What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-02 compared with 2023-08-02 · 117 added, 122 removed, 557 unchanged (30% of the section changed)

1 unchanged sentence

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

Of the 40,801 McDonald's restaurants at June 30, 2023, approximately 95% were franchised.

Of the 41,198 McDonald's restaurants at September 30, 2023, approximately 95% were franchised.

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

26 unchanged sentences

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

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

The Company generally does not invest

any capital under a developmental license or affiliate arrangement, and it receives a royalty based on a percent of sales, and generally receives initial fees upon the opening of a new restaurant or grant of a new license.

While developmental license and affiliate arrangements are largely the same, affiliate arrangements are used in a limited number of foreign markets (primarily China and Japan) within the International Developmental Licensed Markets segment 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.

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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 second quarter of 2023, digital channels (the mobile app, delivery and kiosk) comprised almost 40% of Systemwide sales in the Company’s top six markets, representing over $8 billion in digital Systemwide sales.

In the third quarter of 2023, digital channels (the mobile app, delivery and kiosk) comprised over 40% of Systemwide sales in the Company’s top six markets, representing nearly $9 billion in digital Systemwide sales.

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 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.

In the U.S., we are piloting a digital enhancement that 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 over 50 markets around the world, including all of its top six markets.

The Company’s loyalty customers have proven to be highly engaged, with over 52 million active loyalty members across the Company’s top six markets during the second quarter of 2023, including over 30 million in the U.S.

The Company’s loyalty customers have proven to be highly engaged, with over 57 million active loyalty members across the Company’s top six markets during the third quarter of 2023, including over 33 million in the U.S.

Delivery is 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 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 continue to benefit the Company, customers and franchisees by optimizing operational efficiencies and creating a seamless customer experience.

The Company has also put in place long-term strategic partnerships with delivery providers that continue to benefit the Company, customers and franchisees by optimizing operational efficiencies and creating a seamless customer experience.

◦ Drive Thru:

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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 continuing to modernize our ways of working through Accelerating the Organization .

These efforts, coupled with continued investments in digital, innovation and the Global Business Services organization, 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 an uncertain macroenvironment to meet customer demands.

These efforts include continued investments in digital, innovation and the Global Business Services organization, which 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, for example 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, agility and power of the McDonald's brand to adapt and adjust to an uncertain macroenvironment 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.

Second Quarter and Six Months 2023 Financial Performance

Global comparable sales increased 11.7% for the quarter and 12.2% for the six months.

comparable sales increased 10.3% for the quarter and 11.4% for the six months.

Comparable sales results for both periods benefited from strategic menu price increases and positive guest counts.

Third Quarter and Nine Months 2023 Financial Performance

Global comparable sales increased 8.8% for the quarter and 11.0% for the nine months.

comparable sales increased 8.1% for the quarter and 10.3% for the nine months.

Comparable sales results for both periods benefited from strategic menu price increases.

Successful restaurant level execution, culturally relevant brand and marketing campaigns and continued digital and delivery growth contributed to strong comparable sales results.

• International Operated Markets segment comparable sales increased 11.9% for the quarter and 12.3% for the six months.

Segment performance in both periods was driven by strong comparable sales in most markets, led by the U.K.

• International Developmental Licensed Markets segment comparable sales increased 14.0% for the quarter and 13.3% for the six months.

Both periods reflected strong comparable sales in all geographic regions, led by China.

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

• Consolidated revenues increased 14% (14% in constant currencies) for the quarter and 9% (11% in constant currencies) for the six months.

• Systemwide sales increased 12% (13% in constant currencies) for the quarter and 10% (13% in constant currencies) for the six months.

• Consolidated operating income increased 81% (82% in constant currencies) for the quarter and 40% (43% in constant currencies) for the six months.

Excluding current and prior year charges and gains detailed in the Operating Income and Operating Margin section on page 29 of this report, consolidated operating income increased 20% (21% in constant currencies) for the quarter and 16% (18% in constant currencies) for the six months.

• Diluted earnings per share was $3.15 for the quarter, an increase of 97% (98% in constant currencies) and $5.60 for the six months, an increase of 82% (85% in constant currencies).

