MCDONALDS CORP (MCD)

Item  2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Basis of Presentation

This Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and the notes thereto, and the audited Consolidated Financial Statements and notes thereto included in our 2025 Annual Report on Form 10-K.

Certain columns and rows in financial tables within MD&A may not add due to rounding. Percentages have been calculated from the underlying whole-dollar amounts for all periods presented.

Overview

The Company franchises and owns and operates McDonald’s restaurants, which serve a locally relevant menu of quality food and beverages in communities across more than 100 countries. Of the 45,699 McDonald's restaurants at March 31, 2026, approximately 95% 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, the International Developmental Licensed Markets & Corporate includes the results of over 75 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 the Company and its independent franchisees is supported by adhering to standards and policies, including McDonald's Global Brand Standards, 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 Company-owned and operated restaurants allows McDonald’s to improve the operations and success of all restaurants, and allows innovations from franchisees to 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 our 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.

The Company’s revenues consist of sales by Company-owned and operated restaurants and fees from franchised restaurants operated by conventional franchisees, developmental licensees and affiliates. 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 fees paid by franchisees to recover a portion of costs incurred by the Company for various technology and digital platforms and revenues from brand licensing arrangements to market and sell consumer packaged goods using the McDonald’s brand.

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 it 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 McDonald'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 restaurant 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, as well as a limited number of individual restaurants within the International Operated Markets, where the Company also has an equity investment and records its share of net results in equity in earnings of unconsolidated affiliates.

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

Purpose, Mission and Values

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

Through its size and scale, the Company embraces and prioritizes its role and commitment to the communities in which it operates through its purpose to feed and foster communities, and its mission to make delicious feel-good moments easy for everyone. The Company is guided by five core values that define who it is and how it runs the business across the three-legged stool of McDonald's franchisees, suppliers and employees:

1.Serve - We put our customers and people first;

2.Inclusion - We open our doors to everyone;

3.Integrity - We do the right thing;

4.Community - We are good neighbors; and

5.Family - We get better together.

The Company believes that its people, all around the world, set it apart and bring these values to life daily.

Growth Pillars

The following growth pillars, M-C-D, build on historic strengths and articulate areas of further opportunity. Under our 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 continue to be scaled around the globe to connect with customers in authentic and relatable ways. The Company is committed to a marketing strategy that highlights value at every tier of the menu, as providing delicious and affordable menu options remains a cornerstone of the McDonald’s brand. This includes everyday low-price options on our menu, affordable meal bundles, limited-time deals and personalized value and digital offers available in our mobile app.

•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 some 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 continue to implement “Best Burger”; a series of operational and formulation changes designed to deliver hotter, juicier, tastier burgers to nearly all markets by the end of 2026. Further, the Company is focused on continuing to gain share in the rapidly growing chicken category, as we continue to aggressively grow our chicken brands. This includes offering the McCrispy sandwich, which was deployed in nearly all major markets by the end of 2025 and the extension of the McCrispy brand into strips and wraps in several markets. These innovations and new menu offerings reflect the Company's ability to meet evolving customer preferences. The Company also continues to see a significant opportunity with beverages to drive long-term growth.

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

◦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 our mobile app and receive McDonald's food through the channel of their choice. We are also providing increased convenience to customers through “Ready on Arrival”; a digital enhancement that enables crew to begin assembling a customer's mobile order prior to arrival at the restaurant to expedite service and elevate customer satisfaction. The Company successfully deployed this initiative in its top six markets by the end of 2025. The Company has loyalty programs in 70 markets, including nearly all major markets. McDonald's loyalty customers have proven to be highly engaged, and the Company plans to increase its 90-day active users to 250 million by the end of 2027. Further, the Company plans to grow its annual Systemwide sales to loyalty members to $45.0 billion by the end of 2027.

◦Delivery: The Company offers delivery from over 41,000 restaurants across approximately 100 markets, representing approximately 90% of McDonald's restaurants. The Company is continuing to bu

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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 owned and 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. 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. 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 owned and operated by the Company or by franchisees. Systemwide sales to loyalty members are comprised of all sales to customers who self-identify as a loyalty member when transacting with both Company-owned and operated and franchised restaurants. Systemwide sales to loyalty members are measured across 70 markets with loyalty programs. Systemwide sales to loyalty members represents an aggregation of the prior four quarters of sales to loyalty members active in the last 90 days of the respective quarter. 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-owned and 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.

