MCDONALDS CORP (MCD) FY 2024 MD&A

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. 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 owned and 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-owned and operated and franchised restaurants. Systemwide sales to loyalty members are measured across 60 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.

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2024 FINANCIAL PERFORMANCE

In 2024, global comparable sales decreased 0.1%.

•Comparable sales in the U.S. increased 0.2%, benefiting from average check growth, partly offset by negative comparable guest counts.

•Comparable sales in the International Operated Markets segment decreased 0.2%, reflecting mixed results across the markets. Negative comparable sales across some markets, led by France, was partly offset by positive comparable sales in most markets.

•Comparable sales in the International Developmental Licensed Markets segment decreased 0.3%. The continued impact of the war in the Middle East and negative comparable sales in China more than offset positive comparable sales in Latin America and Japan.

Earnings and cash flow growth rates presented below were impacted in 2024 by restructuring charges associated with Accelerating the Organization and 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. Additionally, 2023 results were impacted by charges related to the Company's Accelerating the Arches growth strategy, including restructuring charges associated with Accelerating the Organization, and charges related to the write-off of impaired software no longer in use.

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 2024:

•Consolidated revenues increased 2% (2% in constant currencies) to $25.9 billion.

•Systemwide sales increased 1% (2% in constant currencies) to $130.7 billion.

•Consolidated operating income increased 1% (1% in constant currencies) to $11.7 billion.

•Operating margin, defined as operating income as a percent of total revenues, decreased from 46% in 2023 to 45% in 2024.

•Diluted earnings per share of $11.39 decreased 1% (1% in constant currencies).

•Cash provided by operations was $9.4 billion, a 2% decrease from the prior year.

•Capital expenditures of $2.8 billion were mainly allocated to new restaurant openings and, to a lesser extent, to reinvestment in existing restaurants.

•Free cash flow was $6.7 billion, an 8% decrease from the prior year.

•Across the System, over 2,100 new restaurants (including those in our developmental licensee and affiliated markets) were opened.

•The Company increased its quarterly cash dividend per share by 6% to $1.77 for the fourth quarter, equivalent to an annual dividend of $7.08 per share. The Company returned a total of $7.7 billion to shareholders through dividends and share repurchases in 2024.

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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 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 plans to offer the McCrispy sandwich in nearly all markets by the end of 2025 and to extend the McCrispy brand into strips and wraps in several markets. These planned innovations and new menu offerings reflect the Company’s ability to meet evolving customer preferences. The Company also continues to see a significant opportunity with beverages, such as coffee, demonstrated by markets leveraging the McCafé brand, customer experience, value and quality 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. In the U.S., we are 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 plans to deploy this initiative in its top six markets by the end of 2025. The Company has successful loyalty programs in 60 markets, 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 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 38,000 restaurants across approximately 100 markets, representing nearly 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 28,000 drive thru locations globally, including over 95% of the over 13,500 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 2025, the Company plans to open about 2,200 new restaurants across the globe, which will contribute to slightly over 4% 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 stability; 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

2025 Outlook

Based on current conditions, the following is provided to assist in forecasting the Company's future results for 2025.

•The Company expects net restaurant unit expansion will contribute slightly over 2% to 2025 Systemwide sales growth, in constant currencies.

•The Company expects full year 2025 Selling, general and administrative expenses of about 2.2% of Systemwide sales.

•The Company expects 2025 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 2025 to increase between 4% and 6% driven primarily by higher average debt balances and higher average interest rates.

•The Company expects the effective income tax rate for the full year 2025 to be between 20% and 22%. Some volatility may result in a quarterly tax rate outside of the annual range.

•The Company expects 2025 capital expenditures to be between $3.0 and $3.2 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 2,200 restaurants. The Company expects to open about 600 restaurants in the U.S. and International Operated Markets segments, and that developmental licensees and affiliates will contribute capital towards about 1,600 restaurant openings in their respective markets. The Company expects nearly 1,800 net restaurant additions in 2025.

•The Company expects to achieve a free cash flow conversion rate in the low-to-mid 80% 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;

•Sequential increases in capital expenditures 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 targeted to be in the 90% range, with the conversion percentage likely below this target during a period of heightened investments.

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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 39 of this Form 10-K. This section generally discusses 2024 and 2023 items and the year-to-year comparisons between the years ended December 31, 2024 and 2023. Discussions of 2022 items and the year-to-year comparisons between the years ended December 31, 2023 and 2022 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, 2023, filed with the SEC on February 22, 2024.

In the first quarter of 2024, the Company changed its rounding presentation to the nearest whole number in millions of reported amounts, except per share data or as otherwise designated. The change in rounding presentation has been applied to all prior year amounts presented. In certain circumstances, this change adjusted previously reported balances, however, these changes were not significant, and no other changes were made to previously reported financial information. Additionally, 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 the War in the Middle East

The Company’s Systemwide sales and revenue have continued to be 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 until the war concludes and the macroeconomic conditions recover. 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.

n/m Not meaningful

IMPACT OF FOREIGN CURRENCY TRANSLATION

The impact of foreign currency translation on consolidated operating results in 2024 primarily reflected the weakening of most major currencies against the U.S. Dollar, partly offset by the strengthening of the British Pound.

