McDonald’s Corporation (NYSE:MCD) 2023 Investor Update December 6, 2023 10:30 AM ET Company Participants Mike Cieplak - IR Chris Kempczinski - President and CEO Jill McDonald - EVP and President, International Operated Markets Jo Sempels - President, International Developmental Licensed Markets Joe Erlinger - President of McDonald’s USA Manu Steijaert - EVP and Chief Customer Officer Jon Banner - Global Chief Impact Officer Brian Rice - Global Chief Information Officer Ian Borden - Chief Financial Officer M ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period endedSeptember 30, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 1-5231 McDONALD’S CORPORATION (Exact Name of Registrant as Specified in Its Charter) Delaware 36-2361282 (State or Other Jurisdiction of (I.R. ...

Financial Data and Key Metrics Changes - In Q3 2023, McDonald's achieved nearly 9% comparable global sales growth, indicating strong top-line performance despite a moderating growth trend compared to historical norms [6][14] - Adjusted earnings per share for the quarter reached $3.19, a 16% increase in constant currencies compared to the previous year [23] - Total restaurant margin dollars grew by approximately $335 million in constant currencies, reflecting a 10% increase for the quarter [24] Business Line Data and Key Metrics Changes - The launch of the McSmart menu in Germany contributed to the market's 10th consecutive quarter of double-digit sales growth, showcasing the effectiveness of adapting to customer needs [11] - The "Best Burger" initiative in Australia has been successfully scaled to over 70 markets, enhancing burger perceptions and driving operational improvements [9] - Digital sales represented over 40% of system-wide sales in the top six markets, amounting to nearly $9 billion for Q3 [19] Market Data and Key Metrics Changes - In the U.S., traffic growth was slightly negative in Q3, primarily affecting lower-income consumers, while the overall market share remained strong [42][44] - Germany's focus on affordability through the McSmart menu has led to remarkable sales performance, indicating a successful response to macroeconomic pressures [11][15] - The competitive landscape remains challenging, with some competitors increasing promotional activity, but McDonald's maintains its value leadership [58] Company Strategy and Development Direction - McDonald's continues to execute its "Accelerating the Arches" strategy, focusing on enhancing customer experience, digital engagement, and operational efficiency [6][13] - The company is committed to maintaining its leadership position in value and affordability, adapting its offerings based on local market conditions [10][12] - Future growth opportunities are anticipated through digital expansion and leveraging a fully modernized restaurant estate [54][55] Management's Comments on Operating Environment and Future Outlook - Management acknowledges ongoing macroeconomic challenges, including inflation and consumer spending pressures, but remains confident in the brand's resilience and strategic positioning [10][14] - The company expects continued moderation in top-line growth as inflation levels decrease, but believes it is well-positioned to navigate these challenges [36][49] - Management emphasizes the importance of franchisee cash flow and operational execution in sustaining growth and customer satisfaction [55][66] Other Important Information - McDonald's Board of Directors approved a 10% dividend increase, marking the 47th consecutive increase, reflecting confidence in the company's long-term growth strategy [25] - The company hosted a global volunteer month, with over 6,400 volunteers contributing to local communities, reinforcing its commitment to social responsibility [27] Q&A Session Summary Question: Focus on value in the context of recent average ticket increases - Management highlighted the importance of maintaining value and affordability despite inflationary pressures, with no deterioration in customer acceptance of pricing [31] Question: Trends in major IOM countries post-COVID - Management reported strong performance in IOM markets, with positive customer satisfaction and consistent sales growth, despite varying macroeconomic conditions [34][35] Question: Changes in SG&A outlook - Management noted a slight decrease in SG&A as a percentage of sales due to strong top-line results and timing of spending [38][39] Question: U.S. consumer behavior changes - Management observed that lower-income consumers are facing more pressure, but McDonald's continues to gain market share among middle- and higher-income consumers [42][44] Question: Pricing expectations for the fourth quarter and 2024 - Management expects average pricing in the U.S. to be just over 10% for the full year, with a potential moderation in pricing as inflation decreases [48][49] Question: Maintaining momentum and share gains in the U.S. - Management expressed confidence in the "Accelerating the Arches" strategy and the company's ability to leverage its digital presence and operational execution for future growth [52][53] Question: Competitive environment and promotional activity - Management noted an uptick in promotional activity among competitors but emphasized McDonald's commitment to maintaining its value leadership through enhanced customer experience [58][60]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period endedJune 30, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 1-5231 McDONALD’S CORPORATION (Exact Name of Registrant as Specified in Its Charter) Delaware 36-2361282 (State or Other Jurisdiction of (I.R.S. Em ...

McDonald's Corporation (NYSE:MCD) Q2 2023 Results Conference Call July 27, 2023 8:30 AM ET Company Participants Mike Cieplak - Investor Relations Chris Kempczinski - President and Chief Executive Officer Ian Borden - Chief Financial Officer Conference Call Participants Eric Gonzalez - KeyBanc David Tarantino - Baird Jeff Bernstein - Barclays David Palmer - Evercore John Ivankoe - JPMorgan Brian Bittner - Oppenheimer Dennis Geiger - UBS Chris Carril - RBC Capital Markets Andrew Charles - Cowen Sara Senatore ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period endedMarch 31, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 1-5231 McDONALD’S CORPORATION (Exact Name of Registrant as Specified in Its Charter) Delaware 36-2361282 (State or Other Jurisdiction of (I.R.S. E ...

Financial Data and Key Metrics Changes - McDonald's reported global comparable sales growth of 12.6% for Q1 2023, consistent across all segments including the U.S., International Operated Markets (IOM), and International Developmental Licensed (IDL) markets [5][13] - Adjusted earnings per share (EPS) for the quarter was $2.63, reflecting a nearly 20% increase in constant currencies compared to the prior year [22] - Company-operated margins were impacted by elevated commodity and wage pressures, with an adjusted operating margin of 46% for the first quarter [24][22] Business Line Data and Key Metrics Changes - The U.S. market saw strong performance driven by the relaunch of the Crispy Chicken Sandwich, contributing to double-digit sales growth [14] - In China, the McSpicy Chicken Sandwich campaign generated significant social buzz and positive comparable sales growth, indicating a recovery in the market [15] - Canada experienced strong results from the Chicken Big Mac promotion, showcasing the effectiveness of limited-time offerings [16] Market Data and Key Metrics Changes - The company noted a steady recovery in China, with positive comparable sales growth for the quarter [15] - Germany's new McSmart Menu contributed to its eighth consecutive quarter of double-digit comparable sales growth [17] - Digital sales in the top six markets represented nearly 40% of system-wide sales, amounting to approximately $7.5 billion, with a growth of over 30% year-over-year [20] Company Strategy and Development Direction - The "Accelerating the Arches" strategy continues to drive growth, with a focus on restaurant development and internal organizational efficiency [6][7] - The company is implementing "Accelerating the Organization" to enhance collaboration and innovation across markets [8][10] - Strategic investments in digitization and new tools are aimed at improving operational efficiency and customer experience [11][12] Management's Comments on Operating Environment and Future Outlook - Management anticipates a mild recession in the U.S. and a more challenging environment in Europe, but remains confident in McDonald's ability to perform well in both good and bad times [36][37] - The company is focused on maintaining value for money and affordability amidst rising costs, with a strong emphasis on customer satisfaction [39][40] - Despite macroeconomic challenges, management believes the brand's relevance and strategic positioning will support long-term growth [25][29] Other Important Information - The company is providing targeted support to franchisees in Europe, with an estimated impact of $100 million to $150 million for the year due to elevated cost inflation [23][63] - McDonald's has been recognized for its marketing effectiveness, topping The WARC Effective 100 for the fourth consecutive year [26] Q&A Session Summary Question: Opportunities to drive guest count strength in the U.S. - Management highlighted a balanced approach with marketing excellence, core menu focus, and improved customer satisfaction driving growth [33][34] Question: Anticipated impact of a recessionary macro environment on operating results - Management expects a mild recession in the U.S. and a more challenging environment in Europe, but remains confident in McDonald's resilience [36][37] Question: Consistency in performance across segments - Management noted consistent pricing and traffic dynamics across markets, contributing to strong performance [41][44] Question: Margin pressure and franchisee support - Management acknowledged margin pressures but emphasized the importance of maintaining value for franchisees while navigating inflation [42][63] Question: Consumer behavior and share growth across income groups - Management reported share growth across all income groups, indicating strong value perception [65][66] Question: Pricing resistance and franchisee concerns - Management emphasized the need for disciplined pricing strategies and acknowledged franchisee concerns regarding inflation [68][70]

