What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-07 compared with 2024-08-08 · 113 added, 112 removed, 615 unchanged (27% 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 42,406 McDonald's restaurants at June 30, 2024, approximately 95% were franchised.

Of the 42,819 McDonald's restaurants at September 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 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.

Through its size and scale, the Company embraces and prioritizes its role in 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.

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:

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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.

This includes everyday low-price options on our menu along with 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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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.

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

These planned innovations and new menu offerings reflect the Company’s ability 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:

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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 offers delivery from 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 currently available in five of the Company’s top markets).

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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.

Foundation and Platforms

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.

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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;

The Company intends to 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.

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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.

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, including both guest count-led and industry market share growth.

Third Quarter and Nine Months 2024 Financial Performance

Global comparable sales decreased 1.5% for the quarter and decreased 0.2% for the nine months.

comparable sales increased 0.3% for the quarter and 0.7% for the nine months.

Comparable sales results for both periods reflect average check growth, partly offset by slightly negative comparable guest counts for the quarter and negative comparable guest counts for the nine months.

Effective value and marketing campaigns featuring the core menu, successful restaurant level execution and continued digital and delivery growth contributed to slightly positive comparable sales results for both periods.

• International Operated Markets segment comparable sales decreased 2.1% for the quarter and 0.3% for the nine months.

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

For the nine months, segment performance was driven by negative comparable sales across a number of markets, led by France.

• International Developmental Licensed Markets segment comparable sales decreased 3.5% for the quarter and 1.7% for the nine 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, for both periods.

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

• Consolidated revenues increased 3% (2% in constant currencies) for the quarter and increased 2% (2% in constant currencies) for the nine months.

• Systemwide sales were flat (flat in constant currencies) for the quarter and increased 1% (1% in constant currencies) for the nine months.

• Consolidated operating income decreased 1% (1% in constant currencies) for the quarter and was flat (flat in constant currencies) for the nine 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 increased 2% (1% in constant currencies) for the quarter and increased 1% (1% in constant currencies) for the nine months.

• Diluted earnings per share was $ 3.13 for the quarter, a decrease of 1% (1% in constant currencies) and $ 8.59 for the nine months, a decrease of 2% (1% 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 $3.23, an increase of 1% (1% in constant currencies) and $8.89, a decrease of 1% (1% in constant currencies) for the nine months.

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

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Dollars in millions, except per share data

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

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

Sales by Company-owned and operated restaurants $ 2,656 $ 2,556 4 %

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Earnings per common share-diluted $ 3.13 $ 3.17 (1) %

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

Nine Months Ended September 30, 2024 2023 Inc/(Dec)

Sales by Company-owned and operated restaurants $ 7,472 $ 7,267 3 %

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Impact of Foreign Currency Translation

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.

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 primarily reflected the weakening of most major currencies against the U.S.

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

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

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Benefit/ (Cost)

Quarters Ended June 30, 2024 2023 2024

Quarters Ended September 30, 2024 2023 2024

Revenues $ 6,873 $ 6,692 $ 15

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Benefit/ (Cost)

Six Months Ended June 30, 2024 2023 2024

Nine Months Ended September 30, 2024 2023 2024

Revenues $ 19,532 $ 19,088 $ (22)

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Foreign currency translation had a negative impact of $0.01 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 .

For the nine months, net income decreased 3% (3% in constant currencies) to $ 6,207 million, and diluted earnings per share decreased 2% (1% in constant currencies) to $ 8.59 .

Foreign currency translation had a negative impact of $0.04 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)

• Net pre-tax charges of $52 million, or $0.05 per share, for the quarter and $142 million, or $0.15 per share, for the nine months primarily consisted of transaction costs and non-cash impairment charges associated with the sale of McDonald's business in South Korea and transaction costs associated with the acquisition of McDonald's business in Israel

• Pre-tax charges of $46 million, or $0.05 per share, for the quarter and $146 million, or $0.15 per share, for the nine 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.

• 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 related to the Company's Accelerating the Arches growth strategy, including restructuring charges associated with Accelerating the Organization

Excluding the above items, lower Selling, general, and administrative expenses and higher Franchised margins drove positive operating income performance for the quarter.

Results for the nine 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.