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.

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Impact of foreign currency translation on reported results

NET INCOME AND DILUTED EARNINGS PER COMMON SHARE

In 2024, net income decreased 3% (2% in constant currencies) to $8.2 billion and diluted earnings per common share decreased 1% (1% in constant currencies) to $11.39. Foreign currency translation had a negative impact of $0.06 on diluted earnings per share.

2024 results included:

•Pre-tax charges of $221 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)

•Net pre-tax charges of $70 million, or $0.08 per share, 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

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 charges associated with 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

Outlined below is additional information for the full year 2024 and 2023:

The decrease in 2024 net income and diluted earnings per common share was primarily driven by higher interest expense, a higher effective tax rate and lower non-operating income, partly offset by higher sales-driven Franchised margins and lower weighted-average shares outstanding.

The Company repurchased 10.1 million shares of its stock for $2.8 billion in 2024 and 11.1 million shares of its stock for $3.1 billion in 2023.

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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 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, 2024. The Company's heavily franchised business model is designed to generate stable and predictable revenue, which is largely a function of franchisee sales, and resulting cash flow streams. In 2024, the Company provided an immaterial amount of assistance, including royalty relief and/or deferral of cash collection for certain franchisees.

In 2024, total Franchised revenues and Company-owned and operated sales increased 1% (1% in constant currencies) benefiting from positive franchised sales performance in the U.S. and International Operated Markets segment. Revenue growth in the International Developmental Licensed Markets & Corporate segment benefited from the acquisition of McDonald's business in Israel and positive sales performance in the segment, partly offset by the sale of McDonald's business in South Korea.

TOTAL REVENUES BY SEGMENT

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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.

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

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RESTAURANT MARGINS

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

Company-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 2024, total restaurant margins increased 1% (1% in constant currencies), which benefited from sales-driven growth in the International Operated Markets segment and sales-driven franchised margins in the U.S., 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 negative sales performance in the U.S. and positive sales performance in the International Operated Markets segment. Both segments were also impacted by ongoing inflationary cost pressures.

Total restaurant margins included $1.6 billion of depreciation and amortization expenses in 2024.

RESTAURANT MARGINS BY TYPE (In millions)

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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 2024, consolidated selling, general and administrative expense increased 1% (1% in constant currencies), primarily reflecting investments in digital and technology, including transformation efforts, related to Accelerating the Organization and costs related to the 2024 Worldwide Owner/Operator convention, partly offset by lower incentive-based compensation.

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

•Asset dispositions and other (income) expense, net

Asset dispositions and other (income) expense, net reflected higher asset write-offs in 2024, whereas 2023 included higher property sale gains.

•Impairment and other charges (gains), net

In 2024, impairment and other charges (gains), net reflected pre-tax charges of $221 million, primarily related to restructuring charges associated with the Company's internal effort to modernize ways of working (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.

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

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 1% (1% in constant currencies). Excluding the current and prior year charges shown in the table above, operating income was flat (flat in constant currencies) for 2024. Results primarily reflected lower sales-driven Company-owned and operated margins in the U.S., partly offset by positive operating results in the International Operated Markets segment primarily due to sales-driven growth in Franchised margins and positive operating results in the International Developmental Licensed Markets & Corporate segment primarily due to positive sales performance.

•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.

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OPERATING INCOME BY SEGMENT*

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

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 2024 and 2023.

**Refer to the Operating Income section on page 17 of the Company's Form 10-K for the year ended December 31, 2022.

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INTEREST EXPENSE

Interest expense increased 11% (11% in constant currencies) and 13% (13% in constant currencies) in 2024 and 2023, respectively. Results in 2024 reflected higher average interest rates and higher average debt balances.

NONOPERATING (INCOME) EXPENSE, NET

Nonoperating (income) expense, net

In 2024, Interest income decreased due to lower average cash balances.

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

PROVISION FOR INCOME TAXES

In 2024 and 2023, the reported effective income tax rates were 20.5% and 19.5%, respectively.

Results for 2023 reflected income tax benefits primarily related to global audit progression and deferred tax adjustments.

Consolidated deferred tax assets, net of valuation allowance, were $7.0 billion in 2024 and $6.9 billion in 2023. Substantially all of the net deferred tax assets are expected to be realized in the U.S. and other profitable markets.

As of December 31, 2024, 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. The enactment did not have a material impact on the Company's 2024 consolidated financial statements. We will continue to evaluate and monitor as additional guidance becomes available.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Recently issued accounting pronouncements are included on page 46 of this Form 10-K.

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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 $9.4 billion in 2024, down slightly compared to 2023 in line with operating results. Free cash flow was $6.7 billion in 2024, a decrease of $580 million or 8%. The Company’s free cash flow conversion rate was 81% in 2024 and 86% in 2023.