Excluding current and prior year items detailed in the Net Income and Diluted Earnings Per Share section on page 22 of this report, diluted earnings per share for the quarter was $3.17, an increase of 24% (25% in constant currencies) and $5.80, an increase of 20% (21% in constant currencies), for the six months.

• International Operated Markets segment comparable sales increased 8.3% for the quarter and 10.9% for the nine months.

Segment performance in both periods was driven by strong comparable sales in most markets, led by the U.K., Germany and Canada.

• International Developmental Licensed Markets segment comparable sales increased 10.5% for the quarter and 12.3% for the nine months.

Both periods reflected strong comparable sales in all geographic regions.

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

• Consolidated revenues increased 14% (11% in constant currencies) for the quarter and 11% (11% in constant currencies) for the nine months.

• Systemwide sales increased 11% (10% in constant currencies) for the quarter and 11% (12% in constant currencies) for the nine months.

• Consolidated operating income increased 16% (13% in constant currencies) for the quarter and 30% (31% in constant currencies) for the nine months.

Excluding current and prior year charges and gains detailed in the Operating Income and Operating Margin section on page 29 of this report, consolidated operating income increased 16% (17% in constant currencies) for the nine months.

• Diluted earnings per share was $3.17 for the quarter, an increase of 18% (15% in constant currencies) and $8.76 for the nine months, an increase of 52% (53% in constant currencies).

Excluding current and prior year items detailed in the Net Income and Diluted Earnings Per Share section on page 22 of this report, diluted earnings per share for the nine months was $8.99, an increase of 20% (20% in constant currencies).

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.

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CONSOLIDATED OPERATING RESULTS

Quarter Ended Six Months Ended

Dollars in millions, except per share data June 30, 2023 June 30, 2023

Quarter Ended Nine Months Ended

Dollars in millions, except per share data September 30, 2023 September 30, 2023

Amount Increase/

15 unchanged sentences

Interest expense 340.7 11 1,000.6 13

Nonoperating (income) expense, net (42.8) n/m (107.1) n/m

Nonoperating (income) expense, net (55.9) (29) (163.0) n/m

Income before provision for income taxes 2,923.5 15 8,007.2 46

Provision for income taxes 506.3 n/m 971.0 48

Provision for income taxes 606.4 9 1,577.4 30

Net income $ 2,317.1 17 % $ 6,429.8 50 %

3 unchanged sentences

Impact of Foreign Currency Translation

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

For the quarter, the weakening of most major currencies was mostly offset by the strengthening of the Euro.

The impact of foreign currency translation on consolidated operating results for the quarter primarily reflected the strengthening of the Euro and British Pound.

Results for the nine months reflected the weakening of most major currencies against the U.S.

Dollar, partly offset by the strengthening of the Euro.

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

3 unchanged sentences

Benefit/ (Cost)

Quarters Ended June 30, 2023 2022 2023

Quarters Ended September 30, 2023 2022 2023

Revenues $ 6,692.2 $ 5,872.1 $ 152.1

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Benefit/ (Cost)

Six Months Ended June 30, 2023 2022 2023

Nine Months Ended September 30, 2023 2022 2023

Revenues $ 19,087.5 $ 17,256.1 $ (111.5)

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For the quarter, net income increased 17% (14% in constant currencies) to $2,317.1 million, and diluted earnings per share increased 18% (15% in constant currencies) to $3.17.

Foreign currency translation had a negative impact of $0.01 on diluted earnings per share.

For the six months, net income increased 79% (83% in constant currencies) to $4,112.7 million, and diluted earnings per share increased 82% (85% in constant currencies) to $5.60.

Foreign currency translation had a positive impact of $0.08 on diluted earnings per share.

For the nine months, net income increased 50% (51% in constant currencies) to $6,429.8 million, and diluted earnings per share increased 52% (53% in constant currencies) to $8.76.

Foreign currency translation had a negative impact of $0.03 on diluted earnings per share.