McDonald's Corporation 2025 Annual Report 7

2025 FINANCIAL PERFORMANCE

In 2025, global comparable sales increased 3.1%.

•Comparable sales in the U.S. increased 2.1%, benefiting from average check growth.

•Comparable sales in the International Operated Markets increased 3.2%, reflecting positive comparable sales in nearly all markets, led by Germany and Australia.

•Comparable sales in the International Developmental Licensed Markets increased 4.6%. Positive comparable sales were led by Japan, with all geographic regions reflecting positive comparable sales.

Earnings and cash flow growth rates presented below were impacted in 2025 and 2024 by restructuring charges associated with Accelerating the Organization. Additionally, 2024 results were also impacted by net charges primarily consisting of transaction costs, property sale gains and non-cash impairment charges associated with the sale of McDonald's business in South Korea and transaction costs associated with the acquisition of McDonald's business in Israel.

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 2025:

•Consolidated revenues increased 4% (2% in constant currencies) to $26.9 billion.

•Systemwide sales increased 7% (5% in constant currencies) to $139.4 billion.

•Consolidated operating income increased 6% (4% in constant currencies) to $12.4 billion.

•Operating margin, defined as operating income as a percent of total revenues, increased from 45.2% in 2024 to 46.1% in 2025.

•Diluted earnings per share of $11.95 increased 5% (4% in constant currencies).

•Cash provided by operations was $10.6 billion, a 12% increase from the prior year.

•Capital expenditures of $3.4 billion were mainly allocated to new restaurant openings and, to a lesser extent, to reinvestment in existing restaurants.

•Free cash flow was $7.2 billion, an 8% increase from the prior year.

•Across the System, nearly 2,300 new restaurants (including those in our developmental licensee and affiliated markets) were opened.

•The Company increased its quarterly cash dividend per share by 5% to $1.86 for the fourth quarter, equivalent to an annual dividend of $7.44 per share. The Company returned a total of $7.1 billion to shareholders through dividends and share repurchases in 2025.

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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. Our Strategy reflects the Company’s purpose, mission and values, as well as 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 our 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 continue to be scaled around the globe to connect with customers in authentic and relatable ways. The Company is committed to a marketing strategy that highlights value at every tier of the menu, as providing delicious and affordable menu options remains a cornerstone of the McDonald’s brand. This includes everyday low-price options on our menu, affordable meal bundles, limited-time deals and personalized value and digital offers available in our mobile app.

•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 some 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 continue to implement “Best Burger”; a series of operational and formulation changes designed to deliver hotter, juicier, tastier burgers to nearly all markets by the end of 2026. Further, the Company is focused on continuing to gain share in the rapidly growing chicken category, as we continue to aggressively grow our chicken brands. This includes offering the McCrispy sandwich, which was deployed in nearly all major markets by the end of 2025 and the extension of the McCrispy brand into strips and wraps in several markets. These innovations and new menu offerings reflect the Company's ability to meet evolving customer preferences. The Company also continues to see a significant opportunity with beverages to drive long-term growth.

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

◦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 our mobile app and receive McDonald's food through the channel of their choice. We are also providing increased convenience to customers through “Ready on Arrival”; a digital enhancement that enables crew to begin assembling a customer's mobile order prior to arrival at the restaurant to expedite service and elevate customer satisfaction. The Company successfully deployed this initiative in its top six markets by the end of 2025. The Company has loyalty programs in 70 markets, including nearly all major markets. McDonald's loyalty customers have proven to be highly engaged, and the Company plans to increase its 90-day active users to 250 million by the end of 2027. Further, the Company plans to grow its annual Systemwide sales to loyalty members to $45.0 billion by the end of 2027.