Cash used for investing activities totaled $5.3 billion in 2024, an increase of $2.1 billion compared with 2023. The increase was primarily due to the Company's increased ownership stake in McDonald's China business, the acquisition of McDonald's business in Israel and higher capital expenditures due to restaurant development initiatives.

Cash used for financing activities totaled $7.5 billion in 2024, an increase of $3.1 billion compared with 2023. The increase was primarily due to decreased bond issuances in the current year.

The Company’s cash and equivalents balance was $1.1 billion and $4.6 billion at year end 2024 and 2023, respectively. The higher cash balance in 2023 reflected the timing of certain debt issuances associated with the Company's required uses of cash in 2024. 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.

RESTAURANT DEVELOPMENT AND CAPITAL EXPENDITURES

In 2024, the Company opened 2,116 restaurants and closed 461 restaurants. In 2023, the Company opened 2,067 restaurants and closed 520 restaurants. The increase in openings in 2024 is a result of the Company's Restaurant Development growth pillar under our Accelerating the Arches Strategy.

Systemwide restaurants at year end

RESTAURANTS BY OWNERSHIP TYPE

Approximately 95% of the restaurants at year-end 2024 were franchised, including 95% in the U.S., 89% in the International Operated Markets segment and 99% in the International Developmental Licensed Markets segment.

Capital expenditures increased $418 million or 18% in 2024 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.

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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, 2024 and 2023, the Company owned approximately 56% and 57%, respectively, of the land and approximately 80% of the buildings for restaurants in its consolidated markets.

SHARE REPURCHASES AND DIVIDENDS

In 2024, the Company returned approximately $7.7 billion to shareholders through a combination of dividends paid and shares repurchased.

Shares repurchased and dividends

On December 31, 2019, the Company's Board of Directors approved a share repurchase program, effective January 1, 2020 ("2020 Program") with no specified expiration date, that authorized the purchase of up to $15.0 billion of the Company's outstanding common stock. In 2024, approximately 10.1 million shares were repurchased for $2.8 billion, bringing total purchases under the program to approximately 44.7 million shares or $11.5 billion. On November 21, 2024, the Company's Board of Directors terminated the 2020 Program, effective December 31, 2024, and replaced it with a new share repurchase program, effective January 1, 2025 ("2025 Program"), that authorized the purchase of up to $15.0 billion of the Company's outstanding common stock with no specified expiration date.

The Company has paid dividends on its common stock for 49 consecutive years and has increased the dividend amount every year. The 2024 full year dividend of $6.78 per share reflects the quarterly dividend paid for each of the first three quarters of $1.67 per share, with an increase to $1.77 per share paid in the fourth quarter. This 6% increase in the quarterly dividend equates to a $7.08 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 decreased $965 million or 2% in 2024, primarily due to a decrease in Cash and equivalents driven by higher cash used for financing activities as a result of decreased net debt issuances in the current year. Net property and equipment increased $387 million in 2024, 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 21.8%, 25.2% and 22.6% as of December 31, 2024, 2023, and 2022, 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, 2024 totaled $38.4 billion, compared with $39.3 billion at December 31, 2023. The net decrease in 2024 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 62 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 $15.0 billion of borrowing capacity with no specified expiration date, of which $7.4 billion remained available as of December 31, 2024. In November 2024, the Company's Board of Directors terminated the 2022 borrowing authority and authorized a new $15.0 billion of borrowing capacity, effective January 1, 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 62 of this Form 10-K). As of December 31, 2024, the Company's subsidiaries also had $7 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 $13.2 billion and $15.1 billion for the years ended December 31, 2024 and 2023, 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 49 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, 2024, the Company was required to post $21 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 2024 levels nor a 10% adverse change in foreign currency rates from 2024 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 66% 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 54 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 $7.4 billion remained available as of December 31, 2024. In November 2024, the Company's Board of Directors terminated the 2022 borrowing authority and authorized a new $15.0 billion of borrowing capacity, effective January 1, 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 23 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 55 and the Debt Financing footnote on page 62 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 61 and the Income Taxes footnote on page 59 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 $111 million at December 31, 2024. These guarantees are contingent commitments generally issued by the Company to support borrowing arrangements of the System. At December 31, 2024, 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 46 of this Form 10-K and the Property and Equipment footnote on page 54 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 47 of this Form 10-K and the Leasing Arrangements footnote on page 55 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 47 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 56 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 48 of this Form 10-K and the Income Taxes footnote on page 59 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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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, 2024. 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, 2019. 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.

Source: S&P Capital IQ

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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, 2025 was estimated to be 4,900,000.

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 49 consecutive years through 2024 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, 2024*:

*    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 $15.0 billion of the Company's outstanding common stock. On November 21, 2024, the Company's Board of Directors terminated the 2020 Program, effective December 31, 2024, and replaced it with a new share repurchase program, effective January 1, 2025, that authorized the purchase of up to $15.0 billion of the Company's outstanding common stock with no specified expiration date. As of December 31, 2024, no further share repurchases may be made under the 2020 Program; future share repurchases will be made pursuant to the 2025 Program.

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