Results for 2023 included the following:

• Pre-tax restructuring charges of $18 million, or $0.02 per share, for the quarter and $198 million, or $0.20 per share, for the six months, primarily related to Accelerating the Organization

• Pre-tax charges of $26 million, or $0.02 per share, for the quarter and $224 million, or $0.23 per share, for the nine months, primarily related to restructuring costs associated with Accelerating the Organization

Results for 2022 included the following:

• Pre-tax charges of $1,153 million, or $1.30 per share, for the quarter and $1,281 million, or $1.43 per share, for the six months, related to the sale of the Company's business in Russia

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

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

• 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

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

During the quarter, the Company repurchased 2.0 million shares of stock for $578.6 million, bringing total purchases for the six months to 4.2 million shares, or $1.2 billion.

Additionally, the Company paid a quarterly dividend of $1.52 per share, or $1.1 billion, bringing total dividends paid for the six months to $2.2 billion.

During the quarter, the Company repurchased 3.8 million shares of stock for $1.1 billion, bringing total purchases for the nine months to 7.9 million shares, or $2.2 billion.

Additionally, the Company paid a quarterly dividend of $1.52 per share, or $1.1 billion, bringing total dividends paid for the nine months to $3.3 billion.

In October 2023, the Company declared a 10% increase in its quarterly

cash dividend to $1.67 per share, payable on December 15, 2023.

NET INCOME AND EARNINGS PER SHARE-DILUTED RECONCILIATION

Dollars in millions, except per share data

Quarters Ended June 30,

Quarters Ended September 30,

Net Income Earnings per share - diluted

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Non-GAAP $ 2,337.1 $ 1,981.6 18 % 15 % $ 3.19 $ 2.68 19 % 16 %

Six Months Ended June 30,

Nine Months Ended September 30,

Net Income Earnings per share - diluted

9 unchanged sentences

The Company’s Other revenues are comprised of fees paid by franchisees to recover a portion of costs incurred by the Company for various technology platforms, revenues from brand licensing arrangements to market and sell consumer packaged goods using the McDonald’s brand and, 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 June 30, 2023.

Franchised restaurants represented approximately 95% of McDonald's restaurants worldwide at September 30, 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 June 30, 2023 2022 Inc/ (Dec) Inc/ (Dec)

Quarters Ended September 30, 2023 2022 Inc/ (Dec) Inc/ (Dec)

Company-operated sales

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Total Revenues $ 6,692.2 $ 5,872.1 14 % 11 %

Six Months Ended June 30, 2023 2022 Inc/ (Dec) Inc/ (Dec)

Nine Months Ended September 30, 2023 2022 Inc/ (Dec) Inc/ (Dec)

Company-operated sales

15 unchanged sentences

Total Revenues $ 19,087.5 $ 17,256.1 11 % 11 %

• Total Company-operated sales and franchised revenues increased 14% (15% in constant currencies) for the quarter and increased 9% (11% in constant currencies) for the six months, with both periods benefiting from strong sales performance across all segments.

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

• Total Company-operated sales and franchised revenues increased 14% (11% in constant currencies) for the quarter and 11% (11% in constant currencies) for the nine months, with both periods benefiting from strong sales performance across all segments.

Revenue growth in the International Operated Markets segment for the nine months 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 six months ended June 30, 2023 and 2022:

The following table presents the percent change in comparable sales for the quarters and nine months ended September 30, 2023 and 2022:

Increase/(Decrease)

Quarters Ended June 30, Six Months Ended June 30,

Quarters Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

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Systemwide Sales and Franchised Sales

The following table presents the percent change in Systemwide sales for the quarter and six months ended June 30, 2023:

The following table presents the percent change in Systemwide sales for the quarter and nine months ended September 30, 2023:

SYSTEMWIDE SALES*

Quarter Ended June 30, 2023 Six Months Ended June 30, 2023

Quarter Ended September 30, 2023 Nine Months Ended September 30, 2023

Inc/ (Dec) Inc/ (Dec)

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

The following table presents Franchised sales and the related increases/(decreases) for the quarters and six months ended June 30, 2023 and 2022:

The following table presents Franchised sales and the related increases/(decreases) for the quarters and nine months ended September 30, 2023 and 2022:

FRANCHISED SALES

Dollars in millions

Quarters Ended June 30, 2023 2022 Inc/ (Dec) Inc/ (Dec)

Quarters Ended September 30, 2023 2022 Inc/ (Dec) Inc/ (Dec)

$ 12,794.2 $ 11,838.2 8 % 8 %

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Total $ 31,362.4 $ 28,309.9 11 % 9 %

Six Months Ended June 30, 2023 2022 Inc/ (Dec) Inc/ (Dec)

Nine Months Ended September 30, 2023 2022 Inc/ (Dec) Inc/ (Dec)

$ 37,325.1 $ 33,866.0 10 % 10 %

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Amount Inc/ (Dec) Inc/ (Dec)

Quarters Ended June 30, 2023 2022

Quarters Ended September 30, 2023 2022

$ 1,517.9 $ 1,383.7 10 % 10 %

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Amount Inc/ (Dec) Inc/ (Dec)

Six Months Ended June 30, 2023 2022

Nine Months Ended September 30, 2023 2022

$ 4,389.5 $ 3,927.8 12 % 12 %

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• Company-operated margins in the U.S.

and International Operated Markets segment reflected strong sales performance in both periods, partly offset by ongoing inflationary cost pressures.

Results for the six months in the International Operated Markets segment in constant currencies were mostly offset by the impact of the Company's exit from Russia in the second quarter of 2022.

• Total restaurant margins included depreciation and amortization expense of $396.9 million and $788.2 million for the quarter and six months, respectively.

and International Operated Markets segment reflected strong sales performance in both periods, with results partly offset by ongoing inflationary cost pressures.

Results for the nine months in the International Operated Markets segment were also partly offset by the impact of the Company's exit from Russia in the second quarter of 2022.

• Total restaurant margins included depreciation and amortization expense of $401.4 million and $1.2 billion for the quarter and nine months, respectively.

Selling, General & Administrative Expenses

• Selling, general and administrative expenses decreased $41.5 million, or 6% (6% in constant currencies), for the quarter and decreased $65.9 million, or 5% (4% in constant currencies), for the six months.

Results for both periods primarily reflected the comparison to prior year costs related to the 2022 Worldwide Owner/Operator convention and proxy contest, partly offset by higher current year incentive-based compensation expense.

• Selling, general and administrative expenses as a percent of Systemwide sales were 2.1% and 2.4% for the six months ended 2023 and 2022, respectively.

• Selling, general and administrative expenses increased $10.5 million, or 2% (1% in constant currencies), for the quarter and decreased $55.4 million, or 3% (3% in constant currencies), for the nine months.

Results for the nine months primarily reflected the comparison to prior year costs related to the 2022 Worldwide Owner/Operator convention and proxy contest, partly offset by higher current year incentive-based compensation expense.

• Selling, general and administrative expenses as a percent of Systemwide sales were 2.1% and 2.3% for the nine months ended 2023 and 2022, respectively.

Other Operating (Income) Expense, Net

1 unchanged sentence

Dollars in millions

Quarters Ended Six Months Ended

June 30, June 30,

Quarters Ended Nine Months Ended

September 30, September 30,

2023 2022 2023 2022

4 unchanged sentences

Total $ (24.8) $ 12.5 $ 68.0 $ 959.1

• Gains on sales of restaurant businesses increased for both periods, primarily due to higher restaurant sales in the International Operated Markets segment and in the U.S.

• Equity in earnings of unconsolidated affiliates increased in both periods, primarily due to recovery from the impact of COVID-19 in China in the prior year.

• Asset dispositions and other (income) expense, net for the quarter primarily reflected the comparison to prior year costs incurred to support the Company’s business in Ukraine.

• Impairment and other charges (gains), net reflected $18 million and $198 million for the quarter and six months, respectively, primarily related to pre-tax restructuring charges related to Accelerating the Organization.

Results for the quarter and six months 2022 reflected $1,153 million and $1,281 million, respectively, of pre-tax charges related to the sale of the Company's business in Russia.

Results for both periods 2022 also reflected a pre-tax gain of $271 million related to the Company's sale of its Dynamic Yield business.

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

• Asset dispositions and other (income) expense, net for both periods reflected the comparison to prior year costs incurred to support the Company's business in Ukraine and higher asset write-offs in the prior year.

• Impairment and other charges (gains), net reflected pre-tax charges of $26 million and $224 million for the quarter and nine months, respectively, primarily related to restructuring costs associated with Accelerating the Organization .

Results 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.

Operating Income

1 unchanged sentence

Dollars in millions

Quarters Ended June 30, 2023 2022 Inc/ (Dec) Inc/ (Dec)

Quarters Ended September 30, 2023 2022 Inc/ (Dec) Inc/ (Dec)

$ 1,477.8 $ 1,326.6 11 % 11 %

International Operated Markets 1,517.5 136.3 n/m n/m

International Developmental Licensed Markets & Corporate 91.7 255.6 (64) (58)

International Operated Markets 1,584.5 1,374.4 15 10

International Developmental Licensed Markets & Corporate 146.0 62.9 n/m n/m

Total $ 3,208.3 $ 2,763.9 16 % 13 %

Six Months Ended June 30, 2023 2022 Inc/ (Dec) Inc/ (Dec)

Nine Months Ended September 30, 2023 2022 Inc/ (Dec) Inc/ (Dec)

$ 4,267.8 $ 3,797.5 12 % 12 %

International Operated Markets 2,710.2 1,265.5 n/m n/m

International Operated Markets 4,294.7 2,639.9 63 63

International Developmental Licensed Markets & Corporate 282.3 350.9 (20) (7)

2 unchanged sentences

• Operating Income:

Operating income increased $1,392.3 million, or 81% (82% in constant currencies), for the quarter and increased $1,612.1 million, or 40% (43% in constant currencies), for the six months.

Results reflected $18 million for the quarter and $198 million for the six months, primarily related to pre-tax restructuring charges related to Accelerating the Organization.

Results for the quarter and six months 2022 reflected $1,153 million and $1,281 million, respectively, of pre-tax charges related to the sale of the Company's business in Russia.

Results for both periods 2022 also reflected a pre-tax gain of $271 million related to the Company's sale of its Dynamic Yield business.

Operating income increased $444.4 million, or 16% (13% in constant currencies), for the quarter and $2,056.5 million, or 30% (31% in constant currencies), for the nine months.

Results reflected pre-tax charges of $26 million and $224 million for the quarter and nine months, respectively, primarily related to restructuring costs associated with Accelerating the Organization .

OPERATING INCOME & OPERATING MARGIN RECONCILIATION*

Dollars in millions

Quarters Ended June 30, Six Months Ended June 30,

Quarters Ended September 30, Nine Months Ended September 30,

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

1 unchanged sentence

GAAP operating income $3,208.3 $2,763.9 16 % 13 % $8,844.8 $6,788.3 30 % 31 %

Restructuring charge 18.0 — 198.5 —

(Gains)/charges 25.8 — 224.3 —

Russia sale charge — — — 1,280.5

4 unchanged sentences

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

• Excluding the current and prior year charges and gains shown in the table above, operating income increased 20% (21% in constant currencies), for the quarter and increased 16% (18% in constant currencies), for the six months.

Positive operating results across all segments was due primarily to strong sales-driven growth in Franchised margins.

• Excluding the current and prior year charges and gains shown in the table above, operating income increased 17% (14% in constant currencies), for the quarter and 16% (17% in constant currencies), for the nine months.

Positive operating results across all segments were due primarily to strong sales-driven growth in Franchised margins.

• Operating Margin:

2 unchanged sentences

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

The increase in non-GAAP operating margin was due primarily to sales-driven growth in Franchised margins and lower 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 14% (14% in constant currencies) for the quarter and 14% (15% in constant currencies) for the six months.

• Interest expense increased 11% (10% in constant currencies) for the quarter and 13% (13% in constant currencies) for the nine months.

Results for both periods reflected higher average interest rates and higher average debt balances.

2 unchanged sentences

Dollars in millions

Quarters Ended Six Months Ended

June 30, June 30,

Quarters Ended Nine Months Ended

September 30, September 30,

2023 2022 2023 2022

5 unchanged sentences

• 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 2022 included $37 million for the quarter and $537 million for the six months of nonoperating expense related to the settlement of a tax audit in France.

• The effective income tax rate was 18.0% and 15.7% for the quarters ended 2023 and 2022, respectively, and 19.1% and 22.3% for the six months ended 2023 and 2022, respectively.

The effective tax rate for both periods of 2023 reflected a tax benefit of $55 million related to the remeasurement of certain deferred tax liabilities.

Both periods of 2022 reflected approximately $50 million of net tax benefits related to global tax audit progression.

