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

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05/08/2017 | 10:15pm CEST


The Company franchises and operates McDonald's restaurants. Of the 36,905
restaurants in 120 countries at March 31, 2017, 31,328 were licensed to
franchisees (comprised of 21,168 franchised to conventional franchisees, 6,800
licensed to developmental licensees and 3,360 licensed to foreign affiliates
("affiliates") - primarily in Japan) and 5,577 were operated by the Company.
Under McDonald's conventional franchise arrangement, franchisees provide a
portion of the capital required by initially investing in the equipment, signs,
seating and décor of their restaurant business, and by reinvesting in the
business over time. The Company generally owns the land and building or secures
long-term leases for both Company-operated and conventional franchised
restaurant sites. This maintains long-term occupancy rights, helps control
related costs and assists in alignment with franchisees enabling restaurant
performance levels that are among the highest in the industry. In certain
circumstances, the Company participates in the reinvestment for conventional
franchised restaurants in an effort to accelerate implementation of certain
Under McDonald's developmental license arrangement, licensees provide capital
for the entire business, including the real estate interest, and the Company
generally has no capital invested. In addition, the Company has an equity
investment in a limited number of affiliates that invest in real estate and
operate or franchise restaurants within a market.
McDonald's 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 his or her own employer
and maintain control over all employment-related matters, marketing and pricing
decisions, while also benefiting from the financial strength and global
experience of McDonald's. However, directly operating restaurants is important
to being a credible franchisor and provides Company personnel with restaurant
operations experience. In Company-operated restaurants, and in collaboration
with franchisees, McDonald's further develops and refines operating standards,
marketing concepts and product and pricing strategies, so that only those that
the Company believes are most beneficial are introduced in the
restaurants. McDonald's continually reviews its mix of Company-operated and
franchised restaurants to help optimize overall performance, with a goal to be
approximately 95% franchised over the long term.
The strength of the alignment among the Company, its franchisees and suppliers
(collectively referred to as the "System") is key to McDonald's long-term
success. By leveraging the System, McDonald's is able to identify, implement and
scale ideas that meet customers' changing needs and preferences. McDonald's
continually builds on its competitive advantages of System alignment and
geographic diversification to deliver consistent, yet locally-relevant
restaurant experiences to customers as an integral part of their communities.
The Company's revenues consist of sales by Company-operated restaurants and fees
from restaurants operated by franchisees. Revenues from conventional franchised
restaurants include rent and royalties based on a percent of sales along with
minimum rent payments, and initial fees. Revenues from restaurants licensed to
affiliates and developmental licensees include a royalty based on a percent of
sales, and generally include initial fees. 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 business is structured into segments that combine markets with similar
characteristics and opportunities for growth, and reflect how management reviews
and evaluates operating performance. Significant reportable segments include the
United States ("U.S."), International Lead Markets and High Growth Markets. In
addition, throughout this report we present the Foundational Markets & Corporate
segment which includes markets in over 80 countries, as well as Corporate
activities. For the quarter ended March 31, 2017, the U.S., the International
Lead Markets and the High Growth Markets accounted for 34%, 29% and 27% of total
revenues, respectively.
Strategic Direction
In 2017, the Company began to shift focus from revitalizing the business to
longer-term growth with the announcement of its customer-centric growth strategy
- the Velocity Growth Plan. This plan outlines actions to drive sustainable
guest count growth, a reliable long-term measure of the Company's strength that
is vital to growing sales and shareholder value. The Company is accelerating
efforts to retain existing customers, regain lapsed customers and convert casual
customers to committed customers and believes that its greatest opportunities
are at the heart of the brand - in its food, value and customer experience.
In an effort to continue to improve food taste and quality, the Company
announced plans to serve fresh quarter-pound beef patties, prepared when
ordered, in U.S. restaurants by mid-2018. In addition, the Company has expanded
its premium beef offerings, including the launch of Signature Crafted sandwiches
in the U.S. and Gourmet Creations in Australia.
To provide a more accessible and personalized customer experience, the Company
is prioritizing the following accelerators designed to drive further growth:
•Experience of the Future ("EOTF"). Focuses on restaurant modernization and
technology, in order to transform the restaurant service experience and drive
incremental customer visits and higher average check.
•Digital. Places renewed emphasis on improving the Company's existing service
model (i.e., eat in, take out, or drive-thru) and strengthens its relationships
with customers by evolving the technology platform to simplify how customers
order, pay and are served



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through additional functionality on its global mobile app and self-order kiosks,
as well as table service and curb-side pick-up. Mobile order and pay will be
launched in 20,000 restaurants in some of our largest markets, including the
U.S. by the end of 2017.
•Delivery. Offers a platform with added convenience, bringing McDonald's food to
customers on their terms. The Company is conducting various pilot tests globally
and plans to scale quickly based on these results. In the U.S., the Company will
expand to additional cities in the second quarter.
Financial Performance
Financial performance in the first quarter reflected meaningful top-line
performance across all segments, as evidenced by an increase in global
comparable sales of 4.0% for the quarter, marking the Company's seventh
consecutive quarter of positive global comparable sales. The Company continues
to enhance the strength and stability of its business by evolving to a more
heavily franchised organization. This shift in ownership structure has reduced
capital and G&A needs going forward, and focuses the Company on driving top-line
In the U.S., first quarter comparable sales increased 1.7%, building upon strong
prior year results that benefited from the launch of All Day Breakfast. The U.S.
continues to strengthen its foundation as it executes strategic menu, value and
convenience initiatives, with first quarter performance benefiting from the
expansion of All Day Breakfast offerings, along with the Big Mac and beverage
value promotions.
Comparable sales for the International Lead segment increased 2.8% for the
quarter, primarily driven by continued momentum in the U.K. and Canada's
successful launch of All Day Breakfast.
In the High Growth segment, comparable sales for the quarter increased 3.8%, led
by strong performance in China and positive results across the entire segment.
The Company also had strong bottom-line performance, as consolidated operating
income benefited from stronger operating performance and G&A savings across all
segments, a gain from the strategic sale of a restaurant property in the U.S.
and improved performance in Japan. The quarter also benefited from lower
depreciation expense, primarily in China and Hong Kong, that in accordance with
accounting rules, met Held for Sale criteria and ceased recording depreciation.
First Quarter 2017 Highlights:
•        Global comparable sales increased 4.0%, reflecting positive comparable
         sales in all segments while up against an extra day in 2016 due to leap

•        Consolidated revenues decreased 4% (3% in constant currencies), due to
         the impact of refranchising

• Consolidated operating income increased 14% (16% in constant currencies)

• Diluted earnings per share of $1.47 increased 18% (19% in constant currencies)

•        Returned $1.6 billion to shareholders through share repurchases and
         dividends in connection with our target to return between $22 and $24
         billion to shareholders for the three-year period ending 2019

While the Company does not provide specific guidance on earnings per share, the
following information is provided to assist in forecasting the Company's future
•        Changes in Systemwide sales are driven by comparable sales and net

restaurant unit expansion. The Company expects net restaurant additions

to add approximately 1 percentage point to 2017 Systemwide sales growth

(in constant currencies).