During the quarter, the Company paid a dividend of $1.67 per share, or $1.2 billion, bringing total dividends paid for the nine months to $3.6 billion.

Additionally, during the quarter, the Company repurchased 1.7 million shares of stock for $444 million, bringing total purchases for the nine months to 8.3 million shares, or $2.3 billion.

In September 2024, the Company declared a 6% increase in its quarterly cash dividend to $1.77 per share, payable on December 16, 2024.

NET INCOME AND EARNINGS PER SHARE-DILUTED RECONCILIATION

Dollars in millions, except per share data

Quarters Ended June 30,

Quarters Ended September 30,

Net Income Earnings per share - diluted

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Non-GAAP $ 2,322 $ 2,337 (1) % (1) % $ 3.23 $ 3.19 1 % 1 %

Six Months Ended June 30,

Nine Months Ended September 30,

Net Income Earnings per share - diluted

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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 approximately 95% of McDonald's restaurants worldwide at June 30, 2024.

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

In the quarter and nine 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 June 30, 2024 2023 Inc/ (Dec) Inc/ (Dec)

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

Company-owned and operated sales

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Total Revenues $ 6,873 $ 6,692 3 % 2 %

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

Nine Months Ended September 30, 2024 2023 Inc/ (Dec) Inc/ (Dec)

Company-owned and operated sales

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Total Revenues $ 19,532 $ 19,088 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.

• Total Company-owned and operated sales and franchised revenues increased 2% (2% in constant currencies) for the quarter and increased 2% (2% in constant currencies) for the nine months, with both periods benefiting from sales performance in the U.S.

and International Operated Markets segment.

Revenue growth in the International Developmental Licensed Markets & Corporate segment is primarily due to the acquisition of McDonald's business in Israel, partly offset by the continued impact of 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 six months ended June 30, 2024 and 2023:

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

Increase/(Decrease)

Quarters Ended June 30, Six Months Ended June 30,

Quarters Ended September 30, Nine Months Ended September 30,

2024 2023 2024 2023

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Systemwide Sales and Franchised Sales

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

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

SYSTEMWIDE SALES*

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

Quarter Ended September 30, 2024 Nine Months Ended September 30, 2024

Inc/ (Dec) Inc/ (Dec)

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

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

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

FRANCHISED SALES

Dollars in millions

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

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

$ 12,893 $ 12,794 1 % 1 %

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Total $ 31,333 $ 31,362 — % — %

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

Nine Months Ended September 30, 2024 2023 Inc/ (Dec) Inc/ (Dec)

$ 37,743 $ 37,325 1 % 1 %

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Amount Inc/ (Dec) Inc/ (Dec)

Quarters Ended June 30, 2024 2023

Quarters Ended September 30, 2024 2023

$ 1,525 $ 1,518 — % — %

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Amount Inc/ (Dec) Inc/ (Dec)

Six Months Ended June 30, 2024 2023

Nine Months Ended September 30, 2024 2023

$ 4,444 $ 4,390 1 % 1 %

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• 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.

and International Operated Markets segment reflected sales-driven growth for both periods.

Franchised margins represented approximately 90% of restaurant margin dollars.

• 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.

• Company-owned and operated margins reflected positive sales performance in the U.S.

and negative sales performance in the International Operated Markets segment for the quarter while the nine months benefited from positive sales performance for these two segments.

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.

• Total restaurant margins included depreciation and amortization expense of $420 million and $1.2 billion for the quarter and nine months, respectively.

Selling, General & Administrative Expenses

• 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.

• Selling, general and administrative expenses decreased $33 million, or 5% (5% in constant currencies), for the quarter and increased $63 million, or 3% (3% in constant currencies), for the nine months.

Results for the quarter primarily reflected lower incentive-based compensation, while the nine months primarily reflected investments in digital and technology, including transformation efforts, related to Accelerating the Organization and costs related to the 2024 Worldwide Owner/Operator convention, partly offset by lower incentive-based compensation.

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

Other Operating (Income) Expense, Net

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Dollars in millions

Quarters Ended Six Months Ended

June 30, June 30,

Quarters Ended Nine Months Ended

September 30, September 30,

2024 2023 2024 2023

4 unchanged sentences

Total $ 39 $ ( 25 ) $ 129 $ 68

• 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.