[Forward-Looking Statements](index=3&type=section&id=FORWARD-LOOKING%20STATEMENTS) [Forward-Looking Statements](index=3&type=section&id=Forward-Looking%20Statements) This report contains forward-looking statements about future events and financial performance, subject to risks on page 27, with no obligation for updates - Forward-looking statements cover future revenue, expenses, and business opportunities, reflecting the company's plans, strategies, outlook, and expectations for its business, industry, and ESG commitments[5](index=5&type=chunk) - Forward-looking statements are not guarantees of performance, and actual results may differ materially due to factors described in the "Risk Factors" section on page 27[5](index=5&type=chunk) [About McDonald's](index=3&type=section&id=ABOUT%20McDONALD%27S) [About McDonald's](index=3&type=section&id=About%27s%20McDonald%27s) McDonald's Corporation and its subsidiaries, along with franchisees and suppliers, collectively form the 'System' - The company and its subsidiaries are referred to as the "Company," and together with franchisees and suppliers, are referred to as the "System"[6](index=6&type=chunk) [Business Summary](index=3&type=section&id=BUSINESS%20SUMMARY) [General Information](index=3&type=section&id=GENERAL) As of December 31, 2022, the company experienced no significant changes in its corporate structure or operating methods - As of December 31, 2022, the company experienced no significant changes in its corporate structure or operating methods[7](index=7&type=chunk) [Description of the Business](index=3&type=section&id=DESCRIPTION%20OF%20THE%20BUSINESS) McDonald's operates globally with localized menus through franchised and company-operated restaurants, with franchising as its core model for stable revenue - As of year-end 2022, McDonald's had 40,275 restaurants in over 100 countries, with approximately **95% franchised**[8](index=8&type=chunk) - Company revenue includes sales from company-operated restaurants and franchise fees, with the highly franchised model being core to generating stable and predictable revenue and cash flow[8](index=8&type=chunk)[10](index=10&type=chunk) - The company owns or long-term leases land and buildings, while franchisees pay for equipment, signage, seating, and decor, jointly investing to enhance restaurant performance[9](index=9&type=chunk) [Conventional Franchise](index=3&type=section&id=Conventional%20Franchise) Under conventional franchising, McDonald's typically owns land and buildings, while franchisees invest in equipment and pay rent and sales-based royalties for stable revenue - Under the conventional franchise model, the company typically owns or long-term leases the land and buildings, while franchisees pay for equipment, signage, seating, and decor[9](index=9&type=chunk) - Franchisees primarily contribute to company revenue through rent and sales-based royalties (with minimum rent), as well as initial fees for new restaurant openings or franchise grants[10](index=10&type=chunk) - The company's highly franchised business model aims to generate stable and predictable revenue, primarily dependent on franchisee sales and resulting cash flow[10](index=10&type=chunk) [Developmental License or Affiliate](index=4&type=section&id=Developmental%20License%20or%20Affiliate) Developmental license or affiliate arrangements involve licensees managing operations and capital, with the company receiving sales-based royalties and initial fees without capital investment - Under developmental license or affiliate arrangements, licensees are responsible for operations, business management, capital provision, and developing new restaurants[11](index=11&type=chunk) - The company typically does not invest capital in these arrangements, instead collecting royalties based on a percentage of sales and initial fees for new restaurant openings or license grants[11](index=11&type=chunk) - Affiliate arrangements are primarily used in a few international developmental licensed markets like China and Japan, and for a few restaurants in international operated markets where the company has equity investments[11](index=11&type=chunk) [Purpose, Mission and Values](index=4&type=section&id=PURPOSE%2C%20MISSION%20AND%20VALUES) McDonald's purpose is to 'feed and foster communities,' with a mission to 'create delicious feel-good moments for everyone,' guided by five core values - The company's purpose is to "feed and foster communities," and its mission is to "create delicious feel-good moments for everyone"[12](index=12&type=chunk) - The company is guided by five core values: service, inclusion, integrity, community, and family, which permeate business operations with franchisees, suppliers, and employees[12](index=12&type=chunk) [Human Capital Management](index=4&type=section&id=HUMAN%20CAPITAL%20MANAGEMENT) McDonald's human capital strategy focuses on DEI, competitive compensation, and training to attract and retain talent, with over 150,000 global employees - The company's human capital strategy aims to create an environment based on diversity, equity, and inclusion (DEI), offering competitive compensation, benefits, training, and high health and safety standards to attract and retain talent[13](index=13&type=chunk) - As of year-end 2022, the company had over **150,000 employees globally**, with approximately **70% outside the U.S.**[14](index=14&type=chunk) - The company is committed to increasing female and minority representation in leadership through DEI strategies and incentive programs, ensuring equal pay, with global female employees earning an average of **99.91 cents for every dollar earned by male employees in 2022**[15](index=15&type=chunk)[18](index=18&type=chunk) - The company's incentive programs include quantitative human capital metrics to drive executive progress on DEI goals, such as increasing leadership representation and assessing employee sense of inclusion[16](index=16&type=chunk) - Through its "Youth Opportunity" initiative, the company aims to reduce employment barriers for **2 million young people by 2025** and has pledged **$100 million** to Ronald McDonald House Charities (RMHC)[19](index=19&type=chunk) [Environmental Matters](index=6&type=section&id=ENVIRONMENTAL%20MATTERS) McDonald's prioritizes environmental matters for long-term sustainability, setting goals for emissions, sourcing, resource management, and waste reduction to drive business value - The company prioritizes environmental matters to enhance long-term sustainability and resilience, setting goals to reduce greenhouse gas emissions, support deforestation-free sourcing, efficiently manage natural resources, responsibly source ingredients and packaging, and increase restaurant recycling to reduce waste[20](index=20&type=chunk) - The company believes that environmental actions will drive long-term business value by managing operating costs, enhancing raw material supply security, protecting surrounding communities, and mitigating environmental risks[20](index=20&type=chunk) [Supply Chain, Food Safety and Quality](index=6&type=section&id=SUPPLY%20CHAIN%2C%20FOOD%20SAFETY%20AND%20QUALITY) McDonald's ensures food safety and quality through strict standards, global centers, and supplier collaboration, managing supply chain risks and ethical conduct - The company and its franchisees source products from numerous independent suppliers and maintain strict food safety and quality standards, ensuring product consistency and compliance through global quality centers, a food safety advisory council, and continuous training[21](index=21&type=chunk) - The company collaborates with suppliers to encourage innovation, ensure continuous supply, and control costs, implementing comprehensive supply chain risk management strategies[21](index=21&type=chunk) - The company has established a "Supplier Code of Conduct" covering human rights, working environment, business integrity, and environmental management, with a Supplier Workplace Accountability (SWA) program to ensure compliance and continuous improvement[21](index=21&type=chunk) [Products](index=6&type=section&id=PRODUCTS) McDonald's offers a largely uniform menu globally, adapted to local preferences, continuously evolving to meet customer demands for taste, quality, and value - McDonald's restaurants offer a largely uniform menu, with geographical adjustments based on local consumer