• The Company does not generally provide specific guidance on changes in

comparable sales. However, as a perspective, assuming no change in cost

structure, a 1 percentage point change in comparable sales for either

the U.S. or the International Lead segment would change annual diluted

earnings per share by about 4 to 5 cents.

• With about 75% of McDonald's grocery bill comprised of 10 different

commodities, a basket of goods approach is the most comprehensive way to

look at the Company's commodity costs. For the full-year 2017, costs for

the total basket of goods are expected to increase about 0.5- 1.5% in

the U.S. and increase about 2.0% in the International Lead segment.

• The Company expects full-year 2017 selling, general and administrative

expenses to decrease about 7-8% in constant currencies with fluctuations

         expected between the quarters. This projected decrease includes
         incentive-based compensation costs of less than $300 million.

•        Based on current interest and foreign currency exchange rates, the

Company expects interest expense for the full-year 2017 to increase

about 5% compared with 2016 due to higher average debt balances.

• A significant part of the Company's operating income is generated

         outside the U.S., and about 35% of its total debt is denominated in
         foreign currencies. Accordingly, earnings are affected by changes in
         foreign currency exchange rates, particularly the Euro, British Pound,

Australian Dollar and Canadian Dollar. Collectively, these currencies




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approximately 70% of the Company's operating income outside the U.S. If all four
of these currencies moved by 10% in the same direction, the Company's annual
diluted earnings per share would change by about 25 cents.
•        The Company expects the effective income tax rate for the full-year 2017

to be in the 31-33% range. Some volatility may result in a quarterly tax

rate outside of the annual range.

• The Company expects capital expenditures for 2017 to be approximately

$1.7 billion, about one-third of which will be used to open new

restaurants. The Company expects to open about 900 restaurants,

including about 500 restaurants in affiliated and developmental licensee

markets where the Company generally does not fund any capital

expenditures. The Company expects net additions of about 400

restaurants. The remaining two-thirds of capital will be used to

reinvest in existing locations, including about 650 reimages in the U.S.

         When combined with previously modernized restaurants that will be
         updated with EOTF elements in 2017, we expect to have about 2,500 EOTF
         restaurants in the U.S. by the end of 2017.

In addition, the Company has certain long-term targets that are detailed in its
Form 10-K for the year ended December 31, 2016.
The Following Definitions Apply to these Terms as Used Throughout this Form
•        Information in constant currency is 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 and bases incentive compensation plans on these results

because they believe this better represents the Company's underlying

business trends.

• Systemwide sales include sales at all restaurants, whether operated by

the Company or by franchisees. 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.

• Comparable sales represent sales at all restaurants and comparable guest

         counts represent the number of transactions at all restaurants, whether
         operated by the Company or by franchisees, in operation at least
         thirteen months including those temporarily closed. Some of the reasons

restaurants may be temporarily closed include reimaging or remodeling,

         rebuilding, road construction and natural disasters. Comparable sales
         exclude the impact of currency translation. Comparable sales are driven
         by changes in guest counts and average check, which is affected by
         changes in pricing and product mix. Typically, pricing has a greater
         impact on average check than product mix. Management reviews the
         increase or decrease in comparable sales and comparable guest counts
         compared with the same period in the prior year to assess business



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                                                   Quarter Ended

Dollars in millions, except per share data March 31, 2017

                                                Amount     (Decrease)


Sales by Company-operated restaurants        $ 3,411.9             (9 )%
Revenues from franchised restaurants           2,264.0              5
Total revenues                                 5,675.9             (4 )
Operating costs and expenses
Company-operated restaurant expenses           2,816.4            (11 )
Franchised restaurants-occupancy expenses        430.1              4
Selling, general & administrative expenses       521.3            (10 )
Other operating (income) expense, net           (125.9 )          n/m
Total operating costs and expenses             3,641.9            (12 )
Operating income                               2,034.0             14
Interest expense                                 218.6              0
Nonoperating (income) expense, net                 7.9            n/m
Income before provision for income taxes       1,807.5             15
Provision for income taxes                       592.7             31
Net income                                   $ 1,214.8              8  %
Earnings per common share-basic              $    1.48             17  %
Earnings per common share-diluted            $    1.47             18  %

n/m Not meaningful



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Impact of Foreign Currency Translation
While changes in foreign currency exchange rates affect reported results,
McDonald's mitigates exposures, where practical, by purchasing goods and
services in local currencies, financing in local currencies and hedging certain
foreign-denominated cash flows. Management reviews and analyzes business results
excluding the effect of foreign currency translation and bases incentive
compensation plans on these results, because the Company believes this better
represents underlying business trends. Results excluding the effect of foreign
currency translation (also referred to as constant currency) are calculated by
translating current year results at prior year average exchange rates.
Dollars in millions, except per share data
                                                                                       Benefit/ (Cost)
Quarters Ended March 31,                                  2017            2016                    2017
Revenues                                             $ 5,675.9$ 5,903.9         $         (42.8 )
Company-operated margins                                 595.5           578.2                    (8.8 )
Franchised margins                                     1,833.9         1,735.3                   (24.7 )
Selling, general & administrative expenses               521.3           578.0                     3.3
Operating income                                       2,034.0         1,780.3                   (31.7 )
Net income                                             1,214.8         1,124.8                   (18.1 )
Earnings per share-diluted                           $    1.47       $    

1.25 $ (0.02 )

The impact of foreign currency translation on consolidated operating results for the quarter primarily reflected the weaker British Pound.

