McDonald's Research In Depth Analysis By Trefis

							                 McDonald's                                                        FRANCHISEE RENT & FEES
                                                                                   Average Spend per Customer Visit at
                 ANALYSIS for NYSE : MCD                 SEPTEMBER 21, 2012        McDonald's Franchised Restaurant 4
                                                                                   Rent Revenues as % of Franchised
                                                                                   Revenues 5
                                                                                   Number of Franchised & Affiliated
       $  96.45
           $97.3 B MKT CAP
                                                $  93.83
                                                  $94.6 B MKT CAP
                                                                                   McDonald's Restaurants 6
                                                                                   Annual Customers per McDonald's
                                                                                   Restaurant 7
                                                                                   Franchisee Rent & Fees EBITDA
             Trefis Estimate                          Market Price
                                                                                   Margin 8

               See the Full Analysis for McDonald's on Trefis                      COMPANY-OPERATED
                                                                                   RESTAURANTS
                      — CORPORATE SNAPSHOT —                                       Average Spend per Customer Visit at
                                                                                   McDonald's Company Operated
                                                                                   Restaurants 10
McDonald's owns and franchises its restaurants all over the world. By the          Number of Company Operated
end of 2011, the company had 33,510 restaurants in 119 countries, of which         Restaurants 11
27,075 were operated by franchisees and 6,435 were operated by the company.        Annual Customers per McDonald's
     McDonald’s essentially offers a uniform menu, though with minor               Restaurant 12
variations to suit the local taste. A typical McDonald’s menu includes             Company Operated Restaurants
burgers, sandwiches, salads, snacks, breakfast sandwiches (McMuffins),             EBITDA Margin 12
beverages (soft drinks, coffee, milk shakes, juices), and desserts (ice cream,     FRANCHISEE ROYALTIES
pies, smoothies).                                                                  Average Spend per Customer Visit at
     McDonald's competes primarily with Wendy's and Burger King in the             McDonald's Franchised Restaurant 14
hamburger fast food category and has nearly 90% of the market share.               Royalty Rate on Franchisee Sales 14
     In the overall fast food industry, McDonald's is the market leader with a     Number of Franchised & Affiliated
19% share followed by Doctor's Associates and Yum! Brands.                         McDonald's Restaurants 15
                                                                                   Annual Customers per McDonald's
                                                                                   Restaurant 15
                      — VALUATION HIGHLIGHTS —                                     Franchisee Royalties EBITDA
  1. Franchisee Rent & Fees constitute 46% of the Trefis price estimate for        Margin 15
     McDonald's's stock.
  2. Company-Operated Restaurants constitute 32% of the Trefis price               APPENDICES
     estimate for McDonald's's stock.                                              Summary P&L for McDonald's 18
                                                                                   Detailed Franchisee Rent & Fees
  3. Franchisee Royalties constitute 22% of the Trefis price estimate for          P&L 19
     McDonald's's stock.                                                           Detailed Company-Operated
                                                                                   Restaurants P&L 20
                                                                                   Detailed Franchisee Royalties P&L 21




             See the Interactive Valuation Breakdown on Trefis

Our share price estimate and the overall company value is derived by
summing-up the values of individual divisions/businesses in a sum-of-the-
parts analysis. The value of each division is calculated using a discounted cash
flow (DCF) methodology.
     We forecast fundamental drivers like pricing, market share, and profit
margins for different businesses in estimating the division’s value within the
DCF framework. The analysis below primarily focuses on those important
forecasts that drive our share price and value estimate.
     Our complete analysis, including sources of historical data, underlying
equations and additional discussion are available on www.trefis.com.

      — POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE —

Below are key drivers of McDonald's value that present opportunities for
upside or downside to the current Trefis price estimate:

Franchisee Rent & Fees

  • Average Spend per Customer Visit at McDonald's Franchised
    Restaurant: Historically, the Average Spend per Customer (ASC) has
    been increasing at a rate of 3-4% per year. In 2011, it was $3.48 and going
    forward we expect it to increase to $3.86 by end of 2018. However,
    McDonald's has been pushing hard to improve its brand image by
    refurbishing restaurants and introducing free Wi-Fi. The company is
    also extending its McCafe brand (which report higher revenues on an
    average) to more and more restaurants. Should the ASC increase to $5 by
    the end of 2018, we could see a 20% upside to the Trefis price estimates.
    At the same time, McDonald's is opening new outlets mostly in
    developing countries, which usually witness a lower ASC, primarily due
    to purchasing power disparity. There could be a 10% downside if the
    ASC falls to less than $3.40.

                         — SOURCES OF VALUE —
We believe that Franchisee Rent & Fees is more valuable than Franchisee
Royalties and Company Operated divisions due to the following reasons:

Rent & fees income is two times more than franchisee royalties income
Both the Franchisee Rent & Fees and Franchisee Royalties divisions
represent the two different channels of revenue contribution from
McDonald's franchised restaurants. McDonald's operates three kind of
franchised restaurants (conventional, developmental & affiliated) and charges
them royalty, rental and initial setup fees. While royalty is charged to all
franchised restaurants, rental and initial set up fees are paid by only
conventional franchises.
     Rent & fees charged as a percentage of sales is approximately two times
greater than the royalty percentage charged to franchisees. This makes the
Franchisee Rent & Fees division nearly twice the value of the Franchisee
Royalties division.

Franchises profit margin is 4x that of company operated restaurants
Company-operated restaurants are low margin businesses (~20% operating



   TREFIS ANALYSIS for MCDONALD'S              CONTENT@TREFIS.COM                + 1 617 394 8763   •2
margin) as compared to franchised restaurants (~80% operating margin). The
difference in margins is mainly because of the extra costs involved with
company-operated restaurants, such as employees and operational costs,
which are absent for franchised restaurants. This is the primary reason why
McDonald's and other chains prefer the franchise model despite lower
revenues.

