What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-08 compared with 2023-11-02 · 201 added, 262 removed, 412 unchanged (53% 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 more than 100 countries.

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

Basis of Presentation

This Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) should be read in conjunction with the accompanying condensed consolidated financial statements and the notes thereto, and the audited consolidated financial statements and notes thereto included in our 2023 Annual Report on Form 10-K.

In the first quarter of 2024, the Company changed its rounding presentation to the nearest whole number in millions of reported amounts, except per share data or as otherwise designated.

The change in rounding presentation has been applied to all prior year amounts presented.

In certain circumstances, this change adjusted previously reported balances, however, these changes were not significant, and no other changes were made to previously reported financial information.

Additionally, certain columns and rows in financial tables within management's discussion and analysis of financial condition and results of operations may not add due to rounding.

Percentages have been calculated from the underlying whole-dollar amounts for all periods presented.

The Company franchises and owns 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 42,018 McDonald's restaurants at March 31, 2024, approximately 95% were franchised.

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

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Directly operating McDonald’s restaurants contributes significantly to the Company's ability to act as a credible franchisor.

One of the strengths of the franchising model is that the expertise from operating Company-owned restaurants allows McDonald’s to improve the operations and success of all restaurants while innovations from franchisees can be tested and, when viable, efficiently implemented across relevant restaurants.

One of the strengths of the franchising model is that the expertise from Company-owned and operated restaurants allows McDonald’s to improve the operations and success of all restaurants while innovations from franchisees can be tested and, when viable, efficiently implemented across relevant restaurants.

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

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

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

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

Fees vary by type of site, amount of Company investment, if any, and local business conditions.

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

The Company’s Other revenues are comprised of 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.

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, and revenues from brand licensing arrangements to market and sell consumer packaged goods using the McDonald’s brand.

Conventional Franchise

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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.

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.

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 & Corporate 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.

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

The Strategy reflects the Company’s purpose, mission and values, as well as growth pillars that build on the Company’s competitive advantages.

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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:

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 McDonald’s franchisees, suppliers and employees:

Serve - We put our customers and people first;

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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.

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

Growth Pillars

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

The following growth pillars, M-C-D, build on 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, 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, connecting with customers in authentic and relatable ways.

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 customers in uncertain economic environments.

• 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 around 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.

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.

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

The Company continues to build relevance with customers through emotional connections and world class creative, which are central to the brand’s “Feel-Good Marketing” approach.

This is exemplified by campaigns that elevate the entire brand and continue to be scaled around the globe to connect with customers in authentic and relatable ways.

Another way McDonald’s connects with its customers is through personalized value and digital offers available in our mobile app.

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.

• C ommit to the Core menu by tapping into customer demand for the familiar and focusing on serving our iconic products that are beloved by customers around the world such as our World Famous Fries, Big Mac, Quarter Pounder and Chicken McNuggets, which are some of our seventeen unique billion-dollar brands.

Building on its foundational strength with burgers, the Company will continue to evolve and innovate its longest-standing menu item with plans to implement “Best Burger”;

a series of operational and formulation changes designed to deliver hotter, juicier, tastier burgers to nearly all markets by the end of 2026.

Further, the Company is focused on continuing to gain share in the rapidly growing chicken category, as we continue to aggressively expand our chicken brands.

This includes plans to offer McCrispy in nearly all markets by the end of 2025 and to extend the McCrispy brand into wraps and tenders in several markets.

These planned innovations and new menu offerings reflect the Company’s ability to test and scale quickly to meet evolving customer preferences.

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, 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 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.

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

Digital, Delivery, Drive Thru and Restaurant Development by continuing to leverage competitive strengths and building a powerful digital experience growth engine to deliver a personalized and convenient customer experience.

To unlock further growth, the Company plans 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.

The Company’s digital experience is transforming how customers order, pay and receive their food.

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

In the U.S., we are providing increased convenience to customers through “Ready on Arrival”:

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

The Company plans to deploy this initiative across its top six markets by the end of 2025.

The Company has successful loyalty programs in approximately 50 markets, including its top six markets.

McDonald’s loyalty customers have proven to be highly engaged, and the Company plans to increase its 90-day active users to 250 million by 2027.