Net Income and Diluted Earnings per Common Share
For the quarter, net income increased 8% (10% in constant currencies) to
$1,214.8 million, and diluted earnings per share increased 18% (19% in constant
currencies) to $1.47. Foreign currency translation had a negative impact of
$0.02 on diluted earnings per share.
Results for the quarter benefited from stronger operating performance and G&A
savings across all segments, a gain from the strategic sale of a restaurant
property in the U.S., and improved performance in Japan. The quarter also
benefited from lower depreciation expense, primarily in China and Hong Kong,
that in accordance with accounting rules, met Held for Sale criteria and ceased
recording depreciation.
Diluted earnings per share benefited from a decrease in diluted weighted-average
shares outstanding due to share repurchases. During the quarter, the Company
repurchased 6.3 million shares of stock for $795.7 million and paid a quarterly
dividend of $0.94 per share, or $770.6 million.



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Revenues consist of sales by Company-operated restaurants and fees from
restaurants operated by franchisees. Revenues from conventional franchised
restaurants include rent and royalties based on a percent of sales along with
minimum rent payments and initial fees. Revenues from franchised restaurants
that are licensed to affiliates and developmental licensees include a royalty
based on a percent of sales and generally include initial fees.
The Company is accelerating the pace of refranchising to optimize its restaurant
ownership mix, generate more stable and predictable revenue and cash flow
streams, and operate with a less resource-intensive structure. The shift to a
greater percentage of franchised restaurants negatively impacts consolidated
revenues as Company-operated sales are replaced by franchised sales, where the
Company receives rent and/or royalty revenue based on a percentage of sales.
Dollars in millions
                                                                              Inc/ (Dec)
Quarters Ended March 31,                2017         2016    Inc/ (Dec)      Translation
Company-operated sales
U.S.                               $   835.6$   966.4           (14 )%           (14 )%
International Lead Markets             941.2      1,051.6           (10 )             (6 )
High Growth Markets                  1,345.3      1,264.8             6                4
Foundational Markets & Corporate       289.8        470.7           (38 )            (40 )
Total                              $ 3,411.9$ 3,753.5            (9 )%            (9 )%
Franchised revenues
U.S.                               $ 1,093.4$ 1,053.5             4  %             4  %
International Lead Markets             702.3        676.9             4                7
High Growth Markets                    191.9        177.4             8               11
Foundational Markets & Corporate       276.4        242.6            14               16
Total                              $ 2,264.0$ 2,150.4             5  %             7  %
Total revenues
U.S.                               $ 1,929.0$ 2,019.9            (5 )%            (5 )%
International Lead Markets           1,643.5      1,728.5            (5 )             (1 )
High Growth Markets                  1,537.2      1,442.2             7                5
Foundational Markets & Corporate       566.2        713.3           (21 )            (21 )
Total                              $ 5,675.9$ 5,903.9            (4 )%            (3 )%

• Revenues: Revenues decreased 4% (3% in constant currencies) for the quarter

    due to the impact of refranchising, partly offset by strong comparable sales.

•       U.S.: Revenues decreased due to the impact of refranchising, partly
        offset by positive comparable sales.

•       International Lead Markets: Revenues decreased due to the impact of
        refranchising, mostly offset by strong comparable sales growth in the
        U.K. and Canada.

• High Growth Markets: Revenues increased due to positive comparable sales

across all markets and expansion in China, partly offset by the impact of




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Comparable Sales and Guest Counts

The following table presents the percent change in comparable sales for the
quarters ended March 31, 2017 and 2016:
                                   Increase/ (Decrease)
Quarters Ended March 31,             2017           2016
U.S.                                  1.7 %          5.4 %
International Lead Markets            2.8            5.2
High Growth Markets                   3.8            3.6
Foundational Markets & Corporate     10.7           11.0
Total                                 4.0 %          6.2 %

On a consolidated basis, comparable guest counts (the number of transactions at
all restaurants, whether operated by the Company or by franchisees, in operation
at least thirteen months, including those temporarily closed) increased 0.6% and
1.8% for the quarters ended 2017 and 2016, respectively.
Systemwide Sales and Franchised Sales
The following table presents the percent change in Systemwide sales for the
quarter ended March 31, 2017:
                                                 Inc/ (Dec)
Quarter Ended March 31, 2017     Inc/ (Dec)     Translation
U.S.                                      2 %             2 %
International Lead Markets                1               4
High Growth Markets                       8               8
Foundational Markets & Corporate         11              12
Total                                     4 %             5 %

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 health of the franchisee base. The following table presents
Franchised sales and the related increases/(decreases):
Dollars in millions
                                                                               Inc/ (Dec)
Quarters Ended March 31,                 2017          2016    Inc/ (Dec)     Translation
U.S.                               $  7,979.2$  7,710.0             3 %             3 %
International Lead Markets            4,042.9       3,905.2             4               6
High Growth Markets                   1,237.1       1,124.8            10              13
Foundational Markets & Corporate      3,999.3       3,376.1            18              20
Total*                             $ 17,258.5$ 16,116.1             7 %             8 %

* Sales from developmental licensed restaurants and foreign affiliated markets

     where the Company earns a royalty based on a percent of sales totaled
     $3,732.0 million and $3,061.8 million for the quarters 2017 and 2016,
     respectively. Results reflected very strong performance in Japan and
     positive performance across many markets. The remaining balance of

franchised sales is derived from conventional franchised restaurants where

the Company earns rent and royalties based primarily on a percent of sales.



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                                                                                                Inc/ (Dec)
                                    Percent                Amount                                Excluding

Quarters Ended March 31, 2017 2016 2017 2016

    Inc/ (Dec)      Translation
U.S.                             81.6 %   82.1 %   $   891.9$   865.3              3  %             3  %
International Lead Markets       79.5     79.1         558.1         535.4              4                7
High Growth Markets              69.4     68.2         133.1         120.9             10               13

Foundational Markets & Corporate 90.7 88.1 250.8 213.7

           17               20
Total                            81.0 %   80.7 %   $ 1,833.9$ 1,735.3              6  %             7  %
U.S.                             15.3 %   14.2 %   $   128.1$   136.8             (6 )%            (6 )%
International Lead Markets       20.1     19.7         189.0         207.6             (9 )             (4 )
High Growth Markets              17.1     13.4         230.3         169.4             36               36

Foundational Markets & Corporate 16.6 13.7 48.1 64.4

          (25 )            (27 )
Total                            17.5 %   15.4 %   $   595.5$   578.2              3  %             5  %

• Franchised: Franchised margin dollars increased $98.6 million or 6% (7% in

constant currencies) for the quarter. The quarter benefited from expansion

     and the impact of refranchising, as well as strong comparable sales

U.S.: The decrease in the franchised margin percent was due to higher

occupancy costs, partly offset by positive comparable sales.