• Gains on sales of restaurant businesses decreased for the nine months, 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 the nine months 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 $52 million and $142 million for the quarter and nine months, respectively, primarily consisting of transaction costs and non-cash impairment charges associated with the sale of McDonald's business in South Korea and transaction costs associated with the acquisition of McDonald's business in Israel and pre-tax charges of $46 million and $146 million for the quarter and nine 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 nine months 2023 reflected $26 million and $224 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

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Dollars in millions

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

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

$ 1,493 $ 1,478 1 % 1 %

International Operated Markets 1,602 1,585 1 —

International Developmental Licensed Markets & Corporate ( 84 ) 92 n/m n/m

International Developmental Licensed Markets & Corporate 93 146 (36) (29)

Total $ 3,188 $ 3,208 (1) % (1) %

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

Nine Months Ended September 30, 2024 2023 Inc/ (Dec) Inc/ (Dec)

$ 4,400 $ 4,268 3 % 3 %

International Operated Markets 4,459 4,295 4 3

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

International Developmental Licensed Markets & Corporate ( 15 ) 282 n/m (92)

Total $ 8,844 $ 8,845 — % — %

Operating margin 45.3 % 46.3 %

• Operating Income:

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 decreased $20 million, or 1% (1% in constant currencies), for the quarter and decreased $1 million, or was flat (flat in constant currencies), for the nine months.

Results reflected net pre-tax charges of $52 million and $142 million for the quarter and nine months, respectively, primarily consisting of transaction costs and non-cash impairment charges associated with the sale of McDonald's business in South Korea and transaction costs associated with the acquisition of McDonald's business in Israel and pre-tax restructuring charges of $46 million and $146 million for the quarter and nine months, respectively, related to Accelerating the Organization .

OPERATING INCOME & OPERATING MARGIN RECONCILIATION*

Dollars in millions

Quarters Ended June 30, Six Months Ended June 30,

Quarters Ended September 30, Nine Months Ended September 30,

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

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*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.

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

Results for the nine 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:

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

1 unchanged sentence

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 higher Selling, general and administrative expenses as well as ongoing inflationary cost pressures.

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

Interest Expense

• 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.

• Interest expense increased 12% (12% in constant currencies) for the quarter and 13% (12% in constant currencies) for the nine months.

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

Nonoperating (Income) Expense, Net

1 unchanged sentence

Dollars in millions

Quarters Ended Six Months Ended

June 30, June 30,

Quarters Ended Nine Months Ended

September 30, September 30,

2024 2023 2024 2023

4 unchanged sentences

• 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 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 effective income tax rate was 20.7 % and 20.7 % for the quarters ended 2024 and 2023, respectively, and 20.5 % and 19.7 % for the nine months ended 2024 and 2023, respectively.

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 $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.

Cash provided by operations totaled $6.8 billion and exceeded capital expenditures by $4.8 billion for the nine months 2024.

Cash provided by operations was slightly down compared with the nine months 2023, in line with operating results.

Cash used for investing activities totaled $4.6 billion for the nine months 2024, an increase of $2.3 billion compared with the nine months 2023.

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

Cash used for financing activities totaled $5.6 billion for the nine months 2024, an increase of $1.8 billion compared with the nine months 2023.

The increase was primarily due to lower issuances and higher net repayments of long term financing arrangements 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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• 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.

• Based on current interest and foreign currency exchange rates, the Company expects interest expense for the full year 2024 to increase approximately 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.

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

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

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

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

Food safety concerns have had and may in the future have an adverse effect on our business.

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

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

For example, in October 2024, certain U.S.

regulatory agencies announced that they were investigating a multistate outbreak of E.

coli impacting our System.

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

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Information technology system failures or interruptions, or breaches of network security, may impact our operations or cause reputational harm.

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.

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 business may not generate the intended efficiencies and may impact our business results.

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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.

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.

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

Moreover, addressing environmental and social impact matters requires Systemwide as well as third party coordination and alignment, over which we do not have complete control and which may be unpredictable.

Moreover, addressing environmental and social impact matters requires Systemwide as well as

third party coordination and alignment, over which we do not have complete control and which may be unpredictable.

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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis