McDonald's Corp (MCD)

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1 Americas/United States Equity Research Restaurants Rating OUTPERFORM Price (18-Dec-17, US$) Target price (US$) (from ) week price range (US$) Market cap(us$ m) 142,278 Target price is for 12 months. Research Analysts Jason West, CFA Olya Voronetskaya Share price performance Jan A p r Ju l O c t M C D.N S& P IN D EX On 18-Dec-2017 the S&P 500 INDEX closed at Daily Dec16, Dec18, 2017, 12/16/16 = US$ Quarterly EPS Q1 Q2 Q3 Q4 2016A E E McDonald's Corp (MCD) INCREASE TARGET PRICE Assessing Impact of MCD's New Value Menu + Updated Franchisee Checks Assessing the industry impact from new value menu: In light of MCD's upcoming new value menu (launching Jan. 4), we've reviewed: 1) MCD's relative size and market share vs. peers, 2) earnings sensitivity to US same store sales (SSS) and margin changes for major fast food and coffee companies, 3) historical correlations with MCD sales trends, and 4) review of sales trends around the original MCD "Dollar Menu" launch in Key takeaways: WEN, JACK, and SONC appear most exposed to MCD's value push when factoring in earnings sensitivity to the US market and considering the product/customer overlap with MCD. Each 1% miss on US SSS = ~3% impact to earnings for these names. We also see some risk to DNKN and SBUX given that MCD has effectively made its beverage value strategy permanent as part of the new "1, 2, 3" value menu. QSR and YUM have the lowest sensitivity to US SSS trends, at ~0.3% of profits for QSR (for each 1% change in Burger King US SSS) and ~0.6% of profits for YUM (for each 1% change in Taco Bell and KFC SSS). MCD franchisee checks point to continued momentum, raise PT: Our recent franchisee checks (across several US regions) point to continued SSS momentum so far in 4Q for MCD. We're raising our MCD 4Q US SSS est. to +5.0% from +3.7% (consensus = +4.3%) EPS moves up by 1c, to $6.50. Our model does not yet factor in any impact from tax reform. Raising PT to $185 (from $178) based on ~27x 2018E EPS given high visibility on SSS and improving ROIC. Risks: competitive discounting; refranchising dilution; food safety events. Financial and valuation metrics Year 12/16A 12/17E 12/18E EPS (CS adj.) (US$) Prev. EPS (US$) P/E (x) P/E rel. (%) Revenue (US$ m) 24, , ,254.5 EBITDA (US$ m) 9, , ,304.4 OCFPS (US$) P/OCF (x) EV/EBITDA (current) Net debt (US$ m) 24,732 27,156 28,894 ROIC (%) Number of shares (m) IC (current, US$ m) 22, BV/share (Next Qtr., US$) -2.4 EV/IC (x) 7.0 Net debt (Next Qtr., US$ m) 25,968.4 Dividend (current, US$) 3.76 Net debt/tot eq (Next Qtr.,%) -1,298.0 Dividend yield (%) 0.54 Source: Company data, Thomson Reuters, Credit Suisse estimates DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

2 McDonald's Corp (MCD) Price (18 Dec 2017): US$174.2; Rating: OUTPERFORM; Target Price: (from US$178.00) US$185.00; Analyst: Jason West Income Statement 12/16A 12/17E 12/18E Revenue (US$ m) 24, , ,254.5 EBITDA 9,619 10,126 10,304 Depr. & amort. (1,517) (1,377) (1,294) EBIT (US$) 8,103 8,749 9,010 Net interest exp (885) (926) (973) PBT (US$) 7,224 7,791 8,047 Income taxes (2,299) (2,493) (2,575) Profit after tax 4,925 5,298 5,472 Other NPAT adjustments Cash Flow 12/16A 12/17E 12/18E Cash flow from operations 6,060 6,280 6,882 CAPEX (1,821) (1,700) (2,000) Free cashflow to the firm 4,239 4,580 4,882 Cash flow from investments (982) 779 (1,820) Net share issue(/repurchase) (10,872) (5,414) (3,550) Dividends paid (3,058) (3,098) (3,250) Cashflow from financing activities (13,270) (9,713) (6,800) Changes in Net Cash/Debt (8,296) (2,424) (1,738) Balance Sheet (US$) 12/16A 12/17E 12/18E Cash & cash equivalents 1,223 1, Account receivables 1,474 1,469 1,469 Other current assets 2, Total fixed assets 21,258 22,009 22,535 Investment securities Total assets 31,024 31,281 31,069 Total current liabilities 3,468 3,840 3,840 Shareholder equity (2,204) (4,886) (6,214) Total liabilities and equity 31,024 31,281 31,069 Net debt 24,732 27,156 28,894 Per share 12/16A 12/17E 12/18E No. of shares (wtd avg) CS adj. EPS Prev. EPS (US$) Dividend (US$) Free cash flow per share Earnings 12/16A 12/17E 12/18E Sales growth (%) (3.1) (7.8) (10.8) EBIT growth (%) Net profit growth (%) EPS growth (%) EBITDA margin (%) EBIT margin (%) Pretax margin (%) Net margin (%) Valuation 12/16A 12/17E 12/18E EV/EBITDA (x) P/E (x) Returns 12/16A 12/17E 12/18E ROIC (%) Gearing 12/16A 12/17E 12/18E Net debt/equity (%) (1122.0) (555.8) (465.0) Quarterly EPS 2016A Q Q Q Q E E Company Background McDonald s Corporation (McDonald s) franchises and operates McDonald s restaurants in the global restaurant industry. These restaurants serve a menu at various price points in more than 100 countries around the world. Blue/Grey Sky Scenario Our Blue Sky Scenario (US$) (from ) Our $195 blue sky target puts a ~18x EBITDA multiple on 2018 EBITDA of ~$10.5bn (~2% above our published EBITDA forecast). This scenario assumes 2H17 global SSS accelerate to ~+6% or higher (vs. ~5.0% on our current model), driving upside to restaurant and franchise margins, as well as investor sentiment. Our Grey Sky Scenario (US$) (from ) Our $145 grey sky target puts a ~14.5x EBITDA multiple on 2018 EBITDA of ~$10.1bn (~2% below our published EBITDA forecast). This scenario assumes global SSS slow to ~+2% or lower, driving downside to margins. We note that share repurchases provide some cushion were the stock to fall (MCD will buy back ~$14bn from 2017 to 2019 on our model) Share price performance Ja n A p r Ju l O c t M C D.N S& P IN D EX On 18-Dec-2017 the S&P 500 INDEX closed at Daily Dec16, Dec18, 2017, 12/16/16 = US$ Source: Company data, Thomson Reuters, Credit Suisse estimates McDonald's Corp (MCD) 2

3 Assessing the Implications of MCD's New Value Strategy MCD will be launching a new value menu on Jan. 4 in the US, featuring items at $1, $2 and $3 price points. The new "$1 $2 $3 Dollar Menu" is being pitched by the company as a "return to value" and will be supported by national advertising. (We note that franchisees have committed to an increase in the contribution to national advertising funding starting next year, resulting in an ~20% increase in MCD's already massive national ad budget, we estimate.) In recent years, value offers within the fast food industry have tended to focus on "bundled" messages, rather than single price points. MCD is breaking this trend to some extent. This is also the first time that MCD has ever offered Happy Meals on a national value menu. Fast food competitors are gearing up to combat this new value effort from MCD, setting up 2018 as a potential year for intensive discounting in the fast food space, particularly in the first part of the year. For example, JACK has announced plans for new value messaging in Jan., focused on $1 to $5 price points. Taco Bell (owned by YUM) has announced that it is expanding its dollar menu this year, with plans to roll out 20 $1 limited-time offerings throughout 2018, in addition to the 20 $1 permanent menu items. Consensus is modeling SSS across the US fast food players at ~+2%, with relatively flat restaurant margins. In this note, we review the relative size of MCD's US business versus key competitors. We also analyze the earnings sensitivity to SSS and margins for the peer group. Overall, we do not know how impactful MCD's new value strategy will be in driving sales and traffic. Our feedback from MCD franchisees has been mixed on this front. Some franchisees expect a meaningful lift in sales and traffic (perhaps +2-3%). Others are not sure that the impact will be material right away, but will build over time (as was the case with the Dollar Menu). However, it is clear that MCD's business has positive momentum at the moment, with our checks pointing to +5% SSS in 4Q. Consensus forecasts call for a deceleration in MCD US SSS in 2018, to ~+3%. The launch of the new value menu, along with other initiatives such as fresh beef, delivery, and remodels, suggest this forecast could prove conservative. Below we summarize the items on the new value menu. Our anecdotal pricing checks suggest an average price reduction of ~15% across the full menu. We note that the $1 soft drink and $2 McCafe prices are a continuation of discounted pricing seen throughout most of MCD's new "$1 $2 $3 Dollar Menu": $1 menu items Sausage Burrito McChicken (sandwich) Cheeseburger Any Size Soft Drink $2 menu items Sausage McGriddles 2-piece Buttermilk Crispy Tenders Bacon McDouble Small McCafé Beverage $3 menu items Sausage McMuffin with Egg McDonald's Corp (MCD) 3