• International Lead Markets: The increase in the franchised margin percent

reflected the benefit from positive comparable sales performance.

• High Growth Markets: The increase in the franchised margin percent was

        due to the impact of refranchising and strong comparable sales
        performance, partly offset by higher occupancy costs.

• Company-operated: Company-operated margin dollars increased $17.3 million or

3% (5% in constant currencies) for the quarter. The quarter benefited by

approximately $42 million due to ceasing depreciation on assets considered

Held for Sale, primarily in China and Hong Kong. The Company expects a

similar benefit at least through the second quarter.

U.S.: The increase in the Company-operated margin percent was due to a
        higher average check mostly driven by promotional activity in the
        quarter, partly offset by higher labor and occupancy costs.

• International Lead Markets: The increase in the Company-operated margin

percent was primarily due to positive comparable sales, partly offset by

higher labor and occupancy costs.

• High Growth Markets: The increase in the Company-operated margin percent

was due to positive comparable sales and improved restaurant

profitability, which benefited from the lower depreciation in China and

Hong Kong, and prior year VAT reform in China. This increase was partly

offset by higher labor costs.

The following table presents Company-operated restaurant margin components as a
percent of sales:
Quarters Ended March 31,                                                2017           2016
Food & paper                                                            31.9 %         32.6 %
Payroll & employee benefits                                             27.8           27.7
Occupancy & other operating expenses                                    22.8           24.3
Total expenses                                                          82.5 %         84.6 %
Company-operated margins                                                17.5 %         15.4 %



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Selling, General & Administrative Expenses • Selling, general and administrative expenses decreased $56.7 million or 10%

(9% in constant currencies) for the quarter. The decrease was primarily due

to lower employee-related costs resulting from the Company's ongoing G&A


• Selling, general and administrative expenses as a percent of Systemwide sales

decreased to 2.5% for 2017 compared with 2.9% for 2016.

Other Operating (Income) Expense, Net
Dollars in millions
Quarters Ended March 31,                                     2017


Gains on sales of restaurant businesses                  $  (60.0 )$ (59.6 )
Equity in (earnings) losses of unconsolidated affiliates    (40.9 )       3.7
Asset dispositions and other (income) expense, net          (24.5 )       9.9
Impairment and other charges (gains), net                    (0.5 )       1.2
Total                                                    $ (125.9 )$ (44.8 )

• Equity in earnings of unconsolidated affiliates increased mainly due to

improved performance in Japan.

• The change in asset dispositions and other income was primarily due to a gain

from the strategic sale of a restaurant property in the U.S. in 2017.

Operating Income
Dollars in millions
Quarters Ended March 31,              2017         2016    Inc/ (Dec)     Translation
U.S.                             $   947.9$   840.2            13 %            13 %
International Lead Markets           666.6        654.2             2               6
High Growth Markets                  300.7        220.9            36              38
Foundational Markets & Corporate     118.8         65.0            83              89
Total                            $ 2,034.0$ 1,780.3            14 %            16 %

• Operating Income: Operating income increased $253.7 million or 14% (16% in

constant currencies) for the quarter.

U.S.: The increase in operating income reflected G&A savings resulting

        from the Company's recent restructuring initiatives, a gain from the
        strategic sale of a restaurant property and higher franchised margin

•       International Lead Markets: The constant currency operating income

increase for the quarter was primarily due to sales-driven improvements

in franchised margin dollars across most markets.

• High Growth Markets: The constant currency operating income increase was

driven by improved restaurant profitability in China and sales-driven

        performance across the segment. The quarter included a benefit of
        approximately $40 million due to the depreciation benefit in China and
        Hong Kong.

• Foundational Markets & Corporate: The constant currency operating income

increase reflected sales-driven improvements in franchised margin dollars

        across most markets and Japan's improved performance.

•   Operating Margin: Operating margin is defined as operating income as a
    percent of total revenues. Operating margin was 35.8% and 30.2% for the
    quarters ended 2017 and 2016, respectively.

Interest Expense • Interest expense was relatively flat for the quarter primarily reflecting

    higher average debt balances in connection with the Company's strategy to
    optimize its capital structure, offset by lower average interest rates.



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Nonoperating (Income) Expense, Net
Dollars in millions
Quarters Ended March 31,               2017        2016
Interest income                       $ 1.8$  (3.8 )

Foreign currency and hedging activity (1.9 ) (12.1 ) Other (income) expense, net

             8.0         1.5
Total                                 $ 7.9$ (14.4 )

Income Taxes • The effective income tax rate was 32.8% and 28.7% for the quarters ended 2017

and 2016, respectively. The higher effective income tax rate in 2017 was

primarily due to changes in tax reserves resulting from audit progression, as

well as current year tax costs associated with the Company's refranchising


Cash Flows and Financial Position
The Company generates significant cash from operations and has substantial
credit capacity to fund operating and discretionary spending such as capital
expenditures, debt repayments, dividends and share repurchases.
Cash provided by operations totaled $1.5 billion and exceeded capital
expenditures by $1.1 billion for the first quarter 2017. Cash provided by
operations decreased $201 million compared with the first quarter 2016,
primarily due to changes in working capital, including higher incentive-based
compensation and income tax payments, partly offset by improved operating
Cash provided by investing activities totaled $138 million for the first quarter
2017, an increase of $394 million compared with the first quarter 2016,
primarily due to proceeds associated with the sale of the Company's existing
businesses in the Nordics.
Cash used for financing activities totaled $0.6 billion for the first quarter
2017, a decrease of $5.4 billion compared with the first quarter 2016, primarily
due to lower treasury stock purchases and an increase in net borrowings.
Debt obligations at March 31, 2017 totaled $27.2 billion compared with $26.0
billion at December 31, 2016. The increase was primarily due to net debt
Recently Issued Accounting Standards
Recently issued accounting standards are discussed in Part I, Item 1, page 9 of
this Form 10-Q.