preferences[22](index=22&type=chunk) - The menu includes hamburgers, chicken products, fries, salads, desserts, beverages, and breakfast items, with the company continuously evolving its menu to meet customer demands for taste, quality, choice, value, and nutrition[22](index=22&type=chunk) [Marketing](index=6&type=section&id=MARKETING) McDonald's global brand is promoted through customer-centric marketing, focusing on value, quality, taste, and convenience to differentiate from competitors - McDonald's global brand is widely recognized, with customer-centric marketing, promotion, and public relations activities aimed at promoting the brand and differentiating it from competitors[23](index=23&type=chunk) - Marketing and promotional efforts focus on value, quality, food taste, menu choice, nutrition, convenience, cultural relevance, and customer experience[23](index=23&type=chunk) [Intellectual Property](index=7&type=section&id=INTELLECTUAL%20PROPERTY) The company owns or licenses valuable intellectual property, including trademarks, patents, and copyrights, with 'McDonald's' and the Golden Arches being critical - The company owns or licenses valuable intellectual property, including trademarks, service marks, patents, copyrights, trade secrets, and other proprietary information[24](index=24&type=chunk) - The "McDonald's" trademark and the Golden Arches logo are of significant importance to the company's business[24](index=24&type=chunk) [Competition](index=7&type=section&id=COMPETITION) McDonald's competes intensely globally in the informal eating out sector, primarily on price, convenience, service, experience, and menu quality - McDonald's restaurants compete with international, national, regional, and local traditional, fast-casual, and other foodservice competitors globally[25](index=25&type=chunk) - The company primarily competes on price, convenience, service, experience, menu variety, and product quality[25](index=25&type=chunk) [Government Regulations](index=7&type=section&id=GOVERNMENT%20REGULATIONS) McDonald's operates globally under diverse regulations covering advertising, franchising, health, and taxes, with COVID-19 impacts diminishing and compliance costs not significantly affecting capital or earnings - The company operates globally and is subject to laws and regulations in the U.S. and over 100 other countries, covering advertising, franchising, health, safety, environment, competition, zoning, employment, and taxes[26](index=26&type=chunk) - Government restrictions during the COVID-19 pandemic impacted the company's revenue over the past three years, but the impact was limited in 2022[26](index=26&type=chunk) - Despite an increase in the number and scope of laws and regulations leading to higher compliance costs, these costs are not expected to materially impact the company's capital expenditures, earnings, or competitive position[26](index=26&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=8&type=section&id=Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) [Management's View of the Business](index=8&type=section&id=MANAGEMENT%27S%20VIEW%20OF%20THE%20BUSINESS) Management analyzes business trends using financial and non-GAAP metrics like comparable sales, system sales, ROIC, and free cash flow to assess performance and capital efficiency - Management analyzes business trends by reviewing various financial and non-GAAP metrics, including comparable sales, system sales, return on invested capital, and free cash flow[28](index=28&type=chunk) - Comparable sales and comparable guest count growth, systemwide sales growth, return on invested capital from continuing operations, free cash flow, and free cash flow conversion are considered important metrics for understanding the company's financial performance[28](index=28&type=chunk) - Free cash flow and free cash flow conversion are used to assess the company's ability to convert net income into cash resources to enhance shareholder value after reinvesting in its core business[28](index=28&type=chunk) [2022 Financial Performance](index=8&type=section&id=2022%20FINANCIAL%20PERFORMANCE) In 2022, global comparable sales grew 10.9% driven by the 'Accelerating the Arches' strategy, despite net income and EPS declines due to one-off items, with $8.1 billion returned to shareholders - Global comparable sales grew **10.9% in 2022**, primarily due to strong sales performance across all segments from the continued execution of the "Accelerating the Arches" strategy[29](index=29&type=chunk) - In 2022, net income decreased **18% (13% FX-neutral)** to **$6.2 billion**, and diluted earnings per share decreased **17% (12% FX-neutral)** to **$8.33**[44](index=44&type=chunk) - In 2022, the company returned **$8.1 billion** to shareholders through dividends and share repurchases[31](index=31&type=chunk) 2022 Key Financial Metrics | Metric | 2022 Amount (billions of dollars) | 2022 YoY Change (%) | 2022 YoY Change (FX-Neutral, %) | | :--- | :--- | :--- | :--- | | Consolidated Revenues | 23.2 | 0% | 6% | | Systemwide Sales | 118.2 | 5% | 11% | | Consolidated Operating Income | 9.4 | -10% | -3% | | Operating Margin | 40.4% | -4.2% | - | | Diluted EPS | 8.33 | -17% | -12% | | Cash Flow from Operations | 7.4 | -19% | - | | Capital Expenditures | 1.9 | - | - | | Free Cash Flow | 5.5 | -23% | - | [Strategic Direction](index=9&type=section&id=STRATEGIC%20DIRECTION) McDonald's evolved its 'Accelerating the Arches' strategy in early 2023, adding 'Restaurant Development' as a growth pillar and launching 'Accelerating the Organization' to enhance performance and long-term profitable growth - The company announced an evolution of its "Accelerating the Arches" strategy in early 2023, adding "Restaurant Development" as a growth pillar and initiating "Accelerating the Organization" internal work to enhance company performance[32](index=32&type=chunk) - The "MCD" growth pillars include: maximizing marketing (investing in culturally relevant approaches, emphasizing value), focusing on the core menu (improving classic products, promoting emerging products like McSpicy and McCrispy chicken sandwiches, developing the McCafé brand), and deepening 4D (Digital, Delivery, Drive Thru, and Development)[33](index=33&type=chunk) - In 2022, digital channels (mobile app, delivery, and self-order kiosks) accounted for nearly **35% of systemwide sales** in the company's top six markets, exceeding **$25 billion**[33](index=33&type=chunk) - The company has expanded the number of restaurants offering delivery services to nearly **35,000**, representing over **85% of total McDonald's restaurants**[33](index=33&type=chunk) - The strategic foundation includes: operational excellence (providing speed, choice, and personalized service, delicious and affordable food, convenient locations), empowering employees (implementing global brand standards, creating a safe culture), and accelerating the organization (modernizing work methods, providing career development paths)[35](index=35&type=chunk)[36](index=36&type=chunk) [Growth Pillars](index=9&type=section&id=GROWTH%20PILLARS) McDonald's 'MCD' growth pillars focus on maximizing marketing, core menu, and '4D' (Digital, Delivery, Drive Thru, Development) to drive sales and enhance customer experience - Growth pillars include: maximizing marketing (investing in culturally relevant approaches, emphasizing value), focusing on the core menu (improving classic products, promoting emerging products such as McSpicy and McCrispy chicken sandwiches, developing the McCafé brand), and deepening 4D (Digital, Delivery, Drive Thru, and Restaurant Development)[33](index=33&type=chunk) - In 2022, digital channels (mobile app, delivery, and self-order kiosks) accounted for nearly **35% of systemwide sales** in the company's top six markets, exceeding **$25 billion**[33](index=33&type=chunk) - The company has expanded the number of restaurants offering delivery services to nearly **35,000**, representing over **85% of total McDonald's restaurants**[33](index=33&type=chunk) - The company plans to open approximately **1,900 new restaurants in 2023**, which will contribute nearly **4% net unit growth**[35](index=35&type=chunk) [Foundation](index=10&type=section&id=FOUNDATION) The 'Accelerating the Arches' strategy's foundation centers on customers and employees, operational excellence, and modernizing work to enhance experience and talent retention - The strategic foundation includes: operational excellence (providing speed, choice, and personalized service, delicious food, convenient locations, and affordable prices), empowering employees (implementing global brand standards, creating a safe culture), and accelerating the organization (modernizing work methods, providing career development paths)[35](index=35&type=chunk)[36](index=36&type=chunk) - The company believes these efforts, combined with innovation investments, aim to enhance the customer experience and drive long-term profitable growth for all stakeholders[37](index=37&type=chunk) [Outlook](index=10&type=section&id=OUTLOOK) For 2023, the company projects 1.5% system sales growth from net restaurant expansion, 45% operating margin, $2.2-2.4 billion in capital expenditures, and over 90% free cash flow conversion - The company expects net restaurant unit expansion to contribute nearly **1.5% to systemwide sales growth (FX-neutral) in 2023**[38](index=38&type=chunk) - The company anticipates