4 Classic Chicken Sandwich (new menu item) Triple Cheeseburger Happy Meal Traffic in focus: Recall that MCD ended the original "Dollar Menu" in late 2012 (launched in Nov '02) and has struggled to find a consistent and effective value message in recent years. The "McPick 2" menu was launched in 1Q16, but we believe results here have been mixed. This menu offers a rotating assortment of menu items and price points (both regionally and nationally), perhaps making it difficult for the customer to assess the true "value" of this offer. The new 1,2,3 value menu is expected to offer a more stable and consistent value message. Franchisees have signed on for a 3-year commitment to the new value menu (with some flexibility depending on how the menu performs). We also believe the vast majority of restaurants will feature the same menu items at the same price points in every market across the US. This consistency should result in more effective national advertising. MCD's has seen a healthy recovery in US SSS since late 2015 (though with some ups and downs). The bulk of this recovery has been driven by average check, rather than traffic. By our calcs, MCD's US same store traffic fell ~11% from (cumulatively). Traffic was negative each of those years. Traffic improved to ~flat in 1Q17 (ex-leap Day) and has been up ~2% in both 2Q and 3Q17, the first signs of meaningfully positive traffic since Clearly, there is still plenty of lost traffic to be recovered. MCD's new 1,2,3 value menu appears geared towards recovering this traffic, which is likely to partly come at the expense of check. We estimate the average discount of items on the new menu to be ~15% (or ~20% including historical beverage prices). We note that some items were already being sold at similar prices, while others have seen a meaningful cut in price (e.g., Happy Meal prices appear to be ~20-25% lower). Figure 1: MCD US same store sales* (quarterly) 8.0% MCD US same store sales 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 * Adjusted to exclude impact of Leap Day. McDonald's Corp (MCD) 4

5 Figure 2: MCD US same store TRAFFIC (1 and 2-year): MCD's US traffic has remained in negative territory in recent years, despite the launch of All-Day Breakfast in late 2015 and an overall improvement in sales trends. We estimate that US traffic fell ~11% cumulatively from % 6.0% 4.0% MCD US same store traffic (1-yr) MCD US same store traffic (2-yr) 2.0% 0.0% -2.0% -4.0% -6.0% -8.0% -10.0% -12.0% 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 Figure 3: MCD US same store TRAFFIC vs. CHECK: MCD's SSS improvement in recent years has primarily been driven by average check. 8.0% 6.0% 4.0% MCD US traffic growth (same store) MCD US avg. check growth (same store) 2.0% 0.0% -2.0% -4.0% -6.0% -8.0% 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 McDonald's Corp (MCD) 5

6 Figure 4: MCD US average check (per person) $6.40 $6.20 $6.00 $5.80 $5.60 $5.45 $5.47 $5.45 $5.47 MCD US average check $5.69 $5.67 $5.61 $5.58 $5.53 $5.78 $5.74 $5.79 $6.06 $5.96 $5.98 $6.01 $6.17 $6.15 $6.13 $6.17 $5.40 $5.20 $5.00 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 Figure 5: MCD US same store sales vs. fast food peers*: MCD's US same store sales have lagged US peers in most quarters since ~3Q12. However, relative sales performance has improved so far in Historically, MCD's same store sales have shown a slightly negative correlation with peers (-20% since 2007). 10.0% Correl = -20% MCD vs. Fast Food Peers Same Store Sales MCD Fast food ex-mcd 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% 1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17-4.0% -6.0% -8.0% *Fast food peer average based on US same store sales for Burger King, Wendy's, Taco Bell, Jack in the Box, and Sonic McDonald's Corp (MCD) 6