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Risk Factors and Cautionary Statement Regarding Forward-Looking Statements
The information in this report includes forward-looking statements about future
events and circumstances and their effects upon revenues, expenses and business
opportunities. Generally speaking, any statement in this report not based upon
historical fact is a forward-looking statement. Forward-looking statements can
also be identified by the use of forward-looking words, such as "may," "will,"
"expect," "believe" and "plan" or similar expressions. In particular, statements
regarding our plans, strategies, prospects and expectations regarding our
business and industry, including those under "Outlook", are forward-looking
statements. They reflect our expectations, are not guarantees of performance and
speak only as of the date of this report. Except as required by law, we do not
undertake to update them. Our expectations (or the underlying assumptions) may
change or not be realized, and you should not rely unduly on forward-looking
statements. Our business results are subject to a variety of risks, including
those that are reflected in the following considerations and factors, as well as
elsewhere in our filings with the SEC. If any of these considerations or risks
materialize, our expectations may change and our performance may be adversely
If we do not successfully evolve and execute against our business strategies, we
may not be able to increase operating income.
To drive future results, we must pursue business strategies that are effective
in delivering increased guest counts to drive operating income growth. Whether
these strategies are successful depends mainly on our System's ability to:
•    Continue to innovate and differentiate the McDonald's experience by

preparing and serving our food in a way that balances value and convenience

to our customers with profitability;

• Capitalize on our global scale, iconic brand and local market presence to

enhance our ability to retain, regain and convert key customer groups;

• Utilize our more adaptive organizational structure to execute against our

initiatives at an accelerated pace;

• Strengthen customer appeal and augment our digital initiatives through the

     modernization of our existing restaurants, particularly in the U.S.;

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

• Operate restaurants with high service levels and optimal capacity while

managing the increasing complexity of our restaurant operations.

If we are delayed or unsuccessful in executing our strategies, or if our
strategies do not yield the desired results, our business, financial condition
and results of operations may suffer.
Activities relating to our refranchising and cost savings initiatives remain
ongoing and entail various risks, including the risk that they may not be
successful in achieving improved performance.
Our previously announced refranchising and cost saving initiatives remain
ongoing. As we continue on those initiatives, the existing risks we face in our
business may be intensified. Our efforts to reduce costs and capital
expenditures depend, in part, upon our refranchising efforts, which, in turn,
depend upon our ability to complete pending transactions with capable third
parties. Our cost savings initiatives also depend upon a variety of factors,
including our ability to achieve efficiencies through the consolidation of
global, back-office functions. If these various initiatives are not successful,
take longer to complete than initially projected, or are not well executed, or
if our cost reduction efforts adversely impact our effectiveness, our business
operations, financial results and results of operations could be adversely
Our investments to enhance the customer experience, including through
technology, may not generate the expected returns.
We will continue to build upon our investments in EOTF, which focus on
restaurant modernization and technology and digital engagement in order to
transform the restaurant experience. As we accelerate our pace of converting
restaurants to EOTF, we are placing renewed emphasis on improving our service
model and strengthening relationships with customers, in part through digital
channels and loyalty initiatives, as well as mobile ordering and payment
systems. We may not fully realize the intended benefits of these significant
investments, or these initiatives may not be well executed, and therefore our
business results may suffer.
If we do not anticipate and address evolving consumer preferences, our business
could suffer.
Our continued success depends on our System's ability to anticipate and respond
effectively to continuously shifting consumer demographics, and trends in food
sourcing, food preparation and consumer preferences (such as food offerings and
methods to order and pay) in the "informal eating out" (IEO) segment. In order
to deliver a relevant experience for our customers amidst a highly competitive,
value-driven operating environment, we must implement initiatives to adapt at an
aggressive pace. There is no assurance that these initiatives will be successful
and, if they are not, our financial results could be adversely impacted.



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If pricing, promotional and marketing plans are not effective, our results may
be negatively impacted.
Our results depend on the impact of pricing, promotional and marketing plans
across the System, and the ability to adjust these plans to respond quickly and
effectively to evolving customer preferences, as well as shifting economic and
competitive conditions. Existing or future pricing strategies, and the value
proposition they represent, are expected to continue to be important components
of our business strategy; however, they may not be successful and could
negatively impact sales and margins. Further, the promotion of menu offerings
may yield results below the desired levels.
Additionally, we operate in a complex and costly advertising environment. Our
marketing and advertising programs may not be successful, and we may fail to
attract and retain customers. Our success depends in part on whether the
allocation of our advertising and marketing resources across different channels
allows us to reach our customers effectively. If the advertising and marketing
programs are not successful, or are not as successful as those of our
competitors, our sales, guest counts and market share could decrease.
Failure to preserve the value and relevance of our brand could have an adverse
impact on our financial results.
To be successful in the future, we believe we must preserve, enhance and
leverage the value of our brand. Brand value is based in part on consumer
perceptions. Those perceptions are affected by a variety of factors, including
the nutritional content and preparation of our food, the ingredients we use, our
business practices and the manner in which we source the commodities we use.
Consumer acceptance of our offerings is subject to change for a variety of
reasons, and some changes can occur rapidly. For example, nutritional, health
and other scientific studies and conclusions, which constantly evolve and may
have contradictory implications, drive popular opinion, litigation and
regulation (including initiatives intended to drive consumer behavior) in ways
that affect the IEO segment or perceptions of our brand generally or relative to
available alternatives. Consumer perceptions may also be affected by third
parties presenting or promoting adverse commentary or portrayals of the
quick-service category of the IEO segment, our brand and/or our operations, our
suppliers or our franchisees. If we are unsuccessful in addressing such adverse
commentary or portrayals, our brand and our financial results may suffer.
Additionally, the ongoing relevance of our brand may depend on the success of
our sustainability initiatives, which require System-wide coordination and
alignment. If we are not effective in addressing social responsibility matters
or achieving relevant sustainability goals, consumer trust in our brand may
suffer. In particular, business incidents or practices that erode consumer trust
or confidence, particularly if such incidents or practices receive considerable
publicity or result in litigation, can significantly reduce brand value and have
a negative impact on our financial results.
We face intense competition in our markets, which could hurt our business.
We compete primarily in the IEO segment, which is highly competitive. We also
face sustained, intense competition from traditional, fast casual and other
competitors, which may include many non-traditional market participants such as
convenience stores, grocery stores and coffee shops. We expect our environment
to continue to be highly competitive, and our results in any particular
reporting period may be impacted by new or continuing actions of our
competitors, which may have a short- or long-term impact on our results.
We compete on the basis of product choice, quality, affordability, service and
location. In particular, we believe our ability to compete successfully in the
current market environment depends on our ability to improve existing products,
develop new products, price our products appropriately, deliver a relevant
customer experience, manage the complexity of our restaurant operations and
respond effectively to our competitors' actions. Recognizing these dependencies,
we have intensified our focus in recent periods on strategies to achieve these
goals, and we will likely continue to modify our strategies and implement new
strategies in the future. There can be no assurance these strategies will be
effective, and some strategies may be effective at improving some metrics while
adversely affecting other metrics.
Unfavorable general economic conditions could adversely affect our business and
financial results.
Our results of operations are substantially affected by economic conditions,
which can vary significantly by market and can impact consumer disposable income
levels and spending habits. Economic conditions can also be impacted by a
variety of factors including hostilities, epidemics and actions taken by
governments to manage national and international economic matters, whether
through austerity or stimulus measures or trade measures, and initiatives
intended to control wages, unemployment, credit availability, inflation,
taxation and other economic drivers. Continued adverse economic conditions or
adverse changes in economic conditions in our markets could pressure our
operating performance, and our business and financial results may suffer.
Our results of operations are also affected by fluctuations in currency exchange
rates, which may adversely affect reported earnings.
Supply chain interruptions may increase costs or reduce revenues.
We depend on the effectiveness of our supply chain management to assure reliable
and sufficient product supply, including on favorable terms. Although many of
the products we sell are sourced from a wide variety of suppliers in countries
around the world, certain products have limited suppliers, which may increase
our reliance on those suppliers. Supply chain interruptions, including shortages
and transportation issues, and price increases can adversely affect us as well
as our suppliers and franchisees whose