selling, general, and administrative expenses to be approximately **2.2% to 2.3% of systemwide sales in 2023**, with an operating margin of approximately **45%**[38](index=38&type=chunk) - The company projects capital expenditures between **$2.2 billion and $2.4 billion in 2023**, with approximately half allocated to new restaurant expansion in the U.S. and International Operated Markets, planning to open approximately **1,900 restaurants globally**[38](index=38&type=chunk) - The company expects interest expense to increase by **10% to 12% in 2023**, an effective income tax rate between **20% and 22%**, and to achieve a free cash flow conversion rate of over **90%**[38](index=38&type=chunk) [Consolidated Operating Results](index=11&type=section&id=CONSOLIDATED%20OPERATING%20RESULTS) In 2022, consolidated operating results were impacted by COVID-19 and the Ukraine war, with flat total revenue but declining net income and EPS due to one-off items, while franchise revenue grew despite inflation - In 2022, the company's total revenue was flat (up **6% FX-neutral**) at **$23.2 billion**, but net income decreased **18% (13% FX-neutral)** to **$6.2 billion**, and diluted earnings per share decreased **17% (12% FX-neutral)** to **$8.33**[29](index=29&type=chunk)[30](index=30&type=chunk)[44](index=44&type=chunk) - In 2022, company-operated restaurant sales decreased **11%**, while franchised restaurant revenue increased **8%**, driving a **5% (11% FX-neutral)** increase in total restaurant margins[42](index=42&type=chunk)[57](index=57&type=chunk) - The 2022 operating results were negatively impacted by the sale of the Russian business, the French tax audit, and foreign currency translation, while company-operated restaurant margins were negatively affected by inflationary cost pressures[29](index=29&type=chunk)[45](index=45&type=chunk)[47](index=47&type=chunk)[56](index=56&type=chunk) 2022 Consolidated Operating Results Overview | Metric (Millions of dollars) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Company-operated restaurant sales | 8,748 | 9,787 | 8,139 | | Franchised restaurant revenues | 14,106 | 13,085 | 10,726 | | Other revenues | 329 | 351 | 343 | | **Total Revenues** | **23,183** | **23,223** | **19,208** | | Operating costs and expenses | 13,812 | 12,867 | 11,884 | | **Operating Income** | **9,371** | **10,356** | **7,324** | | Interest expense | 1,207 | 1,186 | 1,218 | | Nonoperating (income) expense, net | 339 | 42 | (35) | | Income before provision for income taxes | 7,825 | 9,128 | 6,141 | | Provision for income taxes | 1,648 | 1,583 | 1,410 | | **Net Income** | **6,177** | **7,545** | **4,731** | | Diluted earnings per share | 8.33 | 10.04 | 6.31 | [Impact of COVID-19 Restrictions](index=11&type=section&id=Impact%20of%20COVID-19%20Restrictions) COVID-19 government restrictions impacted company revenue over three years, with limited effect in 2022 due to fewer restrictions, but consumer sentiment may still affect performance - Government restrictions due to the COVID-19 pandemic (such as operating hours, dine-in capacity, and restaurant closures) had varying impacts on the company's revenue over the past three years[40](index=40&type=chunk) - In 2022, the impact of COVID-19 on the company's revenue was relatively limited due to fewer restrictions[40](index=40&type=chunk) [Impact of the War in Ukraine](index=11&type=section&id=Impact%20of%20the%20War%20in%20Ukraine) In Q1 2022, McDonald's temporarily closed restaurants in Russia and Ukraine due to war; Russian operations were sold in Q2, while Ukrainian restaurants began reopening in September - In the first quarter of 2022, McDonald's temporarily closed its restaurants in Russia and Ukraine due to the war[41](index=41&type=chunk) - Russian restaurants were permanently closed after the company sold its Russian business in the second quarter of 2022[41](index=41&type=chunk) - Ukrainian restaurants began reopening in September 2022[41](index=41&type=chunk) [Net Income and Diluted Earnings Per Common Share](index=12&type=section&id=NET%20INCOME%20AND%20DILUTED%20EARNINGS%20PER%20COMMON%20SHARE) In 2022, net income fell 18% to $6.2 billion and diluted EPS dropped 17% to $8.33, primarily due to the Russia sale, French tax audit, and FX translation - In 2022, net income decreased **18% (13% FX-neutral)** to **$6.2 billion**, and diluted earnings per share decreased **17% (12% FX-neutral)** to **$8.33**[44](index=44&type=chunk) - Foreign currency translation had a negative impact of **$0.52 per diluted share**[44](index=44&type=chunk) - 2022 results include a **$1.281 billion pre-tax net charge** related to the sale of the Russian business, a **$271 million pre-tax net gain** related to the sale of the Dynamic Yield business, and a **$537 million nonoperating expense** related to the French tax audit settlement[45](index=45&type=chunk) Net Income and Diluted Earnings Per Common Share (GAAP vs. Non-GAAP) | Metric | 2022 Amount (Millions of dollars/dollars) | 2021 Amount (Millions of dollars/dollars) | 2022 YoY Change (%) | 2022 YoY Change (FX-Neutral, %) | | :--- | :--- | :--- | :--- | :--- | | GAAP Net Income | 6,177.4 | 7,545.2 | (18)% | (13)% | | Non-GAAP Net Income | 7,485.3 | 6,978.8 | 7% | 13% | | GAAP Diluted EPS | 8.33 | 10.04 | (17)% | (12)% | | Non-GAAP Diluted EPS | 10.10 | 9.28 | 9% | 15% | [Revenues](index=13&type=section&id=REVENUES) In 2022, total revenue was flat (up 6% FX-neutral), impacted by lower international company-operated sales due to Russia/Ukraine and strong international licensed market performance - In 2022, total company revenue was flat (up **6% FX-neutral**), primarily due to the combined impact of lower International Operated Markets sales (due to the sale of the Russian business and temporary closure of Ukrainian restaurants) and strong sales performance in International Developmental Licensed Markets[49](index=49&type=chunk) - Franchised restaurants account for **95% of McDonald's global restaurants**, and their business model is designed to generate stable and predictable revenue and cash flow[48](index=48&type=chunk) 2022 Revenue Composition | Revenue Source | 2022 (Millions of dollars) | 2021 (Millions of dollars) | 2020 (Millions of dollars) | 2022 YoY Change (%) | 2022 YoY Change (FX-Neutral, %) | | :--- | :--- | :--- | :--- | :--- | :--- | | Company-operated sales | 8,748 | 9,788 | 8,139 | (11)% | (4)% | | Franchised revenues | 14,106 | 13,085 | 10,726 | 8% | 14% | | Other revenues | 329 | 350 | 343 | (6)% | (3)% | | **Total Revenues** | **23,183** | **23,223** | **19,208** | **0%** | **6%** | 2022 Comparable Sales Growth Rate | Region | 2022 Comparable Sales Growth Rate (%) | 2021 Comparable Sales Growth Rate (%) | 2020 Comparable Sales Growth Rate (%) | | :--- | :--- | :--- | :--- | | U.S. | 5.9 | 13.8 | 0.4 | | International Operated Markets | 13.3 | 21.6 | (15.0) | | International Developmental Licensed Markets & Corporate | 16.0 | 16.6 | (10.5) | | **Total** | **10.9** | **17.0** | **(7.7)** | 2022 Systemwide Sales Growth Rate | Region | 2022 Systemwide Sales Growth Rate (%) | 2021 Systemwide Sales Growth Rate (%) | 2022 Systemwide Sales Growth Rate (FX-Neutral, %) | 2021 Systemwide Sales Growth Rate (FX-Neutral, %) | | :--- | :--- | :--- | :--- | :--- | | U.S. | 6 | 13 | 6 | 13 | | International Operated Markets | — | 29 | 11 | 24 | | International Developmental Licensed Markets & Corporate | 10 | 21 | 21 | 20 | | **Total** | **5** | **21** | **11** | **18** | [Restaurant Margins](index=15&type=section&id=RESTAURANT%20MARGINS) In 2022, total restaurant margins grew 5% (11% FX-neutral), driven by strong sales across segments, with franchise margins contributing nearly 90%, despite FX and inflation impacts - In 2022, total restaurant margins increased **5% (11% FX-neutral)**, primarily reflecting strong sales performance across all segments[56](index=56&type=chunk) - Franchise margins accounted for nearly **90% of total restaurant margins**[56](index=56&type=chunk) - Company-operated restaurant margins were negatively impacted by the closure of Russian and Ukrainian restaurants and inflationary pressures[56](index=56&type=chunk) 2022 Restaurant Margins (by Type and Region) | Restaurant Type/Region | 2022 (Millions of dollars) | 2021 (Millions of dollars) | 2020 (Millions of dollars) | 2022 YoY Change (%) | 2022 YoY Change (FX-Neutral, %) | | :--- | :--- | :--- | :--- | :--- | :--- | | **Franchised Margins** | | | | | | | U.S. | 5,341 | 4,906 | 4,097 | 9% | 9% | | International Operated Markets | 4,900 | 4,516 | 3,329 | 8% | 20% | | International Developmental Licensed Markets & Corporate | 1,515 | 1,328 | 1,093 | 14% | 23% | | **Total Franchised Margins** | **11,756** | **10,750** | **8,519** | **9%** | **15%** | | **Company-Operated Margins** | | | | | | | U.S. | 429 | 511 | 405 | (16)% | (16)% | | International Operated Markets | 913 | 1,208 | 748 | (24)% | (17)% | | **Total Company-Operated Margins** | **1,368** | **1,740** | **1,158** | **(21)%** | **(16)%** | | **Total Restaurant Margins** | **13,124** | **12,490** | **9,677** | **5%** | **11%** | [Selling, General & Administrative Expenses](index=16&type=section&id=SELLING%2C%20GENERAL%20%26%20ADMINISTRATIVE%20EXPENSES) In 2022, consolidated SG&A expenses rose 6% (8% FX-neutral) due to technology investments, strategic initiatives, and inflation, with management analyzing them as a percentage of system sales - In 