What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-08-08 compared with 2024-05-08 · 223 added, 109 removed, 504 unchanged (40% of the section changed)

8 unchanged sentences

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.

Of the 42,406 McDonald's restaurants at June 30, 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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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.

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

Purpose, Mission and Values

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

The following purpose, mission and values underpin the Company’s success and are at the heart of our 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 make delicious feel-good moments easy for everyone.

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

Under the Strategy, the Company will:

Under our 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 our brand, food and purpose.

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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.

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

This includes everyday low-price options on our menu along with other limited-time deals for our customers.

• 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.

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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.

As another way 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.

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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.

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◦ Restaurant Development:

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.

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

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.

Foundational to our 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.

Further, as part of the Company's plans for long term growth and solidifying McDonald’s leadership position, the Company will continue to develop and implement three technology-enabled platforms designed to build our competitive advantages, cement our place in culture and stay one step ahead of our 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 Company is building 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 is building the easiest and most efficient restaurant operating platform which enables franchisees to run restaurants more efficiently and utilize the latest cloud-based technology to make it easier for restaurant crew to deliver exceptional customer service.

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;

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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.

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.

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

Our 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 our Strategy builds on our inherent strengths by harnessing the Company's competitive advantages while leveraging its size, scale, agility and the power of the McDonald's brand to adapt and adjust to meet customer demands in varying economic environments, including the current industry-wide challenges associated with more discerning consumer spending.

Our Strategy is supported by a strong global senior leadership team aimed at executing against the MCD growth pillars, further developing our three platforms and driving long-term growth.

Second Quarter and Six Months 2024 Financial Performance

Global comparable sales decreased 1.0% for the quarter and increased 0.4% for the six months.

comparable sales decreased 0.7% for the quarter and increased 0.9% for the six months.

Comparable sales results for both periods were driven by average check growth due to strategic menu price increases, successful restaurant level execution and continued digital and delivery growth.

Results for the quarter were more than offset by negative comparable guest counts.

• International Operated Markets segment comparable sales decreased 1.1% for the quarter and increased 0.7% for the six months.

Segment performance for the quarter was impacted by negative comparable sales across a number of markets, driven by France.

For the six months, segment performance was driven by positive comparable sales in most markets, led by Poland and Germany, partly offset by negative comparable sales in France.

• International Developmental Licensed Markets segment comparable sales decreased 1.3% for the quarter and 0.8% for the six months.

The continued impact of the war in the Middle East and negative comparable sales in China more than offset positive comparable sales in Latin America and Japan, for both periods.

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

• Consolidated revenues were flat (increased 1% in constant currencies) for the quarter and increased 2% (2% in constant currencies) for the six months.

• Systemwide sales decreased 1% (increased 1% in constant currencies) for the quarter and increased 1% (2% in constant currencies) for the six months.

• Consolidated operating income decreased 6% (5% in constant currencies) for the quarter and was flat (increased 1% in constant currencies) for the six months.

Excluding current and prior year charges detailed in the Operating Income and Operating Margin section on page 29 of this report, consolidated operating income decreased 2% (was flat in constant currencies) for the quarter and was flat (increased 1% in constant currencies) for the six months.

• Diluted earnings per share was $ 2.80 for the quarter, a decrease of 11% (10% in constant currencies) and $ 5.46 for the six months, a decrease of 2% (2% in constant currencies).

Excluding current and prior year charges detailed in the Net Income and Diluted Earnings Per Share section on page 23 of this report, diluted earnings per share for the quarter was $2.97, a decrease of 6% (5% in constant currencies) and $5.66, a decrease of 2% (2% in constant currencies) for the six months.

Management reviews and analyzes business results excluding the effect of foreign currency translation, impairment and other strategic charges and gains, as well as material regulatory and other income tax impacts, and bases incentive compensation plans on these results because the Company believes this better represents underlying business trends.

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CONSOLIDATED OPERATING RESULTS

Quarter Ended

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

Amount Increase/

Dollars in millions, except per share data

Quarters Ended June 30, 2024 2023 Inc/(Dec)

Sales by Company-owned and operated restaurants $ 2,461 $ 2,487 (1) %

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Depreciation and amortization 101 95 6

Other 590 567 4

Other operating (income) expense, net 107 ( 36 ) n/m

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Earnings per common share-diluted $ 2.80 $ 3.15 (11) %

Six Months Ended June 30, 2024 2023 Inc/(Dec)

Sales by Company-owned and operated restaurants $ 4,816 $ 4,711 2 %

Revenues from franchised restaurants 7,663 7,521 2

Other revenues 180 163 10

Total revenues 12,659 12,395 2

Operating costs and expenses

Company-owned and operated restaurant expenses 4,109 4,014 2

Franchised restaurants-occupancy expenses 1,256 1,216 3

Other restaurant expenses 137 120 14

Selling, general & administrative expenses

Depreciation and amortization 199 194 3

Other 1,212 1,121 8

Other operating (income) expense, net 90 93 (3)

Total operating costs and expenses 7,003 6,759 4

Operating income 5,655 5,637 —

Interest expense 746 660 13

Nonoperating (income) expense, net ( 54 ) ( 107 ) (50)

Income before provision for income taxes 4,964 5,084 (2)

Provision for income taxes 1,013 971 4

Net income $ 3,951 $ 4,113 (4) %

Earnings per common share-basic $ 5.49 $ 5.63 (2) %

Earnings per common share-diluted $ 5.46 $ 5.60 (2) %

n/m Not meaningful

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Impact of Foreign Currency Translation

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

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

Dollar, partly offset by the strengthening of the British Pound.

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 March 31, 2024 2023 2024

Quarters Ended June 30, 2024 2023 2024

Revenues $ 6,490 $ 6,498 $ (55)

5 unchanged sentences

Earnings per share-diluted $ 2.80 $ 3.15 $ (0.03)

Benefit/ (Cost)

Six Months Ended June 30, 2024 2023 2024

Revenues $ 12,659 $ 12,395 $ (37)

Company-owned and operated margins 707 697 (4)

Franchised margins 6,407 6,304 (19)

Selling, general & administrative expenses 1,411 1,315 —

Operating income 5,655 5,637 (24)

Net income 3,951 4,113 (23)

Earnings per share-diluted $ 5.46 $ 5.60 $ (0.03)

Net Income and Diluted Earnings per Share

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.

For the quarter, net income decreased 12% (11% in constant currencies) to $ 2,022 million, and diluted earnings per share decreased 11% (10% in constant currencies) to $ 2.80 .

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

For the six months, net income decreased 4% (3% in constant currencies) to $ 3,951 million, and diluted earnings per share decreased 2% (2% in constant currencies) to $ 5.46 .

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

Results for 2024 included the following:

• Net pre-tax charges of $97 million, or $0.11 per share, for the quarter and $89 million, or $0.10 per share, for the six months, primarily related to non-cash impairment charges associated with the anticipated future sale of McDonald's business in South Korea

• Pre-tax charges of $57 million, or $0.06 per share, for the quarter and $100 million, or $0.10 per share, for the six months, related to restructuring charges associated with the Company's internal effort to modernize ways of working ( Accelerating the Organization)

Results for 2023 included the following:

• Pre-tax charges of $18 million, or $0.02 per share, for the quarter and $198 million, or $0.20 per share, for the six months, related to the Company's Accelerating the Arches growth strategy, including restructuring charges associated with Accelerating the Organization

Excluding the above items, lower sales performance and higher Selling, general, and administrative expenses drove negative operating income performance for the quarter.

Results for the six months reflected positive operating income performance driven primarily by higher sales-driven Franchised margins, partly offset by higher Selling, general, and administrative expenses.

Results for both periods reflected higher interest expense and a higher effective tax rate.

During the quarter, the Company paid a dividend of $1.67 per share, or $1.2 billion, bringing total dividends paid for the six months to $2.4 billion.

Additionally, during the quarter, the Company repurchased 3.5 million shares of stock for $946 million, bringing total purchases for the six months to 6.7 million shares, or $1.9 billion.

NET INCOME AND EARNINGS PER SHARE-DILUTED RECONCILIATION

Dollars in millions, except per share data

Quarters Ended March 31,

Quarters Ended June 30,

Net Income Earnings per share - diluted

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Non-GAAP $ 2,146 $ 2,324 (8) % (7) % $ 2.97 $ 3.17 (6) % (5) %

Six Months Ended June 30,

Net Income Earnings per share - diluted

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

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

GAAP $ 3,951 $ 4,113 (4) % (3) % $ 5.46 $ 5.60 (2) % (2) %

(Gains)/Charges 150 148 0.20 0.20

Non-GAAP $ 4,101 $ 4,261 (4) % (3) % $ 5.66 $ 5.80 (2) % (2) %

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.

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The Company’s Other revenues are comprised of fees paid by franchisees to recover a portion of costs incurred by the Company for various technology platforms 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.

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

In the six months, the Company provided an immaterial 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 March 31, 2024 2023 Inc/ (Dec) Inc/ (Dec)

Quarters Ended June 30, 2024 2023 Inc/ (Dec) Inc/ (Dec)

Company-owned and operated sales

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Total Revenues $ 6,490 $ 6,498 — % 1 %

• 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.

Six Months Ended June 30, 2024 2023 Inc/ (Dec) Inc/ (Dec)

Company-owned and operated sales

$ 1,595 $ 1,584 1 % 1 %

International Operated Markets 2,793 2,732 2 2

International Developmental Licensed Markets & Corporate 427 395 8 13

Total $ 4,816 $ 4,711 2 % 3 %

Franchised revenues

$ 3,565 $ 3,509 2 % 2 %

International Operated Markets 3,258 3,150 3 3

International Developmental Licensed Markets & Corporate 839 861 (3) 1

Total $ 7,663 $ 7,521 2 % 2 %

Total Company-owned and operated sales and Franchised revenues

$ 5,160 $ 5,093 1 % 1 %

International Operated Markets 6,051 5,882 3 3

International Developmental Licensed Markets & Corporate 1,266 1,256 1 4

Total $ 12,479 $ 12,232 2 % 2 %

Total Other revenues $ 180 $ 163 10 % 10 %

Total Revenues $ 12,659 $ 12,395 2 % 2 %

• Total Company-owned and operated sales and franchised revenues were flat (increased 1% in constant currencies) for the quarter and increased 2% (2% in constant currencies) for the six months The quarter was impacted by negative comparable sales performance in the U.S.

and International Operated Markets segment, while the six months benefited from positive comparable sales performance for these two segments.

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 ended March 31, 2024 and 2023:

The following table presents the percent change in comparable sales for the quarters and six months ended June 30, 2024 and 2023:

Increase/(Decrease)

Quarters Ended March 31,

Quarters Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

(0.7) % 10.3 % 0.9 % 11.4 %

International Operated Markets (1.1) 11.9 0.7 12.3

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Systemwide Sales and Franchised Sales

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

The following table presents the percent change in Systemwide sales for the quarter and six months ended June 30, 2024:

SYSTEMWIDE SALES*

Quarter Ended March 31, 2024

Quarter Ended June 30, 2024 Six Months Ended June 30, 2024

Inc/ (Dec) Inc/ (Dec)

Translation Inc/ (Dec) Inc/ (Dec)

— % — % 1 % 1 %

International Operated Markets — 1 3 2

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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 ended March 31, 2024 and 2023:

The following table presents Franchised sales and the related increases/(decreases) for the quarters and six months ended June 30, 2024 and 2023:

FRANCHISED SALES

Dollars in millions

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

Quarters Ended June 30, 2024 2023 Inc/ (Dec) Inc/ (Dec)

$ 12,764 $ 12,789 — % — %

7 unchanged sentences

Total $ 30,180 $ 30,393 (1) % 1 %

Six Months Ended June 30, 2024 2023 Inc/ (Dec) Inc/ (Dec)

$ 24,850 $ 24,531 1 % 1 %

International Operated Markets 18,892 18,383 3 2

International Developmental Licensed Markets 15,256 15,529 (2) 3

Total $ 58,996 $ 58,444 1 % 2 %

Ownership type

Conventional franchised $ 43,547 $ 42,758 2 % 3 %

Developmental licensed 9,508 9,789 (3) (2)

Foreign affiliated 5,941 5,897 1 2

Total $ 58,996 $ 58,444 1 % 2 %

Restaurant Margins

7 unchanged sentences

Amount Inc/ (Dec) Inc/ (Dec)

Quarters Ended March 31, 2024 2023

Quarters Ended June 30, 2024 2023

$ 1,515 $ 1,510 — % — %

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Total $ 3,698 $ 3,711 — % 1 %

Amount Inc/ (Dec) Inc/ (Dec)

Six Months Ended June 30, 2024 2023

$ 2,919 $ 2,872 2 % 2 %

International Operated Markets 2,657 2,581 3 3

International Developmental Licensed Markets & Corporate 831 852 (2) 1

Total $ 6,407 $ 6,304 2 % 2 %

Company-owned and operated

$ 223 $ 234 (5) % (5) %

International Operated Markets 453 455 — —

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

Total $ 707 $ 697 1 % 2 %

Total restaurant margins

$ 3,142 $ 3,106 1 % 1 %

International Operated Markets 3,110 3,036 2 2

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

Total $ 7,114 $ 7,001 2 % 2 %

n/m Not meaningful

• Results in the U.S.