Further, the Company plans to grow its annual Systemwide sales to loyalty members to $45 billion by 2027.

The Company offers delivery in over 36,000 restaurants across approximately 100 markets, representing over 85% of McDonald’s restaurants.

The Company is continuing to build on and enhance the delivery experience for customers, including adding the ability to place a delivery order in our mobile app (a feature that is available in five of the Company’s top markets).

The Company continues to scale this capability and expects to increase the percentage of Systemwide delivery sales originating from our mobile app to 30% by 2027.

The Company also has 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:

The Company has drive thru locations in over 27,000 restaurants globally, including nearly 95% of the approximately 13,500 locations in the U.S.

The Company has the most drive thru locations worldwide, with more than 27,000 drive thru locations globally, including nearly 95% of the approximately 13,500 locations in the U.S.

This channel remains a competitive advantage in meeting customers’ demand for flexibility and choice.

McDonald’s network currently provides unmatched scale and convenience for customers, while also offering significant growth opportunities, such as adding additional drive thru lanes to increase capacity and improve speed and efficiency.

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

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◦ Restaurant Development:

The Company expects to continue to accelerate the pace of restaurant openings, with plans to open approximately 2,000 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.

The Company will continue to accelerate the pace of restaurant openings to attempt to fully capture the increased demand being driven through the Strategy in many of its largest markets.

In 2024, the Company plans to open more than 2,100 new restaurants across the globe, which will contribute to nearly 4% new unit growth (net of closures).

Further, the Company continues to build on its industry-leading development progress by targeting expansion to 50,000 restaurants by the end of 2027, which would make it the fastest period of growth in Company history.

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 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.

Further, as the Company plans for long term growth and solidifying McDonald’s leadership position, the Company will develop three technology-enabled platforms designed to build our competitive advantages, cement our place in culture and stay one step ahead of the next generation of customers.

Together, our foundation and platforms will extend the Company’s leadership position and unlock new growth opportunities and efficiencies for our business over the long-term.

Our platforms are:

The Company is creating one of the world’s largest consumer platforms to fuel engagement , which will bring together the best of our brand and utilize our physical and digital competitive advantages.

The consumer platform will enable the Company to accelerate growth in our loyalty program and drive valuable loyalty customers to visit more frequently.

• Restaurant:

The Company is building the easiest and most efficient restaurant operating platform that will enable franchisees to run restaurants more efficiently and utilize the latest cloud-based technology to make the crew’s jobs to deliver exceptional customer service easier.

The Company will deploy new, universal software that all McDonald’s restaurants will run on, enabling restaurants to roll out innovation even faster, with less complexity and more stability;

and customers will enjoy a more familiar, consistent experience.

The Company is building a modern company platform that unlocks speed and innovation throughout the organization, to enable further growth as it modernizes the way it works by focusing on becoming faster, more innovative and more efficient at solving problems for its customers and people.

Developing these platforms includes continued investments in digital, innovation and the Global Business Services organization.

The Strategy is aligned with the Company’s capital allocation philosophy of investing in opportunities to grow the business and drive strong returns, 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 the 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.

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 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).

First Quarter 2024 Financial Performance

Global comparable sales increased 1.9%, reflecting positive comparable sales in the U.S.

and International Operated Markets segment.

Comparable sales in the International Developmental Licensed Markets segment were slightly negative as the segment continued to be impacted by the war in the Middle East:

comparable sales increased 2.5%.

Comparable sales results benefited from average check growth driven by strategic menu price increases.

Successful restaurant level execution, effective marketing campaigns featuring the core menu and continued digital and delivery growth contributed to positive comparable sales results.

• International Operated Markets increased 2.7%.

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

and Germany, partly offset by negative comparable sales in France.

• International Developmental Licensed Markets decreased 0.2%.

The continued impact of the war in the Middle East more than offset positive comparable sales in Japan, Latin America and Europe.

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

• Consolidated revenues increased 5% (4% in constant currencies).

• Systemwide sales increased 3% (3% in constant currencies).

• Consolidated operating income increased 8% (8% in constant currencies).