2022, consolidated selling, general, and administrative expenses increased **6% (8% FX-neutral)**, primarily reflecting increased investments in restaurant technology, costs related to strategic initiatives, expenses for the 2022 Worldwide Owner/Operator Convention and proxy contest, and inflationary cost pressures[58](index=58&type=chunk) - Management believes analyzing selling, general, and administrative expenses as a percentage of systemwide sales better reflects these costs' support for the overall McDonald's business[58](index=58&type=chunk) 2022 Selling, General & Administrative Expenses | Region | 2022 (Millions of dollars) | 2021 (Millions of dollars) | 2020 (Millions of dollars) | 2022 YoY Change (%) | 2022 YoY Change (FX-Neutral, %) | | :--- | :--- | :--- | :--- | :--- | :--- | | U.S. | 692 | 696 | 625 | (1)% | (1)% | | International Operated Markets | 629 | 692 | 700 | (9)% | 0% | | International Developmental Licensed Markets & Corporate | 1,541 | 1,320 | 1,221 | 17% | 17% | | **Total Selling, General & Administrative Expenses** | **2,862** | **2,708** | **2,546** | **6%** | **8%** | [Other Operating (Income) Expense, Net](index=16&type=section&id=OTHER%20OPERATING%20%28INCOME%29%20EXPENSE%2C%20NET) In 2022, other operating (income) expense, net, was $974 million, a significant change from 2021, primarily due to the Russia business sale expense and Dynamic Yield sale gain - In 2022, other operating (income) expense, net, was **$974 million**, compared to a negative **$483 million in 2021**[60](index=60&type=chunk) - In 2022, this item reflected a **$1.281 billion pre-tax charge** related to the sale of the Russian business and a **$271 million pre-tax gain** related to the sale of the Dynamic Yield business[64](index=64&type=chunk) - Equity in earnings of unconsolidated affiliates decreased, primarily due to COVID-19 restrictions in China and the dissolution of a restaurant joint venture partner in International Operated Markets, as well as the company's reduced ownership in McDonald's Japan[62](index=62&type=chunk) Other Operating (Income) Expense, Net | Item | 2022 (Millions of dollars) | 2021 (Millions of dollars) | 2020 (Millions of dollars) | | :--- | :--- | :--- | :--- | | Gains on sales of restaurant businesses | (60) | (96) | (23) | | Equity in earnings of unconsolidated affiliates | (113) | (177) | (117) | | Gains on dispositions of assets and other (income) expense, net | 137 | 75 | 290 | | Impairment and other charges (gains), net | 1,010 | (285) | (268) | | **Total** | **974** | **(483)** | **(118)** | [Operating Income](index=17&type=section&id=OPERATING%20INCOME) In 2022, operating income decreased 10% (3% FX-neutral) to $9.37 billion, with operating margin falling to 40.4%, impacted by Russia/Ukraine closures and inflation, despite strong sales in some markets - In 2022, operating income decreased **10% (3% FX-neutral)** to **$9.371 billion**[65](index=65&type=chunk) - Operating margin decreased from **44.6% in 2021 to 40.4% in 2022**[65](index=65&type=chunk) - U.S. operating income growth was driven by sales-driven growth in franchised margins, partially offset by labor and commodity inflationary pressures in company-operated restaurants[66](index=66&type=chunk) - International Operated Markets' FX-neutral performance reflected positive sales in France, Germany, and the U.K., but was impacted by the closure of Russian and Ukrainian restaurants and inflationary pressures in company-operated restaurants[67](index=67&type=chunk) 2022 Operating Income (by Region) | Region | 2022 (Millions of dollars) | 2021 (Millions of dollars) | 2020 (Millions of dollars) | 2022 YoY Change (%) | 2022 YoY Change (FX-Neutral, %) | | :--- | :--- | :--- | :--- | :--- | :--- | | U.S. | 5,136 | 4,755 | 3,789 | 8% | 8% | | International Operated Markets | 3,926 | 5,130 | 3,315 | (23)% | (13)% | | International Developmental Licensed Markets & Corporate | 309 | 471 | 220 | (34)% | (5)% | | **Total** | **9,371** | **10,356** | **7,324** | **(10)%** | **(3)%** | | Operating Margin | 40.4% | 44.6% | 38.1% | | | [Interest expense](index=19&type=section&id=Interest%20expense) In 2022, interest expense increased 2% (4% FX-neutral), primarily driven by higher average interest rates - In 2022, interest expense increased **2% (4% FX-neutral)**, primarily reflecting higher average interest rates[75](index=75&type=chunk) [Nonoperating (income) expense, net](index=19&type=section&id=Nonoperating%20%28income%29%20expense%2C%20net) In 2022, nonoperating (income) expense, net, was $339 million, mainly due to a $537 million French tax audit settlement and increased interest income from higher rates - In 2022, nonoperating (income) expense, net, was **$339 million**, primarily including a **$537 million nonoperating expense** related to the French tax audit settlement[76](index=76&type=chunk)[77](index=77&type=chunk) - Interest income increased due to higher average interest rates[76](index=76&type=chunk) 2022 Nonoperating (income) expense, net | Item | 2022 (Millions of dollars) | 2021 (Millions of dollars) | 2020 (Millions of dollars) | | :--- | :--- | :--- | :--- | | Interest income | (44) | (9) | (18) | | Foreign currency and hedging activities | (134) | 37 | (3) | | Other expense | 517 | 14 | (14) | | **Total** | **339** | **42** | **(35)** | [Provision for Income Taxes](index=19&type=section&id=Provision%20for%20Income%20Taxes) The 2022 effective income tax rate was 21.1%, up from 17.3% in 2021, reflecting the tax impact of the French audit settlement and re-measurement of tax reserves - The reported effective income tax rate was **21.1% in 2022**, higher than **17.3% in 2021**[78](index=78&type=chunk) - The 2022 tax rate reflected the tax impact of the **$537 million nonoperating expense** related to the French tax audit settlement and the re-measurement of income tax reserves due to global tax audit progress[78](index=78&type=chunk) - The 2021 tax rate included a **$364 million income tax benefit** due to a change in the U.K. statutory income tax rate[78](index=78&type=chunk) [Recently Issued Accounting Standards](index=19&type=section&id=RECENTLY%20ISSUED%20ACCOUNTING%20STANDARDS) Information on recently issued accounting standards can be found on page 41 of the Form 10-K - Information on recently issued accounting standards can be found on page 41 of the Form 10-K[79](index=79&type=chunk) [Cash Flows](index=19&type=section&id=CASH%20FLOWS) In 2022, operating cash flow was $7.4 billion, down 19%, and free cash flow fell 23% to $5.5 billion, impacted by the French tax audit, working capital, and FX - In 2022, cash flow from operations was **$7.4 billion**, a **19% decrease** year-over-year, primarily impacted by the French tax audit settlement, changes in working capital, and negative foreign currency exchange rates[80](index=80&type=chunk) - Free cash flow was **$5.5 billion**, a **23% decrease** year-over-year, with a free cash flow conversion rate of **89% (94% in 2021)**[80](index=80&type=chunk) - Cash outflows from investing activities increased by **$512 million to $2.7 billion**, primarily due to increased purchases of restaurant businesses; cash outflows from financing activities increased by **$1 billion to $6.6 billion**, mainly due to increased treasury stock purchases[80](index=80&type=chunk) - The company's cash and equivalents balance was **$2.6 billion (compared to $4.7 billion in 2021)**[80](index=80&type=chunk) [Restaurant Development and Capital Expenditures](index=20&type=section&id=RESTAURANT%20DEVELOPMENT%20AND%20CAPITAL%20EXPENDITURES) In 2022, McDonald's opened 1,576 new restaurants and closed 1,332 (855 due to Russia sale), ending with 40,275 global restaurants, while capital expenditures decreased 7% to $1.9 billion - In 2022, the company opened **1,576 new restaurants** and closed **1,332**, with **855 closures** due to the sale of the Russian business[81](index=81&type=chunk) - As of year-end 2022, the total number of global restaurants was **40,275**, with approximately **95% franchised**[82](index=82&type=chunk) - Capital expenditures decreased **7% to $1.9 billion in 2022**, primarily due to reduced reinvestment in existing restaurants following the sale of the Russian business and temporary closure of Ukrainian restaurants[82](index=82&type=chunk) - As of year-end 2022, the company owned approximately **57% of its land** and **80% of its buildings**[84](index=84&type=chunk) 2022 Systemwide Restaurant Count (Year-End) | Region | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | U.S. | 13,444 | 13,438 | 13,682 | | International Operated Markets | 10,103 | 10,785 | 10,560 | | International Developmental Licensed Markets & Corporate | 16,728 | 15,808 | 14,956 | | **Total** | **40,275** | **40,031** | **39,198** | [Share Repurchases and Dividends](index=21&type=section&id=SHARE%20REPURCHASES%20AND%20DIVIDENDS) In 2022, McDonald's returned $8.1 billion to shareholders via dividends and repurchases, buying back 15.8 million shares for $3.9 billion, extending its 47-year dividend growth streak - In 2022, the company returned approximately **$8.1 billion** to shareholders through dividends and share repurchases[85](index=85&type=chunk) - In 2022, the company repurchased approximately **15.8 million shares** of its stock, valued at **$3.9 billion**[85](index=85&type=chunk) - The company has paid dividends for **47 consecutive years** and increased its dividend