Number of franchised stores is nearly four times the number of company
operated restaurants
Compared to 6,435 restaurants self operated by McDonald's,
27,075 restaurants were operated by franchisees globally. Going forward, we
expect the company operated stores to decline further as McDonald's re-
franchises them.

                            — KEY TRENDS —

McCafe gives McDonald's a strong presence in the specialty coffee segment
McCafe represents McDonald's foray into the high-margin caffeinated
beverages market dominated by premium coffee chain Starbucks. In 2011,
McDonald's expanded the brand to another 500 outlets in Canada.
McDonald's has been able to keep the prices competitive and margins
healthy due to its excellent store network, its marketing muscle and a highly
efficient supply chain. McCafe's menu has been extended to more than coffee
and now includes fruit smoothies, mocha and chocolate shakes.

Competition between McDonald's and Starbucks to intensify with McDonald's
Frappe and Starbucks' Seattle's Best Coffee
On an average, McCafe outlets generate 15% more revenues than the regular
McDonald's. McDonald's ensures new items are added to the menu
regularly. As a result of the success of McCafe, Starbucks is reviving its
Seattle's Best Coffee brand to compete with McDonald's. Starbucks has
partnered with Burger King and Subway (both these chains compete with
McDonald's), AMC movie theaters, supermarkets and coffee houses across
the US to sell its coffee. This partnership will provide Starbucks access to
more than 30,000 new locations.
                See the Full Analysis for McDonald's on Trefis




   TREFIS ANALYSIS for MCDONALD'S             CONTENT@TREFIS.COM              + 1 617 394 8763   •3
Franchisee Rent & Fees
The Franchisee Rent & Fees division constitutes 45.8% of our $96.45 price estimate for this stock, based on our sum of the
parts analysis.The most important drivers for the Franchisee Rent & Fees business are:
  • Average Spend per Customer Visit at McDonald's Franchised Restaurant
  • Rent Revenues as % of Franchised Revenues
  • Number of Franchised & Affiliated McDonald's Restaurants
  • Annual Customers per McDonald's Restaurant
  • Franchisee Rent & Fees EBITDA Margin

        — AVERAGE SPEND PER CUSTOMER VISIT AT MCDONALD'S FRANCHISED RESTAURANT —

Average Spend per Customer Visit at McDonald's Franchised Restaurant is the average amount a customer spends at
McDonald's in a single visit.



          Average Spend per Customer Visit at McDonald's Franchised Restaurant ($)
       4.0
       3.5
       3.0
       2.5
       2.0
       1.5
       1.0
       0.5
       0.0
                 2008 0 9          10      11     12      13      14      15      16      17      18     19




The Average Spend per Customer Visit at McDonald's Franchised Restaurant grew steadily from $3.15 in 2008 form $3.31
in the previous year due of strengthening of dollar combined with a weak global economic environment. It jumped to $3.51
in 2011.
     In 2012, a strong dollar is expected to negatively impact the figure and we could even witness a negative growth.
Beyond 2012, we expect a moderate rise in the Average Spend per Customer Visit at McDonald's Franchised Restaurant
at the rate of 1.5-2% per year assuming no major currency fluctuations.

Forecast Rationale
Supporting:
  1. INTRODUCTION OF NEW PRODUCTS IMPACTS SPEND – Introduction of premium brands like McCafe has increased the
     average spend due to its higher pricing. As the company extends its McCafe brand to more number of outlets, the
     average spend per customer will tend to increase.


    TREFIS ANALYSIS for MCDONALD'S            CONTENT@TREFIS.COM            + 1 617 394 8763                           •4
  2. FOOD COMPANIES ARE FORCED TO INCREASE PRICES REGULARLY – Restaurants are forced to raise the menu prices
    frequently to offset the impact of high commodity prices. For the year 2012, McDonald's plans to increase the menu
    prices by 3%.

Mitigating:
  3. RESTAURANT MIX BASED ON GEOGRAPHY IMPACTS SPEND – Among geographies, Europe has the maximum average
     spend, partly driven by higher pricing and cost of living, followed by the US. Since more franchises have
     mushroomed in these areas, the spend has been on an uptick. Going forward, the growth rate in spending should
     slow down as the growth occurs mostly in APMEA region, which has a lower average spend. The average spend per
     customer in Asian countries is lower than that in U.S. or Europe due to purchasing power disparity. In fact, the
     widely followed The Economist's Big Mac Index is a good way to gauge the purchasing power disparity. A Big Mac
     burger, which costs $4.20 in the U.S., costs $2.44 in China and $1.62 in India.
  4. FOCUS ON 24/7 RESTAURANTS – 40% of McDonald's restaurants in the U.S. are open 24/7 and 89% of them open up
     by 5 a.m. Customers often stop by to grab a quick bite rather than have a full-fledged meal at late hours or early in the
     morning. This has a tendency to lower the average spend per customer.
Sources for historical data and explanations can be found on the Trefis.com website (link)


                             — RENT REVENUES AS % OF FRANCHISED REVENUES —

Conventional and Developmental Franchises pay rent to McDonald's as a percentage of sales with a certain minimum
payment.
     Rent Revenues for McDonald's also include the set-up fees for new restaurants, which is less than $100 million each
year. This fee is paid by franchises upfront to McDonald's.



                              Rent Revenues as % of Franchised Revenues (%)


    7.5


    5.0


    2.5


    0.0
               2008 0 9           10      11      12      13       14      15      16       17      18      19




Until 2007, franchises paid approximately 9% of the sales generated as rent to McDonald's. This figure declined in 2008,
which we believe was due to the economic slowdown and McDonald's lowering its rent as the real estate prices fell during
the period. In 2009 and 2010, the Rent Revenues as % of Franchised Revenues remained relatively flat.


    TREFIS ANALYSIS for MCDONALD'S              CONTENT@TREFIS.COM             + 1 617 394 8763                            •5
    However, the figure has shown some improvement in 2011 and going forward we expect it to stabilize at these levels.
Sources for historical data and explanations can be found on the Trefis.com website (link)


                 — NUMBER OF FRANCHISED & AFFILIATED MCDONALD'S RESTAURANTS —
    McDonald's owns and franchises its restaurants all over the world.
I) Developmental Licensees
Under this arrangement, licensees provide capital for the entire business, including the real estate interest, while the
company has no capital invested. The company receives royalty based on a percent of sales as well as initial fees.

II) Agreement with Affiliates
Under this agreement, 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. The company receives royalty based on a percent of sales in these
markets.

III) Conventional Franchisees
Under this arrangement, franchisees provide a portion of the capital required by initially investing in the equipment, signs,
seating and décor of their restaurant businesses, and then by reinvesting in the business over time. The company owns the
land and building and secures long-term leases for conventional franchised restaurant sites. This helps to maintain long-
term occupancy rights, control related costs and assist in aligning with franchisees.
     Revenues from conventional franchised restaurants include
  • Rent with minimum rent payments,
  • Royalties based on a percent of sales
  • Initial fees



                   Number of Franchised & Affiliated McDonald's Restaurants (K )
       30

       25

       20

       15

       10

         5

         0
                 2008 0 9          10       11      12      13      14      15       16      17      18      19




The Number of Franchised & Affiliated McDonald's Restaurants increased form 24,471 in 2007 to 27,035 by the end of
2011. Going forward, we expect it to increase to around 30,000 by the end of our forecast period.




    TREFIS ANALYSIS for MCDONALD'S               CONTENT@TREFIS.COM            + 1 617 394 8763                            •6
Forecast Rationale
  1. EXPANSION PLANS TO HELP GROWTH – McDonald's announced its plan to open 1300 new restaurants in 2012, out of
     which we expect more than 1000 to be franchised and the rest being company-operated. Beyond 2012, the expansion
     rate will slow down as the company starts achieving saturation. For 2012, 150 restaurants will open up in the U.S., 225
     in Europe and 650 in the Asia Pacific, Middle East and Africa (APMEA) region.
Sources for historical data and explanations can be found on the Trefis.com website (link)


                          — ANNUAL CUSTOMERS PER MCDONALD'S RESTAURANT —
Annual Customers per McDonald's Restaurant is used to gauge the amount of average traffic that a McDonald's
restaurant in any part of the world attracts each year.



                            Annual Customers per McDonald's Restaurant (K )


       750


       500


       250


           0
                  2008 0 9          10      11      12      13      14      15      16      17     18      19




The Annual Customers per McDonald's Restaurant increased from 675,000 in 2008 to around 711,000 in 2011. Going
forward, we expect it to increase moderately at a rate of around 2% each year.

Forecast Rationale
  1. ROUND-THE-CLOCK SERVICE – More than 40% of McDonald's restaurants in the U.S. are open 24/7. This brings in
     additional customers at time slots which would otherwise not be available for restaurants with regular timings.
  2. McDonald's has been putting a greater emphasis on breakfast with 89% of its restaurants in the U.S. open by 5 a.m.
     Thus, the company is able to attract a greater number of customers at time slots normally considered unusual.
  3. UPGRADE OF EXISTING RESTAURANTS – McDonald's is trying hard to revamp its image of a large-scale burger
     producing company by refurbishing its existing restaurants and introducing more comfortable seating in order to
     appeal to a wider range of people.
  4. McDonald's ever expanding free Wi-Fi service brings in additional customers as well. By providing Wi-Fi, the
     company has positioned itself to compete directly against Starbucks. An estimated 750,000 customers use Wi-Fi
     service in the U.K. alone.




    TREFIS ANALYSIS for MCDONALD'S             CONTENT@TREFIS.COM             + 1 617 394 8763                           •7
  5. NEW ADDITIONS AND VALUE OFFERINGS TO ITS MENU – New introductions in the US like the Angus Third Pounder
     and McCafé premium coffees and value offerings like the dollar menu are driving traffic. McCafe has gained
     popularity as a cheaper option to Starbucks.
  6. INNOVATIVE OFFERINGS TO ATTRACT CONSUMERS – McDonald's regularly introduction of new products creates a lot
     of buzz among consumers. In 2011, the company launched Fruit & Mango oatmeal, Mango Pineapple Smoothies,
     Peppermint Mocha as well as other things. In 2012, the company plans to introduce Cherry Berry Chiller and expand
     the oatmeal section. Similarly, the company ensures it innovates new offerings suited to the local tastes of the region
     it operates in.
Sources for historical data and explanations can be found on the Trefis.com website (link)


                                 — FRANCHISEE RENT & FEES EBITDA MARGIN —
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) are profits after factoring in typical expenses,
such as Cost of Goods and Services Sold, SG&A Expenses, and R&D Expenses. EBITDA Margin represents divisional
EBITDA as a percentage of divisional revenues. We adjust EBITDA figures to exclude non-recurring charges and non-
cash charges, such as stock-based compensation expenses.



                                 Franchisee Rent & Fees EBITDA Margin (%)

       80
       70
       60
       50
       40
       30
       20
       10
         0
                 2008 0 9          10      11      12      13      14      15      16      17      18      19




The EBITDA margin for franchised restaurants is driven by three factors:
 1. Increasing comparable sales across restaurants, where comparable sales refers to the change in sales for restaurants on
    a like-by-like basis, excluding new restaurants that have come up that year
 2. Occupancy costs including rent expenses
 3. Promotional activity costs

EBITDA margin is the highest in the APMEA region as it has only developmental and affiliated restaurants, which do
not have any occupancy costs, unlike in the US and Europe. Europe has seen lower margins than in the US owing to costs
on promotional activities to increase brand awareness and drive sales. Margins have increased at a gradual rate between
2008 and 2010. However, in 2011, it jumped to 81.4% primarily due to a contractual escalation of the royalty rate in Japan
in addition to positive comparable sales in most markets. Going forward, we expect the margins to remain in this range.


    TREFIS ANALYSIS for MCDONALD'S              CONTENT@TREFIS.COM           + 1 617 394 8763                            •8
Forecast Rationale
Supporting:
  1. MAJORITY OF THE EXPANSION TO OCCUR IN APMEA – More than half of the new restaurants opened up are in
     APMEA (Asia Pacific, Middle East and Africa), a region in which the company enjoys the highest margins. Going
     forward, this will have a tendency to increase the overall EBITDA margins. Margins are also affected by comparable
     sales. The greater the comparable sales, the greater is McDonald's revenue generation since the company derives its
     revenues as a percentage of sales in the case of a franchised restaurant. Expenses on the other hand, remain more or
     less constant for a franchised restaurant. APMEA has traditionally witnessed strong comparable sales, often
     outpacing the sales in the U.S. and European region. This will help push margins upwards.

Mitigating:
  2. LACK OF ROOM FOR FURTHER UPSIDE – With margins now at 81.5%, there is hardly any scope for the margins to
    increase significantly. Growth if any, will be limited.
Sources for historical data and explanations can be found on the Trefis.com website (link)

                                         2008   2009   2010   2011   2012   2013   2014   2015   2016   2017   2018   2019
 Total Revenue (Bil $)                   4.69   4.91   5.29   5.90   6.15   6.56   6.86   7.15   7.45   7.74   8.04   8.35
 Direct Expense (Bil $)                  1.10   1.06   1.10   1.10   1.14   1.21   1.26   1.32   1.37   1.42   1.48   1.54
 Indirect Expense (Bil $)                2.21   1.79   1.98   2.31   2.76   2.86   2.89   2.95   3.02   3.09   3.18   3.29
 Adjusted EBITDA (Bil $)                 3.59   3.84   4.19   4.80   5.01   5.35   5.60   5.83   6.08   6.32   6.56   6.82
 Free Cash Flow (Bil $)                  n/a    n/a    n/a    n/a    2.25   2.49   2.71   2.88   3.07   3.23   3.38   3.53


In addition, you can see the detailed P&L for the Franchisee Rent & Fees business in the Appendix (link)




    TREFIS ANALYSIS for MCDONALD'S              CONTENT@TREFIS.COM           + 1 617 394 8763                           •9
Company-Operated Restaurants
The most important drivers for the Company-Operated Restaurants business are:
 • Average Spend per Customer Visit at McDonald's Company Operated Restaurants
 • Number of Company Operated Restaurants
 • Annual Customers per McDonald's Restaurant
 • Company Operated Restaurants EBITDA Margin

  — AVERAGE SPEND PER CUSTOMER VISIT AT MCDONALD'S COMPANY OPERATED RESTAURANTS —

Average Spend per Customer Visit at McDonald's Company Operated Restaurants is the average amount a customer
spends at McDonald's in a single visit.



      Average Spend per Customer Visit at McDonald's Company Operated Restaurants
                                           ($)

      4

      3

      2

      1

      0
              2008 0 9          10      11      12      13      14      15      16      17      18      19




The Average Spend per Customer Visit at McDonald's Company Operated Restaurants decreased to $3.66 in 2009 form
$3.77 in the previous year due of strengthening of dollar combined with a weak global economic environment. It further
declined to $3.61 in 2010 before climbing to $4.00 in 2011.
     In 2012, a strong dollar is expected to negatively impact the figure and we could even witness a negative growth.
Beyond 2012, we expect a moderate rise in the Average Spend per Customer Visit at McDonald's Company Operated
Restaurants at the rate of 1.5-2% per year assuming no major currency fluctuations.

Forecast Rationale
Supporting:
  1. INTRODUCTION OF NEW PRODUCTS IMPACTS SPEND – Introduction of premium brands like McCafe has increased the
     average spend due to its higher pricing. As the company extends its McCafe brand to more number of outlets, the
     average spend per customer will tend to increase.
  2. FOOD COMPANIES ARE FORCED TO INCREASE PRICES REGULARLY – Restaurants are forced to raise the menu prices
     frequently to offset the impact of high commodity prices. For 2012, McDonald's plans to increase the menu prices by


    TREFIS ANALYSIS for MCDONALD'S            CONTENT@TREFIS.COM           + 1 617 394 8763                         •10
    3%. High crude prices have a direct impact on the menu prices in Asian countries in which McDonald's provides free
    delivery service. The transportation charges have to be compensated by increased menu prices.

Mitigating:
  3. RESTAURANT MIX BASED ON GEOGRAPHY IMPACTS SPEND – Among geographies, Europe has the maximum average
     spend, partly driven by higher pricing and cost of living, followed by the US. Since more franchises have
     mushroomed in these areas, the spend has been on an uptick. Going forward, the growth rate in spending should
     slow down, as the growth occurs mostly in APMEA region, which has a lower average spend. China, in particular,
     has most of its McDonald's restaurants as company-operated. McDonald's also plans to open 200 new restaurants in
     China. The average spend per customer in Asian countries is lower than that in U.S. or Europe due to purchasing
     power disparity.
     The widely followed The Economist's Big Mac Index is a good way to gauge the purchasing power disparity. A Big
     Mac burger, which costs $4.20 in the U.S. costs $2.44 in China and $1.62 in India.
  4. FOCUS ON 24/7 RESTAURANTS – 40% of McDonald's restaurants in the U.S. are open 24/7 and 89% of them open up
     by 5 a.m. Often, customers stop by to grab a quick bite rather than have a full-fledged meal at late hours or early in
     the morning. This has a tendency to lower the average spend per customer.
Sources for historical data and explanations can be found on the Trefis.com website (link)


                             — NUMBER OF COMPANY OPERATED RESTAURANTS —

Company Operated Restaurants are restaurants owned completely by McDonald's, and the company is responsible for all
its activities. All sales recorded at these restaurants are reported as revenues for the company.



                             Number of Company Operated Restaurants (K )

       7
       6
       5
       4
       3
       2
       1
       0
               2008 0 9          10      11      12      13       14      15      16      17      18      19




The number of McDonald's company-operated restaurants declined from 6906 in 2007 to 6262 in 2009 due to the
conversion of a large number of company-operated restaurants to franchised restaurants. The last 2 years have seen
company-operated restaurants rising mainly on account of Chinese expansion. In 2011, McDonald's had 6435 restaurants
globally which were company-operated. Most McDonald's restaurants in China are company-operated. Going forward,


    TREFIS ANALYSIS for MCDONALD'S             CONTENT@TREFIS.COM            + 1 617 394 8763                           •11
we expect the number of company-operated restaurants to increase to around 7200 by the end of our forecast period. Most
of the company-operated restaurants will open in China only.

Forecast Rationale
Supporting:
  1. MCDONALD'S WILL OPEN UP AROUND 200 NEW RESTAURANTS IN CHINA IN 2012 – Unlike most countries, the
     majority of restaurants in China are company-operated. Most of the restaurants which will open in 2012 will be
     company-operated which will increase the overall number. The penetration is still very low in China and the country
     offers potential beyond 2012 as well. Most of the new additions will be company-operated restaurants.

Mitigating:
  2. REFRANCHISING THE COMPANY-OPERATED RESTAURANTS – In the past, McDonald's has converted a significant
    number of its company-operated restaurants to franchised restaurants since the latter is a more profitable venture.
    Any company-operated restaurant that is converted to a franchised restaurant will negatively impact the figure.
Sources for historical data and explanations can be found on the Trefis.com website (link)


                          — ANNUAL CUSTOMERS PER MCDONALD'S RESTAURANT —


See our analysis of Annual Customers per McDonald's Restaurant in the Franchisee Rent & Fees division here.



                          — COMPANY OPERATED RESTAURANTS EBITDA MARGIN —

Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) are profits after factoring in typical expenses,
such as Cost of Goods and Services Sold, SG&A Expenses, and R&D Expenses. EBITDA Margin represents divisional
EBITDA as a percentage of divisional revenues. We adjust EBITDA figures to exclude non-recurring charges and non-
cash charges, such as stock-based compensation expenses.



                           Company Operated Restaurants EBITDA Margin (%)

       17.5
       15.0
       12.5
       10.0
         7.5
         5.0
         2.5
         0.0
                   2008 0 9          10     11      12      13      14     15      16      17      18      19




    TREFIS ANALYSIS for MCDONALD'S             CONTENT@TREFIS.COM            + 1 617 394 8763                             •12
Company Operated Restaurants EBITDA Margin increased consistently from 2008 to 2010 as occupancy costs declined
as a percentage of sales. However, margins declined in 2011 due to escalating food costs. In 2012, margins will be negatively
impacted due to recognition of expense associated with the Olympic sponsorship in its third quarter. Beyond 2012, we
expect the margins to remain in a narrow range.

Forecast Rationale
Supporting:
  1. ECONOMY OF SCALES – As the company opens up more restaurants, it will achieve even greater bargain power in
     terms of acquiring raw products. Thus, if the company is able to reduce the cost of goods (as a percentage of
     revenues), the margins can see some improvement.

Mitigating:
  2. HIGH COMMODITY PRICES – Most restaurants and food companies around the world are plagued by the high
    commodity prices which are eating up margins. Not all the incremental costs can be passed on to the consumers since
    that would result in a loss of customer traffic. Food inflation is even higher in developing countries. As the company
    increases its presence in the emerging markets, it will be more susceptible to volatility in food prices.
Sources for historical data and explanations can be found on the Trefis.com website (link)

                                          2008   2009   2010   2011   2012   2013   2014   2015   2016   2017   2018   2019
 Total Revenue (Bil $)                    16.6   15.5   16.2   18.3   19.3   20.5   21.4   22.4   23.4   24.4   25.5   26.6
 Direct Expense (Bil $)                   13.9   12.8   13.2   14.9   15.8   16.8   17.6   18.3   19.1   20.0   20.9   21.8
 Indirect Expense (Bil $)                 1.66   1.25   1.44   1.63   1.93   1.99   2.00   2.05   2.10   2.16   2.23   2.32
 Adjusted EBITDA (Bil $)                  2.70   2.68   3.05   3.40   3.51   3.71   3.88   4.05   4.23   4.41   4.61   4.81
 Free Cash Flow (Bil $)                   n/a    n/a    n/a    n/a    1.57   1.72   1.87   2.00   2.13   2.26   2.38   2.49


In addition, you can see the detailed P&L for the Company-Operated Restaurants business in the Appendix (link)




    TREFIS ANALYSIS for MCDONALD'S               CONTENT@TREFIS.COM           + 1 617 394 8763                           •13
Franchisee Royalties
The most important drivers for the Franchisee Royalties business are:
 • Average Spend per Customer Visit at McDonald's Franchised Restaurant
 • Royalty Rate on Franchisee Sales
 • Number of Franchised & Affiliated McDonald's Restaurants
 • Annual Customers per McDonald's Restaurant
 • Franchisee Royalties EBITDA Margin

        — AVERAGE SPEND PER CUSTOMER VISIT AT MCDONALD'S FRANCHISED RESTAURANT —


See our analysis of Average Spend per Customer Visit at McDonald's Franchised Restaurant in the Franchisee Rent &
Fees division here.



                                   — ROYALTY RATE ON FRANCHISEE SALES —

McDonald's franchises its restaurants worldwide to locals. In return, these franchises pay a percentage of their sales to
McDonald's. This percentage is known as the royalty which franchises pay to McDonald's.



                                      Royalty Rate on Franchisee Sales (%)

          4

          3

          2

          1

          0
                  2008 0 9          10      11      12      13      14      15      16      17      18      19




The royalty rate has remained stable historically at close to 4.2%, and we do not expect it to change significantly going
forward.
Sources for historical data and explanations can be found on the Trefis.com website (link)




    TREFIS ANALYSIS for MCDONALD'S              CONTENT@TREFIS.COM            + 1 617 394 8763                              •14
                 — NUMBER OF FRANCHISED & AFFILIATED MCDONALD'S RESTAURANTS —


See our analysis of Number of Franchised & Affiliated McDonald's Restaurants in the Franchisee Rent & Fees division
here.



                          — ANNUAL CUSTOMERS PER MCDONALD'S RESTAURANT —


See our analysis of Annual Customers per McDonald's Restaurant in the Franchisee Rent & Fees division here.



                                  — FRANCHISEE ROYALTIES EBITDA MARGIN —
     Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) are profits after factoring in typical
expenses, such as Cost of Goods and Services Sold, SG&A Expenses, and R&D Expenses. EBITDA Margin represents
divisional EBITDA as a percentage of divisional revenues. We adjust EBITDA figures to exclude non-recurring charges
and non-cash charges, such as stock-based compensation expenses.



                                   Franchisee Royalties EBITDA Margin (%)

       80
       70
       60
       50
       40
       30
       20
       10
         0
                 2008 0 9          10      11      12      13      14      15      16      17      18      19




The EBITDA margin for franchised restaurants is driven by three factors:
 1. Increasing comparable sales across restaurants, where comparable sales refers to the change in sales for restaurants on
    a like-by-like basis, excluding new restaurants that have come up that year
 2. Occupancy costs including rent expenses
 3. Promotional activity costs

EBITDA margin is the highest in the APMEA region as it has only developmental and affiliated restaurants, which do
not have any occupancy costs, unlike in the US and Europe. Europe has seen lower margins than in the US owing to costs
on promotional activities to increase brand awareness and drive sales.


    TREFIS ANALYSIS for MCDONALD'S              CONTENT@TREFIS.COM           + 1 617 394 8763                           •15
     Margins have increased at a gradual rate between 2008 and 2010. However, in 2011, it jumped to 81.4% primarily due
to a contractual escalation of royalty rate in Japan in addition to positive comparable sales in most markets. Going
forward, we expect the margins to remain at this level going forward.

Forecast Rationale
Supporting:
  1. MAJORITY OF THE EXPANSION TO OCCUR IN APMEA – More than half of the new restaurants opened up are in
     APMEA (Asia Pacific, Middle East and Africa), a region in which the company enjoys the highest margins. Going
     forward, this will have a tendency to increase the overall margins. EBITDA margins are also affected by comparable
     sales. The greater the comparable sales, the greater is McDonald's revenue generation capability, since the company
     derives its revenues as a percentage of sales in the case of a franchised restaurant. Expenses on the other hand, remain
     more or less constant for a franchised restaurant.
      APMEA has traditionally witnessed strong comparable sales, often outpacing the sales growth in the U.S. and
     European region. This will help boost margins.
Sources for historical data and explanations can be found on the Trefis.com website (link)

                                          2008   2009   2010   2011   2012   2013   2014   2015   2016   2017   2018   2019
 Total Revenue (Bil $)                    2.28   2.38   2.55   2.84   2.96   3.16   3.30   3.44   3.59   3.73   3.87   4.02
 Direct Expense (Mil $)                   533    516    529    528    545    577    604    630    656    682    708    736
 Indirect Expense (Bil $)                 1.07   0.87   0.96   1.11   1.33   1.38   1.39   1.42   1.45   1.49   1.53   1.59
 Adjusted EBITDA (Bil $)                  1.74   1.86   2.03   2.31   2.42   2.58   2.70   2.81   2.93   3.05   3.16   3.29
 Free Cash Flow (Bil $)                   n/a    n/a    n/a    n/a    1.08   1.20   1.31   1.39   1.48   1.56   1.63   1.70


In addition, you can see the detailed P&L for the Franchisee Royalties business in the Appendix (link)




    TREFIS ANALYSIS for MCDONALD'S               CONTENT@TREFIS.COM           + 1 617 394 8763                           •16
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    TREFIS ANALYSIS for MCDONALD'S            CONTENT@TREFIS.COM             + 1 617 394 8763                          •17
Appendix


Summary P&L for McDonald's
Summary P&L for McDonald's
                                        2008 2009 2010 2011         2012   2013   2014 2015     2016 2017     2018   2019
Total Revenues (Bil $)                  23.5 22.7 24.1 27.0         28.4   30.2   31.6 33.0     34.4 35.9     37.4   39.0
 Franchisee Rent & Fees (% of total)    19.9 21.6 22.0 21.8         21.7   21.7   21.7 21.7     21.7 21.6     21.5   21.4
 Company-Operated Restaurants (% 70.4          68.0   67.4   67.7   67.9   67.9   67.8   67.9   67.9   68.0   68.1   68.2
 of total)

 Franchisee Royalties (% of total)      9.67   10.5   10.6   10.5   10.4   10.4 10.5 10.4 10.4         10.4   10.4   10.3
Direct Expenses (Bil $)                 15.5   14.4   14.8   16.5   17.5   18.6 19.4 20.3 21.2         22.1   23.1   24.1
 Franchisee Rent & Fees (% of total)    44.7   45.8   45.2   45.7   45.8   46.0 46.0 46.0 45.9         45.9   45.8   45.7
 Company-Operated Restaurants (%        33.7   31.9   32.9   32.3   32.1   31.9   31.8   31.9   31.9   32.0   32.1   32.3
  of total)