Results reflected pre-tax charges of $35 million and $180 million for the current year and prior year, respectively, primarily related to restructuring charges associated with Accelerating the Organization.

Excluding these current and prior year charges, consolidated operating income increased 2% (2% in constant currencies).

• Diluted earnings per share was $2.66, an increase of 9% (9% in constant currencies).

Excluding the current year charges described above of $0.04 per share, diluted earnings per share was $2.70, an increase of 2% (2% in constant currencies) when also excluding prior year charges.

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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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.

• 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 owned and 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, pandemics and acts of war, terrorism or other hostilities .

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.

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

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

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

Systemwide sales to loyalty members is comprised of all sales to customers who self-identify as a loyalty member when transacting with both Company-owned and operated and franchised restaurants.

Systemwide sales to loyalty members are measured across approximately 50 markets with loyalty programs.

Systemwide sales to loyalty members represents an aggregation of the prior four quarters of sales to loyalty members active in the last 90 days.

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

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

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

Changes in Systemwide sales are primarily driven by comparable sales and net restaurant unit expansion.

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CONSOLIDATED OPERATING RESULTS

Quarter Ended Nine Months Ended

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

Quarter Ended

Dollars in millions, except per share data March 31, 2024

Amount Increase/

(Decrease) Amount Increase/

Sales by Company-operated restaurants $ 2,556.2 20 % $ 7,267.5 11 %

Sales by Company-owned and operated restaurants $ 2,355 6 %

Revenues from franchised restaurants 3,723 4

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Operating costs and expenses

Company-operated restaurant expenses 2,135.0 20 6,149.4 12

Company-owned and operated restaurant expenses 2,035 6

Franchised restaurants-occupancy expenses 627 5

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Depreciation and amortization 99 —

Other 583.5 1 1,704.3 (4)

Other operating (income) expense, net (17) n/m

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Interest expense 372 13

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

Nonoperating (income) expense, net (45) (30)

Income before provision for income taxes 2,409 6

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n/m Not meaningful

Impact of the War in the Middle East

The Company’s Systemwide sales and revenue have continued to be negatively impacted by the war in the Middle East, primarily in the International Developmental Licensed Markets & Corporate segment, where the majority of restaurants are under a developmental license or affiliate arrangement.

The Company is monitoring the evolving situation, which it expects to continue to have a negative impact on Systemwide sales and revenue as long as the war continues.

Impact of Foreign Currency Translation

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.

Foreign currency translation did not have a significant impact on consolidated operating results for the quarter.

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, 2023 2022 2023

Revenues $ 6,692.2 $ 5,872.1 $ 152.1

Company-operated margins 421.2 345.2 10.2

Franchised margins 3,421.7 3,082.1 70.3

Selling, general & administrative expenses 680.2 669.7 (6.7)

Operating income 3,208.3 2,763.9 73.4

Net income 2,317.1 1,981.6 55.0

Earnings per share-diluted $ 3.17 $ 2.68 $ 0.08

Benefit/ (Cost)

Nine Months Ended September 30, 2023 2022 2023

Quarters Ended March 31, 2024 2023 2024

Revenues $ 6,169 $ 5,898 $ 19

Company-operated margins 1,118.1 1,031.4 (7.7)

Company-owned and operated margins 320 301 1

Franchised margins 3,096 2,990 8

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Net Income and Diluted Earnings per Share

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 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 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 $1,281 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 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 increased 7% (7% in constant currencies) to $1,929 million, and diluted earnings per share increased 9% (9% constant currencies) to $2.66.

Foreign currency translation had no impact on diluted earnings per share.

Results included pre-tax charges of $35 million, or $0.04 per share, for the three months ended 2024 and $180 million, or $0.18 per share, for the three months ended 2023, primarily related to restructuring charges associated with the Company's internal effort to modernize ways of working ( Accelerating the Organization).

Excluding the above items, results reflected positive operating performance driven primarily by higher sales-driven Franchised margins, partly offset by higher Selling, general, and administrative expenses.

During the quarter, the Company paid a quarterly dividend of $1.67 per share, or $1.2 billion.

Additionally, the Company repurchased 3.2 million shares of stock for $921 million.

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

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

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

GAAP $ 2,317.1 $ 1,981.6 17 % 14 % $ 3.17 $ 2.68 18 % 15 %

(Gains)/charges 20.0 — 0.02 —

Tax Settlement — — — —

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

Nine Months Ended September 30,

Quarters Ended March 31,

Net Income Earnings per share - diluted

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(Gains)/charges 27 134 0.04 0.18

Tax Settlement — 537.2 — 0.72

Non-GAAP $ 1,957 $ 1,936 1 % 1 % $ 2.70 $ 2.63 2 % 2 %

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

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

Revenues from conventional franchised restaurants include rent and royalties based on a percent of sales with minimum rent payments, and initial fees.

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

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

Franchised restaurants represented approximately 95% of McDonald's restaurants worldwide at September 30, 2023.

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 and revenues from brand licensing arrangements to market and sell consumer packaged goods using the McDonald’s brand.

Franchised restaurants represented 95% of McDonald's restaurants worldwide at March 31, 2024.

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.

In the first quarter of 2024, the Company provided an insignificant amount of assistance, including royalty relief and/or deferral of cash collection for certain franchisees impacted by the war in the Middle East in the International Developmental Licensed Markets & Corporate segment.

This assistance may continue as long as the war continues.

Dollars in millions

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

Company-operated sales

$ 816.8 $ 713.6 14 % 14 %

International Operated Markets 1,520.0 1,220.2 25 20

International Developmental Licensed Markets & Corporate 219.4 191.0 15 13

Total $ 2,556.2 $ 2,124.8 20 % 17 %

Franchised revenues

$ 1,840.3 $ 1,699.9 8 % 8 %

International Operated Markets 1,738.4 1,564.6 11 5

International Developmental Licensed Markets & Corporate 468.4 406.7 15 16

Total $ 4,047.1 $ 3,671.2 10 % 8 %

Total Company-operated sales and Franchised revenues

$ 2,657.1 $ 2,413.5 10 % 10 %

International Operated Markets 3,258.4 2,784.8 17 12

International Developmental Licensed Markets & Corporate 687.8 597.7 15 15

Total $ 6,603.3 $ 5,796.0 14 % 11 %

Total Other revenues $ 88.9 $ 76.1 17 % 15 %

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

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

Company-operated sales

Quarters Ended March 31, 2024 2023 Inc/ (Dec) Inc/ (Dec)

Company-owned and operated sales

$ 781 $ 761 3 % 3 %

7 unchanged sentences

Total $ 3,723 $ 3,588 4 % 3 %

Total Company-operated sales and Franchised revenues

Total Company-owned and operated sales and Franchised revenues

$ 2,509 $ 2,440 3 % 3 %

4 unchanged sentences

Total Revenues $ 6,169 $ 5,898 5 % 4 %

• 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.

• Total Company-owned and operated sales and franchised revenues increased 5% (4% in constant currencies), benefiting from positive sales performance in the International Operated Markets segment and the U.S.

Revenue growth in the International Developmental Licensed Markets & Corporate segment continued to be impacted by the war in the Middle East, which began in October 2023.

Comparable Sales

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

The following table presents the percent change in comparable sales for the quarters ended March 31, 2024 and 2023:

Increase/(Decrease)

Quarters Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

8.1 % 6.1 % 10.3 % 4.5 %

Quarters Ended March 31,

International Operated Markets 2.7 12.6

International Developmental Licensed Markets & Corporate 10.5 16.7 12.3 15.9

International Developmental Licensed Markets (0.2) 12.6

Total 1.9 % 12.6 %

Systemwide Sales and Franchised Sales

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

The following table presents the percent change in Systemwide sales for the quarter ended March 31, 2024:

SYSTEMWIDE SALES*

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

Quarter Ended March 31, 2024

Inc/ (Dec) Inc/ (Dec)

Translation Inc/ (Dec) Inc/ (Dec)

8 % 8 % 11 % 11 %

International Operated Markets 6 4

International Developmental Licensed Markets & Corporate 11 13 11 16

International Developmental Licensed Markets (1) 3

Total 3 % 3 %

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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 nine months ended September 30, 2023 and 2022:

The following table presents Franchised sales and the related increases/(decreases) for the quarters ended March 31, 2024 and 2023:

FRANCHISED SALES

Dollars in millions

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

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

International Operated Markets 10,181.1 8,896.9 14 9

International Developmental Licensed Markets & Corporate 8,387.1 7,574.8 11 13

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

Ownership type

Conventional franchised $ 22,852.8 $ 20,671.0 11 % 8 %

Developmental licensed 5,382.2 4,778.0 13 12

Foreign affiliated 3,127.4 2,860.9 9 14

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

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

Quarters Ended March 31, 2024 2023 Inc/ (Dec) Inc/ (Dec)

$ 12,086 $ 11,742 3 % 3 %

International Operated Markets 9,166 8,669 6 4

International Developmental Licensed Markets & Corporate 23,916.6 21,517.2 11 16

International Developmental Licensed Markets 7,565 7,640 (1) 3

Total $ 28,816 $ 28,051 3 % 3 %

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

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

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

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

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

RESTAURANT MARGINS

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Amount Inc/ (Dec) Inc/ (Dec)

Quarters Ended September 30, 2023 2022

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

International Operated Markets 1,440.0 1,296.6 11 5

International Developmental Licensed Markets & Corporate 463.8 401.8 15 16

Total $ 3,421.7 $ 3,082.1 11 % 9 %

Company-operated

$ 122.0 $ 105.6 16 % 16 %

International Operated Markets 286.0 230.5 24 20

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

Total $ 421.2 $ 345.2 22 % 19 %

Total restaurant margins

$ 1,639.9 $ 1,489.3 10 % 10 %

International Operated Markets 1,726.0 1,527.1 13 8

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

Total $ 3,842.9 $ 3,427.3 12 % 10 %

Amount Inc/ (Dec) Inc/ (Dec)

Nine Months Ended September 30, 2023 2022

Quarters Ended March 31, 2024 2023

$ 1,405 $ 1,362 3 % 3 %

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Total $ 3,096 $ 2,990 4 % 3 %

Company-operated

Company-owned and operated

$ 107 $ 109 (2) % (2) %

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n/m Not meaningful

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

• Results in the U.S.

and International Operated Markets segment reflected sales-driven growth in Franchised margins.

Franchised margins represented approximately 90% of restaurant margin dollars.

• Company-operated margins in the U.S.

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.

• Company-owned and operated margins in the International Operated Markets segment reflected positive sales performance.

Both the U.S.

and the International Operated Markets segment were impacted by ongoing inflationary cost pressures.

• Total restaurant margins included depreciation and amortization expense of $411 million.

Selling, General & Administrative Expenses

• 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.

• Selling, general and administrative expenses increased $67 million, or 10% (10% in constant currencies).

Results primarily reflect investments in digital and technology, as well as transformation efforts, under our Accelerating the Arches strategy and costs related to the 2024 Worldwide Owner/Operator convention.

• Selling, general and administrative expenses as a percent of Systemwide sales were 2.3% and 2.2% for the quarters ended 2024 and 2023, respectively.

Other Operating (Income) Expense, Net

1 unchanged sentence

Dollars in millions

Quarters Ended Nine Months Ended

September 30, September 30,

2023 2022 2023 2022

Quarters Ended

Gains on sales of restaurant businesses $ (9) $ (13)

3 unchanged sentences

Total $ (17) $ 129

• 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.

• Impairment and other charges (gains), net reflected pre-tax charges of $35 million and $180 million for the three months ended 2024 and 2023, respectively, primarily related to restructuring charges associated with Accelerating the Organization.

Operating Income

1 unchanged sentence

Dollars in millions

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

Quarters Ended March 31, 2024 2023 Inc/ (Dec) Inc/ (Dec)

$ 1,395 $ 1,295 8 % 8 %

2 unchanged sentences

Total $ 2,736 $ 2,532 8 % 8 %

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

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

International Operated Markets 4,294.7 2,639.9 63 63

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

Total $ 8,844.8 $ 6,788.3 30 % 31 %

Operating margin 44.3 % 42.9 %

• Operating Income:

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 increased $204 million, or 8% (8% in constant currencies).