◦Delivery: The Company offers delivery from nearly 41,000 restaurants across approximately 100 markets, representing approximately 90% of McDonald's restaurants. The Company is continuing to build on and enhance the delivery experience for customers, including adding the ability to place a delivery order in our mobile app (a feature that is currently available in five of the Company’s top markets). The Company continues to scale this capability and expects to increase the percentage of Systemwide delivery sales originating from our mobile app to 30% by the end of 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 has the most drive thru locations worldwide, with nearly 29,000 drive thru locations globally, including over 95% of the approximately 13,700 locations in the U.S. This channel remains a competitive advantage in meeting customers’ demand for flexibility and choice. McDonald’s network currently provides unmatched scale and convenience for customers, while also offering significant growth opportunities, such as adding additional drive thru lanes to increase capacity and improve speed and efficiency. 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 will include a drive thru.

◦Restaurant Development: The Company will continue to accelerate the pace of restaurant openings to attempt to fully capture the demand being driven through our Strategy in many of our largest markets. In 2026, the Company plans to open approximately 2,600 new restaurants (gross) across the globe, which will contribute to slightly over 4.5% new unit growth (net of closures). Further, the Company continues to build on its industry-leading development, by progressing toward the targeted expansion to 50,000 restaurants by the end of 2027, which would make it the fastest period of restaurant unit growth in Company history.

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FOUNDATION AND PLATFORMS

Foundational to our Strategy is keeping the customer and restaurant crew at the center of everything the Company does, along with focusing relentlessly on running great restaurants, empowering our people and continuing to modernize our ways of working. Further, as part of the Company’s plans for long term growth and solidifying McDonald’s leadership position, the Company will continue to develop and implement three technology-enabled platforms designed to build our competitive advantages, cement our place in culture and stay one step ahead of our customers’ expectations. 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 building one of the world’s largest consumer platforms to fuel engagement, which will bring together the best of our brand and utilize our physical and digital competitive advantages. The consumer platform will enable the Company to accelerate growth in our loyalty program and drive valuable loyalty customers to visit more frequently.

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

•Company: The Company is building a modern company platform, through our Global Business Services (GBS) organization, that unlocks speed and innovation throughout the organization, to enable further growth as it modernizes the way it works by focusing on becoming faster, more innovative and more efficient at solving problems for its customers and people.

Our Strategy is aligned with the Company’s capital allocation philosophy of: (i) invest in opportunities to grow the business and drive strong returns, including both capital expenditures as well as investments in technology, digital, and our GBS organization, (ii) prioritize our dividend and (iii) repurchase shares with remaining free cash flow over time.

The Company believes our Strategy builds on our inherent strengths by harnessing the Company’s competitive advantages while leveraging its size, scale, agility and the power of the McDonald’s brand to adapt and adjust to meet customer demands in varying economic environments, including the current industry-wide challenges associated with more discerning consumer spending. Our Strategy is supported by a strong global senior leadership team aimed at executing against the MCD growth pillars, further developing our three platforms and driving long-term growth through increasing guest counts and growing industry market share.

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OUTLOOK

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

•The Company expects net restaurant unit expansion will contribute approximately 2.5% to 2026 Systemwide sales growth, in constant currencies.

•The Company expects full year 2026 Selling, general and administrative expenses of about 2.2% of Systemwide sales.

•The Company expects 2026 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 2026 to increase between 4% and 6% driven primarily by higher average interest rates.

•The Company expects the effective income tax rate for the full year 2026 to be between 21% and 23%. Some volatility may result in a quarterly tax rate outside of the annual range.

•The Company expects 2026 capital expenditures to be between $3.7 and $3.9 billion, with the majority directed towards new restaurant unit expansion across the U.S. and International Operated Markets. Globally, the Company expects to open approximately 2,600 restaurants in 2026, with about 750 restaurants opening in the U.S. and International Operated Markets, and developmental licensees and affiliates contributing capital towards more than 1,800 restaurant openings in their respective markets. The Company expects approximately 2,100 net restaurant additions in 2026. The Company also expects a sequential increase in capital expenditures of about $300 million to $500 million for 2027, targeting 50,000 global units by the end of 2027.

•The Company expects to achieve a free cash flow conversion rate in the low-to-mid 80% range for 2026.

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CONSOLIDATED OPERATING RESULTS

The following discussion should be read in conjunction with the Consolidated Financial Statements and accompanying notes beginning on page 38 of this Form 10-K. This section generally discusses 2025 and 2024 items and the year-to-year comparisons between the years ended December 31, 2025 and 2024. Discussions of 2023 items and the year-to-year comparisons between the years ended December 31, 2024 and 2023 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, 2024, filed with the SEC on February 25, 2025.

Certain columns and rows in financial tables within management's discussion and analysis of financial condition and results of operations may not add due to rounding. Percentages have been calculated from the underlying whole-dollar amounts for all periods presented.

IMPACT OF FOREIGN CURRENCY TRANSLATION

The impact of foreign currency translation on consolidated operating results in 2025 primarily reflected the strengthening of most major currencies against the U.S. Dollar, partly offset by the weakening of the Australian Dollar and Canadian 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.

Impact of foreign currency translation on reported results

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NET INCOME AND DILUTED EARNINGS PER COMMON SHARE

In 2025, net income increased 4% (3% in constant currencies) to $8,563 million and diluted earnings per common share increased 5% (4% in constant currencies) to $11.95. Foreign currency translation had a positive impact of $0.16 on diluted earnings per share.

2025 results included:

•Net pre-tax charges of $229 million, or $0.25 per share, primarily related to restructuring charges associated with the Company's internal effort to modernize ways of working (Accelerating the Organization)

2024 results included:

•Pre-tax charges of $221 million, or $0.25 per share, primarily related to restructuring charges associated with Accelerating the Organization

•Net pre-tax charges of $70 million, or $0.08 per share, which primarily consisted of transaction costs, property sale gains and non-cash impairment charges associated with the sale of McDonald's business in South Korea and transaction costs associated with the acquisition of McDonald's business in Israel

Outlined below is additional information for the full year 2025 and 2024:

The increase in 2025 net income and diluted earnings per common share was primarily driven by higher sales-driven Franchised margins.

The Company repurchased 6.7 million shares of its stock for $2.0 billion in 2025 and 10.1 million shares of its stock for $2.8 billion in 2024.

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REVENUES

The Company's revenues consist of fees from restaurants owned and operated by franchisees, developmental licensees and affiliates and sales by Company-owned and operated restaurants. 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 primarily comprised of fees paid by franchisees to recover a portion of costs incurred by the Company for various technology and digital platforms and revenues from brand licensing arrangements to market and sell consumer packaged goods using the McDonald’s brand.

Franchised restaurants represented approximately 95% of McDonald's restaurants worldwide at December 31, 2025. 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.

n/m Not meaningful

In 2025, total Franchised revenues and Company-owned and operated sales increased 3% (1% in constant currencies) benefiting from positive sales performance in the International Operated Markets. Revenue growth in the U.S. was driven by positive franchised sales performance, partly offset by negative Company-owned and operated sales performance. International Developmental Licensed Markets & Corporate revenues was impacted by the prior year sale of McDonald's business in South Korea, partly offset by the prior year acquisition of McDonald's business in Israel and positive sales performance.

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

*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.

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Franchised sales are not recorded as revenues by the Company, but are the basis on which the Company calculates and records franchised revenues and are indicative of the financial health of the franchisee base. The following table presents franchised sales and the related increases/(decreases):

Franchised sales

RESTAURANT MARGINS

Franchised restaurant margins are measured as revenues from franchised restaurants less franchised restaurant occupancy costs. 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-owned and operated restaurant margins are measured as sales from Company-owned and operated restaurants less costs for food & paper, payroll & employee benefits and occupancy & other operating expenses necessary to run an individual restaurant. Company-owned and 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

n/m Not meaningful

In 2025, total restaurant margins increased 5% (3% in constant currencies), which benefited from sales-driven growth in the International Operated Markets and sales-driven Franchised margins in the U.S. and International Developmental Licensed Markets & Corporate, partly offset by negative Company-owned and operated sales performance in the U.S.

Franchised margins represented approximately 90% of restaurant margin dollars.

Company-owned and operated margins reflected the impact of ongoing inflationary cost pressures in the U.S. and the International Operated Markets. The U.S. was impacted by negative sales performance for the year, while the International Operated Markets reflected sales-driven growth.

Total restaurant margins included depreciation and amortization expense of $1.7 billion and $1.6 billion for 2025 and 2024, respectively.

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SELLING, GENERAL & ADMINISTRATIVE EXPENSES

Selling, general & administrative expenses

(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 2025, consolidated selling, general and administrative expense increased 6% (6% in constant currencies), primarily reflecting higher employee costs, including incentive-based compensation.

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

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OTHER OPERATING (INCOME) EXPENSE, NET

Other operating (income) expense, net

•Gains on sales of restaurant businesses

Gains on sales of restaurant businesses increased primarily due to more sales of restaurants in the International Operated Markets and the U.S.

•Impairment and other charges (gains), net

In 2025, impairment and other charges (gains), net reflected pre-tax charges of $229 million, primarily related to restructuring charges associated with the Company's internal effort to modernize ways of working (Accelerating the Organization).

In 2024, impairment and other charges (gains), net reflected pre-tax charges of $221 million, primarily related to restructuring charges

associated with Accelerating the Organization and net pre-tax charges of $70 million, primarily consisting of transaction costs, property sale gains and non-cash impairment charges associated with the sale of McDonald's business in South Korea and transaction costs associated with the acquisition of McDonald's business in Israel.

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OPERATING INCOME

Operating income

Operating income reconciliation*

*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 increased 6% (4% in constant currencies). Excluding the current and prior year charges shown in the table above, operating income increased 5% (3% in constant currencies) for 2025. Results primarily reflected positive operating results, primarily due to higher sales-driven Franchised margins across all segments, partly offset by higher Selling, general, and administrative expenses in the International Developmental Licensed Markets & Corporate and the International Operated Markets.

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-owned and operated restaurants. Additionally, temporary restaurant closures, which vary by segment, impact the contribution of each segment to the consolidated operating margin.

NON-GAAP OPERATING MARGIN PERCENT ROLL-FORWARD*

*Refer to the Operating Income section on page 18 in this Form 10-K for details regarding operating margin percent for 2025 and 2024.

**Refer to the Operating Income section on page 18 of the Company's Form 10-K for the year ended December 31, 2023.

McDonald's Corporation 2025 Annual Report 18

INTEREST EXPENSE

Interest expense increased 5% (4% in constant currencies) and 11% (11% in constant currencies) in 2025 and 2024, respectively. Results in 2025 reflected the impact of foreign currency translation and higher average interest rates.

NONOPERATING (INCOME) EXPENSE, NET

Nonoperating (income) expense, net

In 2025, Interest income decreased due to lower average cash balances and lower average interest rates.

PROVISION FOR INCOME TAXES

In 2025 and 2024, the reported effective income tax rates were 21.4% and 20.5%, respectively.

Results for 2024 reflected discrete income tax benefits related to restructuring initiatives.

Consolidated deferred tax assets, net of valuation allowance, were $7.4 billion in 2025 and $7.0 billion in 2024. Substantially all of the net deferred tax assets are expected to be realized in the U.S. and other profitable markets.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Recently issued accounting pronouncements are included on page 45 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 $10.6 billion in 2025, an increase of $1.1 billion driven by favorable working capital movement and improved operating results. Free cash flow was $7.2 billion in 2025, a decrease of $510 million or 8%. The Company’s free cash flow conversion rate was 84% in 2025 and 81% in 2024.

Cash used for investing activities totaled $3.8 billion in 2025, a decrease of $1.5 billion compared with 2024. The decrease was primarily due to the Company's increased ownership stake in Grand Foods Holding in 2024.

Cash used for financing activities totaled $7.1 billion in 2025, down slightly compared with 2024. The decrease was primarily due to lower Treasury stock purchases in the current year.

The Company’s cash and equivalents balance was $774 million and $1,085 million at year end 2025 and 2024, 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.

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RESTAURANT DEVELOPMENT AND CAPITAL EXPENDITURES

In 2025, the Company opened 2,276 restaurants and closed 396 restaurants. In 2024, the Company opened 2,116 restaurants and closed 461 restaurants. The increase in openings in 2025 is a result of the Company's Restaurant Development growth pillar under our Accelerating the Arches Strategy.

Systemwide restaurants at year end

RESTAURANTS BY SEGMENT

Approximately 95% of the restaurants at year-end 2025 were franchised, including 95% in the U.S., 89% in the International Operated Markets and 99% in the International Developmental Licensed Markets.

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Capital expenditures increased $590 million or 21% in 2025 primarily due to increased investment in restaurant openings as a result of the Company's Restaurant Development growth pillar under our Accelerating the Arches Strategy.

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, 2025 and 2024, the Company owned approximately 56% of the land and approximately 80% of the buildings for restaurants in its consolidated markets.

SHARE REPURCHASES AND DIVIDENDS

In 2025, the Company returned approximately $7.1 billion to shareholders through a combination of dividends paid and shares repurchased.

Shares repurchased and dividends

On November 21, 2024, the Company's Board of Directors approved a share repurchase program, effective January 1, 2025 with no specified expiration date, that authorized the purchase of up to $15.0 billion of the Company's outstanding common stock. In 2025, approximately 6.7 million shares were repurchased for $2.0 billion under the program.

The Company has paid dividends on its common stock for 50 consecutive years and has increased the dividend amount every year. The 2025 full year dividend of $7.17 per share reflects the quarterly dividend paid for each of the first three quarters of $1.77 per share, with an increase to $1.86 per share paid in the fourth quarter. This 5% increase in the quarterly dividend equates to a $7.44 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.

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FINANCIAL POSITION AND CAPITAL RESOURCES

TOTAL ASSETS AND RETURN

Total assets increased $4.3 billion or 8% in 2025, primarily due to the impact of foreign currency translation and an increase in Net property and equipment. Net property and equipment increased $2.9 billion in 2025, primarily due to increased capital expenditures as a result of the Company's Restaurant Development growth pillar under our Accelerating the Arches strategy.

The Company’s after-tax ROIC from continuing operations is a metric that management believes measures capital-allocation effectiveness over time and was 20.3%, 21.8% and 25.2% as of December 31, 2025, 2024, and 2023, 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, 2025 totaled $40.0 billion, compared with $38.4 billion at December 31, 2024. The net increase in 2025 was primarily due to the impact of changes in exchange rates on foreign currency denominated debt.

Debt highlights(1)

(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 61 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. On November 21, 2024, the Company's Board of Directors authorized $15.0 billion of borrowing capacity with no specified expiration date, of which $10.3 billion remained available as of December 31, 2025, with no specified expiration date. 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 61 of this Form 10-K).

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 $15.6 billion and $13.2 billion for the years ended December 31, 2025 and 2024, 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 48 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, 2025, the Company was required to post $79 million of collateral due to the negative fair value of certain derivative positions.

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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

The Company analyzed its portfolio of 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 2025 levels nor a 10% adverse change in foreign currency rates from 2025 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 in both the short-term and long-term.

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 68% 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 53 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 $15.0 billion of borrowing capacity in various forms by the Board of Directors, of which $10.3 billion remained available as of December 31, 2025, with no specified expiration date. 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 22 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 54 and the Debt Financing footnote on page 61 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 60 and the Income Taxes footnote on page 58 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-owned and 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 $85 million at December 31, 2025. These guarantees are contingent commitments generally issued by the Company to support borrowing arrangements of the System. At December 31, 2025, there was no carrying value for obligations under these guarantees in the Consolidated Balance Sheet.

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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 45 of this Form 10-K and the Property and Equipment footnote on page 53 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 46 of this Form 10-K and the Leasing Arrangements footnote on page 54 of this Form 10-K for additional information.

•Long-lived assets impairment review

Long-lived assets are reviewed for impairment indicators 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 judgments 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 46 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 55 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 47 of this Form 10-K and the Income Taxes footnote on page 58 of this Form 10-K for additional information.

EFFECTS OF CHANGING PRICES — INFLATION

Although broader inflationary pressures in the economy continue to ease, the challenges of an inflationary environment still exist. The Company has demonstrated an ability to manage these inflationary pressures 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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