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performance may have a significant impact on our results. Such shortages or
disruptions could be caused by factors beyond the control of our suppliers,
franchisees or us. If we experience interruptions in our System's supply chain,
our costs could increase and it could limit the availability of products
critical to our System's operations.
Food safety concerns may have an adverse effect on our business.
Our ability to increase sales and profits depends on our System's ability to
meet expectations for safe food and on our ability to manage the potential
impact on McDonald's of food-borne illnesses and food or product safety issues
that may arise in the future. Food safety is a top priority, and we dedicate
substantial resources to ensure that our customers enjoy safe food products,
including as our menu evolves. However, food safety events, including instances
of food-borne illness, have occurred in the food industry in the past, and could
occur in the future. Instances of food tampering, food contamination or
food-borne illness, whether actual or perceived, could adversely affect our
brand and reputation as well as our revenues and profits.
Our franchise business model presents a number of risks.
Our success increasingly relies on the financial success and cooperation of our
franchisees, yet we have limited influence over their operations. Our restaurant
margins arise from two sources: fees from franchised restaurants (e.g., rent and
royalties based on a percentage of sales) and, to a lesser degree, sales from
Company-operated restaurants. Our franchisees manage their businesses
independently, and therefore are responsible for the day-to-day operation of
their restaurants. The revenues we realize from franchised restaurants are
largely dependent on the ability of our franchisees to grow their sales. If our
franchisees do not experience sales growth, our revenues and margins could be
negatively affected as a result. Also, if sales trends worsen for franchisees,
their financial results may deteriorate, which could result in, among other
things, restaurant closures, or delayed or reduced payments to us. Our
refranchising effort will increase that dependence and the effect of those
Our success also increasingly depends on the willingness and ability of our
independent franchisees to implement major initiatives, which may include
financial investment, and to remain aligned with us on operating, promotional
and capital-intensive reinvestment plans. Franchisees' ability to contribute to
the achievement of our plans is dependent in large part on the availability to
them of funding at reasonable interest rates and may be negatively impacted by
the financial markets in general or by the creditworthiness of our franchisees
or the Company. Our operating performance could also be negatively affected if
our franchisees experience food safety or other operational problems or project
an image inconsistent with our brand and values, particularly if our contractual
and other rights and remedies are limited, costly to exercise or subjected to
litigation. If franchisees do not successfully operate restaurants in a manner
consistent with our required standards, the brand's image and reputation could
be harmed, which in turn could hurt our business and operating results.
Our ownership mix also affects our results and financial condition. The decision
to own restaurants or to operate under franchise or license agreements is driven
by many factors whose interrelationship is complex and changing. Our ability to
achieve the benefits of our refranchising strategy, which involves a shift to a
greater percentage of franchised restaurants, in a timely manner or at all, will
depend on various factors. Those factors include our ability to timely and
effectively select franchisees and/or licensees that meet our rigorous
standards, to complete transactions on favorable terms, to achieve any needed
regulatory approvals for those transactions and to manage associated risks. It
will also depend on the performance of our franchisees, and whether the
resulting ownership mix supports our financial objectives.
Challenges with respect to talent management could harm our business.
Effective succession planning is important to our long-term success. Failure to
effectively identify, develop and retain key personnel, recruit high-quality
candidates and ensure smooth management and personnel transitions could disrupt
our business and adversely affect our results.
Our success depends in part on our System's ability to recruit, motivate and
retain a qualified workforce to work in our restaurants in an intensely
competitive environment. Increased costs associated with recruiting, motivating
and retaining qualified employees to work in our Company-operated restaurants
could have a negative impact on our Company-operated margins. Similar concerns
apply to our franchisees.
We are also impacted by the costs and other effects of compliance with U.S. and
international regulations affecting our workforce, which includes our staff and
employees working in our Company-operated restaurants. These regulations are
increasingly focused on employment issues, including wage and hour, healthcare,
immigration, retirement and other employee benefits and workplace practices. Our
potential exposure to reputational and other harm regarding our workplace
practices or conditions or those of our independent franchisees or suppliers (or
perceptions thereof) could have a negative impact on consumer perceptions of us
and our business. Additionally, economic action, such as boycotts, protests,
work stoppages or campaigns by labor organizations, could adversely affect us
(including our ability to recruit and retain talent) or the franchisees and
suppliers that are also part of the McDonald's System and whose performance may
have a material impact on our results.



