# MCDONALDS CORP (MCD) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from MCDONALDS CORP's 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/63908/000006390824000072/mcd-20231231.htm
Accession: 0000063908-24-000072
Filing date: 2024-02-22
Report date: 2023-12-31
Extracted from a later financial-section MD&A body after the formal Item 7 span was a short reference.
Confidence: high

Company profile: /company/MCD/
All MD&A years: /company/MCD/mda/
Previous year: /company/MCD/mda/fy2022/ (FY 2022)
Next year: /company/MCD/mda/fy2024/ (FY 2024)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

MANAGEMENT'S VIEW OF THE BUSINESS

In analyzing business trends, management reviews results on a constant currency basis and considers a variety of performance and financial measures, some of which are considered to be non-GAAP, including comparable sales and guest count growth, Systemwide sales growth, after-tax return on invested capital from continuing operations, free cash flow and free cash flow conversion rate, as described below. Management believes these measures are important in understanding the financial performance of the Company.

•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 charges and gains, as well as material regulatory and other income tax impacts, and bases incentive compensation plans on these results because the Company believes this better represents underlying business trends.

•Comparable sales and comparable guest counts are compared to the same period in the prior year and represent sales and transactions, respectively, at all restaurants, whether operated by the Company or by franchisees, in operation at least thirteen months including those temporarily closed. Some of the reasons restaurants may be temporarily closed include reimaging or remodeling, rebuilding, road construction, natural disasters, pandemics and acts of war, terrorism or other hostilities. Restaurants in Russia were treated as permanently closed as of April 1, 2022 and therefore excluded from the calculation of comparable sales and comparable guest counts beginning in the second quarter of 2022. Comparable sales exclude the impact of currency translation and the sales of any market considered hyperinflationary (generally identified as those markets whose cumulative inflation rate over a three-year period exceeds 100%), which management believes more accurately reflects the underlying business trends. Beginning in the first quarter of 2023, McDonald's excluded results from Argentina and Lebanon in the calculation of comparable sales due to hyperinflation (Venezuela continues to be excluded). Comparable sales are driven by changes in guest counts and average check, the latter of which is affected by changes in pricing and product mix.

•Systemwide sales include sales at all restaurants, whether operated by the Company or by franchisees. Systemwide sales to loyalty members is comprised of all sales to customers who self-identify as a loyalty member when transacting with both Company-operated and franchised restaurants. Systemwide sales to loyalty members are measured across approximately 50 markets with loyalty programs globally. Full year Systemwide sales to loyalty members represents an annual aggregation of quarterly sales to loyalty members active in the last 90 days. While franchised sales are not recorded as revenues by the Company, management believes the information is important in understanding the Company's financial performance because these sales are the basis on which the Company calculates and records franchised revenues and are indicative of the financial health of the franchisee base. The Company's revenues consist of sales by Company-operated restaurants and fees from franchised restaurants operated by conventional franchisees, developmental licensees and affiliates. Changes in Systemwide sales are primarily driven by comparable sales and net restaurant unit expansion.

•The Company’s after-tax return on invested capital ("ROIC") from continuing operations is a metric that management believes measures capital-allocation effectiveness over time. Other companies may calculate ROIC differently, limiting the usefulness of the measure for comparisons with other companies. Refer to the reconciliation in Exhibit 99.1 to this Form 10-K for further information on the Company's calculation of ROIC.

•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. Refer to the reconciliations in Exhibit 99.1 to this Form 10-K for further information on the Company's calculations of free cash flow and free cash flow conversion rate.

2023 FINANCIAL PERFORMANCE

In 2023, global comparable sales increased 9.0%, primarily due to strong sales performance across all segments from continued execution of the Accelerating the Arches strategy.

•Comparable sales in the U.S. increased 8.7%, benefiting primarily from strong average check growth driven by strategic menu price increases, successful menu and marketing promotions and continued digital and delivery growth.

•Comparable sales in the International Operated segment increased 9.2%, reflecting positive comparable sales across the segment, primarily driven by the U.K., Germany and Canada.

•Comparable sales in the International Developmental Licensed segment increased 9.4%, reflecting strong comparable sales across all geographic regions.

Earnings and cash flow growth rates presented below were impacted in 2023 by charges related to the company's Accelerating the Arches growth strategy, including restructuring costs associated with Accelerating the Organization, and charges related to the write-off of impaired

McDonald's Corporation 2023 Annual Report 8

software no longer in use. Additionally, 2022 results were impacted by charges from the sale of the Company's business in Russia, the settlement of a tax audit in France and a gain on the sale of the Company's Dynamic Yield business.

Current year and prior year charges and gains are detailed along with reconciliations to the non-GAAP measures in the Net Income and Diluted Earnings Per Share section on page 13 and Operating Income section on page 18 in this Form 10-K.

In addition to the comparable sales results above, the Company had the following financial results in 2023:

•Consolidated revenues increased 10% (10% in constant currencies) to $25.5 billion.

•Systemwide sales increased 10% (10% in constant currencies) to $129.5 billion.

•Consolidated operating income increased 24% (24% in constant currencies) to $11.6 billion.

•Operating margin, defined as operating income as a percent of total revenues, increased from 40% in 2022 to 46% in 2023.

•Diluted earnings per share of $11.56 increased 39% (38% in constant currencies).

•Cash provided by operations was $9.6 billion, a 30% increase from the prior year.

•Capital expenditures of $2.4 billion were allocated approximately 50% to each of reinvestment in existing restaurants and new restaurant openings.

•Free cash flow was $7.3 billion, a 32% increase from the prior year.

•Across the System, over 2,000 new restaurants (including those in our developmental licensee and affiliated markets) were opened.

•The Company increased its quarterly cash dividend per share by 10% to $1.67 for the fourth quarter, equivalent to an annual dividend of $6.68 per share. The Company returned a total of $7.6 billion to shareholders through dividends and share repurchases in 2023.

STRATEGIC DIRECTION

The Company’s Accelerating the Arches growth strategy (the “Strategy”) encompasses all aspects of McDonald’s business as the leading global omni-channel restaurant brand. The Strategy reflects our purpose, values and growth pillars that build on the Company’s competitive advantages. The Company's guiding purpose, mission and values are discussed in a dedicated section on page 4 of this Form 10-K.

GROWTH PILLARS

The following growth pillars, M-C-D, 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, grounded in fan truths, to effectively communicate the story of our brand, food and purpose. The Company continues to build relevance with customers through emotional connections and world class creative, which are central to the brand’s “Feel-Good Marketing” approach. This is exemplified by campaigns that elevate the entire brand and have been scaled around the globe to connect with customers in authentic and relatable ways. Another way McDonald’s connects with its customers is through personalized value and digital offers available on the McDonald’s mobile app. The Company is committed to a marketing strategy that highlights value at every tier of the menu, as affordability remains a cornerstone of the McDonald’s brand.

•Commit to the Core menu by tapping into customer demand for the familiar and focusing on serving our iconic products that are beloved by customers around the world such as our World Famous Fries, Big Mac, Quarter Pounder and Chicken McNuggets, which are a few of our seventeen unique billion-dollar brands. Building on its foundational strength with burgers, the Company will continue to evolve and innovate its longest-standing menu item with plans to implement “Best Burger”; a series of operational and formulation changes designed to deliver hotter, juicier, tastier burgers to nearly all markets by 2026. Further, the Company is focused on continuing to gain share in the rapidly growing chicken category, as the Company continues to aggressively expand its chicken brands. This includes plans to offer McCrispy in nearly all markets by the end of 2025 and to expand McCrispy into wraps and tenders in several markets. These planned innovations and new menu offerings reflect the Company’s ability to test and scale quickly to meet evolving customer preferences. The Company also continues to see a significant opportunity with coffee, demonstrated by markets leveraging the McCafé brand, customer experience, value and quality.

•Double Down on the 4D's: Digital, Delivery, Drive Thru and Restaurant Development by leveraging competitive strengths and building a powerful digital experience growth engine to deliver a personalized and convenient customer experience. To unlock further growth, the Company plans to continue to accelerate the pace of restaurant openings and technology innovation so that whenever and however customers choose to interact with McDonald’s, they can enjoy a fast, easy experience that meets their needs.

◦Digital: The Company’s digital experience is transforming how customers order, pay and receive their food. Through digital tools, customers can access personalized offers, participate in a loyalty program, order through the mobile app and receive McDonald's food through the channel of their choice. In the U.S., we are piloting “Ready on Arrival”; a digital enhancement that enables crew to begin assembling a customer’s mobile order prior to their arrival at the restaurant to expedite service and elevate customer satisfaction. The Company plans to deploy this initiative across its top six markets by the end of 2025. The Company has successful loyalty programs in approximately 50 markets around the world, including its top six markets. McDonald’s loyalty customers have proven to be highly engaged, and the Company plans to increase its 90-day active users from over 150 million today to 250 million by 2027. Further, the Company plans to grow its annual Systemwide sales to loyalty members from over $20 billion today to $45 billion by 2027.

◦Delivery: The Company offers delivery in over 35,000 restaurants across about 100 markets, representing over 85% of McDonald's restaurants. The Company is continuing to build on and enhance the delivery experience for customers, including adding the ability to place a delivery order on the McDonald's mobile app (a feature that is available in five of the Company’s

McDonald's Corporation 2023 Annual Report 9

top markets). The Company is scaling this capability, expecting to increase the percentage of delivery business originating from its mobile app to 30% by 2027. The Company also has long-term strategic partnerships with delivery providers that continue to benefit the Company, customers and franchisees by optimizing operational efficiencies and creating a seamless customer experience.

◦Drive Thru: The Company is the largest drive thru player worldwide, with more than 27,000 drive thru locations globally, including nearly 95% of the approximately 13,500 locations in the U.S. This channel remains a competitive advantage in meeting customers’ demand for flexibility and choice. McDonald’s network provides unmatched scale and convenience for customers. This competitive advantage in drive thru also presents significant opportunities for growth, such as improving the physical layout of the drive thru with additional lanes, creating additional capacity, which improves speed and efficiency and ultimately leads to sales growth and strong returns. 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 Market segments will include a drive thru.

◦Restaurant Development: The Company will continue to accelerate the pace of restaurant openings to attempt to fully capture the increased demand being driven through the MCD growth pillars in many of its largest markets. In 2024, the Company plans to open more than 2,100 new restaurants across the globe, which will contribute to nearly 4% new unit growth. Accordingly, the Company will continue to build on its industry-leading development progress by targeting expansion to 50,000 restaurants by the end of 2027, which would make it the fastest period of growth in Company history.

FOUNDATION

Foundational to the Strategy is keeping the customer and restaurant crew at the center of everything the Company does, along with a relentless focus on running great restaurants, empowering its people and continuing to modernize our ways of working through Accelerating the Organization. Further, as the Company plans for long term growth and solidifying McDonald’s leadership position, the Company will develop three platforms to build our competitive advantages, cement our place in culture and stay one step ahead of the next generation of digital customers. Together, our foundation and platforms will extend the Company’s leadership position and unlock new growth opportunities and efficiencies for our business over the long-term.

Our platforms are:

•Consumer: The Company is creating one of the world’s largest consumer platforms, which will bring together the best of our brand and utilize our physical and digital competitive advantages. The consumer platform will enable the Company to accelerate growth in our loyalty program and drive valuable loyalty customers to visit more frequently.

•Restaurant: The Company is also building the easiest and most efficient restaurant operating platform that will enable franchisees to run restaurants more efficiently and utilize the latest technology to make the crew’s jobs to deliver exceptional customer service easier. The Company will deploy new, universal software that all McDonald’s restaurants will run on, enabling restaurants to roll out innovation even faster, with less complexity and more stability; and customers will enjoy a more familiar, consistent experience.

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

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

The Strategy is aligned with the Company’s capital allocation philosophy of investing in opportunities to grow the business and drive strong returns, for example through new restaurants and reinvesting in existing restaurants, and returning free cash flow to shareholders over time through dividends and share repurchases.

The Company believes the Strategy builds on its inherent strengths by harnessing its competitive advantages while leveraging its size, scale, agility and the power of the McDonald’s brand to adapt and adjust to an uncertain macro environment to meet customer demands. The Strategy is supported by a strong global senior leadership team aimed at executing against the MCD growth pillars and accelerating the Company’s broad-based business momentum.

McDonald's Corporation 2023 Annual Report 10

OUTLOOK

2024 Outlook

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

•The Company expects net restaurant unit expansion will contribute nearly 2% to 2024 Systemwide sales growth, in constant currencies.

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

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

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

•The Company expects the effective income tax rate for the full year 2024 to be in the 20% to 22% range. Some volatility may result in a quarterly tax rate outside of the annual range.

•The Company expects 2024 capital expenditures to be between $2.5 and $2.7 billion, more than half of which will be directed towards new restaurant unit expansion across the U.S. and International Operated Markets. Globally, the Company expects to open more than 2,100 restaurants. The Company will open about 500 restaurants in the U.S. and International Operated Markets segments, and developmental licensees and affiliates will contribute capital towards more than 1,600 restaurant openings in their respective markets. The Company expects over 1,600 net restaurant additions in 2024.

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

Long-Term Outlook

Over the long-term, the Company expects to achieve the following average annual financial targets:

•Net restaurant unit expansion of about 2.5% of Systemwide sales growth, in constant currencies;

•Continued operating margin expansion;

•From the 2024 Outlook capital expenditures between $2.5 and $2.7 billion, with sequential increases of about $300 million to $500 million each year through 2027;

•Between 4% and 5% net new restaurant unit growth, targeting 50,000 global units by 2027 with a run rate of about 1,000 gross restaurant openings across the U.S. and International Operated Markets segments in 2027; and

•Free cash flow conversion rate in the 90% range.

McDonald's Corporation 2023 Annual Report 11

CONSOLIDATED OPERATING RESULTS

The following discussion should be read in conjunction with the consolidated financial statements and accompanying notes beginning on page 37 of this Form 10-K. This section generally discusses 2023 and 2022 items and the year-to-year comparisons between the years ended December 31, 2023 and 2022. Discussions of 2021 items and the year-to-year comparisons between the years ended December 31, 2022 and 2021 are not included in their entirety in this Form 10-K and can be found in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 24, 2023.

Impact of the War in the Middle East

Beginning in the fourth quarter 2023, the Company’s Systemwide sales and revenue has been negatively impacted by the war in the Middle East, primarily in the International Developmental Licensed Markets & Corporate segment, where the majority of restaurants are under a developmental license or affiliate arrangement. The Company is monitoring the evolving situation, which it expects to continue to have a negative impact on Systemwide sales and revenue as long as the war continues. 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.

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[[/GREPCENT_TABLE]]

n/m Not meaningful

IMPACT OF FOREIGN CURRENCY TRANSLATION

The impact of foreign currency translation on consolidated operating results in 2023 primarily reflected the strengthening of the Euro and British Pound, partly offset by the weakening of most other currencies against the U.S. dollar.

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.

McDonald's Corporation 2023 Annual Report 12

Impact of foreign currency translation on reported results

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[[/GREPCENT_TABLE]]

NET INCOME AND DILUTED EARNINGS PER COMMON SHARE

In 2023, net income increased 37% (37% in constant currencies) to $8.5 billion and diluted earnings per common share increased 39% (38% in constant currencies) to $11.56. Foreign currency translation had a positive impact of $0.04 on diluted earnings per share.

2023 results included:

•Pre-tax charges of $290 million, or $0.30 per share related to the Company's Accelerating the Arches growth strategy, including restructuring costs associated with its internal effort to modernize ways of working (Accelerating the Organization)

•Pre-tax charges of $72 million, or $0.08 per share, related to the write-off of impaired software no longer in use

2022 results included:

•Pre-tax charges of $1,281 million, or $1.44 per share, related to the sale of the Company's business in Russia

•Pre-tax gain of $271 million, or $0.40 per share, related to the Company's sale of its Dynamic Yield business

•$537 million, or $0.73 per share, of nonoperating expense related to the settlement of a tax audit in France

Outlined below is additional information for the full year 2023 and 2022:

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[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

2023 net income and diluted earnings per common share reflected strong operating performance driven primarily by higher sales-driven Franchised margins.

The Company repurchased 11.1 million shares of its stock for $3.1 billion in 2023 and 15.8 million shares of its stock for $3.9 billion in 2022.

McDonald's Corporation 2023 Annual Report 13

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, for periods prior to its sale on April 1, 2022, third-party revenues for the Company's Dynamic Yield business.

Franchised restaurants represented approximately 95% of McDonald's restaurants worldwide at December 31, 2023. The Company's heavily franchised business model is designed to generate stable and predictable revenue, which is largely a function of franchisee sales, and resulting cash flow streams. In the fourth quarter 2023, the Company provided an insignificant amount of assistance, including royalty relief and deferral of cash collection for certain franchisees impacted by the war in the Middle East in the International Developmental Licensed Markets and Corporate segment. This assistance may continue and increase as long as the war continues.

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[[/GREPCENT_TABLE]]

In 2023, total Company-operated sales and franchised revenues increased 10% (10% in constant currencies) benefiting from strong sales performance in the U.S. and International Operated Markets segment. Revenue growth in the International Operated Markets segment was partly offset by the impact of the Company's exit from Russia in the second quarter of 2022. Revenue growth in the International Developmental Licensed Markets & Corporate segment was impacted by the war in the Middle East, which began in October 2023.

TOTAL REVENUES BY SEGMENT

[[GREPCENT_TABLE]]
[["","","U.S."],["","","International Operated Markets"],["","","International Developmental Licensed Markets & Corporate"]]
[[/GREPCENT_TABLE]]

McDonald's Corporation 2023 Annual Report 14

The following tables present comparable sales and Systemwide sales increases/(decreases):

[[GREPCENT_TABLE]]
[["Comparable sales increases/(decreases)"],["","","2023","","","","2022","","","","2021"],["U.S.","","8.7","%","","","","5.9","%","","","","13.8","%"],["International Operated Markets","","9.2","","","","","13.3","","","","","21.6"],["International Developmental Licensed Markets & Corporate","","9.4","","","","","16.0","","","","","16.6"],["Total","","9.0","%","","","","10.9","%","","","","17.0","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["Systemwide sales increases/(decreases)*"],["","","","","","","Increase/(decrease) excluding currency translation"],["","","2023","","2022","","2023","","2022"],["U.S.","","9","%","","6","%","","9","%","","6","%"],["International Operated Markets","","11","","","\u2014","","","10","","","11"],["International Developmental Licensed Markets & Corporate","","9","","","10","","","12","","","21"],["Total","","10","%","","5","%","","10","%","","11","%"]]
[[/GREPCENT_TABLE]]

    *Unlike comparable sales, the Company has not excluded sales from hyperinflationary 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

[[GREPCENT_TABLE]]
[["","","Amount","","Increase/(decrease)","","Increase/(decrease) excluding currency translation"],["Dollars in millions","","2023","","2022","","2021","","2023","","2022","","2023","","2022"],["U.S.","","$","49,914","","","$","45,898","","","$","43,344","","","9","%","","6","%","","9","%","","6","%"],["International Operated Markets","","38,264","","","34,537","","33,097","","11","","","4","","","10","","","15"],["International Developmental Licensed Markets & Corporate","","31,572","","29,038","","26,234","","9","","","11","","","12","","","21"],["Total","","$","119,750","","","$","109,473","","","$","102,675","","","9","%","","7","%","","10","%","","13","%"],["Ownership type"],["Conventional franchised","","$","87,809","","","$","80,066","","","$","75,956","","","10","%","","5","%","","10","%","","10","%"],["Developmental licensed","","20,045","","","18,444","","","15,151","","","9","","","22","","","9","","","31"],["Foreign affiliated","","11,896","","","10,963","","","11,568","","","9","","","(5)","","","9","","","6"],["Total","","$","119,750","","","$","109,473","","","$","102,675","","","9","%","","7","%","","10","%","","13","%"]]
[[/GREPCENT_TABLE]]

McDonald's Corporation 2023 Annual Report 15

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

[[GREPCENT_TABLE]]
[["","Amount","","Increase/(decrease)","","Increase/(decrease) excluding currency translation"],["Dollars in millions","2023","","2022","","2021","","2023","","2022","","2023","","2022"],["Franchised:"],["U.S.","$","5,877","","","$","5,341","","","$","4,906","","","10","%","","9","%","","10","%","","9","%"],["International Operated Markets","5,379","","","4,900","","","4,516","","","10","","","8","","","9","","","20"],["International Developmental Licensed Markets & Corporate","1,706","","","1,515","","","1,328","","","13","","","14","","","15","","","23"],["Total","$","12,962","","","$","11,756","","","$","10,750","","","10","%","","9","%","","10","%","","15","%"],["Company-operated:"],["U.S.","$","489","","","$","429","","","$","511","","","14","%","","(16","%)","","14","%","","(16","%)"],["International Operated Markets","995","","","913","","","1,208","","","9","","","(24)","","","9","","","(17)"],["International Developmental Licensed Markets & Corporate","n/m","","n/m","","n/m","","n/m","","n/m","","n/m","","n/m"],["Total","$","1,517","","","$","1,368","","","$","1,740","","","11","%","","(21","%)","","11","%","","(16","%)"],["Total restaurant margins:"],["U.S.","$","6,366","","","$","5,770","","","$","5,417","","","10","%","","7","%","","10","%","","7","%"],["International Operated Markets","6,374","","","5,813","","","5,724","","","10","","","2","","","9","","","12"],["International Developmental Licensed Markets & Corporate","n/m","","n/m","","n/m","","n/m","","n/m","","n/m","","n/m"],["Total","$","14,479","","","$","13,124","","","$","12,490","","","10","%","","5","%","","10","%","","11","%"]]
[[/GREPCENT_TABLE]]

n/m Not meaningful

In 2023, total restaurant margins increased 10% (10% in constant currencies), which reflected strong sales performance across all segments.

Franchised margins represented approximately 90% of restaurant margin dollars.

Company-operated margins in the U.S. and International Operated Markets segment reflected strong sales performance, with results partly offset by ongoing inflationary cost pressures. Results in the International Operated Markets segment were also partly offset by the impact of the Company's exit from Russia in the second quarter of 2022.

Total restaurant margins included $1,597 billion of depreciation and amortization expenses in 2023.

RESTAURANT MARGINS BY TYPE (In millions)

McDonald's Corporation 2023 Annual Report 16

SELLING, GENERAL & ADMINISTRATIVE EXPENSES

Selling, general & administrative expenses

[[GREPCENT_TABLE]]
[["","Amount","","Increase/(decrease)","","Increase/(decrease) excluding currency translation"],["Dollars in millions","2023","","2022","","2021","","2023","","2022","","2023","","2022"],["U.S.","$","661","","","$","692","","","$","696","","","(5","%)","","(1","%)","","(5","%)","","(1","%)"],["International Operated Markets","635","","","629","","","692","","","1","","","(9)","","","\u2014","","","\u2014"],["International Developmental Licensed Markets & Corporate(1)","1,521","","","1,541","","","1,320","","","(1)","","","17","","","(1)","","","17"],["Total Selling, General & Administrative Expenses","$","2,817","","","$","2,862","","","$","2,708","","","(2","%)","","6","%","","(2","%)","","8","%"],["Less: Incentive-Based Compensation(2)","424","","","404","","","439","","","5","","","(8)","","","5","","","(6","%)"],["Total Excluding Incentive-Based Compensation","$","2,393","","","$","2,458","","","$","2,269","","","(3","%)","","8","%","","(3","%)","","11","%"]]
[[/GREPCENT_TABLE]]

(1)Includes corporate office support costs in areas such as facilities, finance, human resources, investments in strategic technology initiatives, legal, marketing, restaurant operations, supply chain and training.

(2)Includes all cash incentives and share-based compensation expense.

In 2023, consolidated selling, general and administrative expenses decreased 2% (2% in constant currencies), reflecting lower employee costs as a result of Accelerating the Organization and the comparison to prior year costs related to the 2022 Worldwide Owner/Operator convention and proxy contest. These results were partly offset by investments in digital and technology under our Accelerating the Arches strategy in the current year.

Management believes that analyzing selling, general and administrative expenses as a percent of Systemwide sales is meaningful because these costs are incurred to support the overall McDonald's business.

SELLING, GENERAL & ADMINISTRATIVE EXPENSES AS A PERCENT OF SYSTEMWIDE SALES

McDonald's Corporation 2023 Annual Report 17

OTHER OPERATING (INCOME) EXPENSE, NET

Other operating (income) expense, net

[[GREPCENT_TABLE]]
[["In millions","2023","","2022","","2021"],["Gains on sales of restaurant businesses","$","(103)","","","$","(60)","","","$","(96)"],["Equity in earnings of unconsolidated affiliates","(153)","","","(113)","","","(177)"],["Asset dispositions and other (income) expense, net","(7)","","","137","","","75"],["Impairment and other charges (gains), net","362","","","1,010","","","(285)"],["Total","$","99","","","$","974","","","$","(483)"]]
[[/GREPCENT_TABLE]]

•Gains on sales of restaurant businesses

In 2023, gains on sales of restaurant businesses increased primarily due to an increased number of restaurants sold to franchisees in the International Operated Markets segment.

•Equity in earnings of unconsolidated affiliates

In 2023, equity in earnings of unconsolidated affiliates increased primarily due to recovery from the impact of COVID-19 in China in the prior year.

•Asset dispositions and other (income) expense, net

Asset dispositions and other (income) expense, net reflected higher property sale gains and the comparison to prior year costs incurred to support the Company's business in Ukraine and higher asset write-offs.

•Impairment and other charges (gains), net

In 2023, impairment and other charges (gains), net reflected $72 million of pre-tax charges related to the write-off of impaired software no longer in use and pre-tax charges of $290 million related to the Company's Accelerating the Arches growth strategy

◦The Company incurred $250 million of restructuring costs associated with Accelerating the Organization, the Company’s internal effort to modernize ways of working

◦The Company incurred $40 million of accelerated restaurant closing charges, representing expenses associated with the Lease Right of Use Asset and fixed asset write-offs

Results in 2022 reflected $1,281 million of pre-tax charges related to the sale of the Company's business in Russia and a pre-tax gain of $271 million related to the Company's sale of its Dynamic Yield business.

OPERATING INCOME

Operating income

[[GREPCENT_TABLE]]
[["","Amount","","Increase/(decrease)","","Increase/(decrease) excluding currency translation"],["Dollars in millions","2023","","2022","","2021","","2023","","2022","","2023","","2022"],["U.S.","$","5,694","","","$5,136","","$4,755","","11","%","","8","%","","11","%","","8","%"],["International Operated Markets","5,832","","3,926","","5,130","","49","","","(23)","","","47","","","(13)"],["International Developmental Licensed Markets & Corporate","121","","309","","471","","(61)","","","(34)","","","(47)","","","(5)"],["Total","$","11,647","","","$9,371","","$","10,356","","","24","%","","(10","%)","","24","%","","(3","%)"],["","","","","","$","(483)"],["Operating margin","45.7","%","40.4","%","44.6","%"]]
[[/GREPCENT_TABLE]]

Operating income reconciliation*

[[GREPCENT_TABLE]]
[["","Amount","","Increase/(decrease)","Increase/(decrease) excluding currency translation"],["Dollars in millions","2023","","2022","","2023","","2023"],["GAAP operating income","$","11,647","","","$","9,371","","","24","%","","24","%"],["(Gains)/charges","362","","","\u2014"],["Russia sale charge","\u2014","","","1,281"],["Dynamic Yield sale gain","\u2014","","","(271)"],["Non-GAAP operating income","$","12,009","","","$","10,381","","","16","%","","16","%"],["Non-GAAP operating margin","47.1","","%","44.8","","%"]]
[[/GREPCENT_TABLE]]

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

•Operating Income: Operating income increased 24% (24% in constant currencies). Excluding the current year and prior year items in the table above, operating income increased 16% (16% in constant currencies) for 2023. Positive operating results across all segments were primarily due to strong sales-driven growth in Franchised margins.

McDonald's Corporation 2023 Annual Report 18

•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.

OPERATING INCOME BY SEGMENT*

[[GREPCENT_TABLE]]
[["","","U.S."],["","","International Operated Markets"],["","","International Developmental Licensed Markets & Corporate*"]]
[[/GREPCENT_TABLE]]

*The IDL segment data in this graphic excludes Corporate activities, which is a Non-GAAP presentation.

NON-GAAP OPERATING MARGIN PERCENT ROLL-FORWARD*

[[GREPCENT_TABLE]]
[["","","Non-GAAP","","Increase","","Decrease"]]
[[/GREPCENT_TABLE]]

*Refer to the Operating Income section on page 18 in this Form 10-K for details regarding operating margin percent for 2023 and 2022.

McDonald's Corporation 2023 Annual Report 19

INTEREST EXPENSE

Interest expense increased 13% (13% in constant currencies) and 2% (4% in constant currencies) in 2023 and 2022, respectively. Results in 2023 reflected higher average debt balances and higher average interest rates.

NONOPERATING (INCOME) EXPENSE, NET

Nonoperating (income) expense, net

[[GREPCENT_TABLE]]
[["In millions","2023","2022","2021"],["Interest income","","$","(186)","","","$","(44)","","","$","(9)"],["Foreign currency and hedging activity","","(19)","","","(134)","","","37"],["Other expense","","(31)","","","517","","","14"],["Total","","$","(236)","","","$","339","","","$","42"]]
[[/GREPCENT_TABLE]]

In 2023, Interest income increased due to higher average interest rates.

Foreign currency and hedging activity includes net gains or losses on certain hedges that reduce the exposure to variability on certain intercompany foreign currency cash flow streams.

In 2022, Other (income) expense, net included $537 million of nonoperating expense related to the settlement of a tax audit in France.

PROVISION FOR INCOME TAXES

In 2023 and 2022, the reported effective income tax rates were 19.5% and 21.1%, respectively.

Results for 2022 reflected $239 million of net tax benefits related to the sale of the Company’s Russia and Dynamic Yield businesses and the unfavorable impact of the non-deductible $537 million of nonoperating expense related to the settlement of a tax audit in France. Excluding these items, the effective tax rate was 20.1% for the year ended 2022.

Consolidated deferred tax assets, net of valuation allowance, was $6.9 billion in 2023 and $6.1 billion in 2022. Substantially all of the net tax assets are expected to be realized in the U.S. and other profitable markets.

As of December 31, 2023, numerous countries have enacted the Organization of Economic Corporation and Development’s framework on a global minimum tax (referred to as “Pillar 2”), with the earliest effective date for taxable years beginning after December 31, 2023. While the Company does not expect this enactment will have a material impact on the consolidated financial statements, we will continue to evaluate and monitor as additional guidance and clarification becomes available.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Recently issued accounting pronouncements are included on page 43 of this Form 10-K.

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 to invest in opportunities to grow the business, such as restaurant development, in addition to funding debt service payments, dividends and share repurchases.

Cash provided by operations totaled $9.6 billion in 2023, an increase of $2.2 billion or 30%. Free cash flow was $7.3 billion in 2023, an increase of $1.8 billion or 32%. The Company’s free cash flow conversion rate was 86% in 2023 and 89% in 2022. Cash provided by operations increased in 2023 compared to 2022 primarily due to improved operating results.

Cash used for investing activities totaled $3.2 billion in 2023, an increase of $506 million compared with 2022. The increase was primarily due to higher capital expenditures as a result of the addition of Restaurant Development to the Company’s growth pillars under our Accelerating the Arches strategy.

Cash used for financing activities totaled $4.4 billion in 2023, a decrease of $2.2 billion compared with 2022. The decrease was primarily due to increased bond issuances in the current year.

The Company’s cash and equivalents balance was $4.6 billion and $2.6 billion at year end 2023 and 2022, respectively. In addition to cash and equivalents on hand and cash provided by operations, the Company can meet short-term funding needs through its continued access to commercial paper borrowings and line of credit agreements.

McDonald's Corporation 2023 Annual Report 20

RESTAURANT DEVELOPMENT AND CAPITAL EXPENDITURES

In 2023, the Company opened 2,067 restaurants and closed 520 restaurants. In 2022, the Company opened 1,576 restaurants and closed 1,332 restaurants. The increase in openings in 2023 is a result of the addition of Restaurant Development to the Company's growth pillars under our Accelerating the Arches Strategy. The significant number of closures in 2022 was primarily due to the closure of 855 restaurants as a result of the sale of the Company's business in Russia.

Systemwide restaurants at year end

[[GREPCENT_TABLE]]
[["","2023","","2022","","2021"],["U.S.","13,457","","","13,444","","","13,438"],["International Operated Markets","10,263","","","10,103","","","10,785"],["International Developmental Licensed Markets & Corporate","18,102","","","16,728","","","15,808"],["Total","41,822","","","40,275","","","40,031"]]
[[/GREPCENT_TABLE]]

RESTAURANTS BY OWNERSHIP TYPE

[[GREPCENT_TABLE]]
[["","","Franchised restaurants","","Company-operated restaurants"]]
[[/GREPCENT_TABLE]]

Approximately 95% of the restaurants at year-end 2023 were franchised, including 95% in the U.S., 89% in International Operated Markets and 98% in the International Developmental Licensed Markets.

Capital expenditures increased $458 million or 24% in 2023 primarily due to increased investment in restaurant openings as a result of the addition of Restaurant Development to the Company's growth pillars under our Accelerating the Arches Strategy.

McDonald's Corporation 2023 Annual Report 21

CAPITAL EXPENDITURES BY TYPE (In millions)

* Primarily corporate equipment and other office-related expenditures.

New restaurant investments in all years presented were concentrated in markets with strong returns and/or opportunities for long-term growth. Average development costs vary widely by market depending on the types of restaurants built and the real estate and construction costs within each market. These costs, which include land, buildings and equipment, are managed through the use of optimally-sized restaurants, construction and design efficiencies, as well as leveraging the Company's global sourcing network and best practices.

As of December 31, 2023 and 2022, the Company owned approximately 57% of the land and approximately 80% of the buildings for restaurants in its consolidated markets.

SHARE REPURCHASES AND DIVIDENDS

In 2023, the Company returned approximately $7.6 billion to shareholders through a combination of dividends paid and shares repurchased.

Shares repurchased and dividends  

[[GREPCENT_TABLE]]
[["In millions, except per share data","2023","","2022","","2021"],["Number of shares repurchased","11.1","","","15.8","","","3.4"],["Shares outstanding at year end","723","","","731","","","745"],["Dividends declared per share","$","6.23","","","$","5.66","","","$","5.25"],["Treasury stock purchases (in Shareholders' equity)","$","3,105","","","$","3,896","","","$","846"],["Dividends paid","4,533","","","4,168","","","3,919"],["Total returned to shareholders","$","7,638","","","$","8,064","","","$","4,765"]]
[[/GREPCENT_TABLE]]

In December 2019, the Company's Board of Directors approved a share repurchase program, effective January 1, 2020, that authorized the purchase of up to $15 billion of the Company's outstanding stock, with no specified expiration date. In 2023, approximately 11.1 million shares were repurchased for $3.1 billion, bringing total purchases under the program to approximately 34.6 million shares or $8.7 billion.

The Company has paid dividends on its common stock for 48 consecutive years and has increased the dividend amount every year. The 2023 full year dividend of $6.23 per share reflects the quarterly dividend paid for each of the first three quarters of $1.52 per share, with an increase to $1.67 per share paid in the fourth quarter. This 10% increase in the quarterly dividend equates to a $6.68 per share annual dividend and reflects the Company’s confidence in the ongoing strength and reliability of its cash flow. As in the past, future dividend amounts will be considered after reviewing profitability expectations and financing needs, and will be declared at the discretion of the Company’s Board of Directors.

McDonald's Corporation 2023 Annual Report 22

FINANCIAL POSITION AND CAPITAL RESOURCES

TOTAL ASSETS AND RETURN

Total assets increased $5.7 billion or 11% in 2023, primarily due to an increase in Cash and equivalents driven by higher cash from operations, as well as increased net debt issuances and decreased treasury stock purchases. Net property and equipment increased $1.1 billion in 2023, primarily due to increased capital expenditures as a result of the addition of Restaurant Development to the Company's growth pillars under our Accelerating the Arches strategy. Net property and equipment and the Lease right-of-use asset, net represented approximately 44% and approximately 24%, respectively, of total assets at year-end. Approximately 83% of total assets were in the U.S. and International Operated Markets at year-end 2023.

The Company’s after-tax ROIC from continuing operations is a metric that management believes measures capital-allocation effectiveness over time and was 25.2%, 22.6% and 21.5% as of December 31, 2023, 2022 and 2021, respectively. Refer to the reconciliation in Exhibit 99.1 to this Form 10-K.

FINANCING AND MARKET RISK

The Company generally borrows on a long-term basis and is exposed to the impact of interest rate changes and foreign currency fluctuations. Debt obligations at December 31, 2023 totaled $39.3 billion, compared with $35.9 billion at December 31, 2022. The net increase in 2023 was primarily due to net issuances of $3.0 billion and the impact of changes in exchange rates on foreign currency denominated debt of $432 million.

Debt highlights(1)

[[GREPCENT_TABLE]]
[["","2023","","2022","","2021"],["Fixed-rate debt as a percent of total debt(2,3)","96","%","","96","%","","95","%"],["Weighted-average annual interest rate of total debt(3)","3.7","","","3.5","","","3.2"],["Foreign currency-denominated debt as a percent of total debt(2)","38","","","36","","","36"],["Total debt as a percent of total capitalization (total debt and total Shareholders' equity)(2)","114","","","120","","","115"],["Cash provided by operations as a percent of total debt(2)","24","","","20","","","26"]]
[[/GREPCENT_TABLE]]

(1)All percentages are as of December 31, except for the weighted-average annual interest rate, which is for the year. See reconciliation in Exhibit 99.1.

(2)Based on debt obligations before the effects of fair value hedging adjustments and deferred debt costs. These effects are excluded as they have no impact on the obligation at maturity. See the Debt Financing footnote on page 58 of this Form 10-K.

(3)Includes the effect of interest rate swaps used to hedge debt.

Standard & Poor's and Moody's currently rate the Company’s commercial paper A-2 and P-2, respectively, and its long-term debt BBB+ and Baa1, respectively. To access the debt capital markets, the Company relies on credit-rating agencies to assign short-term and long-term credit ratings.

Certain of the Company’s debt obligations contain cross-acceleration provisions and restrictions on Company and subsidiary mortgages and the long-term debt of certain subsidiaries. There are no provisions in the Company’s debt obligations that would accelerate repayment of debt as a result of a change in credit ratings or a material adverse change in the Company’s business. In December 2022, the Company's Board of Directors authorized $15 billion of borrowing capacity with no specified expiration date, of which $9.7 billion remained outstanding as of December 31, 2023. These borrowings may include (i) public or private offering of debt securities; (ii) direct borrowing from banks or other financial institutions; and (iii) other forms of indebtedness. In addition to debt securities available through a medium-term notes program registered with the SEC and a Global Medium-Term Notes program, the Company is authorized to issue up to $5.0 billion of commercial paper, and has $4.0 billion available under a committed line of credit agreement (see the Debt Financing footnote on page 58 of this Form 10-K). As of December 31, 2023, the Company's subsidiaries also had $122.0 million of borrowings outstanding, primarily under uncommitted foreign currency line of credit agreements.

The Company uses major capital markets, bank financings and derivatives to meet its financing requirements. The Company manages its debt portfolio in response to changes in interest rates and foreign currency rates by periodically retiring, redeeming and repurchasing debt, terminating swaps and using derivatives. The Company does not hold or issue derivatives for trading purposes. All swaps are over-the-counter instruments.

In managing the impact of interest rate changes and foreign currency fluctuations, the Company uses interest rate swaps and finances in the currencies in which assets are denominated. The Company uses foreign currency debt and derivatives to hedge the foreign currency risk associated with certain royalties, intercompany financings and long-term investments in foreign subsidiaries and affiliates. This reduces the impact of fluctuating foreign currencies on cash flows and shareholders’ equity. Total foreign currency-denominated debt was $15.1 billion and $13.0 billion for the years ended December 31, 2023 and 2022, respectively. In addition, where practical, the Company’s restaurants purchase goods and services in local currencies resulting in natural hedges. See the Summary of significant accounting policies footnote related to financial instruments and hedging activities on page 46 of this Form 10-K for additional information regarding the accounting impact and use of derivatives.

The Company does not have significant exposure to any individual counterparty and has master agreements that contain netting arrangements. Certain of these agreements also require each party to post collateral if credit ratings fall below, or aggregate exposures exceed, certain contractual limits. At December 31, 2023, the Company was required to post $82.8 million of collateral due to the negative fair value of certain derivative positions. The Company's counterparties were not required to post collateral on any derivative position, other than on certain hedges of the Company’s supplemental benefit plan liabilities where the counterparties were required to post collateral on their liability positions.

McDonald's Corporation 2023 Annual Report 23

The Company’s net asset exposure is diversified among a broad basket of currencies. The Company’s largest net asset exposures (defined as foreign currency assets less foreign currency liabilities) at year end were as follows:

Foreign currency net asset exposures

[[GREPCENT_TABLE]]
[["In millions of U.S. Dollars","2023","","2022"],["British Pounds Sterling","$","1,080","","","$","1,167"],["Australian Dollars","1,015","","","884"],["Canadian Dollars","703","","","575"],["Polish Zloty","571","","","444"],["New Zealand Dollars","238","","","275"]]
[[/GREPCENT_TABLE]]

The Company prepared sensitivity analyses of its financial instruments to determine the impact of hypothetical changes in interest rates and foreign currency exchange rates on the Company’s results of operations, cash flows and the fair value of its financial instruments. The interest rate analysis assumed a one percentage point adverse change in interest rates on all financial instruments, but did not consider the effects of the reduced level of economic activity that could exist in such an environment. The foreign currency rate analysis assumed that each foreign currency rate would change by 10% in the same direction relative to the U.S. Dollar on all financial instruments; however, the analysis did not include the potential impact on revenues, local currency prices or the effect of fluctuating currencies on the Company’s anticipated foreign currency royalties and other payments received from the markets. Based on the results of these analyses of the Company’s financial instruments, neither a one percentage point adverse change in interest rates from 2023 levels nor a 10% adverse change in foreign currency rates from 2023 levels would materially affect the Company’s results of operations, cash flows or the fair value of its financial instruments.

LIQUIDITY AND USES OF CASH

The Company generates significant cash from operations and expects available cash and cash equivalents, future operating cash flows and its ability to issue debt to be sufficient to finance its foreseeable operating needs and other cash requirements.

Consistent with prior years, the Company expects existing domestic cash and equivalents, domestic cash flows from operations, the ability to issue domestic debt and repatriation of a portion of foreign earnings to continue to be sufficient to fund its domestic operating, investing and financing activities. The Company also continues to expect existing foreign cash and equivalents and foreign cash flows from operations to be sufficient to fund its foreign operating, investing and financing activities. In the future, should more capital be required to fund activities in the U.S. than is generated by domestic operations and is available through the issuance of domestic debt, the Company could elect to repatriate a greater portion of future periods' earnings from foreign jurisdictions.

The Company has significant operations outside the U.S. where it earns approximately 65% of its operating income. A significant portion of these historical earnings have been reinvested in foreign jurisdictions where the Company has made, and will continue to make, substantial investments to support the ongoing development and growth of its international operations.

Sources of Liquidity

The Company has long-term revenue and cash flow streams that relate to its franchise arrangements. Minimum rent payments under franchise arrangements are based on the Company’s underlying investment in owned sites and parallel the Company’s underlying lease obligations and escalations on properties that are leased. The Company believes that control over the real estate enables it to achieve restaurant performance levels that are among the highest in the industry. Refer to the Franchise Arrangements footnote on page 50 of this Form 10-K for additional information on future gross minimum payments due to the Company under existing conventional franchise arrangements.

Additionally, the Company is authorized to utilize up to $15 billion of borrowing capacity in various forms by the Board of Directors, of which $9.7 billion remained outstanding as of December 31, 2023. The Company is also authorized to issue up to $5.0 billion of commercial paper, and has $4.0 billion available under a committed line of credit agreement. Refer to the Financing and Market Risk section on page 58 of this Form 10-K.

Material Cash Requirements and Uses of Cash

Material cash requirements primarily consist of lease obligations (related to both Company-operated and franchised restaurants) and debt obligations. Refer to the Leasing Arrangements footnote on page 51 and the Debt Financing footnote on page 58 of this Form 10-K for more information.

The Company also records liabilities related to supplemental benefit plans maintained in the U.S. as well as liabilities for gross unrecognized tax benefits on certain tax positions. Details related to these obligations are provided in the Employee Benefit Plan footnote on page 57 and the Income Taxes footnote on page 55 of this Form 10-K.

The Company contracts with vendors and suppliers in the normal course of business. These contracts may include items related to construction projects, inventory, energy, marketing, technology and other services. Generally, these items are shorter term in nature and have no minimum payment requirements. These expenses, along with other standard operating expenses incurred, are funded from operating cash flows and reflected in other areas of this Form 10-K (e.g., franchised margins, Company-operated margins and selling, general & administrative expenses that are reflected in the Consolidated Statement of Income and capital expenditures that are reflected on the Consolidated Statement of Cash Flows).

Additionally, the Company has guaranteed certain loans totaling approximately $193 million at December 31, 2023. These guarantees are contingent commitments generally issued by the Company to support borrowing arrangements of the System. At December 31, 2023, there was no carrying value for obligations under these guarantees in the Consolidated Balance Sheet.

McDonald's Corporation 2023 Annual Report 24

OTHER MATTERS

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses as well as related disclosures. On an ongoing basis, the Company evaluates its estimates and judgments based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

The Company reviews its financial reporting and disclosure practices and accounting policies quarterly to confirm that they provide accurate and transparent information relative to the current economic and business environment. The Company believes that of its significant accounting policies, the following involve a higher degree of judgment and/or complexity:

•Property and equipment

Property and equipment are depreciated or amortized on a straight-line basis over their useful lives based on management’s estimates of the period over which the assets will generate revenue (not to exceed lease term plus options for leased property). The useful lives are estimated based on historical experience with similar assets, taking into account anticipated technological or other changes. Refer to the Property and Equipment section in the Summary of Significant Accounting Policies footnote on page 44 of this Form 10-K and the Property and Equipment footnote on page 50 of this Form 10-K for additional information.

•Leasing Arrangements

The Lease right-of-use asset and Lease liability include an assumption on renewal options that have not yet been exercised by the Company. The Company also uses an incremental borrowing rate in calculating the Lease liability that represents an estimate of the interest rate the Company would incur to borrow on a collateralized basis over the term of a lease within a particular currency environment. Refer to the Leasing section in the Summary of Significant Accounting Policies footnote on page 44 of this Form 10-K and the Leasing Arrangements footnote on page 51 of this Form 10-K for additional information.

•Long-lived assets impairment review

Long-lived assets are reviewed for impairment annually. If qualitative indicators of impairment are present, such as changes in global and local business and economic conditions, operating costs, inflation, competition, and consumer and demographic trends, the Company will use these and other factors in estimating future cash flows when testing for the recoverability of its long-lived assets. Estimates of future cash flows are highly subjective judgements based on the Company’s experience and knowledge of its operations. A key assumption impacting estimated future cash flows is the estimated change in comparable sales. If the Company’s estimates or underlying assumptions change in the future, it may be required to record impairment charges. Refer to the Long-lived Assets section in the Summary of Significant Accounting Policies footnote on page 44 of this Form 10-K for additional information.

•Litigation accruals

In the ordinary course of business, the Company is subject to proceedings, lawsuits and other claims primarily related to competitors, customers, employees, franchisees, government agencies, intellectual property, shareholders and suppliers. The Company is required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable losses. Refer to the Contingencies footnote on page 53 of this Form 10-K for additional information.

•Income taxes

The Company records a valuation allowance to reduce its deferred tax assets if it is considered more likely than not that some portion or all of the deferred tax assets will not be realized.

The Company operates within, and is subject to audit in, multiple taxing jurisdictions. The Company records accruals for the estimated outcomes of these audits, and the accruals may change in the future due to new developments in each matter.

Refer to the Income Taxes section in the Summary of Significant Accounting Policies footnote on page 45 of this Form 10-K and the Income Taxes footnote on page 55 of this Form 10-K for additional information.

EFFECTS OF CHANGING PRICES — INFLATION

As broader inflationary pressures in the economy begin to ease, the restaurant industry is expected to experience some relief in supply chain and other cost challenges. Although the challenges of an inflationary environment may still exist, the Company has demonstrated an ability to manage these inflationary cost increases effectively through its rapid inventory turnover, ability to adjust menu prices, cost controls and substantial property holdings, many of which are at fixed costs.

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Other Key Information

STOCK PERFORMANCE GRAPH

At least annually, McDonald's considers which companies comprise a readily identifiable investment peer group. The Company is included in published restaurant indices; however, unlike most other companies included in these indices, which have no or limited international operations, McDonald's does business in more than 100 countries and a substantial portion of its revenues and income is generated outside the U.S. In addition, because of its size, McDonald's inclusion in those indices tends to skew the results. Therefore, the Company believes that such a comparison is not meaningful.

The Company's market capitalization, trading volume and importance in an industry that is vital to the U.S. economy have resulted in McDonald's inclusion in the Dow Jones Industrial Average ("DJIA") since 1985. Like McDonald's, many DJIA companies generate meaningful revenues and income outside the U.S. and some manage global brands. Thus, the Company believes that the use of the DJIA companies as the group for comparison purposes is appropriate.

The following performance graph shows McDonald's cumulative total shareholder returns (i.e., price appreciation and reinvestment of dividends) relative to the Standard & Poor's 500 Stock Index ("S&P 500 Index") and to the DJIA companies for the five-year period ended December 31, 2023. The graph assumes that the value of an investment in McDonald's common stock, the S&P 500 Index and the DJIA companies (including McDonald's) was $100 at December 31, 2018. For the DJIA companies, returns are weighted for market capitalization as of the beginning of each period indicated. These returns may vary from those of the DJIA Index, which is not weighted by market capitalization and may be composed of different companies during the period under consideration.

[[GREPCENT_TABLE]]
[["Company/Index","12/31/2018","12/31/2019","12/31/2020","12/31/2021","12/31/2022","12/31/2023"],["McDonald's Corporation","$100","$114","$127","$162","$163","$187"],["S&P 500 Index","$100","$131","$156","$200","$164","$207"],["Dow Jones Industrials","$100","$125","$138","$166","$155","$180"]]
[[/GREPCENT_TABLE]]

Source: S&P Capital IQ

McDonald's Corporation 2023 Annual Report 26

MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

MARKET INFORMATION AND DIVIDEND POLICY

The Company’s common stock trades under the symbol MCD and is listed on the New York Stock Exchange in the U.S.

The number of shareholders of record and beneficial owners of the Company’s common stock as of January 31, 2024 was estimated to be 4,500,000.

Given the Company’s returns on its capital investments and significant cash provided by operations, management believes it is prudent to reinvest in the business to drive profitable growth and use excess cash flow to return cash to shareholders over time through dividends and share repurchases. The Company has paid dividends on common stock for 48 consecutive years through 2023 and has increased the dividend amount at least once every year. As in the past, future dividend amounts will be considered after reviewing profitability expectations and financing needs, and will be declared at the discretion of the Company’s Board of Directors.

ISSUER PURCHASES OF EQUITY SECURITIES

The following table presents information related to repurchases of common stock the Company made during the quarter ended December 31, 2023*:

[[GREPCENT_TABLE]]
[["Date","Total Number of Shares Purchased","","Average Price Paid per Share","","Total Number ofShares Purchased asPart of PubliclyAnnounced Plans orPrograms(1)","","Approximate DollarValue of Sharesthat May YetBe Purchased Underthe Plans or Programs(1)"],["October 1-31, 2023","1,167,891","","","257.19","","","1,167,891","","","","$","6,837,906,052"],["November 1-30, 2023","1,040,997","","","275.80","","","1,040,997","","","","6,550,798,529"],["December 1-31, 2023","931,481","","","291.50","","","931,481","","","","6,279,274,911"],["Total","3,140,369","","","273.53","","","3,140,369"]]
[[/GREPCENT_TABLE]]

*    Subject to applicable law, the Company may repurchase shares directly in the open market, in privately negotiated transactions, or pursuant to derivative instruments and plans complying with Rule 10b5-1, among other types of transactions and arrangements.

(1)On December 31, 2019, the Company's Board of Directors approved a share repurchase program, effective January 1, 2020 with no specified expiration date, that authorized the purchase of up to $15 billion of the Company's outstanding common stock.

McDonald's Corporation 2023 Annual Report 27