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

• Franchised margins in the U.S.

and International Operated Markets segment were flat for the quarter and reflected sales-driven growth for the six months.

Franchised margins represented approximately 90% of restaurant margin dollars.

• 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.

• Company-owned and operated margins in the U.S.

and International Operated Markets segment reflected negative sales performance for the quarter and positive sales performance for the six months.

and the International Operated Markets segment were impacted by ongoing inflationary cost pressures, for both periods.

• Total restaurant margins included depreciation and amortization expense of $401 million and $813 million for the quarter and six months, respectively.

Selling, General & Administrative Expenses

• 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.

• Selling, general and administrative expenses increased $28 million, or 4% (5% in constant currencies), for the quarter and increased $96 million, or 7% (7% in constant currencies), for the six months.

Results for both periods primarily reflected investments in digital and technology, as well as transformation efforts, related to Accelerating the Organization and costs related to the 2024 Worldwide Owner/Operator convention.

• Selling, general and administrative expenses as a percent of Systemwide sales were 2.2% and 2.1% for the six months ended 2024 and 2023, respectively.

Other Operating (Income) Expense, Net

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Dollars in millions

Quarters Ended

Quarters Ended Six Months Ended

June 30, June 30,

2024 2023 2024 2023

Gains on sales of restaurant businesses $ (4) $ (25) $ (13) $ (38)

3 unchanged sentences

Total $ 107 $ ( 36 ) $ 90 $ 93

• 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.

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

• Equity in earnings of unconsolidated affiliates for both periods reflected higher equity in earnings in China as a result of the Company's increased ownership in Grand Foods Holding when compared to the same period in 2023 as well as improved operating performance in Japan.

• Impairment and other charges (gains), net reflected net pre-tax charges of $97 million and $89 million for the quarter and six months, respectively, primarily related to non-cash impairment charges associated with the anticipated future sale of McDonald's business in South Korea and pre-tax charges of $57 million and $100 million for the quarter and six months, respectively, related to restructuring charges associated with the Company's internal effort to modernize ways of working ( Accelerating the Organization) .

Results for the quarter and six months 2023 reflected $18 million and $198 million, respectively, of pre-tax charges related to the Company's Accelerating the Arches growth strategy, including restructuring charges associated with Accelerating the Organization.

Operating Income

1 unchanged sentence

Dollars in millions

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

Quarters Ended June 30, 2024 2023 Inc/ (Dec) Inc/ (Dec)

$ 1,511 $ 1,495 1 % 1 %

2 unchanged sentences

Total $ 2,920 $ 3,104 (6) % (5) %

Six Months Ended June 30, 2024 2023 Inc/ (Dec) Inc/ (Dec)

$ 2,907 $ 2,790 4 % 4 %

International Operated Markets 2,858 2,710 5 5

International Developmental Licensed Markets & Corporate ( 109 ) 136 n/m n/m

Total $ 5,655 $ 5,637 — % 1 %

Operating margin 44.7 % 45.5 %

• Operating Income:

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 decreased $184 million, or 6% (5% in constant currencies), for the quarter and increased $18 million, or was flat (increased 1% in constant currencies), for the six months.

Results for both periods reflected net pre-tax charges of $97 million and $89 million for the quarter and six months, respectively, primarily related to non-cash impairment charges and pre-tax restructuring charges of $57 million and $100 million for the quarter and six months, respectively, related to Accelerating the Organization .

OPERATING INCOME & OPERATING MARGIN RECONCILIATION*

Dollars in millions

Quarters Ended March 31,

Quarters Ended June 30, Six Months Ended June 30,

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

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

GAAP operating income $ 2,920 $ 3,104 (6) % (5) % $ 5,655 $ 5,637 — % 1 %

2 unchanged sentences

Non-GAAP operating margin 46.2 % 47.1 %

*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.

*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 charges in this table.

