MCDONALDS CORP Management’s Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

Overview

The Company franchises and operates McDonald's restaurants, which serve a
locally relevant menu of quality food and beverages in communities across 119
countries. Of the 40,344 McDonald's restaurants at March 31, 2022, 37,552, or
93%, were franchised.

The Company's reporting segments are aligned with its strategic priorities and
reflect how management reviews and evaluates operating performance. Significant
reportable segments include the United States ("U.S.") and International
Operated Markets. In addition, there is the International Developmental Licensed
Markets & Corporate segment, which includes markets in over 80 countries, as
well as Corporate activities.

McDonald's franchised restaurants are owned and operated under one of the
following structures - conventional franchise, developmental license or
affiliate. The optimal ownership structure for an individual restaurant, trading
area or market (country) is based on a variety of factors, including the
availability of individuals with entrepreneurial experience and financial
resources, as well as the local legal and regulatory environment in critical
areas such as property ownership and franchising. The business relationship
between McDonald's and its independent franchisees is supported by adhering to
standards and policies, including Global Brand Standards defined in 2021, and is
of fundamental importance to overall performance and to protecting the
McDonald's brand.

The Company is primarily a franchisor and believes franchising is paramount to
delivering great-tasting food, locally relevant customer experiences and driving
profitability. Franchising enables an individual to be their own employer and
maintain control over all employment related matters, marketing and pricing
decisions, while also benefiting from the strength of McDonald's global brand,
operating system and financial resources.

Directly operating McDonald's restaurants contributes significantly to the
Company's ability to act as a credible franchisor. One of the strengths of the
franchising model is that the expertise from operating Company-owned restaurants
allows McDonald's to improve the operations and success of all restaurants while
innovations from franchisees can be tested and, when viable, efficiently
implemented across relevant restaurants. Having Company-owned and operated
restaurants provides Company personnel with a venue for restaurant operations
training experience. In addition, in Company-owned and operated restaurants, and
in collaboration with franchisees, the Company is able to further develop and
refine operating standards, marketing concepts and product and pricing
strategies that will ultimately benefit McDonald's restaurants.

The Company's revenues consist of sales by Company-operated restaurants and fees
from restaurants operated by franchisees. Fees vary by type of site, amount of
Company investment, if any, and local business conditions. These fees, along
with occupancy and operating rights, are stipulated in franchise/license
agreements that generally have 20-year terms. The Company's Other revenues are
comprised of technology fees paid by franchisees, revenues from brand licensing
arrangements and third-party revenues for the Dynamic Yield business. As of
April 1, 2022, the Company completed the sale of Dynamic Yield and will no
longer record third-party revenues related to this business.


Conventional Franchise

Under a conventional franchise arrangement, the Company generally owns or
secures a long-term lease on the land and building for the restaurant location
and the franchisee pays for equipment, signs, seating and décor. The Company
believes that ownership of real estate, combined with the co-investment by
franchisees, enables us to achieve restaurant performance levels that are among
the highest in the industry.

Franchisees are responsible for reinvesting capital in their businesses over
time. In addition, to accelerate implementation of certain initiatives, the
Company may co-invest with franchisees to fund improvements to their restaurants
or operating systems. These investments, developed in collaboration with
franchisees, are designed to cater to consumer preferences, improve local
business performance and increase the value of the Company's brand through the
development of modernized, more attractive and higher revenue generating
restaurants.

The Company requires franchisees to meet rigorous standards and generally does
not work with passive investors. The business relationship with franchisees is
designed to facilitate consistency and high quality at all McDonald's
restaurants. Conventional franchisees contribute to the Company's revenue,
primarily through the payment of rent and royalties based upon a percent of
sales, with specified minimum rent payments, along with initial fees paid upon
the opening of a new restaurant or grant of a new franchise. 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.






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Developmental License or Affiliate

Under a developmental license or affiliate arrangement, licensees are
responsible for operating and managing their businesses, providing capital
(including the real estate interest) and developing and opening new restaurants.
The Company generally does not invest any capital under a developmental license
or affiliate arrangement, and it receives a royalty based on a percent of sales,
and generally receives initial fees upon the opening of a new restaurant or
grant of a new license.

While developmental license and affiliate arrangements are largely the same,
affiliate arrangements are used in a limited number of foreign markets
(primarily China and Japan) within the International Developmental Licensed
Markets segment as well as a limited number of individual restaurants within the
International Operated Markets segment, where the Company also has an equity
investment and records its share of net results in equity in earnings of
unconsolidated affiliates.

Impact of Russia-Ukraine Military Conflict

During the first quarter of 2022, McDonald's announced it was temporarily
suspending operations and closing restaurants in Russia and Ukraine. The
temporary closures were effective at the end of February in Ukraine and
mid-March in Russia. The Company is supporting its businesses in these markets
through the continuation of employee salaries and lease payments as well as
providing support to the Company's supply chain in the region. There will likely
be negative impacts on revenue and income as long as the military conflict
continues. The Company is monitoring the evolving situation, analyzing options
and expects to provide direction no later than the end of the second quarter.


Impact of COVID-19 Restrictions on the Business

COVID-19 resurgences continued to result in instances of government restrictions
on restaurant operating hours, limited dine-in capacity and, in some cases,
dining room closures, particularly in China.

Strategic Direction

In late 2020, the Company announced the Accelerating the Arches growth strategy
(the “Strategy”). The Strategy, which encompasses all aspects of McDonald’s
business as the leading global omni-channel restaurant brand, reflects a
refreshed purpose, values and growth pillars that build on the Company’s
competitive advantages.

Purpose, Mission and Values

Our values underpin our success and are at the very heart of our Strategy. The
Company embraces and prioritizes its role and commitments to the communities in
which it operates through our:

•Purpose to feed and foster communities;

•Mission to create delicious feel-good moments for everyone; and

•Core Values that define who we are and how we run our business.

Growth Pillars

The following growth pillars - MCD - are rooted in the Company's identity, build
on historic strengths and articulate areas of further opportunity. Under the
Strategy, the Company will:

•Maximize our Marketing by investing in new, culturally relevant approaches,
such as the Famous Orders platform, to effectively communicate the story of our
brand, food and purpose. This also includes enhancing digital capabilities that
provide a more personal connection with customers. The Company is committed to a
marketing strategy that highlights value at every tier of the menu, as
affordability remains a cornerstone of the McDonald's brand.

•Commit to the Core menu by tapping into customer demand for the familiar and
focusing on serving delicious burgers, chicken and coffee. The Company continues
to prioritize chicken and beef offerings, as we expect they represent the
largest growth opportunities. The Company recognizes there is significant
opportunity to expand its chicken offerings by leveraging line extensions of
customer favorites, such as the Crispy Chicken Sandwich that launched in the
U.S. in 2021 and the Chicken Big Mac and McSpicy limited time offerings that
were featured in several markets around the world in 2021 and 2022. The Company
is implementing a series of operational and formulation changes designed to
improve upon the great taste of our burgers. We also continue to see a
significant opportunity with coffee, and markets are leveraging the McCafé
brand, experience, value and quality to drive long-term growth.

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•Double Down on the 3D's: Digital, Delivery and Drive Thru by leveraging
competitive strengths and building a powerful digital experience growth engine
to enhance the customer experience. To unlock further growth, the Company is
continuing to accelerate technology innovation so that, however customers choose
to interact with McDonald's, they can enjoy a fast, easy experience that meets
their needs. In the first quarter of 2022, digital channels (the mobile app,
delivery and kiosk) comprised more than 30% of Systemwide sales in our top six
markets, representing more than $5 billion of Systemwide sales and a nearly 60%
increase over the prior year:

•Digital: The Company's digital experience growth engine - "MyMcDonald's" - is
transforming its offerings across drive thru, takeaway, delivery, curbside
pick-up and dine-in with digital enhancements. Through the digital tools,
customers can access tailored offers, participate in a loyalty program, order
through the mobile app and receive McDonald's food through the channel of their
choice. The Company has successful loyalty programs in over 40 markets around
the world, including the U.S., France, Germany, Canada and Australia. The
Company expects the U.K. loyalty program to fully launch later this year,
completing the roll-out of loyalty programs across its top six markets.