7 Figure 6: MCD US same store sales vs. fast food peers (2-year): MCD's 2-year same store sales also point to a reversal in relative sales performance, with MCD's beginning to outperform peers after ~3 years of lagging trends. 15.0% 10.0% MCD vs. Fast Food Peers 2-YEAR Same Store Sales MCD Fast food peers 5.0% 0.0% 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17-5.0% -10.0% *Fast food peer average based on US same store sales for Burger King, Wendy's, Taco Bell, Jack in the Box, and Sonic. Figure 7: Cumulative same store sales ( ): MCD's US same store sales were essentially flat from , despite an economic recovery and solid peer group sales. 16% 14% 12% 10% 8% 6% 4% 2% 0% Cumulative US same store sales ( ) SONC Taco Bell Avg ex- MCD JACK WEN Burger King MCD McDonald's Corp (MCD) 7

8 Figure 8: MCD US same store sales vs. "fast food sandwich" industry (per NPD): MCD is beginning to recover market share. 10.0% 8.0% 6.0% SSS spread: MCD less QSR sandwich QSR sandwich industry SSS (ex-mcd) MCD US SSS 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% -8.0% 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 Assessing Impact to Competitors In the figures below, we review MCD's relative size versus peers in the US and the earnings sensitivity to US sales for each company. We have focused this review on MCD's key fast food and coffee competitors: Burger King, Wendy's, Sonic, Jack in the Box, Yum Brands (KFC/Taco Bell), Dunkin' Donuts, and Starbucks. Key takeaways: MCD's generates ~$36bn in US system sales. This represents ~7% market share of the total restaurant industry and ~20% market share of the fast food industry (based on top 500 chains). Each 1% change in MCD's sales would impact overall fast food industry sales by ~0.2%, assuming no growth in the industry sales base. We believe MCD's new value menu could boost its sales by ~2% in coming periods, suggesting ~0.4% in sales risk to the average fast food competitor, assuming MCD's sales are evenly distributed. Clearly, some of MCD's near-in competitors could be more impacted than the average fast food company. We'd estimate a sales risk in the ~1% range for more direct competitors, such as Wendy's, Burger King, Jack in the Box, and Sonic. On average, each 1% change in US same store sales impacts pre-tax profits by ~1.5% for these companies. WEN and SONC have the highest sensitivity to US same store sales, with ~3% of profits impacted for each 1% change in SSS. QSR and YUM have the lowest sensitivity to US SSS trends, at ~0.3% of profits for QSR (for each 1% change in Burger King SSS) and ~0.6% of profits for YUM (for each 1% change in Taco Bell and KFC SSS). We also analyzed the impact to profits from each 100bps change in US companyoperated margin, as MCD's push into value is likely to result in a competitive response from peers. Given that most of these companies are predominantly franchised, the impact here is relatively low. Each 100bps change in company restaurant margin McDonald's Corp (MCD) 8

9 impacts pre-tax profits by ~1.2% for this peer group. SBUX has the highest sensitivity, at ~2.8% of profit for each ~100bps change in US company-operated margin. We also show the combined impact of both sales loss and margin pressure, as these two could occur in tandem. In terms of historical SSS correlations, we found Sonic to be the most inversely correlated with MCD same store sales over the past 10 years (-27%). However, correlations overall were relatively low, and there is not much evidence that a strong MCD means weak sales for the competitive set. In sum, WEN, JACK and SONC appear most at risk from MCD's new value menu given a combination of product/customer overlap and higher sensitivity to US sales and margin changes. While the overall earnings sensitivity to this issue is relatively low, the impact to investor sentiment from weakening sales trends is likely to have a more material impact on valuation multiples. Sales and margin pressures will also be felt by franchisees than the parent company. Figure 9: US system sales by brand (as of 2016) US system sales (billions) $40 $35 $36 $30 $25 $20 $15 $15 $10 $5 $9 $9 $9 $8 $5 $4 $3 $0 McDonald's Starbucks Burger King Taco Bell Wendy's Dunkin' Donuts Sonic KFC Jack in the Box, Technomic McDonald's Corp (MCD) 9