• Excluding the current and prior year charges shown in the table above, operating income decreased 2% (was flat in constant currencies), for the quarter and was flat (increased 1% in constant currencies), for the six months.

Results for the six months reflected positive operating results in the U.S.

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

• Operating Margin:

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

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

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

Interest Expense

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

• Interest expense increased 13% (13% in constant currencies) for both periods.

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

Nonoperating (Income) Expense, Net

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Dollars in millions

Quarters Ended

Quarters Ended Six Months Ended

June 30, June 30,

2024 2023 2024 2023

Interest income $ (20) $ (37) $ (67) $ (75)

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Total $ ( 9 ) $ ( 43 ) $ ( 54 ) $ ( 107 )

• Interest income for both periods decreased due to lower average cash balances.

• 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.

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

• The effective income tax rate was 20.9% and 18.0% for the quarters ended 2024 and 2023, respectively, and 20.4% and 19.1% for the six months ended 2024 and 2023, respectively.

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

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 service payments, dividends and share repurchases.

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.

Cash provided by operations totaled $4.1 billion and exceeded capital expenditures by $2.9 billion for the six months 2024.

Cash provided by operations was relatively flat compared with the six months 2023, primarily as a result of lower operating results.

Cash used for investing activities totaled $3.3 billion for the six months 2024, an increase of $1.9 billion compared with the six months 2023.

The increase was primarily due to the Company's increased ownership stake in McDonald's China business.

Cash used for financing activities totaled $4.5 billion for the six months 2024, an increase of $878 million compared with the six months 2023.

The increase was primarily due to higher treasury stock purchases in the current year.

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

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You should not rely unduly on forward-looking statements.

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

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

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

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• innovate and differentiate the McDonald’s experience, including by preparing and serving our food in a way that balances value and convenience to our customers with profitability;

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

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

• accelerate our existing strategies, including through growth opportunities;

• build upon our investments to transform and enhance the customer experience, including building one of the world’s largest consumer platforms to fuel engagement;

• run great restaurants by building the easiest and most efficient restaurant operating platform which enables franchisees to run restaurants more efficiently and utilize the latest cloud-based technology to make it easier for crews to deliver exceptional customer service;

• accelerate our existing strategies, including through growth opportunities and building a modern company platform that unlocks speed and innovation throughout the organization;

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

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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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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, particularly in rapidly evolving areas, be time consuming, or result in costly litigation and could also have an adverse impact on 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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Meeting customer expectations is complicated by the risks inherent in our global operating environment, and our global success is partially dependent on our System’s ability to leverage operating successes across markets and brand perceptions.

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

Planned initiatives may not have appeal across multiple markets with McDonald’s customers and could drive unanticipated changes in customer perceptions and negatively impact our business results.

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

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

For example, 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.

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The decision to own restaurants or to operate under franchise or license agreements is driven by many factors whose interrelationship is complex.

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

The benefits of our more heavily franchised structure

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

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

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We are increasingly reliant upon technology systems, such as point-of-sale, that support our business operations, including our digital and delivery solutions, and technologies that facilitate communication and collaboration with affiliated entities, customers, employees, franchisees, suppliers, service providers or other independent third parties to conduct our business, whether developed and maintained by us or provided by third parties.

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

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.

Any failure or interruption of these systems could significantly impact our or our

franchisees’ operations, or our customers’ experiences and perceptions.

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

Security incidents and 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, 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.

Despite response procedures and measures in place in the event an incident occurs, it could result in disruptions, shutdowns, or a security breach including 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.

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Further, adverse publicity resulting from claims may hurt our business.

If we are unable to effectively manage the risks associated with our complex regulatory and legal environment, it could have a material adverse effect on our business and financial condition.

If we are unable to

effectively manage the risks associated with our complex regulatory and legal environment, it could have a material adverse effect on our business and financial condition.

Changes in tax laws and unanticipated tax liabilities could adversely affect the taxes we pay and our profitability.

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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.

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 and chicken, 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.

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.

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The standards by which certain environmental and social impact matters are measured are also evolving and subject to assumptions that could change over time.

Events such as severe weather conditions, natural disasters, hostilities, social unrest and climate change, among others, can adversely affect our results and prospects.

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.

Events such as severe weather conditions, natural disasters, hostilities, social and geopolitical unrest and climate change, among others, can adversely affect our results and prospects.

Severe weather conditions, natural disasters, acts of war, terrorism or other hostilities, social and geopolitical 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.

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.

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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