•Delivery: The Company has continued to expand the number of restaurants
offering delivery to over 33,000, representing over 80% of McDonald's
restaurants. Delivery sales have grown significantly over the past few years,
and the Company is continuing to build on this progress and enhance the delivery
experience for customers by adding the ability to order on the McDonald's app.
This capability is now available in the U.K., and the Company plans to expand
this capability to the U.S., Canada and Australia in 2022. In addition to
existing long-term strategic partnerships with UberEats and DoorDash, the
Company entered a long-term strategic partnership with Just Eat Takeaway.com in
March 2022. These partnerships are expected to benefit the Company and its
customers and franchisees by optimizing operation efficiencies and creating a
seamless customer experience.

•Drive Thru: The Company has drive thru locations in over 25,000 restaurants
globally, including nearly 95% of the over 13,000 locations in the U.S. This
channel remains a competitive advantage, and we expect that it will become even
more critical to meet customers' demand for flexibility and choice. The Company
continues to build on its drive thru advantage, as the vast majority of new
restaurant openings in the U.S. and International Operated Markets segments will
include a drive thru.

Foundational to the Accelerating the Arches Strategy is keeping the customer and
restaurant crew at the center of everything we do, along with a relentless focus
on running great restaurants. The Company believes this Strategy builds on our
inherent strengths by harnessing our competitive advantages while leveraging our
size, scale and agility to adapt and adjust to uncertain operating environments
and meet consumer demands. The Company believes the employee experience is
critical to its success and, in 2022, implemented Global Brand Standards which
are designed to create a culture of safety for both employees and customers in
McDonald's restaurants around the world. These efforts, coupled with investment
in innovation, are designed to enhance the customer experience and deliver
long-term profitable growth, which is aligned with the Company's capital
allocation philosophy of investing in new restaurants and opportunities to grow
the business, reinvesting in existing restaurants, and returning all free cash
flow to shareholders over time through dividends and share repurchases.

First Quarter 2022 Financial Performance

Global comparable sales increased 11.8% for the quarter.

•U.S. comparable sales increased 3.5%. Comparable sales growth was driven by
strategic menu price increases, strong marketing promotions featuring the core
menu and growth in digital channels, which continued to benefit from the prior
year launch of the Company's loyalty program - "MyMcDonald's Rewards."

•International Operated Markets segment comparable sales increased 20.4%. Strong
operating performance and the continued reduction of COVID-related government
restrictions in most markets drove positive comparable sales across the segment,
led by strong comparable sales in France and the U.K.

•International Developmental Licensed Markets segment comparable sales increased
14.7%. The quarter reflected strong comparable sales driven by Japan and Brazil,
partly offset by negative comparable sales in China due to continued COVID-19
resurgences and related government restrictions.


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

•Consolidated revenues increased 11% (14% in constant currencies).

•Systemwide sales increased 10% (14% in constant currencies).

•Consolidated operating income increased 1% (3% in constant currencies). The
Company temporarily suspended operations during the quarter in Russia and
Ukraine as a result of the military conflict in the region. Results included $27
million of costs
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related to the continuation of employee salaries, lease and supplier payments,
as well as $100 million of costs for inventory in the Company's supply chain
that likely will be disposed of due to restaurants being temporarily closed.
Excluding these current year costs and prior year strategic gains of $135
million, primarily related to the sale of McDonald'sJapan stock, consolidated
operating income increased 14% (18% in constant currencies).

•Diluted earnings per share was $1.48, a decrease of 28% (27% in constant
currencies). Excluding the costs to support the Company's businesses in Russia
and Ukraine of $0.13 per share, as well as a nonoperating expense to reserve for
a potential settlement related to an international tax matter of $0.67 per share
for the quarter 2022, diluted earnings per share for the quarter was $2.28, an
increase of 19% (22% in constant currencies) when also excluding strategic gains
of $0.13 per share for the quarter 2021.

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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The Following Definitions Apply to these Terms as Used Throughout this Form
10-Q:

•Constant currency results exclude the effects of foreign currency translation
and are calculated by translating current year results at prior year average
exchange rates. 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.

•Comparable sales are compared to the same period in the prior year and
represent sales at all restaurants, whether operated by the Company or by
franchisees, in operation at least thirteen months including those temporarily
closed. Some of the reasons restaurants may be temporarily closed include
reimaging or remodeling, rebuilding, road construction, natural disasters and
acts of war, terrorism or other hostilities (including restaurants temporarily
closed due to COVID-19, as well as those in Russia and Ukraine). Comparable
sales exclude the impact of currency translation and the sales of any market
considered hyper-inflationary (generally identified as those markets whose
cumulative inflation rate over a three-year period exceeds 100%), which
management believes more accurately reflects the underlying business trends.
Comparable sales are driven by changes in guest counts and average check, the
latter of which is affected by changes in pricing and product mix.

•Systemwide sales include sales at all restaurants, whether operated by the
Company or by franchisees. This includes sales from digital channels, which are
comprised of the mobile app, delivery and kiosk at both Company-operated and
franchised restaurants. While franchised sales are not recorded as revenues by
the Company, management believes the information is important in understanding
the Company's financial performance because these sales are the basis on which
the Company calculates and records franchised revenues and are indicative of the
financial health of the franchisee base. The Company's revenues consist of sales
by Company-operated restaurants and fees from franchised restaurants operated by
conventional franchisees, developmental licensees and affiliates. Changes in
Systemwide sales are primarily driven by comparable sales and net restaurant
unit expansion.

•Free cash flow, defined as cash provided by operations less capital
expenditures, and free cash flow conversion rate, defined as free cash flow
divided by net income, are measures reviewed by management in order to evaluate
the Company's ability to convert net profits into cash resources, after
reinvesting in the core business, that can be used to pursue opportunities to
enhance shareholder value.
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CONSOLIDATED OPERATING RESULTS

                                                       Quarter Ended
Dollars in millions, except per share data             March 31, 2022
                                                                    Increase/
                                                         Amount     (Decrease)
Revenues
Sales by Company-operated restaurants               $ 2,302.4              7  %
Revenues from franchised restaurants                  3,262.8             13
Other revenues                                          100.4             17
Total revenues                                        5,665.6             11
Operating costs and expenses
Company-operated restaurant expenses                  1,959.2              8
Franchised restaurants-occupancy expenses               584.0              2
Other restaurant expenses                                72.3              8
Selling, general & administrative expenses
Depreciation and amortization                            92.7             

22

Other                                                   584.3             

19

Other operating (income) expense, net                    60.5               

n/m

Total operating costs and expenses                    3,353.0             18
Operating income                                      2,312.6              1
Interest expense                                        287.3             (4)
Nonoperating (income) expense, net                      484.1               

n/m

Income before provision for income taxes              1,541.2            (21)
Provision for income taxes                              436.8              5
Net income                                          $ 1,104.4            (28) %
Earnings per common share-basic                     $    1.49            (28) %
Earnings per common share-diluted                   $    1.48            (28) %


n/m Not meaningful
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Impact of Foreign Currency Translation

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. Results excluding the effect of foreign currency
translation (referred to as constant currency) are calculated by translating
current year results at prior year average exchange rates.

IMPACT OF FOREIGN CURRENCY TRANSLATION
Dollars in millions, except per share data
                                                                                             Currency
                                                                                          Translation
                                                                                      Benefit/ (Cost)
Quarters Ended March 31,                               2022              2021                    2022
Revenues                                        $ 5,665.6$ 5,124.6$ (201.9)
Company-operated margins                            343.2             343.9                   (15.9)
Franchised margins                                2,678.8           2,305.9                   (73.6)
Selling, general & administrative expenses          677.0             566.4                     8.4
Operating income                                  2,312.6           2,281.3                   (35.4)
Net income                                        1,104.4           1,537.2                   (13.4)
Earnings per share-diluted                      $    1.48$    2.05$  (0.02)

•The impact of foreign currency translation on consolidated operating results
for the quarter primarily reflected the weakening of the Euro, Australian
Dollar, British Pound and Russian Ruble.