Results reflected pre-tax charges of $35 million and $180 million for the three months ended 2024 and 2023, respectively, primarily related to restructuring charges associated with Accelerating the Organization .

OPERATING INCOME & OPERATING MARGIN RECONCILIATION*

Dollars in millions

Quarters Ended September 30, Nine Months Ended September 30,

Quarters Ended March 31,

2024 2023 Inc/ (Dec) Inc/ (Dec)

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

GAAP operating income $2,736 $2,532 8 % 8 %

(Gains)/charges 35 180

Russia sale charge — — — 1,280.5

Dynamic Yield sale gain — — — (270.7)

Total (gains)/charges 25.8 — 224.3 1,009.8

Non-GAAP operating income $2,771 $2,713 2 % 2 %

Non-GAAP operating margin 44.9 % 46.0 %

*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 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.

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

• Excluding the charges for the three months ended 2024 and 2023 shown in the table above, operating income increased 2% (2% in constant currencies).

Positive operating results in the U.S.

and International Operated Markets segment were primarily due to sales-driven growth in Franchised margins, partly offset by higher Selling, general, and administrative expenses.

• 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-owned and operated restaurants.

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.

The decrease in non-GAAP operating margin was primarily due to ongoing inflationary cost pressures as well as higher Selling, general and administrative expenses.

Interest Expense

• 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.

• Interest expense increased 13% (12% in constant currencies), primarily due to higher average interest rates as well as higher average debt balances.

Nonoperating (Income) Expense, Net

1 unchanged sentence

Dollars in millions

Quarters Ended Nine Months Ended

September 30, September 30,

2023 2022 2023 2022

Quarters Ended

Interest income $ (47) $ (38)

2 unchanged sentences

Total $ (45) $ (64)

• Interest income for both periods increased due to higher average interest rates.

• 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 $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.

• The effective income tax rate was 19.9% and 20.5% for the quarters ended 2024 and 2023, respectively.

Cash provided by operations totaled $2.4 billion and exceeded capital expenditures by $1.8 billion.

Cash provided by operations was relatively flat compared to the prior year as changes in working capital offset improved operating results.

Cash used for investing activities totaled $2.5 billion, an increase of $1.7 billion primarily due to the Company's increased ownership stake in McDonald's China business.

Cash used for financing activities totaled $3.7 billion, a increase of $3.1 billion.

The increase was primarily due to $1.6 billion of debt repayments in the current year compared to $1.1 billion of debt issuances in the prior year.

Based on current conditions, the following is provided to assist in forecasting the Company's future results for 2024.

• The Company expects net restaurant unit expansion will contribute nearly 2% to 2024 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 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.

• The Company expects full year 2024 Selling, general and administrative expenses of about 2.2% of Systemwide sales.

• The Company expects 2024 operating margin percent to be in the mid-to-high 40% range.

• Based on current interest and foreign currency exchange rates, the Company expects interest expense for the full year 2024 to increase between 9% and 11% driven primarily by higher average interest rates and a higher average debt balance.

• The Company expects the effective income tax rate for the full year 2024 to be in the 20% to 22% range.

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.

• The Company expects 2024 capital expenditures to be between $2.5 and $2.7 billion, more than half of which will be directed towards new restaurant unit expansion across the U.S.

and International Operated Markets.

Globally, the Company expects to open about 1,900 restaurants.

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 of nearly 90%.

Globally, the Company expects to open more than 2,100 restaurants.

The Company will open about 500 restaurants in the U.S.

and International Operated Markets segments, and developmental licensees and affiliates will contribute capital towards more than 1,600 restaurant openings in their respective markets.

The Company expects over 1,600 net restaurant additions in 2024.

• The Company expects to achieve a free cash flow conversion rate in the 90% range.

Recent Accounting Pronouncements

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

Securities and Exchange Commission.

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

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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.

In addition, we cannot ensure that franchisees or business partners 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.

In order to do so, we need to anticipate and respond effectively to continuously shifting consumer demographics and industry trends in food sourcing,

food preparation, food offerings, and consumer behavior and preferences, including with respect to the use of digital channels and environmental and social responsibility matters.