 Franchisee Royalties (% of total)      21.7   22.2   21.9   22.0   22.1   22.2 22.2 22.2 22.2         22.1   22.1   22.0
Adjusted EBITDA (Bil $)                 8.03   8.38   9.27   10.5   10.9   11.6 12.2 12.7 13.2         13.8   14.3   14.9
 Franchisee Rent & Fees (% of total)    44.7   45.8   45.2   45.7   45.8   46.0 46.0 46.0 45.9         45.9   45.8   45.7
 Company-Operated Restaurants (%        33.7   31.9   32.9   32.3   32.1   31.9   31.8   31.9   31.9   32.0   32.1   32.3
  of total)

  Franchisee Royalties (% of total)     21.7   22.2   21.9   22.0   22.1   22.2 22.2 22.2 22.2         22.1   22.1   22.0
Indirect Expenses (Bil $)               4.95   3.91   4.37   5.06   6.03   6.23 6.28 6.43 6.56         6.73   6.94   7.20
  Franchisee Rent & Fees (% of total)   44.7   45.8   45.2   45.7   45.8   46.0 46.0 46.0 45.9         45.9   45.8   45.7
  Company-Operated Restaurants (%       33.7   31.9   32.9   32.3   32.1   31.9   31.8   31.9   31.9   32.0   32.1   32.3
  of total)

  Franchisee Royalties (% of total)     21.7   22.2   21.9   22.0   22.1   22.2 22.2 22.2 22.2         22.1   22.1   22.0
Free Cash Flow (Bil $)                  n/a    n/a    n/a    n/a    4.91   5.41 5.89 6.27 6.67         7.04   7.39   7.72
  Franchisee Rent & Fees (% of total)   n/a    n/a    n/a    n/a    45.8   46.0 46.0 46.0 45.9         45.9   45.8   45.7
  Company-Operated Restaurants (%       n/a    n/a    n/a    n/a    32.1   31.9   31.8   31.9   31.9   32.0   32.1   32.3
  of total)

  Franchisee Royalties (% of total)     n/a    n/a    n/a    n/a    22.1   22.2   22.2   22.2   22.2   22.1   22.1   22.0




   TREFIS ANALYSIS for MCDONALD'S              CONTENT@TREFIS.COM           + 1 617 394 8763                           •18
Detailed P&L for the Franchisee Rent & Fees
business
The most important drivers for the Franchisee Rent & Fees business are discussed above, here is the detailed P&L.

Franchisee Rent & Fees: Detailed P&L
                                    2008 2009 2010 2011             2012   2013   2014 2015     2016 2017     2018   2019
Revenues
  Franchisee Rent & Fees Revenues 4.69 4.91 5.29 5.90               6.15   6.56   6.86   7.15   7.45   7.74   8.04   8.35
  (Bil $)

     Rent Revenues as % of Franchised   8.66   8.62   8.65   8.72   8.62   8.62   8.62   8.62   8.62   8.62   8.62   8.62
     Revenues (%)
     Annual Customers per               675    674    701    710    725    739    754    769    784    800    816    832
     McDonald's Restaurant (K )
     Number of Franchised &
     Affiliated McDonald's              25.5   26.2   26.3   27.1   28.1   28.8   29.1   29.3   29.5   29.6   29.7   29.8
     Restaurants (K )
     Average Spend per Customer
     Visit at McDonald's Franchised     3.15   3.22   3.31   3.51   3.50   3.57   3.62   3.67   3.73   3.79   3.84   3.90
     Restaurant ($)
   Total Revenues (Bil $)               4.69   4.91   5.29   5.90   6.15   6.56   6.86   7.15   7.45   7.74   8.04   8.35

 Expenses
  Direct Expenses (Bil $)               1.10   1.06   1.10   1.10   1.14   1.21   1.26   1.32   1.37   1.42   1.48   1.54
    Franchisee Rent & Fees              76.6   78.3   79.3   81.4   81.5   81.6   81.6   81.6   81.6   81.6   81.6   81.6
    EBITDA Margin (%)
  Indirect Expenses (Bil $)             2.21   1.79   1.98   2.31   2.76   2.86 2.89     2.95   3.02   3.09   3.18   3.29
    Tax rate (%)                        30.0   29.8   29.3   31.3   32.0   32.0 32.0     32.0   32.0   32.0   32.0   32.0
    Capex as % of Revenues (%)          9.08   8.58   8.87   10.1   10.1   10.00 9.80    9.70   9.70   9.70   9.70   9.70
    Change in Net Working Capital       4.69   -1.88 1.23    -1.09 1.21    0.91   0.61   0.31   0.01   -0.29 -0.49 -0.49
    as % Revenues (%)
    Change in Net Operating Assets      -0.59 1.96    -0.48 0.42    0.32   0.22   0.12   0.12   0.12   0.12   0.12   0.12
    as % of Revenues (%)
  Total Expenses (Bil $)                3.31   2.85   3.07   3.41   3.90   4.07   4.15   4.27   4.39   4.51   4.66   4.83

 Adjusted EBITDA (Bil $)                3.59   3.84   4.19   4.80   5.01   5.35   5.60   5.83   6.08   6.32   6.56   6.82
 Free Cash Flow (Bil $)                 n/a    n/a    n/a    n/a    2.25   2.49   2.71   2.88   3.07   3.23   3.38   3.53




    TREFIS ANALYSIS for MCDONALD'S             CONTENT@TREFIS.COM           + 1 617 394 8763                           •19
Detailed P&L for the Company-Operated
Restaurants business
The most important drivers for the Company-Operated Restaurants business are discussed above, here is the detailed
P&L.