Net Income and Diluted Earnings per Share

For the quarter, net income decreased 28% (27% in constant currencies) to
$1,104.4 million, and diluted earnings per share decreased 28% (27% in constant
currencies) to $1.48. Foreign currency translation had a negative impact of
$0.02 on diluted earnings per share.

Results for 2022 included the following:

•$127 million, or $0.13 per share, of pre-tax operating expenses incurred to
support the Company's businesses in Russia and Ukraine. Included in this amount
were $27 million related to the continuation of employee salaries, lease and
supplier payments as well as $100 million for inventory in the Company's supply
chain that likely will be disposed of due to restaurants being temporarily
closed

•$500 million, or $0.67 per share, of nonoperating expense to reserve for a
potential settlement related to an international tax matter

Results for 2021 included the following:

•$135 million of pre-tax strategic gains, or $0.13 per share, primarily related
to the sale of McDonald’sJapan stock

NET INCOME AND EARNINGS PER SHARE-DILUTED RECONCILIATION

                                                                                                           Quarters Ended March 31,
                                                                     Net Income                                                                      

Earnings per share – diluted

                                                                                                        Inc/ (Dec)                                                                         Inc/ (Dec)
                                                                                                         Excluding                                                                          Excluding
                                                                                                          Currency                                                                           Currency
                                           2022               2021           Inc/ (Dec)                Translation                     2022            2021           Inc/ (Dec)          Translation
GAAP                               $ 1,104.4$ 1,537.2               (28)      %                (27)      %            $   1.48$ 2.05               (28)      %          (27)      %
Strategic (gains)/charges              102.1              (98.9)                                                                    0.13           (0.13)
Settlement reserve                     500.0                  -                                                                     0.67               -
Non-GAAP                           $ 1,706.5$ 1,438.3                19       %                 22       %            $   2.28$ 1.92                19       %           22       %



Excluding strategic charges and gains and a nonoperating expense to reserve for
a potential settlement related to an international tax matter, net income and
diluted earnings per share for the quarter each increased 19% (22% in constant
currencies).

During the quarter, the Company repurchased 6.2 million shares of stock for $1.5
billion. Additionally, the Company paid a quarterly dividend of $1.38 per share,
or $1.0 billion.


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Revenues

The Company's revenues consist of sales by Company-operated restaurants and fees
from restaurants operated by franchisees, developmental licensees and
affiliates. Revenues from conventional franchised restaurants include rent and
royalties based on a percent of sales with minimum rent payments, and initial
fees. Revenues from restaurants licensed to developmental licensees and
affiliates include a royalty based on a percent of sales, and generally include
initial fees. The Company's Other revenues are comprised of fees paid by
franchisees to recover a portion of costs incurred by the Company for various
technology platforms, revenues from brand licensing arrangements to market and
sell consumer packaged goods using the McDonald's brand, and third-party
revenues for the Dynamic Yield business.

Franchised restaurants represented 93% of McDonald's restaurants worldwide at
March 31, 2022. 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.


REVENUES
Dollars in millions
                                                                                                                  Inc/ (Dec)
                                                                                                                   Excluding
                                                                                                                   Currency
Quarters Ended March 31,                                     2022               2021         Inc/ (Dec)           Translation
Company-operated sales
U.S.                                                     $   639.0$   618.3                   3  %                  3  %
International Operated Markets                             1,480.7            1,379.7                   7                    14

International Developmental Licensed Markets & Corporate 182.7

    163.5                  12                    21
Total                                                    $ 2,302.4$ 2,161.5                   7  %                 12  %
Franchised revenues
U.S.                                                     $ 1,493.5$ 1,420.5                   5  %                  5  %
International Operated Markets                             1,403.3            1,144.4                  23                    29

International Developmental Licensed Markets & Corporate 366.0

     312.5                  17                    21
Total                                                    $ 3,262.8$ 2,877.4                  13  %                 17  %

Total Company-operated sales and Franchised revenues
U.S.

                                                     $ 2,132.5$ 2,038.8                   5  %                  5  %
International Operated Markets                             2,884.0            2,524.1                  14                    21

International Developmental Licensed Markets & Corporate 548.7

    476.0                  15                    21
Total                                                    $ 5,565.2$ 5,038.9                  10  %                 14  %

Total Other revenues                                     $   100.4$    85.7                  17  %                 19  %

Total Revenues                                           $ 5,665.6$ 5,124.6                  11  %                 14  %


•Total Company-operated sales and franchised revenues increased 10% (14% in
constant currencies) for the quarter. Revenues in the quarter benefited from
strong sales performance across all segments and were driven by France and the
U.K. in the International Operated Markets segment. In the International
Developmental Licensed Markets segment, the quarter reflected strong sales
performance across all geographic regions, with China continuing to be impacted
by COVID-19 resurgences and related government restrictions.













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Comparable Sales

The following table presents the percent change in comparable sales for the
quarters ended March 31, 2022 and 2021:

                                                                                     Increase/(Decrease)
                                                                                   Quarters Ended March 31,
                                                                                                   2022            2021
U.S.                                                                                             3.5  %         13.6  %
International Operated Markets                                                                  20.4             0.6
International Developmental Licensed Markets & Corporate                                        14.7             6.4
Total                                                                                           11.8  %          7.5  %


Systemwide Sales and Franchised Sales

The following table presents the percent change in Systemwide sales for the
quarter ended March 31, 2022:

SYSTEMWIDE SALES*

Quarter Ended March 31, 2022

                                                                                                      Inc/ (Dec)
                                                                                                       Excluding
                                                                                                        Currency
                                                                           Inc/ (Dec)                Translation
U.S.                                                                             3  %                       3  %
International Operated Markets                                                  16                         23
International Developmental Licensed Markets & Corporate                        15                         19
Total                                                                           10  %                      14  %

* Unlike comparable sales, the Company has not excluded sales from
hyper-inflationary markets from Systemwide sales as these sales are the basis on
which the Company calculates and records revenues.


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):

FRANCHISED SALES
Dollars in millions
                                                                                                                              Inc/ (Dec)
                                                                                                                               Excluding
                                                                                                                                Currency
Quarters Ended March 31,                                   2022                2021                Inc/ (Dec)                Translation
U.S.                                              $ 10,429.1$ 10,089.8                         3  %                       3  %
International Operated Markets                       8,111.9             6,880.6                        18                         24
International Developmental Licensed
Markets & Corporate                                  6,946.7             6,048.0                        15                         19
Total                                             $ 25,487.7$ 23,018.4                        11  %                      14  %

Ownership type
Conventional franchised                           $ 18,443.3$ 16,907.6                         9  %                      12  %
Developmental licensed                               4,131.3             3,280.2                        26                         31
Foreign affiliated                                   2,913.1             2,830.6                         3                          7
Total                                             $ 25,487.7$ 23,018.4                        11  %                      14  %


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Restaurant Margins

Franchised restaurant margins are measured as revenues from franchised
restaurants less franchised restaurant occupancy costs. Franchised revenues
include rent and royalties based on a percent of sales, and initial fees.
Franchised restaurant occupancy costs include lease expense and depreciation, as
the Company generally owns or secures a long-term lease on the land and building
for the restaurant location.

Company-operated restaurant margins are measured as sales from Company-operated
restaurants less costs for food & paper,
payroll & employee benefits and occupancy & other operating expenses necessary
to run an individual restaurant. Company-operated
margins exclude costs that are not allocated to individual restaurants,
primarily payroll & employee benefit costs of non-restaurant support staff,
which are included in selling, general and administrative expenses.

RESTAURANT MARGINS
Dollars in millions
                                                                                                                     Inc/ (Dec)
                                                                    Amount                                            Excluding
                                                                                                                       Currency
Quarters Ended March 31,                                                    2022          Inc/ (Dec)    2021        Translation
Franchised
U.S.                                                                $ 1,192.5$  1,131.1                          5  %                5  %
International Operated Markets                                        1,125.7               868.6                         30                  37
International Developmental Licensed Markets &
Corporate                                                               360.6               306.2                         18                  21
Total                                                               $ 2,678.8$  2,305.9                         16  %               19  %
Company-operated
U.S.                                                                $    98.3$    125.1                        (21) %              (21) %
International Operated Markets                                          241.2               218.0                         11                  18
International Developmental Licensed Markets &
Corporate                                                                    n/m                 n/m                        n/m                 n/m
Total                                                               $   343.2$    343.9                          -  %                4  %
Total restaurant margins
U.S.                                                                $ 1,290.8$  1,256.2                          3  %                3  %
International Operated Markets                                        1,366.9             1,086.6                         26                  33
International Developmental Licensed Markets &
Corporate                                                                    n/m                 n/m                        n/m                 n/m
Total                                                               $ 3,022.0$  2,649.8                         14  %               17  %


n/m Not meaningful

•Total restaurant margins increased $372.2 million, or 14% (17% in constant
currencies), for the quarter, reflecting strong sales performance across all
segments. Franchised margins represented nearly 90% of restaurant margin dollars
for the quarter.

•U.S. franchised margins for the quarter reflected higher depreciation costs
related to investments in restaurant modernization.

•U.S. Company-operated margins for the quarter reflected positive sales
performance, which was more than offset by significant inflationary impacts on
labor and commodities.

•Total restaurant margins included $385.8 million of depreciation and
amortization expense for the quarter.

Selling, General & Administrative Expenses

•Selling, general and administrative expenses increased $110.6 million, or 20%
(21% in constant currencies), for the quarter, primarily reflecting costs
related to the Company's 2022 Worldwide Owner/Operator Convention, higher
long-term incentive-based compensation expense and higher costs for investments
in restaurant technology.

•Selling, general and administrative expenses as a percent of Systemwide sales
was 2.4% and 2.2% for the quarters ended 2022 and 2021, respectively.




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Other Operating (Income) Expense, Net

OTHER OPERATING (INCOME) EXPENSE, NET
Dollars in millions

                                                          Quarters Ended
                                                            March 31,
                                                          2022          2021
Gains on sales of restaurant businesses               $ (5.8)$  (17.6)

Equity in earnings of unconsolidated affiliates (31.3) (35.1)
Asset dispositions and other (income) expense, net (29.5) 8.5
Impairment and other strategic charges (gains), net 127.1 (135.2)
Total

                                                 $ 60.5$ (179.4)

•Gains on sales of restaurant businesses decreased for the quarter primarily due
to lower gains in the U.S.

•Equity in earnings of unconsolidated affiliates decreased for the quarter due
to lower equity in earnings in Japan as a result of the Company's reduced
ownership in McDonald'sJapan when compared to the same period in 2021 as well
as the impact of continued COVID-19 resurgences and related government
restrictions on operating performance in China.

•Asset dispositions and other (income) expense, net for the quarter reflected
the increase to fair value of an existing restaurant joint venture in connection
with the buyout of a joint venture partner within the International Operated
Markets segment.

•Impairment and other strategic charges (gains), net for the quarter reflected
$127 million of pre-tax operating expenses incurred to support the Company's
businesses in Russia and Ukraine. Included in this amount were $27 million
related to the continuation of employee salaries, lease and supplier payments,
as well as $100 million for inventory in the Company's supply chain that likely
will be disposed of due to restaurants being temporarily closed.

Results for the quarter 2021 reflected $135 million of pre-tax strategic gains,
primarily related to the sale of McDonald’sJapan stock.

Operating Income

OPERATING INCOME & OPERATING MARGIN
Dollars in millions
                                                                                                                         Inc/ (Dec)
                                                                                                                          Excluding
                                                                                                                           Currency
Quarters Ended March 31,                                 2022               2021               Inc/ (Dec)               Translation
U.S.                                             $ 1,151.0$ 1,125.5                        2  %                      2  %
International Operated Markets                     1,129.2              953.8                       18                        21
International Developmental Licensed Markets &
Corporate                                             32.4              202.0                      (84)                      (78)
Total                                            $ 2,312.6$ 2,281.3                        1  %                      3  %

Operating margin                                      40.8  %            44.5  %
Non-GAAP operating margin                             43.1  %            41.9  %



•Operating Income: Operating income increased $31.3 million, or 1% (3% in
constant currencies), for the quarter. Results for the quarter 2022 reflected
$127 million of costs incurred to support the Company's businesses in Russia and
Ukraine. Results for the quarter 2021 included $135 million of pre-tax strategic
gains, primarily related to the sale of McDonald'sJapan stock. Excluding
current and prior year strategic charges and gains, operating income increased
14% (18% in constant currencies).

•U.S.: The operating income increase for the quarter was driven by strong sales
performance, partly offset by higher selling, general and administrative costs.

•International Operated Markets: The operating income increase for the quarter
was driven by strong sales performance, primarily in France and the U.K.

•International Developmental Licensed Markets & Corporate: Excluding prior year
strategic gains, the operating income increase for the quarter was driven by
strong sales performance, primarily in Japan and Brazil, partly offset by higher
Corporate selling, general and administrative expenses.
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•Operating Margin: Operating margin is defined as operating income as a percent
of total revenues. The contributions to operating margin differ by segment due
to each segment's ownership structure, primarily due to the relative percentage
of franchised versus Company-operated restaurants. Additionally, temporary
restaurant closures, which vary by segment, impact the contribution of each
segment to the consolidated operating margin.

Excluding costs incurred to support the Company's businesses in Russia and
Ukraine and prior year strategic gains, the increase in operating margin percent
for the quarter was due to strong sales-driven restaurant margin growth, partly
offset by higher Corporate selling, general and administrative expenses.


Interest Expense

•Interest expense decreased 4% (3% in constant currencies) for the quarter
primarily due to lower average debt balances.

Nonoperating (Income) Expense, Net

NONOPERATING (INCOME) EXPENSE, NET
Dollars in millions
                                            Quarters Ended
                                              March 31,
                                              2022        2021
Interest income                         $   (2.6)$ (1.8)
Foreign currency and hedging activity      (11.3)       20.3
Other expense, net                         498.0        10.1
Total                                   $  484.1$ 28.6

•Other expense, net included $500 million of nonoperating expense to reserve for
a potential settlement related to an international tax matter.

Income Taxes

•The effective income tax rate was 28.3% and 21.3% for the quarters ended 2022
and 2021, respectively.

•Excluding the impacts of the $500 million of nonoperating expense to reserve
for a potential settlement related to an international tax matter, and current
and prior year strategic gains and charges, the effective income tax rate was
21.3% and 20.9% for the quarters ended 2022 and 2021, respectively.

Cash Flows

The Company has a long history of generating significant cash from operations
and has substantial credit capacity to fund operating and discretionary spending
such as capital expenditures, debt repayments, dividends and share repurchases.

Cash provided by operations totaled $2.1 billion and exceeded capital
expenditures by $1.7 billion for the first quarter 2022. Cash provided by
operations was flat compared with the first quarter 2021, as lower net income
was offset by changes in working capital.

Cash used for investing activities totaled $554.5 million for the first quarter
2022, an increase of $309.9 million compared with the first quarter 2021. The
first quarter 2021 reflects proceeds received from the sale of McDonald'sJapan
stock.

Cash used for financing activities totaled $3.8 billion for the first quarter
2022, an increase of $1.6 billion compared with the first quarter 2021. The
increase is primarily due to higher share repurchases in 2022.








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Outlook


The military conflict between Russia and Ukraine has led to economic and
political uncertainty globally. The below information is provided to assist in
forecasting the Company's results for 2022, and the Company plans to provide
updates as situations warrant.

•The Company expects net restaurant unit expansion will contribute about 1.5% to
2022 Systemwide sales growth, in constant currencies.

•The Company expects full year 2022 selling, general and administrative expenses
of about 2.3% of Systemwide sales.

•The Company expects 2022 operating margin percent to be in the low-to-mid 40%
range.

•Based on current interest and foreign currency exchange rates, the Company
expects interest expense for the full year 2022 to be relatively flat to 2021.

•The Company expects the effective income tax rate for the full year 2022 to be
in the 20% to 22% range. Some volatility may result in a quarterly tax rate
outside of the annual range.

•The Company expects 2022 capital expenditures to be approximately $2.2 to $2.4
billion, about half of which will be directed towards new restaurant unit
expansion across the U.S. and International Operated Markets. Over 40% will be
dedicated to the U.S. business, most of which will go towards reinvestment,
including the completion of restaurant modernization efforts. Globally, the
Company expects to open approximately 1,700 to 1,800 restaurants. The Company
will open approximately 400 to 500 restaurants in the U.S. and International
Operated Markets segments, and developmental licensees and affiliates will
contribute capital towards over 1,300 restaurant openings in their respective
markets. The Company expects approximately 1,300 to 1,400 net restaurant
additions in 2022.

•The Company expects to achieve a free cash flow conversion rate greater than
90%.

Recent Accounting Pronouncements

Recent accounting pronouncements are discussed in the “Recent Accounting
Pronouncements” section in Part I, Item 1 of this report.

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Cautionary Statement Regarding Forward-Looking Statements

The information in this report contains forward-looking statements about future
events and circumstances and their effects upon revenues, expenses and business
opportunities. Generally speaking, any statement in this report not based upon
historical fact is a forward- looking statement. Forward-looking statements can
also be identified by the use of forward-looking or conditional words, such as
"could," "should," "can," "continue," "estimate," "forecast," "intend," "look,"
"may," "will," "expect," "believe," "anticipate," "plan," "remain," "confident"
and "commit" or similar expressions. In particular, statements regarding our
plans, strategies, prospects and expectations regarding our business and
industry are forward-looking statements. They reflect our expectations, are not
guarantees of performance and speak only as of the dates the statements are
made. Except as required by law, we do not undertake to update such
forward-looking statements. You should not rely unduly on forward-looking
statements.

Risk Factors

Our business results are subject to a variety of risks, including those that are
described below and elsewhere in our filings with the SEC. The risks described
below are not the only risks we face. Additional risks not currently known to us
or that we currently deem to be immaterial may also materially adversely affect
our business. If any of these risks materialize or intensify, our expectations
(or the underlying assumptions) may change and our performance may be adversely
affected.

GLOBAL PANDEMIC

The COVID-19 pandemic has adversely affected and may continue to adversely
affect our financial results, condition and outlook.

Health epidemics or pandemics can adversely affect consumer spending and
confidence levels and supply availability and costs, as well as the local
operations in impacted markets, all of which can affect our financial results,
condition and outlook. Importantly, the global pandemic resulting from COVID-19
has disrupted global health, economic and market conditions, consumer behavior
and McDonald's global restaurant operations since early 2020, and has resulted
in increased pressure on labor availability and supply chain management. Local
and national governmental mandates or recommendations and public perceptions of
the risks associated with the COVID-19 pandemic have caused, and may continue to
cause, consumer behavior to change, worsening or volatile economic conditions in
certain markets, and increased regulatory complexity and compliance costs, each
of which could continue to adversely affect our business. In addition, our
global operations have been disrupted to varying degrees in different markets
and may continue to be disrupted to varying degrees given the unpredictability
of the virus, its resurgences and variants and government responses thereto as
well as potentially permanent changes to the industry in which we operate. While
we cannot predict the duration or scope of the COVID-19 pandemic, the resurgence
of infections or the emergence of new variants in one or more markets, the
availability, acceptance or effectiveness of vaccines or vaccination rates
across the globe, the pandemic has negatively impacted our business and may
continue to negatively impact our financial results, condition and outlook in a
way that may be material.

The COVID-19 pandemic may also heighten other risks disclosed in these Risk
Factors, including, but not limited to, those related to labor availability and
costs, supply chain interruptions, commodity costs, consumer behavior, consumer
perceptions of our brand and competition.

STRATEGY AND BRAND

If we do not successfully evolve and execute against our business strategies,
including the Accelerating the Arches strategy, we may not be able to drive
business growth.

To drive Systemwide sales, operating income and free cash flow growth, our
business strategies must be effective in maintaining and strengthening customer
appeal and capturing additional market share. Whether these strategies are
successful depends mainly on our System’s ability to:

•capitalize on our global scale, iconic brand and local market presence to build
upon our historic strengths and competitive advantages, such as our marketing,
core menu items and digital, delivery and drive thru;

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

•accelerate technology investments for a fast and easy customer experience;

•continue to run great restaurants by driving efficiencies and expanding
capacities while continuing to prioritize health and safety;

•identify and develop restaurant sites consistent with our plans for net growth
of Systemwide restaurants;

•accelerate our existing strategies, including through growth opportunities and
potential acquisitions, investments and partnerships; and

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•evolve and adjust our business strategies in response to, among other things,
changing consumer behavior, operational restrictions and impacts to our results
of operations and liquidity, including as a result of the COVID-19 pandemic.

If we are delayed or unsuccessful in executing our strategies, or if our
strategies do not yield the desired results, our business, financial condition
and results of operations may suffer.

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

To be successful in the future, we believe we must preserve, enhance and
leverage the value of our brand, including our corporate purpose, mission and
values. Brand value is based in part on consumer perceptions, which are affected
by a variety of factors, including the nutritional content and preparation of
our food, the ingredients we use, the manner in which we source commodities and
general business practices across the System, including the people practices at
McDonald's restaurants. Consumer acceptance of our offerings is subject to
change for a variety of reasons, and some changes can occur rapidly. For
example, nutritional, health, environmental and other scientific studies and
conclusions, which constantly evolve and may have contradictory implications,
drive popular opinion, litigation and regulation (including initiatives intended
to drive consumer behavior) in ways that affect the "informal eating out"
("IEO") segment or perceptions of our brand, generally or relative to available
alternatives. Our business could also be impacted by business incidents or
practices, whether actual or perceived, particularly if they receive
considerable publicity or result in litigation, as well as by our position or
perceived lack of position on environmental, social responsibility, public
policy, geopolitical and similar matters. Consumer perceptions may also be
affected by adverse commentary from third parties, including through social
media or conventional media outlets, regarding the quick-service category of the
IEO segment or our brand, culture, operations, suppliers or franchisees. If we
are unsuccessful in addressing adverse commentary or perceptions, whether or not
accurate, our brand and financial results may suffer.

If we do not anticipate and address evolving consumer preferences and
effectively execute our pricing, promotional and marketing plans, our business
could suffer.

Our continued success depends on our System's ability to build upon our historic
strengths and competitive advantages. In order to do so, we need to anticipate
and respond effectively to continuously shifting consumer demographics and
trends in food sourcing, food preparation, food offerings, and consumer behavior
and preferences, including with respect to the use of digital channels and
environmental and social responsibility matters, in the IEO segment. If we are
not able to predict, or quickly and effectively respond to, these changes, or if
our competitors predict or respond more effectively, our financial results could
be adversely impacted.

Our ability to build upon our strengths and advantages also depends on the
impact of pricing, promotional and marketing plans across the System, and the
ability to adjust these plans to respond quickly and effectively to evolving
customer behavior and preferences, as well as shifting economic and competitive
conditions. Existing or future pricing strategies and marketing plans, as well
as the value proposition they represent, are expected to continue to be
important components of our business strategy. However, they may not be
successful, or may not be as successful as the efforts of our competitors, which
could negatively impact sales, guest counts and market share.

Additionally, we operate in a complex and costly advertising environment. Our
marketing and advertising programs may not be successful in reaching our
customers in the way we intend. Our success depends in part on whether the
allocation of our advertising and marketing resources across different channels,
including digital marketing, allows us to reach our customers effectively,
efficiently and in ways that are meaningful to them. If our advertising and
marketing programs are not successful, or are not as successful as those of our
competitors, our sales, guest counts and market share could decrease.

Our investments to enhance the customer experience, including through
technology, may not generate the expected results.

Our long-term business objectives depend on the successful Systemwide execution
of our strategies. We continue to build upon our investments in technology and
modernization, digital engagement and delivery in order to transform the
customer experience. As part of these investments, we are continuing to place
emphasis on improving our service model and strengthening relationships with
customers, in part through digital channels and loyalty initiatives, mobile
ordering and payment systems, and enhancing our drive thru technologies, which
may not generate expected results. We also continue to offer and refine our
delivery initiatives, including through growing awareness and trial. Utilizing a
third-party delivery service may not have the same level of profitability as a
non-delivery transaction, and may introduce additional food quality, food safety
and customer satisfaction risks. If these customer experience initiatives are
not well executed, or if we do not fully realize the intended benefits of these
significant investments, our business results may suffer.

We face intense competition in our markets, which could hurt our business.

We compete primarily in the IEO segment, which is highly competitive. We also
face sustained, intense competition from traditional, fast casual and other
competitors, which may include many non-traditional market participants such as
convenience stores, grocery stores, coffee shops and online retailers. We expect
our environment to continue to be highly competitive, and our results in any
particular reporting period may be impacted by a contracting IEO segment or by
new or continuing actions, product offerings or consolidation of our competitors
and third-party partners, which may have a short- or long-term impact on our
results.
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We compete on the basis of product choice, quality, affordability, service and
location. In particular, we believe our ability to compete successfully in the
current market environment depends on our ability to improve existing products,
successfully develop and introduce new products, price our products
appropriately, deliver a relevant customer experience, manage the complexity of
our restaurant operations, manage our investments in technology and
modernization, and respond effectively to our competitors' actions or offerings
or to unforeseen disruptive actions. There can be no assurance these strategies
will be effective, and some strategies may be effective at improving some
metrics while adversely affecting other metrics, which could have the overall
effect of harming our business.

We may not be able to adequately protect our intellectual property or adequately
ensure that we are not infringing the intellectual property of others, which
could harm the value of the McDonald's brand and our business.

The success of our business depends on our continued ability to use our existing
trademarks and service marks in order to increase brand awareness and further
develop our branded products in both domestic and international markets. We rely
on a combination of trademarks, copyrights, service marks, trade secrets,
patents and other intellectual property rights to protect our brand and branded
products.

We have registered certain trademarks and have other trademark registrations
pending in the U.S. and certain foreign jurisdictions. The trademarks that we
currently use have not been registered in all of the countries outside of the
U.S. in which we do business or may do business in the future and may never be
registered in all of these countries. It may be costly and time consuming to
protect our intellectual property, and the steps we have taken to do so in the
U.S. and foreign countries may not be adequate. In addition, the steps we have
taken may not adequately ensure that we do not infringe the intellectual
property of others, and third parties may claim infringement by us in the
future. In particular, we may be involved in intellectual property claims,
including often aggressive or opportunistic attempts to enforce patents used in
information technology systems, which might affect our operations and results.
Any claim of infringement, whether or not it has merit, could be time-consuming,
result in costly litigation and harm our business.

We cannot ensure that franchisees and other third parties who hold licenses to
our intellectual property will not take actions that hurt the value of our
intellectual property.

OPERATIONS

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

We encounter differing cultural, regulatory, geopolitical and economic
environments within and among the more than 100 countries where McDonald's
restaurants operate, and our ability to achieve our business objectives depends
on the System's success in these environments. Meeting customer expectations is
complicated by the risks inherent in our global operating environment, and our
global success is partially dependent on our System's ability to leverage
operating successes across markets and brand perceptions. Planned initiatives
may not have appeal across multiple markets with McDonald's customers and could
drive unanticipated changes in customer perceptions and guest counts.

Disruptions in operations or price volatility in a market can also result from
governmental actions, such as price, foreign exchange or trade-related tariffs
or controls, trade policies and regulations, sanctions and counter sanctions,
government-mandated closure of our, our franchisees' or our suppliers'
operations, and asset seizures. Such disruptions or volatility can also result
from acts of war, terrorism or other hostilities. For example, in response to
the recent military conflict between Russia and Ukraine, we have paused our
operations in Russia and Ukraine and experienced increased pressure on our
supply chain and commodity costs, which we expect to impact our financial
results. The broader impacts of the conflict and related sanctions, including on
macroeconomic conditions, geopolitical tensions and consumer demand, may have an
adverse impact on our business and financial results. Our international success
depends in part on the effectiveness of our strategies and brand-building
initiatives to reduce our exposure to such actions and events.

Additionally, there are challenges and uncertainties associated with operating
in developing markets, which may entail a relatively higher risk of political
instability, economic volatility, crime, corruption and social and ethnic
unrest. In many cases, such challenges may be exacerbated by the lack of an
independent and experienced judiciary and uncertainty in how local law is
applied and enforced, including in areas most relevant to commercial
transactions and foreign investment. An inability to manage effectively the
risks associated with our international operations could have a material adverse
effect on our business and financial condition.

We may also face challenges and uncertainties in developed markets. For example,
the U.K.'s exit from the European Union has caused increased regulatory
complexities and uncertainty in European economic conditions and may also cause
uncertainty in worldwide economic conditions. The decision created volatility in
certain foreign currency exchange rates that may or may not continue, and may
result in increased supply chain costs for items that are imported from other
countries. Any of these effects, and others we cannot anticipate, could
adversely affect our business, results of operations, financial condition and
cash flows.
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Supply chain interruptions may increase costs or reduce revenues.

We depend on the effectiveness of our supply chain management to assure reliable
and sufficient supply of quality products on favorable terms. Although many of
the products we sell are sourced from a wide variety of suppliers in countries
around the world, certain products have limited suppliers, which may increase
our reliance on those suppliers. Supply chain interruptions and related price
increases can adversely affect us as well as our suppliers and franchisees,
whose performance may have a significant impact on our results. Such
interruptions and price increases could be caused by shortages, unexpected
increases in demand, transportation issues, labor issues, weather-related
events, natural disasters, acts of war, terrorism or other hostilities, or other
factors beyond the control of us or our suppliers or franchisees. If we
experience interruptions in our System's supply chain, or if contingency
planning is not effective, our costs could increase and/or the availability of
products critical to our System's operations could be limited.

Our franchise business model presents a number of risks.

Our success as a heavily franchised business relies to a large degree on the
financial success and cooperation of our franchisees, including our
developmental licensees and affiliates. Our restaurant margins arise from two
sources: fees from franchised restaurants (e.g., rent and royalties based on a
percentage of sales) and, to a lesser degree, sales from Company-operated
restaurants. Our franchisees and developmental licensees manage their businesses
independently and therefore are responsible for the day-to-day operation of
their restaurants. The revenues we realize from franchised restaurants are
largely dependent on the ability of our franchisees to grow their sales.
Business risks affecting our operations also affect our franchisees. In
particular, our franchisees have also been impacted by the COVID-19 pandemic and
the volatility associated with the pandemic. If franchisee sales trends worsen
or volatility persists, our financial results could be negatively affected,
which may be material.

Our success also relies on the willingness and ability of our independent
franchisees and affiliates to implement major initiatives, which may include
financial investment, and to remain aligned with us on operating,
value/promotional and capital-intensive reinvestment plans. The ability of
franchisees to contribute to the achievement of our plans is dependent in large
part on the availability to them of funding at reasonable interest rates and may
be negatively impacted by the financial markets in general, by their or our
creditworthiness or by banks' lending practices. If our franchisees are
unwilling or unable to invest in major initiatives or are unable to obtain
financing at commercially reasonable rates, or at all, our future growth and
results of operations could be adversely affected.