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

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

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

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

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

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

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

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

and foreign countries may not be adequate.

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In particular, we may be involved in intellectual property claims, including often aggressive or opportunistic attempts to enforce patents used in information technology systems, which might affect our operations and results.

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

Any claim of infringement, whether or not it has merit, could, particularly in rapidly evolving areas, be time consuming, or result in costly litigation and could also have an adverse impact on 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 adversely affect the value of our intellectual property.

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

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.

For example, the war between Russia and Ukraine 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.

The broader impact of acts of 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 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.

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Our restaurant margins arise from two sources:

fees from franchised restaurants (e.g., rent and royalties based on a percentage of sales) and, to a lesser degree, sales from Company-operated restaurants.

fees from franchised restaurants (e.g., rent and royalties based on a percentage of sales) and, to a lesser degree, sales from Company-owned and operated restaurants.

Our franchisees and developmental licensees manage their businesses independently and therefore are responsible for the day-to-day operation of their restaurants.

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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.

The System’s ability to meet its labor needs as they evolve is generally subject to a variety of 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 attracting, recruiting, developing, motivating and retaining qualified employees, as well as with promoting awareness of the opportunities of working at McDonald’s restaurants.

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

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

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

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We have significant real estate operations, primarily in connection with our restaurant business.

We generally own or secure a long-term lease on the land and building for conventional franchised and Company-operated restaurant sites.

We generally own or secure a long-term lease on the land and building for conventional franchised and Company-owned and operated restaurant sites.

We seek to identify and develop restaurant locations that offer convenience to customers and long-term sales and profit potential.

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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.

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.

In addition, the artificial intelligence tools we are incorporating into certain aspects of our restaurant operations may not generate the intended efficiencies and may impact our business results.

Security breaches or incidents 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, deepfakes and other malicious uses of artificial intelligence, introduction of malware or ransomware, other disruptive problems caused by hackers or unintentional events.

Certain of these technology systems contain personal, confidential, 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 an incident occurs, it could result in disruptions, shutdowns, or the theft or unauthorized disclosure of certain of the above-described information.

The actual or alleged occurrence of any of these types of 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 administrative fines, criminal or civil 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.

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

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

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

Further, the technology systems of third parties upon which we rely to conduct our business could be compromised in a manner that adversely affects us and our technology systems and business continuity.

If technology systems were to fail or otherwise be unavailable, or if business continuity or disaster recovery plans were not effective, and we were unable to recover in a timely manner, we could experience an interruption in our or our franchisees’ operations.

While we maintain insurance coverage designed to address certain aspects of cybersecurity risks, such insurance coverage may be insufficient to cover all losses or all types of claims that may arise.

LEGAL AND REGULATORY

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Our regulatory and legal environment worldwide exposes us to complex compliance, litigation and similar risks that could affect our operations and results in material ways.

Many of our markets are subject to increasing, conflicting and highly prescriptive regulations involving, among other matters, restaurant operations, product packaging, marketing, the nutritional and allergen content and safety of our food and other products, labeling and other disclosure practices.

Many of our markets are subject to increasing, conflicting and highly prescriptive regulations involving, among other matters, restaurant operations, product packaging, marketing, use of information technology systems, the nutritional and allergen content and safety of our food and other products, labeling and other disclosure practices.

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

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

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

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

MACROECONOMIC AND MARKET CONDITIONS

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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.

Health epidemics or pandemics 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.

2 unchanged sentences

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 and utilities, as well as distribution and other operating costs, including labor.

The profitability of our Company-owned and 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.

other hostilities, all of which are beyond our control and, in many instances, unpredictable.

Our System can only partially address future price risk through hedging and other activities, and therefore increases in commodity costs could have an adverse impact on our profitability.

26 unchanged sentences

In addition, we are engaging in social impact initiatives, including community engagement and philanthropy;

as well as diversity, equity and inclusion efforts, such as increasing diverse representation in our corporate workforce and our franchisees, and increasing business diversity spend.

as well as diversity, equity and inclusion efforts.

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.

4 unchanged sentences

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

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

Climate change may also increase the frequency and severity of

weather-related events and natural disasters.

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

2 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis