108.6 (5) % 2 %

Total Other revenues $ 76.1 $ 92.7 (18) % (14) %

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

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

Quarters Ended March 31, 2023 2022 Inc/ (Dec) Inc/ (Dec)

Company-operated sales

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Total Revenues $ 5,897.8 $ 5,665.6 4 % 8 %

• 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.

• Total Company-operated sales and franchised revenues increased 4% (8% in constant currencies), benefiting from strong sales performance across all segments.

Revenue growth in the International Operated Markets segment in constant currencies was partly offset by the impact of the Company's exit from Russia in the second quarter of 2022.

Comparable Sales

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

The following table presents the percent change in comparable sales for the quarters ended March 31, 2023 and 2022:

Increase/(Decrease)

Quarters Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

6.1 % 9.6 % 4.5 % 16.1 %

Quarters Ended March 31,

International Operated Markets 12.6 20.4

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Total 12.6 % 11.8 %

*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 nine months ended September 30, 2022:

The following table presents the percent change in Systemwide sales for the quarter ended March 31, 2023:

SYSTEMWIDE SALES*

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

Quarter Ended March 31, 2023

Inc/ (Dec) Inc/ (Dec)

Translation Inc/ (Dec) Inc/ (Dec)

6 % 6 % 5 % 5 %

International Operated Markets 4 10

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*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 nine months ended September 30, 2022 and 2021:

The following table presents Franchised sales and the related increases/(decreases) for the quarters ended March 31, 2023 and 2022:

FRANCHISED SALES

Dollars in millions

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

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

International Operated Markets 8,896.9 9,212.8 (3) 10

International Developmental Licensed Markets & Corporate 7,574.8 6,981.9 8 22

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

Ownership type

Conventional franchised $ 20,671.0 $ 20,199.7 2 % 8 %

Developmental licensed 4,778.0 4,078.8 17 30

Foreign affiliated 2,860.9 3,071.2 (7) 7

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

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

Quarters Ended March 31, 2023 2022 Inc/ (Dec) Inc/ (Dec)

$ 11,742.1 $ 10,429.1 13 % 13 %

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Amount Inc/ (Dec) Inc/ (Dec)

Quarters Ended September 30, 2022 2021

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

International Operated Markets 1,296.6 1,302.4 — 14

International Developmental Licensed Markets & Corporate 401.8 355.1 13 25

Total $ 3,082.1 $ 2,917.6 6 % 13 %

Company-operated

$ 105.6 $ 126.6 (17) % (17) %

International Operated Markets 230.5 355.5 (35) (27)

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

Total $ 345.2 $ 490.0 (30) % (23) %

Total restaurant margins

$ 1,489.3 $ 1,386.7 7 % 7 %

International Operated Markets 1,527.1 1,657.9 (8) 5

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

Total $ 3,427.3 $ 3,407.6 1 % 8 %

Amount Inc/ (Dec) Inc/ (Dec)

Nine Months Ended September 30, 2022 2021

Quarters Ended March 31, 2023 2022

$ 1,361.9 $ 1,192.5 14 % 14 %

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n/m Not meaningful

• 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.

• Total restaurant margins increased $268.5 million, or 9% (12% in constant currencies).

Franchised margins represented over 90% of restaurant margin dollars.

• Results in all segments reflected strong sales-driven Franchised margins.

• Company-operated margins in the U.S.

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.

and International Operated Markets segment reflected strong positive sales performance, with results for the International Operated Markets segment more than offset by the impact of the Company's exit from Russia in the second quarter of 2022 and by ongoing inflationary cost pressures.

• Total restaurant margins included depreciation and amortization expense of $391.3 million.

Selling, General & Administrative Expenses

• 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.

• Selling, general and administrative expenses decreased $24.4 million, or 4% (2% in constant currencies).

Results primarily reflect the comparison to prior year costs related to the 2022 Worldwide Owner/Operator convention.

• Selling, general and administrative expenses as a percent of Systemwide sales were 2.2% and 2.4% for the quarters ended 2023 and 2022, respectively.

Other Operating (Income) Expense, Net

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Dollars in millions

Quarters Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

Quarters Ended

Gains on sales of restaurant businesses $ (13.1) $ (5.8)

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Total $ 128.6 $ 60.5

• 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.

• Asset dispositions and other (income) expense, net primarily reflected the comparison to a prior year gain as a result of 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 reflected $180 million of pre-tax restructuring charges related to Accelerating the Organization.

Results for the prior year reflected net pre-tax expenses of $127 million, primarily related to Russia.

Operating Income

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Dollars in millions

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

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

International Operated Markets 1,374.4 1,519.6 (10) 3

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

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

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

Quarters Ended March 31, 2023 2022 Inc/ (Dec) Inc/ (Dec)

$ 1,295.1 $ 1,151.0 13 % 13 %

International Operated Markets 1,192.7 1,129.2 6 12

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

International Developmental Licensed Markets & Corporate 44.6 32.4 38 n/m

Total $ 2,532.4 $ 2,312.6 10 % 14 %

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• Operating Income:

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 increased $219.8 million, or 10% (14% in constant currencies).

Results reflected $180 million of pre-tax restructuring charges related to Accelerating the Organization .

Results for the prior year reflected $127 million of costs, primarily related to Russia.

OPERATING INCOME & OPERATING MARGIN RECONCILIATION*

Dollars in millions

Quarters Ended September 30, Nine Months Ended September 30,

Quarters Ended March 31,

2023 2022 Inc/ (Dec) Inc/ (Dec)

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

GAAP operating income $2,532.4 $2,312.6 10 % 14 %

Russia sale charge — — 1,280.5 —

Dynamic Yield sale gain — — (270.7) —

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

(Gains)/charges 180.5 127.1

Non-GAAP operating income $2,712.9 $2,439.7 11 % 15 %

Non-GAAP operating margin 46.0 % 43.1 %

*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.

*Refer to the Impairment and other charges (gains), net line within the Other Operating (Income) Expense, Net section on page 23 of this report for details of the charges in this table.

• Excluding the current and prior year charges shown in the table above, operating income increased 11% (15% in constant currencies).

Operating income primarily reflected sales-driven growth in Franchised margins.

• International Operated Markets:

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.

Results reflected strong operating performance across the majority of the segment.

• International Developmental Licensed Markets & Corporate:

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

Results reflected strong operating performance across the segment, led by Brazil and China.

• Operating Margin:

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 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.

The increase in non-GAAP operating margin was due primarily to sales-driven growth in Franchised margins.

Interest Expense

• 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.

• Interest expense increased 15% (16% in constant currencies), primarily due to higher average interest rates as well as higher average debt balances when compared to the prior year.

Nonoperating (Income) Expense, Net

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Dollars in millions

Quarters Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

Quarters Ended

Interest income $ (37.9) $ (2.6)

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Total $ (64.3) $ 484.1

• Interest income increased, primarily due to higher average interest rates when compared to the prior year.

• 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.

• Other (income) expense, net for the prior year included $500 million of nonoperating expense related to the settlement of a tax audit in France.

• The effective income tax rate was 20.5% and 28.3% for the quarters ended March 31, 2023 and 2022, respectively.

• Excluding the tax impacts of current and prior year charges (as described within the Operating Income & Operating Margin Reconciliation on page 24 of this report) and the prior year nonoperating expense related to an international tax audit, the effective income tax rate for the quarters ended March 31, 2023 and 2022 was 20.9% and 21.3%, 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 $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.

Cash provided by operations totaled $2.4 billion and exceeded capital expenditures by $1.9 billion.

Cash provided by operations increased $287 million, primarily due to improved operating results.

Cash used for investing activities totaled $741 million, an increase of $187 million.

The increase was primarily due to higher capital expenditures.

Cash used for financing activities totaled $558 million, a decrease of $3.3 billion.

The decrease was primarily due to lower treasury stock purchases and $1.1 billion of debt issuances in the first quarter 2023 compared to $1.4 billion in debt repayments in the first quarter 2022.

Based on current conditions, the following is provided to assist in forecasting the Company's future results for 2023.

• 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 net restaurant unit expansion will contribute nearly 1.5% to 2023 Systemwide sales growth, in constant currencies.

• The Company expects full year 2023 selling, general and administrative expenses of about 2.2% to 2.3% 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 increase approximately 2%, driven primarily by higher average interest rates.

• The Company expects 2023 operating margin percent to be about 45%.

• Based on current interest and foreign currency exchange rates, the Company expects interest expense for the full year 2023 to increase between 10% and 12%, driven primarily by higher average interest rates.

• The Company expects the effective income tax rate for the full year 2023 to be in the 20% to 22% range.

• 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.

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

• The Company expects 2023 capital expenditures to be between $2.2 and $2.4 billion, about half of which will be directed towards new restaurant unit expansion across the U.S.

and International Operated Markets.

Over 40% will be dedicated to the U.S.

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

Globally, the Company expects to open about 1,900 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 about 1,300 net restaurant additions in 2022.

The Company will open more than 400 restaurants in the U.S.

and International Operated Markets segments, and developmental licensees and affiliates will contribute capital towards about 1,500 restaurant openings in their respective markets.

The Company expects about 1,500 net restaurant additions in 2023.

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

Recent Accounting Pronouncements

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

Cautionary Statement Regarding Forward-Looking Statements

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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

The COVID-19 pandemic has adversely affected and may continue to adversely affect our financial results, condition and outlook.

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

Importantly, the global pandemic resulting from COVID-19 has disrupted global health, economic and market conditions, consumer behavior and McDonald’s global restaurant operations since early 2020, and has resulted in increased pressure on labor availability and supply chain management.

Local and national governmental mandates or recommendations and public perceptions of the risks associated with the COVID-19 pandemic have caused, and 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, 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, 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.

STRATEGY AND BRAND

If we do not successfully evolve and execute against our business strategies, including the Accelerating the Arches strategy, we may not be able to drive business growth.

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.

If we do not successfully evolve and execute against our business strategies, we may not be able to drive business growth.

To drive Systemwide sales, operating income and free cash flow growth, our business strategies – including the components of our Accelerating the Arches growth strategy – 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 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;

• capitalize on our global scale, iconic brand and local market presence to build upon our historic strengths and competitive advantages, including by maximizing our marketing, committing to our core menu items, and doubling down on digital, delivery, drive thru and restaurant development;

• 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;

• 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;

• accelerate our existing strategies, including through growth opportunities and potential acquisitions, investments and partnerships;

• evolve and adjust our business strategies in response to, among other things, changing consumer behavior, operational restrictions and impacts to our results of operations and liquidity, including as a result of the COVID-19 pandemic.

If we are delayed or unsuccessful in executing our strategies, or if our strategies do not yield the desired results, our business, financial condition and results of operations may suffer.

• build upon our investments to transform and enhance the customer experience;

• run great restaurants by driving efficiencies and expanding capacities while prioritizing health and safety;

• accelerate our existing strategies, including through growth opportunities;

• evolve and adjust our strategies in response to, among other things, changing consumer behavior, and other events impacting our results of operations and liquidity.

If we are delayed or unsuccessful in evolving or executing against our strategies, if the execution of our strategies proves to be more difficult, costly or time consuming than expected, or if our strategies do not yield the desired results, our business, financial condition and results of operations may suffer.

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 and relevance of our brand, including our corporate purpose, mission and values.

To continue 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.

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

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

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

Our marketing and advertising programs may not be successful in reaching consumers 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, allows us to reach consumers effectively, efficiently and in ways that are meaningful to them.

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

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

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

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

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

We continue to build upon our investments in restaurant development, technology, 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.

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

We also continue to expand and refine our delivery initiatives, including through integrating delivery and mobile ordering.

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.

If these customer experience initiatives are not well executed, or if we do not fully realize the intended benefits of these significant investments, our business results may suffer.

If these customer experience initiatives are not successfully executed, or if we do not fully realize the intended benefits of these significant investments, our business results may suffer.

We face intense competition in our markets, which could hurt our business.

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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, restaurant modernization, digital engagement and delivery, 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 restaurant development, technology, 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.

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.

The success of our business depends on our continued ability to use our existing trademarks and service marks in order to increase brand awareness and further develop our branded products in both domestic and international markets.

Our success depends on our continued ability to use our existing trademarks and service marks in order to increase brand awareness and further develop our branded products in both domestic and international markets.

We rely on a combination of trademarks, copyrights, service marks, trade secrets, patents and other intellectual property rights to protect our brand and branded products.

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

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.

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

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

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Meeting customer expectations is complicated by the risks inherent in our global operating environment, and our global success is partially dependent on our System’s ability to leverage operating successes across markets and brand perceptions.

Planned initiatives may not have appeal across multiple markets with McDonald’s customers and could drive unanticipated changes in customer perceptions and guest counts.

Planned initiatives may not have appeal across multiple markets with McDonald’s customers and could drive unanticipated changes in customer perceptions and market share.

Disruptions in operations or price volatility in a market can also result from governmental actions, such as price, foreign exchange or trade-related tariffs or controls, trade policies and regulations, sanctions and counter sanctions, government-mandated closure of our, our franchisees’ or our suppliers’ operations, and asset seizures.

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

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.

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.

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

For example, the war between Russia and Ukraine has resulted in volatile and unpredictable conditions throughout the region, 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, consumer demand and the ability of us and our franchisees to operate in certain geographic areas, may also continue to have an adverse impact on our business and financial results.

While we may face challenges and uncertainties in any of the markets in which we operate, such challenges and uncertainties are often heightened in developing markets, which may entail a relatively higher risk of political instability, economic volatility, crime, corruption and social and ethnic unrest.

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

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

We may also face challenges and uncertainties in developed markets.

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

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

Any of these effects, and others we cannot anticipate, could adversely affect our business, results of operations, financial condition and cash flows.

An inability to manage effectively the risks associated with our international operations could adversely affect our business and financial results.

Supply chain interruptions may increase costs or reduce revenues.

We depend on the effectiveness of our supply chain management to assure reliable and sufficient supply of quality products on favorable terms.

Although many of the products we sell are sourced from a wide variety of suppliers in countries around the world, certain products have limited suppliers, which may increase our reliance on those suppliers.

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.

We depend on the effectiveness of our supply chain management to assure a reliable and sufficient supply of quality products, equipment and other materials on favorable terms.

Although many of these items are sourced from a wide variety of suppliers in countries around the world, certain items have limited suppliers, which may increase our reliance on those suppliers.

Supply chain interruptions and related price increases have in the past and may in the future 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, 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.

Interruptions in our System’s supply chain or ineffective contingency planning can increase our costs and/or limit the availability of products, equipment and other materials that are critical to our System’s operations or to restaurant development.

Our franchise business model presents a number of risks.

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Business risks affecting our operations also affect our franchisees.

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.

If franchisee sales trends worsen, or any of such risks materialize or intensify, 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 decision to own restaurants or to operate under franchise or license agreements is driven by many factors whose interrelationship is complex.

The benefits of our more heavily franchised structure depend on various factors, including whether we have effectively selected franchisees, licensees and/or affiliates that meet our rigorous standards, whether we are able to successfully integrate them into our structure and whether their performance and the resulting ownership mix supports our brand and financial objectives.

The benefits of our more heavily franchised structure depend on various factors, including whether we have effectively selected franchisees, licensees and/or affiliates that meet our rigorous

standards, whether we are able to successfully integrate them into our structure and whether their performance and the resulting ownership mix supports our brand and financial objectives.

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

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

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

We and our franchisees have experienced and may continue to experience challenges in adequately staffing certain McDonald’s restaurants, which can negatively impact operations, including speed of service to customers, and customer satisfaction levels.

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

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.

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

We and our franchisees also continue to be impacted by increasingly complex U.S.

and international laws and regulations affecting our respective workforces.

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

Additionally, economic action, such as boycotts, protests, work stoppages or campaigns by labor organizations, could adversely affect us (including our ability to recruit, motivate and retain talent) or our franchisees and suppliers, whose performance may have a significant impact on our results.

Additionally, economic action, such as boycotts, protests, work stoppages or campaigns by labor organizations, could adversely affect us (including our ability to attract, recruit, develop, motivate and retain talent) or our franchisees and suppliers, whose performance may have a significant impact on our results.

Effective succession planning is important to our continued success.

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.

Failure to effectively attract, recruit, develop, motivate and retain qualified key personnel, or to execute smooth personnel transitions, could disrupt our business and adversely affect our results.

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

Our ability to increase sales and profits depends on our System’s ability to meet expectations for safe food and on our ability to manage the potential impact on McDonald’s of food-borne illnesses and food or product safety issues that may arise in the future, including in the supply chain, restaurants or delivery.

Food safety is a top priority, and we dedicate substantial resources to ensure that our customers enjoy safe food products, including as our menu and service model evolve.

Food safety is a top priority, and we dedicate substantial resources aimed at ensuring that our customers enjoy safe food products, including as our menu and service model evolve.

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

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

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

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

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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.

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

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

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

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

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

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

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

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

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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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In assessing the recoverability of our long-lived assets, we consider changes in economic conditions and make assumptions regarding estimated future cash flows and other factors.

These estimates are highly subjective and can be significantly impacted by many factors such as global and local business and economic conditions, operating costs, inflation, competition, consumer and demographic trends and our restructuring activities.

These estimates are highly subjective and can be significantly impacted by many factors such as global and local business and economic conditions, operating costs, inflation, interest rate levels, competition, consumer and demographic trends and our restructuring activities.

If our estimates or underlying assumptions change in the future, we may be required to record impairment charges.

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

Any such changes could have a significant adverse effect on our reported results for the affected periods.

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.

An increasing number of our markets 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.

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

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

Economic conditions can 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 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.

Health epidemics or pandemics could adversely affect our business and financial results.

Health epidemics or pandemics – such as the global outbreak of COVID-19 in early 2020 – have in the past and may in the future impact macroeconomic conditions, consumer behavior, labor availability and supply chain management, as well as local operations in impacted markets, all of which can adversely affect our business, financial results and outlook.

Governmental responses to health epidemics or pandemics, including operational restrictions, can also affect the foregoing items and adversely affect our business and financial results.

The duration and scope of a health epidemic or pandemic can be difficult to predict and depends on many factors, including the emergence of new variants and the availability, acceptance and effectiveness of preventative measures.

A health epidemic or pandemic may also heighten other risks disclosed in these Risk Factors, including, but not limited to, those related to the availability and costs of labor and commodities, supply chain interruptions, consumer behavior, and consumer perceptions of our brand and industry.

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

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

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 and utilities, as well as 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.

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

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

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

If any of these events were to occur, they could have a material adverse effect on our business and financial condition.

Trading volatility and the price of our common stock may be adversely affected by many factors.

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

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

Any such events could have a material adverse effect on our business and financial condition.

The trading volatility and price of our common stock may be adversely affected by many factors.

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

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

• the unpredictable nature of global economic and market conditions;

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

• 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.

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

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

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

For example, we are working to manage risks and costs to our System related to climate change, greenhouse gases, and diminishing energy and water resources, and we have announced initiatives relating to, among other things, environmental sustainability, responsible sourcing and increasing diverse representation across our System.

We may face increased scrutiny related to reporting on and achieving these initiatives, as well as continued public focus on similar matters, such as packaging and waste, animal health and welfare, deforestation and land use.

We may also face increased pressure from stakeholders to provide expanded disclosure and establish additional commitments, targets or goals, and take actions to meet them, which could expose us to additional market, operational, execution and reputational costs and risks.

For example, we are working to manage risks and costs to our System related to climate change, greenhouse gases, and diminishing energy and water resources, and we have announced initiatives relating to, among other things, climate action, sustainability, responsible sourcing and increasing diverse representation across our System.

We have faced increased scrutiny related to reporting on and achieving these initiatives, as well as continued public focus on similar matters, such as packaging and waste, animal health and welfare, deforestation and land use.

We have also experienced increased pressure from stakeholders to provide expanded disclosure and establish additional commitments, targets or goals, and take actions to meet them, which could expose us to additional market, operational, execution and reputational costs and risks.

Moreover, addressing ESG matters requires Systemwide coordination and alignment, and the standards by which certain ESG matters are measured are evolving and subject to assumptions that could change over time.

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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