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Information technology system failures or interruptions, or breaches of network
security, may interrupt our operations.
We are increasingly reliant on technological systems, such as point-of-sale and
other in-store systems or platforms, as well as technologies that facilitate
communication and collaboration internally, with affiliated entities, customers
or with independent third parties to conduct our business, including
technology-enabled solutions provided to us by third parties. Any failure of
these systems could significantly impact our operations and customer experience
and perceptions.
Despite the implementation of security measures, those technology systems and
solutions could become vulnerable to damage, disability or failures due to
theft, fire, power loss, telecommunications failure or other catastrophic
events. The third party solutions also present the risks faced by the third
party's business, including the credit risk of those parties. If those systems
or solutions were to fail or otherwise be unavailable, and we were unable to
recover in a timely way, we could experience an interruption in our operations.
Furthermore, security breaches have from time to time occurred and may in the
future occur involving our systems, the systems of the parties we communicate or
collaborate with (including franchisees), or those of third party providers.
These may include such things as unauthorized access, denial of service,
computer viruses, introduction of malware and other disruptive problems caused
by hackers. Our information technology systems contain personal, financial and
other information that is entrusted to us by our customers and employees as well
as financial, proprietary and other confidential information related to our
business. An actual or alleged security breach could result in system
disruptions, shutdowns, theft or unauthorized disclosure of confidential
information. The occurrence of any of these incidents could result in
reputational damage, adverse publicity, loss of consumer confidence, reduced
sales and profits, complications in executing our growth initiatives and
criminal penalties or civil liabilities.
The global scope of our business subjects us to risks that could negatively
affect our business.
We encounter differing cultural, regulatory and economic environments within and
among the more than 100 countries where McDonald's restaurants operate, and our
ability to achieve our business objectives depends on the System's success in
these environments. Meeting customer expectations is complicated by the risks
inherent in our global operating environment, and our global success is
partially dependent on our System's ability to leverage operating successes
across markets. Planned initiatives may not have appeal across multiple markets
with McDonald's customers and could drive unanticipated changes in customer
perceptions and guest counts.
Disruptions in operations or price volatility in a market can also result from
governmental actions, such as price, foreign exchange or changes in
trade-related tariffs or controls, government-mandated closure of our, our
franchisees' or our suppliers' operations, and asset seizures. The cost and
disruption of responding to governmental investigations or inquiries, whether or
not they have merit, may impact our results and could cause reputational or
other harm. Our international success depends in part on the effectiveness of
our strategies and brand-building initiatives to reduce our exposure to such
governmental investigations or inquiries.
Additionally, challenges and uncertainties are associated with operating in
developing markets, which may entail a relatively higher risk of political
instability, economic volatility, crime, corruption and social and ethnic
unrest. Such challenges may be exacerbated in many cases by a lack of an
independent and experienced judiciary and uncertainties in how local law is
applied and enforced, including in areas most relevant to commercial
transactions and foreign investment. An inability to manage effectively the
risks associated with our international operations could have a material adverse
effect on our business and financial condition.
We may also face challenges and uncertainties in developed markets. For example,
as a result of the U.K.'s decision to leave the European Union through a
negotiated exit over a period of time, it is possible that there will be
increased regulatory complexities, as well as potential referenda in the U.K.
and/or other European countries, that could cause uncertainty in European or
worldwide economic conditions. In the short term, the decision has created
volatility in certain foreign currency exchange rates, and the resulting
depression in those exchange rates may continue. Any of these effects, and
others we cannot anticipate, could adversely affect our business, results of
operations, financial condition and cash flows.
Changes in tax laws and unanticipated tax liabilities could adversely affect the
taxes we pay and our profitability.
We are subject to income and other taxes in the United States and foreign
jurisdictions, and our operations, plans and results are affected by tax and
other initiatives around the world. In particular, we are affected by the impact
of changes to tax laws or policy or related authoritative interpretations,
including to the extent that corporate tax reform becomes a key component of
budgetary initiatives in the United States or elsewhere. We are also impacted by
settlements of pending or any future adjustments proposed by taxing authorities
inside and outside of the U.S. in connection with our tax audits, all of which
will depend on their timing, nature and scope. Any increases in income tax
rates, changes in income tax laws or unfavorable resolution of tax matters could
have a material adverse impact on our financial results.
Changes in commodity and other operating costs could adversely affect our
results of operations.
The profitability of our Company-operated restaurants depends in part on our
ability to anticipate and react to changes in commodity costs, including food,
paper, supply, fuel, utilities and distribution, and other operating costs,
including labor. Any volatility in certain commodity prices could adversely
affect our operating results by impacting restaurant profitability. The
commodity markets for some of the ingredients we use, such as beef and chicken,
are particularly volatile due to factors such as seasonal shifts, climate



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conditions, industry demand, international commodity markets, food safety
concerns, product recalls and government regulation, all of which are beyond our
control and, in many instances, unpredictable. We can only partially address
future price risk through hedging and other activities, and therefore increases
in commodity costs could have an adverse impact on our profitability.
Increasing regulatory complexity may adversely affect restaurant operations and
our financial results.
Our regulatory environment worldwide exposes us to complex compliance and
similar risks that could affect our operations and results in material ways. In
many of our markets, we are subject to increasing regulation, which has
increased our cost of doing business. We are affected by the cost, compliance
and other risks associated with the often conflicting and highly prescriptive
regulations we face, including where inconsistent standards imposed by multiple
governmental authorities can adversely affect our business and increase our
exposure to litigation or governmental investigations or proceedings.
Our success depends in part on our ability to manage the impact of new,
potential or changing regulations that can affect our business plans and
operations. These regulations include product packaging, marketing, the
nutritional content and safety of our food and other products, labeling and
other disclosure practices. Compliance efforts with those regulations may be
affected by ordinary variations in food preparation among our own restaurants
and the need to rely on the accuracy and completeness of information from
third-party suppliers (particularly given varying requirements and practices for
testing and disclosure).
Additionally, we are working to manage the risks and costs to us, our
franchisees and our supply chain of the effects of climate change, greenhouse
gases, and diminishing energy and water resources. These risks include the
increased public focus, including by governmental and nongovernmental
organizations, on these and other environmental sustainability matters, such as
packaging and waste, animal health and welfare, deforestation and land use.
These risks also include the increased pressure to make commitments, set targets
or establish additional goals and take actions to meet them. These risks could
expose us to market, operational and execution costs or risks. If we are unable
to effectively manage the risks associated with our complex regulatory
environment, it could have a material adverse effect on our business and
financial condition.
We are subject to increasing legal complexity and could be party to litigation
that could adversely affect us.
Increasing legal complexity will continue to affect our operations and results
in material ways. We could be subject to legal proceedings that may adversely
affect our business, including class actions, administrative proceedings,
government investigations, employment and personal injury claims,
landlord/tenant disputes, disputes with current or former suppliers, claims by
current or former franchisees and intellectual property claims (including claims
that we infringed another party's trademarks, copyrights or patents).
Inconsistent standards imposed by governmental authorities can adversely affect
our business and increase our exposure to regulatory proceedings or litigation.
Litigation involving our relationship with franchisees and the legal distinction
between our franchisees and us for employment law purposes, if determined
adversely, could increase costs, negatively impact the business prospects of our
franchisees and subject us to incremental liability for their actions.
Similarly, although our commercial relationships with our suppliers remain
independent, there may be attempts to challenge that independence, which, if
determined adversely, could also increase costs, negatively impact the business
prospects of our suppliers, and subject us to incremental liability for their
actions. We are also subject to legal and compliance risks and associated
liability, such as in the areas of privacy and data collection, protection and
management, as it relates to information we collect and share when we provide
optional technology-related services and platforms to third parties.
Our operating results could also be affected by the following:
•    The relative level of our defense costs, which vary from period to period
     depending on the number, nature and procedural status of pending