10 Figure 10: 1% change in MCD system sales/brand system sales: Below we show the relative size of a 1% change in MCD's US system sales to competitor sales. For example, a 1% change in MCD system sales = ~$360mm in sales dollars. Dividing this by Jack in the Box system sales of ~$3.5bn = ~11%. We are not suggesting these companies face sales risk in these ranges. We are just providing a ranking of MCD's relative sales base versus peers. 12% 10% 8% 11% 1% change in MCD sales/brand system sales 8% 8% 6% 4% 4% 4% 4% 4% 2% 2% 0% Jack in the Box KFC Sonic Dunkin' Donuts Wendy's Taco Bell Burger King Starbucks, Technomic McDonald's Corp (MCD) 10

11 Figure 11: QSR industry system sales and market share trends - US only ($ in millions): Below we show total system sales and market share trends for major fast food companies. MCD's has been the biggest share donor in the space over the past 4 years. This trend appears to be reversing given strengthening MCD sales of late. QSR system sales (US only), in mm Arby's $2,709 $2,845 $2,975 $3,263 $3,305 $3,458 $3,229 $3,010 $3,030 $2,958 $3,033 $3,177 $3,451 $3,662 Burger King $7,900 $7,710 $8,355 $8,392 $8,560 $9,125 $8,930 $8,710 $8,342 $8,595 $8,503 $8,640 $9,191 $9,430 Carl's Jr $1,083 $1,181 $1,210 $1,304 $1,350 $1,405 $1,370 $1,310 $1,342 $1,406 $1,442 $1,488 $1,496 $1,520 Chick-fil-A $1,534 $1,746 $1,975 $2,275 $2,641 $2,962 $3,217 $3,583 $4,051 $4,621 $5,053 $5,782 $6,291 $6,743 Dunkin' Donuts $3,000 $3,388 $3,854 $4,650 $4,975 $5,105 $5,295 $5,620 $5,919 $6,264 $6,742 $7,176 $7,623 $8,226 Hardee's $1,642 $1,681 $1,665 $1,666 $1,660 $1,680 $1,660 $1,730 $1,819 $1,897 $1,942 $2,083 $2,165 $2,241 Jack in the Box $2,375 $2,528 $2,599 $2,732 $3,015 $3,157 $3,085 $2,980 $3,010 $3,120 $3,116 $3,191 $3,395 $3,462 KFC $4,936 $4,950 $5,237 $5,300 $5,300 $5,200 $4,900 $4,700 $4,600 $4,500 $4,200 $3,932 $4,328 $4,483 McDonald's $22,122 $24,391 $25,643 $27,144 $28,576 $29,988 $31,033 $32,395 $34,172 $35,593 $35,856 $35,447 $35,837 $36,389 Popeye's $1,313 $1,379 $1,447 $1,526 $1,584 $1,593 $1,597 $1,635 $1,720 $2,008 $2,180 $2,434 $2,688 $2,870 Sonic $2,417 $2,761 $3,120 $3,404 $3,686 $3,867 $3,793 $3,623 $3,689 $3,814 $3,904 $4,099 $4,367 $4,518 Subway $5,699 $6,270 $7,170 $7,710 $8,200 $9,600 $10,000 $10,600 $11,400 $12,100 $12,300 $11,900 $11,500 $11,300 Taco Bell $5,346 $5,653 $6,200 $6,300 $6,100 $6,700 $6,800 $6,900 $7,000 $7,500 $7,800 $8,300 $8,820 $9,354 Wendy's $7,350 $7,715 $7,680 $7,804 $7,820 $8,614 $8,388 $8,340 $8,500 $8,674 $8,545 $8,639 $8,913 $8,964 Total (top 14 chains) $69,426 $74,198 $79,130 $83,471 $86,772 $92,453 $93,297 $95,137 $98,594 $103,050 $104,614 $106,289 $110,066 $113,162 Total (top 500 QSR chains) $111,636 $120,009 $128,290 $134,961 $141,169 $146,675 $146,088 $149,302 $153,930 $161,011 $165,358 $169,823 $177,295 $183,855 QSR market share (of top 500 QSR chains) Arby's 2.4% 2.4% 2.3% 2.4% 2.3% 2.4% 2.2% 2.0% 2.0% 1.8% 1.8% 1.9% 1.9% 2.0% Burger King 7.1% 6.4% 6.5% 6.2% 6.1% 6.2% 6.1% 5.8% 5.4% 5.3% 5.1% 5.1% 5.2% 5.1% Carl's Jr 1.0% 1.0% 0.9% 1.0% 1.0% 1.0% 0.9% 0.9% 0.9% 0.9% 0.9% 0.9% 0.8% 0.8% Chick-fil-A 1.4% 1.5% 1.5% 1.7% 1.9% 2.0% 2.2% 2.4% 2.6% 2.9% 3.1% 3.4% 3.5% 3.7% Dunkin' Donuts 2.7% 2.8% 3.0% 3.4% 3.5% 3.5% 3.6% 3.8% 3.8% 3.9% 4.1% 4.2% 4.3% 4.5% Hardee's 1.5% 1.4% 1.3% 1.2% 1.2% 1.1% 1.1% 1.2% 1.2% 1.2% 1.2% 1.2% 1.2% 1.2% Jack in the Box 2.1% 2.1% 2.0% 2.0% 2.1% 2.2% 2.1% 2.0% 2.0% 1.9% 1.9% 1.9% 1.9% 1.9% KFC 4.4% 4.1% 4.1% 3.9% 3.8% 3.5% 3.4% 3.1% 3.0% 2.8% 2.5% 2.3% 2.4% 2.4% McDonald's 19.8% 20.3% 20.0% 20.1% 20.2% 20.4% 21.2% 21.7% 22.2% 22.1% 21.7% 20.9% 20.2% 19.8% Popeye's 1.2% 1.1% 1.1% 1.1% 1.1% 1.1% 1.1% 1.1% 1.1% 1.2% 1.3% 1.4% 1.5% 1.6% Sonic 2.2% 2.3% 2.4% 2.5% 2.6% 2.6% 2.6% 2.4% 2.4% 2.4% 2.4% 2.4% 2.5% 2.5% Subway 5.1% 5.2% 5.6% 5.7% 5.8% 6.5% 6.8% 7.1% 7.4% 7.5% 7.4% 7.0% 6.5% 6.1% Taco Bell 4.8% 4.7% 4.8% 4.7% 4.3% 4.6% 4.7% 4.6% 4.5% 4.7% 4.7% 4.9% 5.0% 5.1% Wendy's 6.6% 6.4% 6.0% 5.8% 5.5% 5.9% 5.7% 5.6% 5.5% 5.4% 5.2% 5.1% 5.0% 4.9% Total for top % 61.8% 61.7% 61.8% 61.5% 63.0% 63.9% 63.7% 64.1% 64.0% 63.3% 62.6% 62.1% 61.5% Change in market share y/y (bps) Arby's Burger King Carl's Jr Chick-fil-A Dunkin' Donuts Hardee's Jack in the Box KFC McDonald's Popeye's Sonic Subway Taco Bell Wendy's Top 14 chains , Technomic McDonald's Corp (MCD) 11

12 Figure 12: EBIT impact from 1% change in US same store sales and 100bps change in US companyoperated margins: Here we show our calculations for earnings sensitivity to US sales and margins for key MCD competitors. Based on 2018E MCD WEN Burger King Jack in the Box Taco Bell KFC SONC Dunkin' Donuts Starbucks Change in US system SSS 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% US company-operated revenues $2,644 $633 $97 $427 $825 $120 $264 $0 $13,500 Change in company revenue $26 $6 $1 $4 $8 $1 $3 $0 $135 Company flow-thru 50% 50% 50% 50% 50% 50% 50% 50% 55% Change in company-operated profits $13 $3 $0 $2 $4 $1 $1 $0 $74 US franchise & license revenues $4,923 $597 $606 $421 $563 $233 $186 $631 $1,550 Change in franchise revenues $49 $6 $6 $4 $6 $2 $2 $6 $16 Franchise flow-thru 83% 84% 88% 52% 95% 92% 100% 92% 100% Change in franchise profits $41 $5 $5 $2 $5 $2 $2 $6 $16 Total change in profits (pre-tax) $54 $8 $6 $4 $9 $3 $3 $6 $90 PARENT COMPANY TICKER MCD WEN QSR JACK YUM YUM SONC DNKN SBUX Consolidated EBIT (2018E) $8,994 $308 $2,081 $258 $1,864 $1,864 $113 $464 $4,904 % change in consol. EBIT 0.6% 2.7% 0.3% 1.7% 0.5% 0.1% 2.8% 1.3% 1.8% Change in US company-op margin (bps) US company-operated revenues $2,644 $633 $97 $427 $825 $120 $264 $0 $13,500 Change in company-op profits $26 $6 $1 $4 $8 $1 $3 $0 $135 % change in consol. EBIT 0.3% 2.1% 0.0% 1.7% 0.4% 0.1% 2.3% 0.0% 2.8% Combined 1% SSS + 100bps margin impact to EBIT 0.9% 4.7% 0.3% 3.3% 1.0% 0.2% 5.2% 1.3% 4.6% Figure 13: EBIT impact from 1% change in US same store sales: Below we rank the EBIT impact from each 1% change in US same store sales as calculated above. % change in consol. EBIT from 1% US system SSS 3.0% 2.8% 2.7% 2.0% 1.8% 1.7% 1.3% 1.0% 0.7% 0.6% 0.3% 0.0% SONC WEN SBUX JACK DNKN YUM MCD QSR McDonald's Corp (MCD) 12

13 Figure 14: EBIT impact from 100bps change in company-operated restaurant margin 3.0% 2.8% % change in consol. EBIT from 100bps US co-op margins 2.3% 2.0% 2.1% 1.7% 1.0% 0.0% 0.5% 0.3% 0.0% 0.0% SBUX SONC WEN JACK YUM MCD QSR DNKN Figure 15: Combined EBIT impact from 1% change in US SSS + 100bps change in restaurant margin 6.0% 5.0% 5.2% 4.7% % change in consol. EBIT from 1% US sames store sales + 100bps US co-op margins 4.6% 4.0% 3.0% 3.3% 2.0% 1.0% 1.3% 1.2% 0.9% 0.3% 0.0% SONC WEN SBUX JACK DNKN YUM MCD QSR McDonald's Corp (MCD) 13

14 Figure 16: Correlations with MCD US same store sales: We found Sonic to be the most inversely correlated with MCD same store sales over the past 10 years. Correlations overall were relatively low, and there is not much evidence that a strong MCD means weak sales for the competitive set. 50% Correlation with MCD US same store sales (since 2007) 40% 30% 20% 10% 0% -10% Sonic KFC Industry avg Taco Bell Starbucks Burger King Jack in the Box Wendy's Dunkin' Donuts -20% -30% -40% Review of the original "Dollar Menu" launch MCD sales accelerated post-dollar Menu, but this coincided with macro recovery MCD rolled out the original "Dollar Menu" nationally in mid-november Throughout 2001 and 2002, the company had been struggling with weak SSS and restructuring activities. MCD US SSS continued to weaken in 1Q03 (-2.0%) but then began to recover in subsequent quarters. The sales slowdown coincided with the US recession in 02-03, when consumer confidence declined from ~110 in Mar 02 to ~61 in Mar 03. It is not clear that MCD's Dollar Menu launch hurt competitor sales, as other fast food chains were already seeing slowing sales trends starting in mid-2002, several months before the Dollar Menu was launched. MCD began to see a strong acceleration in sales in 2Q03, partly due to the Dollar Menu. However, this also coincided with improving US GDP trends and improving sales for peers. Besides the Dollar Menu, 2003 had several other factors working in MCD s favor, including improved operations, Happy Meal promotions, new product launches (such as McGriddles), and better brand image among consumers. Based on our review of historical transcripts, the sales impact from the Dollar Menu gained traction over time as more consumers became aware of this value option. We've heard similar commentary this year related to the beverage value program. McDonald's Corp (MCD) 14