Company-Operated Restaurants: Detailed P&L
                                  2008 2009           2010 2011     2012   2013   2014 2015     2016 2017     2018   2019
Revenues
  Company Operated Restaurants    16.6 15.5           16.2   18.3   19.3   20.5   21.4   22.4   23.4   24.4   25.5   26.6
  Revenues (Bil $)
    Annual Customers per          675 674             701    710    725    739    754    769    784    800    816    832
    McDonald's Restaurant (K )
    Number of Company Operated    6.50 6.26           6.40 6.44     6.69   6.84   6.90 6.96     7.02   7.08   7.14   7.20
    Restaurants (K )
    Average Spend per Customer
    Visit at McDonald's Company   3.77 3.66           3.61   4.00 3.98     4.06 4.12     4.18   4.24   4.31   4.37   4.44
    Operated Restaurants ($)
  Total Revenues (Bil $)          16.6 15.5           16.2   18.3   19.3   20.5   21.4   22.4   23.4   24.4   25.5   26.6

 Expenses
  Direct Expenses (Bil $)               13.9   12.8   13.2   14.9   15.8   16.8   17.6   18.3   19.1   20.0 20.9     21.8
    Company Operated Restaurants        16.3   17.3   18.8   18.6   18.2   18.1   18.1   18.1   18.1   18.1   18.1   18.1
    EBITDA Margin (%)
  Indirect Expenses (Bil $)             1.66   1.25   1.44   1.63   1.93   1.99 2.00 2.05       2.10   2.16   2.23   2.32
    Tax rate (%)                        30.0   29.8   29.3   31.3   32.0   32.0 32.0 32.0       32.0   32.0   32.0   32.0
    Capex as % of Revenues (%)          9.08   8.58   8.87   10.1   10.1   10.00 9.80 9.70      9.70   9.70   9.70   9.70
    Change in Net Working Capital       4.69   -1.88 1.23    -1.09 1.21    0.91   0.61   0.31   0.01   -0.29 -0.49 -0.49
    as % Revenues (%)
    Change in Net Operating Assets      -0.59 1.96    -0.48 0.42    0.32   0.22   0.12   0.12   0.12   0.12   0.12   0.12
    as % of Revenues (%)
  Total Expenses (Bil $)                15.5   14.0   14.6   16.5   17.7   18.8   19.6   20.4   21.2   22.1   23.1   24.1

 Adjusted EBITDA (Bil $)                2.70   2.68   3.05   3.40   3.51   3.71   3.88   4.05 4.23     4.41   4.61   4.81
 Free Cash Flow (Bil $)                 n/a    n/a    n/a    n/a    1.57   1.72   1.87   2.00 2.13     2.26   2.38   2.49




    TREFIS ANALYSIS for MCDONALD'S             CONTENT@TREFIS.COM           + 1 617 394 8763                           •20
Detailed P&L for the Franchisee Royalties
business
The most important drivers for the Franchisee Royalties business are discussed above, here is the detailed P&L.

Franchisee Royalties: Detailed P&L
                                          2008 2009 2010 2011         2012   2013   2014 2015     2016 2017     2018   2019
 Revenues
  Franchisee Royalties Revenues (Bil $)   2.28   2.38   2.55   2.84   2.96   3.16   3.30   3.44   3.59   3.73   3.87   4.02
    Annual Customers per                  675    674    701    710    725    739    754    769    784    800    816    832
    McDonald's Restaurant (K )
    Number of Franchised &
    Affiliated McDonald's                 25.5   26.2   26.3   27.1   28.1   28.8   29.1   29.3   29.5   29.6   29.7   29.8
    Restaurants (K )
    Average Spend per Customer
    Visit at McDonald's Franchised        3.15   3.22   3.31   3.51   3.50   3.57   3.62   3.67   3.73   3.79   3.84   3.90
    Restaurant ($)
    Royalty Rate on Franchisee Sales      4.20   4.18   4.18   4.20   4.15   4.15   4.15   4.15   4.15   4.15   4.15   4.15
     (%)

   Total Revenues (Bil $)                 2.28   2.38   2.55   2.84   2.96   3.16   3.30   3.44   3.59   3.73   3.87   4.02

 Expenses
  Direct Expenses (Mil $)                 533    516    529    528    545    577    604    630    656    682    708    736
    Franchisee Royalties EBITDA           76.6   78.3   79.3   81.4   81.6   81.7   81.7   81.7   81.7   81.7   81.7   81.7
    Margin (%)
  Indirect Expenses (Bil $)               1.07   0.87   0.96 1.11     1.33   1.38 1.39     1.42   1.45   1.49   1.53   1.59
    Tax rate (%)                          30.0   29.8   29.3 31.3     32.0   32.0 32.0     32.0   32.0   32.0   32.0   32.0
    Capex as % of Revenues (%)            9.08   8.58   8.87 10.1     10.1   10.00 9.80    9.70   9.70   9.70   9.70   9.70
    Change in Net Working Capital         4.69   -1.88 1.23    -1.09 1.21    0.91   0.61   0.31   0.01   -0.29 -0.49 -0.49
    as % Revenues (%)
    Change in Net Operating Assets        -0.59 1.96    -0.48 0.42    0.32   0.22   0.12   0.12   0.12   0.12   0.12   0.12
    as % of Revenues (%)
  Total Expenses (Bil $)                  1.61   1.38   1.48   1.64   1.88   1.96   2.00 2.05     2.11   2.17   2.24   2.32

 Adjusted EBITDA (Bil $)                  1.74   1.86   2.03   2.31   2.42   2.58   2.70   2.81   2.93   3.05   3.16   3.29
 Free Cash Flow (Bil $)                   n/a    n/a    n/a    n/a    1.08   1.20   1.31   1.39   1.48   1.56   1.63   1.70




    TREFIS ANALYSIS for MCDONALD'S               CONTENT@TREFIS.COM           + 1 617 394 8763                           •21