• The cost and other effects of settlements, judgments or consent decrees,

     which may require us to make disclosures or take other actions that may
     affect perceptions of our brand and products;

• Adverse results of pending or future litigation, including litigation

     challenging the composition and preparation of our products, or the
     appropriateness or accuracy of our marketing or other communication
     practices; and

• The scope and terms of insurance or indemnification protections that we may


• A judgment significantly in excess of any applicable insurance coverage or

third party indemnity could materially adversely affect our financial

condition or results of operations. Further, adverse publicity resulting

from these claims may hurt our business.

We may not be able to adequately protect our intellectual property or adequately
ensure that we are not infringing the intellectual property of others, which
could harm the value of the McDonald's brand and our business.
The success of our business depends on our continued ability to use our existing
trademarks and service marks in order to increase brand awareness and further
develop our branded products in both domestic and international markets. We rely
on a combination of trademarks, copyrights, service marks, trade secrets,
patents and other intellectual property rights to protect our brand and branded



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We have registered certain trademarks and have other trademark registrations
pending in the United States and certain foreign jurisdictions. The trademarks
that we currently use have not been registered in all of the countries outside
of the United States in which we do business or may do business in the future
and may never be registered in all of these countries. The steps we have taken
to protect our intellectual property in the United States and foreign countries
may not be adequate. In addition, the steps we have taken may not adequately
ensure that we do not infringe the intellectual property of others, and third
parties may claim infringement by us in the future. In particular, we may be
involved in intellectual property claims, including often aggressive or
opportunistic attempts to enforce patents used in information technology
systems, which might affect our operations and results. Any claim of
infringement, whether or not it has merit, could be time-consuming, result in
costly litigation and harm our business.
We cannot ensure that franchisees and other third parties who hold licenses to
our intellectual property will not take actions that hurt the value of our
intellectual property.
Changes in accounting standards or the recognition of impairment or other
charges may adversely affect our future operations and results.
New accounting standards or changes in financial reporting requirements,
accounting principles or practices, including with respect to our critical
accounting estimates, could adversely affect our future results. We may also be
affected by the nature and timing of decisions about underperforming markets or
assets, including decisions that result in impairment or other charges that
reduce our earnings. In assessing the recoverability of our long-lived assets,
we consider changes in economic conditions and make assumptions regarding
estimated future cash flows and other factors. These estimates are highly
subjective and can be significantly impacted by many factors such as global and
local business and economic conditions, operating costs, inflation, competition,
consumer and demographic trends, and our restructuring activities. If our
estimates or underlying assumptions change in the future, we may be required to
record impairment charges. If we experience any such changes, they could have a
significant adverse effect on our reported results for the affected periods.
A decrease in our credit ratings or an increase in our funding costs could
adversely affect our profitability.
Our credit ratings may be negatively affected by our results of operations or
changes in our debt levels.  As a result, our interest expense, the availability
of acceptable counterparties, our ability to obtain funding on favorable terms,
collateral requirements and our operating or financial flexibility could all be
negatively affected, especially if lenders impose new operating or financial
Our operations may also be impacted by regulations affecting capital flows,
financial markets or financial institutions, which can limit our ability to
manage and deploy our liquidity or increase our funding costs. If any of these
events were to occur, they could have a material adverse effect on our business
and financial condition.
Trading volatility and price of our common stock may be adversely affected by
many factors.
Many factors affect the volatility and price of our common stock in addition to
our operating results and prospects. The most important of these factors, some
of which are outside our control, are the following:
• The continuing unpredictable global economic and market conditions;

• Governmental action or inaction in light of key indicators of economic

activity or events that can significantly influence financial markets,

particularly in the United States, which is the principal trading market for

our common stock, and media reports and commentary about economic or other

     matters, even when the matter in question does not directly relate to our

• Trading activity in our common stock or trading activity in derivative

instruments with respect to our common stock or debt securities, which can

be affected by market commentary (including commentary that may be

unreliable or incomplete); unauthorized disclosures about our performance,

plans or expectations about our business; our actual performance and

creditworthiness; investor confidence, driven in part by expectations about

our performance; actions by shareholders and others seeking to influence our

business strategies; portfolio transactions in our stock by significant

shareholders; or trading activity that results from the ordinary course

rebalancing of stock indices in which McDonald's may be included, such as

the S&P 500 Index and the Dow Jones Industrial Average;

• The impact of our stock repurchase program or dividend rate; and

• The impact on our results of corporate actions and market and third-party

perceptions and assessments of such actions, such as those we may take from

time to time as we implement our strategies in light of changing business,

legal and tax considerations and evolve our corporate structure.

Events such as severe weather conditions, natural disasters, hostilities and
social unrest, among others, can adversely affect our results and prospects.
Severe weather conditions, natural disasters, hostilities and social unrest,
terrorist activities, health epidemics or pandemics (or expectations about them)
can adversely affect consumer spending and confidence levels and supply
availability and costs, as well as the local operations in impacted markets, all
of which can affect our results and prospects. Our receipt of proceeds under any
insurance we maintain with respect to some of these risks may be delayed or the
proceeds may be insufficient to cover our losses fully.



Table of Contents

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