• Excluding the tax impacts of current and prior year charges and gains (as described within the Operating Income & Operating Margin Reconciliation on page 29) and the prior year nonoperating expense related to the settlement of a tax audit in France, the effective income tax rate was 18.0% and 18.7% for the quarters ended 2023 and 2022, respectively, and 19.3% and 19.9% for the six months ended 2023 and 2022, 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 $4.1 billion and exceeded capital expenditures by $3.1 billion for the six months 2023.

Cash provided by operations increased $1.3 billion compared with the six months 2022, primarily due to improved operating results.

Cash used for investing activities totaled $1.4 billion for the six months 2023, an increase of $538.1 million compared with the six months 2022.

The increase was primarily due to higher capital expenditures in the six months 2023 and proceeds from the sale of Dynamic Yield in the six months 2022.

Cash used for financing activities totaled $3.7 billion for the six months 2023, a decrease of $864.6 million compared with the six months 2022.

The decrease was primarily due to lower treasury stock purchases, partly offset by higher net debt repayments.

• Other (income) expense, net for 2022 included $537 million for the nine months of nonoperating expense related to the settlement of a tax audit in France.

• The effective income tax rate was 20.7% and 21.9% for the quarters ended 2023 and 2022, respectively, and 19.7% and 22.1% for the nine months ended 2023 and 2022, respectively.

• The effective tax rate for the nine months 2022 reflected $239 million of net tax benefits related to the sale of the Company’s Russia and Dynamic Yield businesses and the unfavorable impact of the non-deductible $537 million of nonoperating expense related to the settlement of a tax audit in France.

Excluding these items, the effective tax rate was 20.6% for the nine months 2022.

The Company has a long history of generating significant cash from operations and has substantial credit capacity to fund operating and discretionary spending to invest in opportunities to grow the business, such as restaurant development, in addition to funding debt repayments, dividends and share repurchases.

Cash provided by operations totaled $7.1 billion and exceeded capital expenditures by $5.5 billion for the nine months 2023.

Cash provided by operations increased $1.9 billion compared with the nine months 2022, primarily due to improved operating results.

Cash used for investing activities totaled $2.3 billion for the nine months 2023, an increase of $738 million compared with the nine months 2022.

The increase was primarily due to higher capital expenditures in the nine months 2023 as well as proceeds from the sale of Dynamic Yield in the nine months 2022.

Cash used for financing activities totaled $3.8 billion for the nine months 2023, a decrease of $1.3 billion compared with the nine months 2022.

The decrease was primarily due to lower treasury stock purchases.

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

• The Company expects net restaurant unit expansion will contribute about 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 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 to be about 2.2% of Systemwide sales.

• The Company expects 2023 operating margin percent to be about 46%.

Excluding restructuring charges related to Accelerating the Organization, adjusted operating margin is expected to be about 46%.

Excluding charges primarily related to restructuring costs associated with Accelerating the Organization, adjusted operating margin is expected to be about 47%.

• Based on current interest and foreign currency exchange rates, the Company expects interest expense for the full year 2023 to increase between 12% and 13%, driven by higher average debt balances and higher average interest rates.

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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%.

• The Company expects to achieve a free cash flow conversion rate of nearly 90%.

Recent Accounting Pronouncements

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

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

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

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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.

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

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.

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

In addition, we cannot ensure that franchisees will not take actions that adversely affect the value and relevance of our brand.

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

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

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

environmental and social responsibility matters.

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

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

We encounter differing cultural, regulatory, geopolitical and economic environments within and among the more than 100 countries where McDonald’s restaurants operate, and our ability to achieve our business objectives depends on the System’s success in these

environments.

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.

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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.

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

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.

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.

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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.

These may include such things as unauthorized access, phishing attacks, account takeovers, denial of service, computer viruses, introduction of malware or

ransomware and other disruptive problems caused by hackers.

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

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

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.

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 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.

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

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.

Litigation, legislative 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 challenge our franchise business model, 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.

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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, interest rate levels, 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.

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• the unpredictable nature of global economic and market conditions;

and commentary about economic, trade or other matters, even when the matter in question does not directly relate to our business;

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

• trading activity in our common stock, in derivative instruments with respect to our common stock or in our debt securities, which can be affected by:

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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