amount annually, with the Q4 2022 quarterly cash dividend increasing to **$1.52 per share**, totaling **$5.66 per share for the full year**[85](index=85&type=chunk) 2022 Share Repurchases and Dividends | Metric | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Shares Repurchased (millions) | 15.8 | 3.4 | 4.3 | | Shares Outstanding at Year-End (millions) | 731 | 745 | 745 | | Dividends Declared Per Share (dollars) | 5.66 | 5.25 | 5.04 | | Treasury Stock Purchases (Millions of dollars) | 3,896 | 846 | 874 | | Dividends Paid (Millions of dollars) | 4,168 | 3,919 | 3,753 | | **Total Returned to Shareholders (Millions of dollars)** | **8,064** | **4,765** | **4,627** | [Financial Position and Capital Resources](index=22&type=section&id=FINANCIAL%20POSITION%20AND%20CAPITAL%20RESOURCES) In 2022, total assets decreased by $3.4 billion (6%), driven by reduced cash and share repurchases, while ROIC improved to 22.6%, and total debt stood at $35.9 billion - In 2022, total assets decreased by **$3.4 billion (6%)**, primarily due to a reduction in cash and equivalents and increased treasury stock purchases, partially offset by net debt issuances[87](index=87&type=chunk) - Net property and equipment decreased by **$900 million**, primarily due to the sale of the Russian business[87](index=87&type=chunk) - The company's after-tax return on invested capital (ROIC) was **22.6% (21.5% in 2021)**[87](index=87&type=chunk) - As of December 31, 2022, total debt was **$35.9 billion**, with **96% fixed-rate debt** and a weighted-average annual interest rate of **3.5%**[87](index=87&type=chunk)[88](index=88&type=chunk) - The company uses interest rate swaps and foreign currency financing to manage interest rate and foreign exchange risks, hedging certain royalty payments, intercompany financing, and investments in foreign subsidiaries[88](index=88&type=chunk) [Liquidity and Uses of Cash](index=23&type=section&id=LIQUIDITY%20AND%20USES%20OF%20CASH) McDonald's maintains strong operating cash flow and credit capacity, with $15 billion authorized borrowing and $3.5 billion committed credit, to meet operational and debt obligations - The company possesses strong operating cash flow and ample credit capacity, expecting existing cash, future operating cash flow, and the ability to issue debt to be sufficient to meet foreseeable operating needs and cash requirements[90](index=90&type=chunk) - The company primarily generates long-term revenue and cash flow through its franchised arrangements, with minimum rent payments based on the company's investment in owned locations[91](index=91&type=chunk) - The company has a **$15 billion board-authorized borrowing capacity (fully unutilized as of December 31, 2022)** and a **$3.5 billion committed credit facility**[91](index=91&type=chunk) - Primary cash needs include lease obligations and debt obligations, and the company also records liabilities for supplemental benefit plans and unrecognized tax benefits[92](index=92&type=chunk) [Other Matters](index=24&type=section&id=Other%20Matters) This section discusses McDonald's critical accounting policies and estimates, including property, leases, impairment, litigation, and income taxes, noting effective management of ongoing inflation pressures - Key accounting policies and estimates include property and equipment depreciation, renewal options and incremental borrowing rates in leasing arrangements, future cash flow estimates in long-lived asset impairment reviews, litigation accruals, and income tax valuation allowances and audit results[93](index=93&type=chunk)[94](index=94&type=chunk)[95](index=95&type=chunk)[96](index=96&type=chunk)[97](index=97&type=chunk) - Inflationary pressures are expected to continue impacting the restaurant industry's supply chain, labor, and energy costs, but the company effectively manages these costs through rapid inventory turnover, menu price adjustments, cost control, and significant fixed-cost property holdings[98](index=98&type=chunk) [Critical Accounting Policies and Estimates](index=24&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES%20AND%20ESTIMATES) Management relies on critical accounting policies and estimates for financial statements, including property depreciation, lease assumptions, impairment reviews, litigation accruals, and income tax provisions - Key accounting policies and estimates include property and equipment depreciation, renewal options and incremental borrowing rates in leasing arrangements, future cash flow estimates in long-lived asset impairment reviews, litigation accruals, and income tax valuation allowances and audit results[93](index=93&type=chunk)[94](index=94&type=chunk)[95](index=95&type=chunk)[96](index=96&type=chunk)[97](index=97&type=chunk) - These estimates are based on historical experience and reasonable factors, and actual results may differ from estimates[93](index=93&type=chunk) [Property and equipment](index=24&type=section&id=Property%20and%20equipment) Property and equipment are depreciated or amortized using the straight-line method over estimated useful lives, which may be shortened due to changes in planned use or technology - Property and equipment are depreciated or amortized using the straight-line method over their estimated useful lives, which are based on historical experience and consider technological changes[94](index=94&type=chunk) - If planned use or technological changes occur faster than anticipated, useful lives may need to be shortened, leading to accelerated depreciation and amortization expense or write-offs in future periods[94](index=94&type=chunk) [Leasing Arrangements](index=24&type=section&id=Leasing%20Arrangements) Lease right-of-use assets and liabilities incorporate unexercised renewal options and are calculated using an incremental borrowing rate for secured borrowing in specific currencies - Lease right-of-use assets and lease liabilities include assumptions for renewal options that the company has not yet exercised[95](index=95&type=chunk) - The company uses an incremental borrowing rate to calculate lease liabilities, which is the estimated rate the company would incur to borrow on a collateralized basis in a specific currency environment[95](index=95&type=chunk) [Long-lived assets impairment review](index=24&type=section&id=Long-lived%20assets%20impairment%20review) Long-lived assets, including goodwill, are reviewed annually for impairment using subjective future cash flow estimates that consider global economic conditions, costs, and consumer trends - Long-lived assets, including goodwill, are reviewed for impairment annually or when indicators of impairment arise[96](index=96&type=chunk) - The company uses future cash flow estimates when testing asset recoverability, considering factors such as global and local business economic conditions, operating costs, inflation, competition, and consumer trends[96](index=96&type=chunk) - If future estimates or assumptions change, impairment charges may need to be recorded[96](index=96&type=chunk) [Litigation accruals](index=24&type=section&id=Litigation%20accruals) The company faces various litigation and claims from competitors, customers, employees, and regulators, requiring assessment of potential losses and accrual of reserves that may be adjusted - The company faces various litigation and claims in its ordinary course of business, primarily involving competitors, customers, employees, franchisees, government agencies, intellectual property, shareholders, and suppliers[97](index=97&type=chunk) - The company assesses the likelihood of an unfavorable outcome and the range of potential loss, accruing reserves accordingly, which may be adjusted due to new developments or changes in settlement strategies[97](index=97&type=chunk) [Income taxes](index=24&type=section&id=Income%20taxes) The company records valuation allowances for deferred tax assets and accrues reserves for estimated audit outcomes in various tax jurisdictions, subject to change - The company records valuation allowances for deferred tax assets to reflect the risk that they may not be realized[97](index=97&type=chunk) - The company operates in multiple tax jurisdictions and is subject to audits, accruing reserves for estimated audit outcomes, which may change due to new developments[97](index=97&type=chunk) [Effects of Changing Prices — Inflation](index=24&type=section&id=EFFECTS%20OF%20CHANGING%20PRICES%20%E2%80%94%20INFLATION) Widespread inflation is expected to continue impacting the restaurant industry through supply chain, labor, and energy costs, which the company manages via inventory turnover, pricing, and cost control - Widespread inflationary pressures are expected to continue challenging the restaurant industry through supply chain, labor, and energy costs[98](index=98&type=chunk) - The company effectively manages these inflationary cost increases through rapid inventory turnover, menu price adjustments, cost control, and significant fixed-cost property holdings[98](index=98&type=chunk) [Other Key Information](index=25&type=section&id=Other%20Key%20Information) [Stock Performance Graph](index=25&type=section&id=Stock%20Performance%20Graph) McDonald's compares its performance to the DJIA due to global operations, showing a five-year cumulative total shareholder return of $172, outperforming the S&P 500 and DJIA - McDonald's believes that a comparison to companies in the Dow Jones