Our operating performance could also be negatively affected if our franchisees
experience food safety or other operational problems or project an image
inconsistent with our brand and values, particularly if our contractual and
other rights and remedies are limited, costly to exercise or subjected to
litigation and potential delays. If franchisees do not successfully operate
restaurants in a manner consistent with our required standards, our brand's
image and reputation could be harmed, which in turn could hurt our business and
operating results.

Our ownership mix also affects our results and financial condition. The decision
to own restaurants or to operate under franchise or license agreements is driven
by many factors whose interrelationship is complex. The benefits of our more
heavily franchised structure depend on various factors including whether we have
effectively selected franchisees, licensees and/or affiliates that meet our
rigorous standards, whether we are able to successfully integrate them into our
structure and whether their performance and the resulting ownership mix supports
our brand and financial objectives.

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

Our success depends in part on our System's ability to proactively recruit,
motivate and retain qualified individuals to work in McDonald's restaurants and
to maintain appropriately-staffed restaurants in an intensely competitive labor
market. We and our franchisees have experienced and may continue to experience
challenges in adequately staffing certain McDonald's restaurants, which can
negatively impact operations, including speed of service to customers, and
customer satisfaction levels. The System's ability to meet its labor needs is
generally subject to external factors, including the availability of sufficient
workforce, unemployment levels and prevailing wages in the markets in which we
operate.

Further, increased costs and competition associated with recruiting, motivating
and retaining qualified employees, as well as costs associated with promoting
awareness of the opportunities of working at McDonald's restaurants, could have
a negative impact on our Company-operated margins and our franchisees'
profitability.

We are also impacted by the costs and other effects of compliance with U.S. and
international regulations affecting our workforce, which includes our staff and
employees working in our Company-operated restaurants. These regulations are
increasingly focused on employment issues, including wage and hour, healthcare,
immigration, retirement and other employee benefits and workplace practices.
Claims of non-compliance with these regulations could result in liability and
expense to us. Our potential exposure to reputational and other harm regarding
our workplace practices or conditions or those of our independent franchisees or
suppliers, including those giving rise to claims of harassment or discrimination
(or perceptions thereof) or workplace safety, could have a negative impact on
consumer perceptions of us and our business. Additionally, economic action, such
as boycotts, protests, work stoppages or campaigns by labor organizations, could
adversely affect us (including our ability to recruit, motivate and retain
talent) or our franchisees and suppliers, whose performance may have a
significant impact on our results.
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Effective succession planning is important to our continued success.

Effective succession planning is important to our long-term success. Failure to
effectively identify, develop and retain key personnel, recruit high-quality
candidates and ensure smooth management and personnel transitions could disrupt
our business and adversely affect our results.

Food safety concerns may 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. Food safety is a top priority, and we dedicate substantial resources
to ensure that our customers enjoy safe food products, including as our menu and
service model evolve. 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. Instances of food tampering, food
contamination or food-borne illness, whether actual or perceived, could
adversely affect our brand and reputation, as well as our financial results.

If we do not effectively manage our real estate portfolio, our operating results
may be negatively impacted.

We have significant real estate operations, primarily in connection with our
restaurant business. We generally own or secure a long-term lease on the land
and building for conventional franchised and Company-operated restaurant sites.
We seek to identify and develop restaurant locations that offer convenience to
customers and long-term sales and profit potential. As we generally secure
long-term real estate interests for our restaurants, we have limited flexibility
to quickly alter our real estate portfolio. The competitive business landscape
continues to evolve in light of changing business trends, consumer preferences,
trade area demographics, consumer use of digital, delivery and drive thru, local
competitive positions and other economic factors. If our restaurants are not
located in desirable locations, or if we do not evolve in response to these
factors, it could adversely affect Systemwide sales and profitability.

Our real estate values and the costs associated with our real estate operations
are also impacted by a variety of other factors, including governmental
regulations, insurance, zoning, tax and eminent domain laws, interest rate
levels, the cost of financing, natural disasters, acts of war, terrorism or
other hostilities, or other factors beyond our control. A significant change in
real estate values, or an increase in costs as a result of any of these factors,
could adversely affect our operating results.

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,
technologies that support 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' experience and perceptions.

Security incidents or breaches have from time to time occurred and may in the
future occur involving our systems, the systems of the parties we communicate or
collaborate with (including franchisees) or the systems of third-party
providers. These may include such things as unauthorized access, phishing
attacks, account takeovers, denial of service, computer viruses, introduction of
malware or ransomware and other disruptive problems caused by hackers. Certain
of these technology systems contain personal, financial and other information of
our customers, employees, franchisees and their employees, business customers
and other third parties, as well as financial, proprietary and other
confidential information related to our business. Despite response procedures
and measures in place in the event of an incident, a security breach could
result in disruptions, shutdowns, or the theft or unauthorized disclosure of
such information. The actual or alleged occurrence of any of these incidents
could result in mitigation costs, reputational damage, adverse publicity, loss
of consumer confidence, reduced sales and profits, complications in executing
our growth initiatives and regulatory and legal risk, including criminal
penalties or civil liabilities.

Despite the implementation of security measures, any of these technology systems
could become vulnerable to damage, disability or failures due to theft, fire,
power loss, telecommunications failure or other catastrophic events. Certain
technology systems may also become vulnerable, unreliable or inefficient in
cases where technology vendors limit or terminate product support and
maintenance. Our increasing reliance on third-party systems also subjects us to
risks faced by those third-party businesses, including operational, security and
credit risks. If technology systems were to fail or otherwise be unavailable, or
if business continuity or disaster recovery plans were not effective, and we
were unable to recover in a timely manner, we could experience an interruption
in our or our franchisees' operations.
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LEGAL AND REGULATORY

Increasing regulatory and legal complexity may adversely affect our business and
financial results.

Our regulatory and legal environment worldwide exposes us to complex compliance,
litigation and similar risks that could affect our operations and results in
material ways. Many of our markets are subject to increasing, conflicting and
highly prescriptive regulations involving, among other matters, restaurant
operations, product packaging, marketing, the nutritional and allergen content
and safety of our food and other products, labeling and other disclosure
practices. Compliance efforts with those regulations may be affected by ordinary
variations in food preparation among our own restaurants and the need to rely on
the accuracy and completeness of information from third-party suppliers. We also
are subject to increasing public focus, including by governmental and
non-governmental organizations, on environmental, social responsibility and
corporate governance ("ESG") initiatives. Our success depends in part on our
ability to manage the impact of regulations and other initiatives that can
affect our business plans and operations, which have increased and may continue
to increase our costs of doing business and exposure to litigation, governmental
investigations or other proceedings.

We are also subject to legal proceedings that may adversely affect our business,
including class actions, administrative proceedings, government investigations
and proceedings, shareholder proceedings, employment and personal injury claims,
landlord/tenant disputes, supplier-related disputes, and claims by current or
former franchisees. Regardless of whether claims against us are valid or whether
we are found to be liable, claims may be expensive to defend and may divert
management's attention away from operations.

Litigation and regulatory action concerning our relationship with franchisees
and the legal distinction between our franchisees and us for employment law or
other purposes, if determined adversely, could increase costs, negatively impact
our business operations and the business prospects of our franchisees and
subject us to incremental liability for their actions. Similarly, although our
commercial relationships with our suppliers remain independent, there may be
attempts to challenge that independence, which, if determined adversely, could
also increase costs, negatively impact the business prospects of our suppliers,
and subject us to incremental liability for their actions.

Our results could also be affected by the following:

•the relative level of our defense costs, which vary from period to period
depending on the number, nature and procedural status of pending proceedings;

•the cost and other effects of settlements, judgments or consent decrees, which
may require us to make disclosures or take other actions that may affect
perceptions of our brand and products; and

•adverse results of pending or future litigation, including litigation
challenging the composition and preparation of our products, or the
appropriateness or accuracy of our marketing or other communication practices.

A judgment significantly in excess of any applicable insurance coverage or
third-party indemnity could materially adversely affect our financial condition
or results of operations. 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.

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

We are subject to income and other taxes in the U.S. and foreign jurisdictions,
and our operations, plans and results are affected by tax and other initiatives
around the world. In particular, we are affected by the impact of changes to tax
laws or policy or related authoritative interpretations. We are also impacted by
settlements of pending or any future adjustments proposed by taxing and
governmental authorities inside and outside of the U.S. in connection with our
tax audits, all of which will depend on their timing, nature and scope. Any
significant increases in income tax rates, changes in income tax laws or
unfavorable resolution of tax matters could have a material adverse impact on
our financial results.

Changes in accounting standards or the recognition of impairment or other
charges may adversely affect our future operations and results.

New accounting standards or changes in financial reporting requirements,
accounting principles or practices, including with respect to our critical
accounting estimates, could adversely affect our future results. We may also be
affected by the nature and timing of decisions about underperforming markets or
assets, including decisions that result in impairment or other charges that
reduce our earnings.

In assessing the recoverability of our long-lived assets, we consider changes in
economic conditions and make assumptions regarding estimated future cash flows
and other factors. These estimates are highly subjective and can be
significantly impacted by many factors such as global and local business and
economic conditions, operating costs, inflation, competition, consumer and
demographic trends and our restructuring activities. If our estimates or
underlying assumptions change in the future, we may be required to record
impairment charges. If we experience any such changes, they could have a
significant adverse effect on our reported results for the affected periods.
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If we fail to comply with privacy and data collection laws, we could be subject
to legal proceedings and penalties, which could negatively affect our financial
results or brand perceptions.

We are subject to legal and compliance risks and associated liability related to
privacy and data collection, protection and management as it relates to
information associated with our technology-related services and platforms made
available to business partners, customers, employees, franchisees or other third
parties. For example, the General Data Protection Regulation ("GDPR") requires
entities processing the personal data of individuals in the European Union to
meet certain requirements regarding the handling of that data. We are also
subject to U.S. federal and state and foreign laws and regulations in this area
such as the California Consumer Privacy Act ("CCPA"). These regulations have
been subject to frequent change, and there may be markets or jurisdictions that
propose or enact new or emerging data privacy requirements in the future.
Failure to comply with GDPR, CCPA or other privacy and data collection laws
could result in legal proceedings and substantial penalties and materially
adversely impact our financial results or brand perceptions.

MACROECONOMIC AND MARKET CONDITIONS

Unfavorable general economic conditions could adversely affect our business and
financial results.

Our results of operations are substantially affected by economic conditions,
including inflationary pressures, which can vary significantly by market and can
impact consumer disposable income levels and spending habits. Economic
conditions can also be impacted by a variety of factors including hostilities,
epidemics, pandemics and actions taken by governments to manage national and
international economic matters, whether through austerity, stimulus measures or
trade measures, and initiatives intended to control wages, unemployment, credit
availability, inflation, taxation and other economic drivers. Sustained adverse
economic conditions or periodic adverse changes in economic conditions in our
markets could pressure our operating performance and our business continuity
disruption planning, and our business and financial results may suffer.

Our results of operations are also affected by fluctuations in currency exchange
rates and unfavorable currency fluctuations could adversely affect reported
earnings.

Changes in commodity and other operating costs could adversely affect our
results of operations.

The profitability of our Company-operated restaurants depends in part on our
ability to anticipate and react to changes in commodity costs, including food,
paper, supplies, fuel, utilities, distribution and other operating costs,
including labor. Volatility in certain commodity prices and fluctuations in
labor costs have adversely affected and in the future could adversely affect our
operating results by impacting restaurant profitability. The commodity markets
for some of the ingredients we use, such as beef, chicken and pork, are
particularly volatile due to factors such as seasonal shifts, climate
conditions, industry demand and other macroeconomic conditions, international
commodity markets, food safety concerns, product recalls, government regulation,
and acts of war, terrorism or other hostilities, all of which are beyond our
control and, in many instances, unpredictable. Our System can only partially
address future price risk through hedging and other activities, and therefore
increases in commodity costs could have an adverse impact on our profitability.

A decrease in our credit ratings or an increase in our funding costs could
adversely affect our profitability.

Our credit ratings may be negatively affected by our results of operations or
changes in our debt levels. As a result, our interest expense, the availability
of acceptable counterparties, our ability to obtain funding on favorable terms,
our collateral requirements and our operating or financial flexibility could all
be negatively affected, especially if lenders impose new operating or financial
covenants.

Our operations may also be impacted by regulations affecting capital flows,
financial markets or financial institutions, which can limit our ability to
manage and deploy our liquidity or increase our funding costs. If any of these
events were to occur, they could have a material adverse effect on our business
and financial condition.

Trading volatility and the price of our common stock may be adversely affected
by many factors.

Many factors affect the volatility and price of our common stock in addition to
our operating results and prospects. The most important of these factors, some
of which are beyond our control, are the following:

•the unpredictable nature of global economic and market conditions;

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

•trading activity in our common stock, in derivative instruments with respect to
our common stock or in our debt securities, which can be affected by market
commentary (including commentary that may be unreliable or incomplete);
unauthorized disclosures about our performance, plans or expectations about our
business; our actual performance and creditworthiness; investor confidence,
driven in part by expectations about our performance; actions by shareholders
and others seeking to influence our business strategies; portfolio transactions
in our common stock by significant shareholders; or trading activity that
results from the ordinary course rebalancing of stock indices in which
McDonald's may be included, such as the S&P 500 Index and the Dow Jones
Industrial Average;
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•the impact of our stock repurchase program or dividend rate; and

•the impact on our results of corporate actions and market and third-party
perceptions and assessments of such actions, such as those we may take from time
to time as we implement our strategies, including through acquisitions, in light
of changing business, legal and tax considerations and evolve our corporate
structure.

Our business is subject to an increasing focus on ESG matters.

In recent years, there has been an increasing focus by stakeholders - including
employees, franchisees, customers, suppliers, governmental and non-governmental
organizations and investors - on ESG matters. A failure, whether real or
perceived, to address ESG matters or to achieve progress on our ESG initiatives
on the anticipated timing or at all, could adversely affect our business,
including by heightening other risks disclosed in these Risk Factors, such as
those related to consumer behavior, consumer perceptions of our brand, labor
availability and costs, supply chain interruptions, commodity costs, and legal
and regulatory complexity. Conversely, our taking a position, whether real or
perceived, on ESG, public policy, geopolitical and similar matters could
adversely impact our business.

The standards we set for ourselves regarding ESG matters, and our ability to
meet such standards, may also impact our business. For example, we are working
to manage risks and costs to our System related to climate change, greenhouse
gases, and diminishing energy and water resources, and we have announced
initiatives relating to, among other things, environmental sustainability,
responsible sourcing and increasing diverse representation across our System. We
may face increased scrutiny related to reporting on and achieving these
initiatives, as well as continued public focus on similar matters, such as
packaging and waste, animal health and welfare, deforestation and land use. We
may also face 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 ESG matters
requires Systemwide coordination and alignment, and the standards by which
certain ESG matters are measured are evolving and subject to assumptions that
could change over time.

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

Severe weather conditions, natural disasters, acts of war, terrorism or other
hostilities, social unrest or climate change (or expectations about them) can
adversely affect consumer behavior and confidence levels, supply availability
and costs and local operations in impacted markets, all of which can affect our
results and prospects. Climate change may also increase the frequency and
severity of such weather-related events and natural disasters. Our receipt of
proceeds under any insurance we maintain with respect to some of these risks may
be delayed or the proceeds may be insufficient to cover our losses fully.

© Edgar Online, source Glimpses

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