Industrial Average (DJIA) is appropriate due to its global business scope and scale, as many DJIA companies also have significant international revenue and global brands[99](index=99&type=chunk) Five-Year Stock Performance as of December 31, 2022 (Initial Investment of $100) | Company/Index | December 31, 2017 | December 31, 2018 | December 31, 2019 | December 31, 2020 | December 31, 2021 | December 31, 2022 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | McDonald's Corporation | $100 | $106 | $121 | $134 | $171 | $172 | | S&P 500 Index | $100 | $96 | $126 | $149 | $192 | $157 | | Dow Jones Industrial Average | $100 | $97 | $121 | $133 | $161 | $150 | [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=26&type=section&id=Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) McDonald's common stock trades on the NYSE under MCD, with 4.3 million shareholders as of January 31, 2023, and a 47-year history of increasing dividends, alongside Q4 2022 share repurchases - The company's common stock is listed on the New York Stock Exchange under the symbol MCD[102](index=102&type=chunk) - As of January 31, 2023, the estimated number of record holders and beneficial owners of the company's common stock was **4,300,000**[102](index=102&type=chunk) - The company has paid dividends for **47 consecutive years** and increased its dividend amount annually[102](index=102&type=chunk) Q4 2022 Equity Security Purchases | Period | Total Number of Shares Purchased | Average Price Paid Per Share (dollars) | Total Number of Shares Purchased Under Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | | :--- | :--- | :--- | :--- | :--- | | October 1-31, 2022 | 1,685,076 | 241.61 | 1,685,076 | $9,386,452,589 | | November 1-30, 2022 | 6,873 | 270.40 | 6,873 | $9,384,594,115 | | December 1-31, 2022 | 747 | 250.52 | 747 | $9,384,406,977 | | **Total** | **1,692,696** | **241.74** | **1,692,696** | | [Risk Factors](index=27&type=section&id=Risk%20Factors) [Strategy and Brand](index=27&type=section&id=STRATEGY%20AND%20BRAND) McDonald's growth depends on successful strategy execution, brand protection, and adapting to consumer preferences and competition, with technology investments potentially not yielding expected results - Failure to successfully evolve and execute the business strategy may hinder business growth, including failure to leverage global scale, iconic brand, and local market relevance, as well as failure to innovate and differentiate the McDonald's experience[105](index=105&type=chunk) - Failure to protect brand value and relevance could adversely affect financial performance, as consumer perception is influenced by food nutrition, ingredients, sourcing, business practices, and ESG and geopolitical issues[105](index=105&type=chunk) - Failure to anticipate and effectively respond to industry trends and evolving consumer preferences, and to effectively execute pricing, promotion, and marketing plans, could lead to declines in sales, guest counts, and market share[105](index=105&type=chunk) - Investments in customer experience (including technology) may not yield expected results, such as improvements in digital channels, loyalty programs, mobile ordering and payment systems, and drive-thru technology[106](index=106&type=chunk)[107](index=107&type=chunk) - The company faces intense market competition, primarily based on product selection, quality, affordability, service, and location, and failure to compete effectively could harm the business[107](index=107&type=chunk) - Failure to adequately protect intellectual property or ensure non-infringement of others' intellectual property could harm the McDonald's brand value and business[107](index=107&type=chunk) [Operations](index=28&type=section&id=OPERATIONS) Global operations expose McDonald's to risks from cultural, regulatory, geopolitical, and economic differences, including supply chain disruptions, franchisee issues, labor challenges, and IT system failures - The global scope of operations exposes the company to risks from cultural, regulatory, geopolitical, and economic environment differences, such as the war in Ukraine leading to volatile regional conditions, macroeconomic deterioration, supply chain pressures, and increased commodity costs[108](index=108&type=chunk) - Supply chain disruptions could increase costs or reduce revenue, especially with limited suppliers for certain products, and disruptions may be caused by shortages, inflationary pressures, transportation issues, labor problems, or natural disasters[109](index=109&type=chunk) - The franchised business model carries risks, as success depends on the financial success and cooperation of franchisees, and declining sales or failure to implement significant initiatives could negatively impact the company's financial performance[110](index=110&type=chunk) - Labor challenges, including availability and cost, could affect business and operating results, such as difficulties in recruiting and retaining qualified employees and rising labor costs[110](index=110&type=chunk) - Food safety issues could adversely affect the business, as food contamination or foodborne illness incidents could harm the brand, reputation, and financial performance[110](index=110&type=chunk)[111](index=111&type=chunk) - Failure to effectively manage the real estate portfolio could negatively impact operating results, as real estate values and costs are influenced by various factors including government regulations, interest rates, and natural disasters[111](index=111&type=chunk) - Information technology system failures or disruptions, or cybersecurity breaches, could affect operations or cause reputational damage, including unauthorized access, phishing attacks, and viruses[111](index=111&type=chunk) [Legal and Regulatory](index=30&type=section&id=LEGAL%20AND%20REGULATORY) McDonald's faces increasing global legal and regulatory complexities, including compliance costs, litigation risks, tax changes, and accounting standard shifts, which could impact financial performance and brand perception - An increasingly complex global regulatory and legal environment could adversely affect the business and financial performance, including regulations on restaurant operations, product packaging, marketing, food safety, and nutritional content, as well as growing attention to ESG matters[112](index=112&type=chunk) - Changes in tax laws and unexpected tax liabilities could adversely affect the company's tax payments and profitability[113](index=113&type=chunk) - Changes in accounting standards or the recognition of impairment and other charges could adversely affect future operations and performance, particularly subjective estimates in long-lived asset impairment assessments[113](index=113&type=chunk) - Failure to comply with privacy and data protection laws could lead to legal actions and penalties, negatively impacting financial performance or brand perception[113](index=113&type=chunk) [Macroeconomic and Market Conditions](index=31&type=section&id=MACROECONOMIC%20AND%20MARKET%20CONDITIONS) Adverse macroeconomic conditions, including inflation, currency fluctuations, and pandemics, can negatively impact McDonald's business and financial performance, affecting operating costs, profitability, and stock price - Adverse macroeconomic conditions, including inflationary pressures, could adversely affect business and financial performance, impacting consumer disposable income and spending habits[114](index=114&type=chunk) - Health epidemics or pandemics (such as COVID-19) could adversely affect macroeconomic conditions, consumer behavior, labor availability, and supply chain management[114](index=114&type=chunk) - Changes in commodity and other operating costs, such as fluctuations in food, paper, fuel, utility, and labor costs, could adversely affect the profitability of company-operated restaurants[115](index=115&type=chunk) - A downgrade in credit ratings or increased financing costs could adversely affect profitability, leading to higher interest expense and worsened financing terms[116](index=116&type=chunk)[117](index=117&type=chunk) - The trading volatility and price of common stock could be affected by various factors, including global economic and market conditions, government actions, trading activity, share repurchase programs or dividend rates, and company actions[117](index=117&type=chunk) - Growing attention to ESG matters and events such as adverse weather conditions, natural disasters, hostilities, social unrest, and climate change could adversely affect performance and outlook[118](index=118&type=chunk) [Legal Proceedings](index=33&type=section&id=Legal%20Proceedings) [Legal Proceedings](index=33&type=section&id=Legal%20Proceedings) McDonald's faces diverse legal proceedings and claims across franchising, suppliers, employees, and regulations, which, while not expected to be materially adverse, could significantly impact net income - The company faces various legal proceedings and claims, covering multiple areas such as franchising, suppliers, employees, customers, intellectual property, and government regulations[119](index=119&type=chunk) - While the company does not believe these proceedings will have a material adverse effect on its financial condition or operating results, an unfavorable outcome could significantly impact net income[119](index=119&type=chunk) - The company is committed to complying with all applicable regulations but cannot predict the impact of future regulatory changes[125](index=125&type=chunk) [Franchising](index=33&type=section&id=Franchising) Disputes occasionally arise with current or former franchisees regarding quality, service, pricing, discrimination, overdue payments, and the granting or termination of franchises - Disputes occasionally arise with current or former franchisees, covering a wide range of issues such as quality, service, cleanliness, menu pricing, discrimination allegations, overdue rent and fees, and the granting, renewal, and termination of franchises[120](index=120&type=chunk) - Disputes may also arise regarding eligibility for franchise grants or the legal distinction between the company and its franchisees as employers[120](index=120&type=chunk) [Suppliers](index=33&type=section&id=Suppliers) The company relies on independent suppliers and occasionally faces disputes regarding product specification compliance, business relationships, or claims for supply opportunities - The company relies on numerous independent suppliers and requires them to meet high standards and specifications[121](index=121&type=chunk) - Disputes occasionally arise with current or former suppliers, for example, regarding compliance with product specifications or business relationships, and claims may also arise concerning opportunities to supply products or services[121](index=121&type=chunk) [Employees](index=33&type=section&id=Employees) The company employs hundreds of thousands and occasionally faces disputes related to hiring, termination, promotion, compensation, wage-hour issues, and discrimination claims - The company and its subsidiaries employ hundreds of thousands of individuals, with thousands more seeking employment[122](index=122&type=chunk) - In the ordinary course of business, disputes occasionally arise related to hiring, termination, promotion, and compensation practices, including wage and hour disputes, discrimination allegations, and compliance with labor and employment laws[122](index=122&type=chunk) [Customers](index=33&type=section&id=Customers) McDonald's serves a global public and occasionally faces disputes concerning products, services, pricing, advertising, disclosures, and other restaurant-related matters - McDonald's restaurants serve a broad global public, and disputes occasionally arise related to products, services, incidents, pricing, advertising, disclosures (including nutritional information), and other matters associated with the broad restaurant business[123](index=123&type=chunk) [Intellectual Property](index=33&type=section&id=Intellectual%20Property) The company owns critical registered trademarks, service marks, patents, and copyrights, and may engage in litigation to protect its IP and defend against infringement claims - The company owns registered trademarks, service marks, patents, and copyrights, some of which are critical to its business[124](index=124&type=chunk) - The company may from time to time be involved in litigation to protect its intellectual property and defend against allegations of intellectual property infringement by third parties[124](index=124&type=chunk) [Government Regulations](index=33&type=section&id=Government%20Regulations) Governments worldwide regulate various aspects of the restaurant business, and the company occasionally faces litigation related to these, with unpredictable impacts from future regulations - Governments worldwide have enacted laws and regulations covering various aspects of the restaurant business, including advertising, franchising, health, safety, environment, competition, zoning, employment, and taxes[125](index=125&type=chunk) - The company occasionally becomes involved in litigation or other proceedings related to these matters, but cannot predict the impact of these matters or the enactment of any additional requirements on operations[125](index=125&type=chunk) [Properties](index=33&type=section&id=Properties) [Properties](index=33&type=section&id=Properties) McDonald's primarily owns and leases restaurant-related real estate, identifying high-potential locations through data analysis, and controls development costs via efficiency and standardization - The company primarily owns and leases real estate related to its restaurant business, identifying locations with long-term sales and profit potential by analyzing traffic patterns, census data, and other factors[126](index=126&type=chunk) - The company typically owns or long-term leases the land and buildings for conventional franchised and company-operated restaurants to ensure long-term tenure and control related costs[126](index=126&type=chunk) - The company controls average development costs through construction and design efficiencies, standardization, and a global purchasing network[126](index=126&type=chunk) [Information About our Executive Officers](index=34&type=section&id=Information%20About%20our%20Executive%20Officers) [Information About our Executive Officers](index=34&type=section&id=Information%20About%20our%20Executive%20Officers) This section lists McDonald's executive officers as of the report's filing date, including their names, ages, current positions, and prior company or external experience - This section lists McDonald's executive officers as of the report's filing date, including their names, ages, current positions, and prior experience within the company or external organizations[127](index=127&type=chunk) [Availability of Company Information](index=35&type=section&id=Availability%20of%20Company%20Information) [Availability of Company Information](index=35&type=section&id=Availability%20of%20Company%20Information) McDonald's, as an SEC-reporting company, provides periodic reports on www.sec.gov and offers annual, quarterly, and current reports, plus governance documents, free on its investor website - The company files periodic reports, proxy statements, and other information with the SEC, which are available on the SEC's website at www.sec.gov[128](index=128&type=chunk) - The company makes its annual reports, quarterly reports, current reports, and amendments thereto available free of charge on its investor website at www.investor.mcdonalds.com[128](index=128&type=chunk) - The company also posts its Corporate Governance Principles, Board Committee Charters, and Code of Conduct on the "Corporate Governance" section of its investor website[128](index=128&type=chunk) [Financial Statements and Supplementary Data](index=35&type=section&id=Financial%20Statements%20and%20Supplementary%20Data) [Index to consolidated financial statements](index=35&type=section&id=Index%20to%20consolidated%20financial%20statements) This section provides an index to McDonald's consolidated financial statements, including the income statement, comprehensive income, balance sheet, cash flows, and shareholders' equity - This section provides an index to McDonald's Corporation's consolidated financial statements, including the Consolidated Statement of Income, Consolidated Statement of Comprehensive Income, Consolidated Balance Sheet, Consolidated Statement of Cash Flows, Consolidated Statement of Shareholders' Equity, and Notes to Consolidated Financial Statements[129](index=129&type=chunk) [Consolidated Statement of Income](index=36&type=section&id=Consolidated%20Statement%20of%20Income) In 2022, McDonald's total revenue was $23.18 billion (flat), with company-operated sales down 11% and franchise revenue up 8%, leading to a 10% drop in operating income and 18% in net income Consolidated Statement of Income (2020-2022) | Metric (Millions of dollars, except per share data) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Company-operated restaurant sales | 8,748.4 | 9,787.4 | 8,139.2 | | Franchised restaurant revenues | 14,105.8 | 13,085.4 | 10,726.1 | | Other revenues | 328.4 | 350.1 | 342.5 | | **Total Revenues** | **23,182.6** | **23,222.9** | **19,207.8** | | Operating costs and expenses | 13,811.6 | 12,866.9 | 11,883.8 | | **Operating Income** | **9,371.0** | **10,356.0** | **7,324.0** | | Interest expense | 1,207.0 | 1,185.8 | 1,218.1 | | Nonoperating (income) expense, net | 338.6 | 42.3 | (34.8) | | Income before provision for income taxes | 7,825.4 | 9,127.9 | 6,140.7 | | Provision for income taxes | 1,648.0 | 1,582.7 | 1,410.2 | | **Net Income** | **6,177.4** | **7,545.2** | **4,730.5** | | Diluted earnings per share | 8.33 | 10.04 | 6.31 | | Dividends declared per share | 5.66 | 5.25 | 5.04 | [Consolidated Statement of Comprehensive Income](index=37&type=section&id=Consolidated%20Statement%20of%20Comprehensive%20Income) In 2022, McDonald's reported net income of $6.18 billion and comprehensive income of $6.26 billio

McDonald's Corporation (NYSE:MCD) Q4 2022 Earnings Conference Call January 31, 2023 8:30 AM ET Company Participants Mike Cieplak - IR Christopher J. Kempczinski - President and CEO Ian F. Borden - EVP and CFO Conference Call Participants David Palmer - Evercore ISI David Tarantino - Robert W. Baird Eric Gonzalez - KeyBanc Capital Markets Jeffrey Bernstein - Barclays Bank Brian Harbour - Morgan Stanley Lauren Silberman - Crédit Suisse Dennis Geiger - UBS Sara Senatore - Bank of America Securities Jon Tower - ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 1-5231 McDONALD'S CORPORATION (Exact Name of Registrant as Specified in Its Charter) Delaware 36-2361282 (State or Other Ju ...