15 Figure 17: MCD launched the Dollar Menu nationally in Nov Sales continued to weaken in 1Q03 (to -2.0%) then began to recovery sharply in subsequent quarters (along with the economy overall). 15% MCD Wendy's Taco Bell Arby's 10% 5% 0% -5% -10% MCD introduces $1 value menu nationally in mid-nov '02 1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 Positive franchisee checks in 4Q Raising 4Q17 US same store sales to +5.0% (from +3.7%) Our recent franchisee checks (across several US regions) point to continued same store sales (SSS) momentum so far in 4Q. We're raising our 4Q US SSS estimate to +5.0% from +3.7% (consensus = +4.3%). We note that this implies a slowdown in the 2-yr. trend to +3.7% in 4Q17 from ~+5-6% in 2Q-3Q17. However, this trend is somewhat skewed by the lap of All-Day Breakfast in 4Q16. Looking at the 3-yr. trend, we are now modeling 4Q17E at +9.4%, up from +6.3% in 3Q17 and +3.7% in 2Q17. In explaining the strong sales, franchisees cited new product launches (e.g., chicken tenders, Signature sandwiches), continued support from beverage value ($1 sodas/$2 premium coffee), improved operations, and overall brand momentum. However, franchisees noted that SSS are largely being driven by higher check, rather than traffic. Most franchisees believe the new 1, 2, 3 value menu will help drive traffic, but are somewhat concerned around potential impact to check and margins. In light of recent sales momentum and the upcoming value menu launch, we've raised our 1Q18 US SSS estimate to +3.5% from +3.0%. SSS should also begin to see some benefit from the rollout of delivery, which is expected to be available in 5,000 US restaurants by yearend 2017, up from essentially zero going into 1Q17. Our 2017 EPS moves up by 1c, to $6.50. Our model does not yet factor in any impact from tax reform. McDonald's Corp (MCD) 15

16 Valuation Summary Figure 18: MCD NTM P/E is at its 5-yr. high of 25.0x (vs. its 5-yr. avg. of 19.1x). MCD NTM P/E 5-yr. avg. = 19.1x 26.0x 24.0x 22.0x 20.0x 18.0x 16.0x 14.0x 12.0x Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17, Thomson Reuters Figure 19: MCD NTM P/E rel. to S&P500 is currently ~133% (vs. its 118% 5-yr. avg.) 160% MCD NTM P/E rel. to S&P yr. avg. = 118% 140% 120% 100% 80% Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17, Thomson Reuters McDonald's Corp (MCD) 16

17 Figure 20: MCD NTM P/E rel. to Restaurants NTM P/E is currently ~118% (vs. its 86% 5-yr. avg.) 140% MCD NTM P/E rel. to Restaurant NTM P/E 5-yr. avg. = 86% 120% 100% 80% 60% 40% Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17, Thomson Reuters Figure 21: MCD NTM EV/EBITDA is at a 5-yr. high of ~16x (vs. its 12x 5-yr. avg.) 20.0x MCD NTM EV/EBITDA 5-yr. avg. = 12.0x 17.5x 15.0x 12.5x 10.0x 7.5x 5.0x Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17, Thomson Reuters McDonald's Corp (MCD) 17

18 Figure 22: MCD NTM EV/EBITDA relative to Restaurant NTM EV/EBITDA has dipped slightly from its 5-yr. high of ~160% (vs. its 5-yr. avg. if ~110%). 175% MCD NTM EV/EBITDA rel. to Restaurants NTM EV/EBITDA 5-yr. avg. = 110% 150% 125% 100% 75% 50% Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17, Thomson Reuters Figure 23: CS MCD Model: Income Statement Fiscal year ending December (in millions) Q16 2Q16 3Q16 4Q Q17 2Q17 3Q17 4Q17E 2017E 2018E Company-operated revenue $18,874 $18,169 $16,488 $3,754 $3,917 $3,972 $3,653 $15,295 $3,412 $3,570 $3,064 $2,569 $12,615 $9,277 Franchised and affiliated restaurants $9,232 $9,272 $8,925 $2,150 $2,348 $2,452 $2,376 $9,327 $2,264 $2,480 $2,690 $2,655 $10,089 $10,978 Total Net Revenues $28,106 $27,441 $25,413 $5,904 $6,265 $6,424 $6,029 $24,622 $5,676 $6,050 $5,755 $5,225 $22,705 $20,254 Food & paper $6,360 $6,131 $5,553 $1,224 $1,245 $1,263 $1,165 $4,897 $1,088 $1,139 $962 $807 $3,996 $2,936 Payroll & employee benefits $4,823 $4,754 $4,401 $1,040 $1,061 $1,037 $997 $4,135 $949 $964 $846 $753 $3,511 $2,646 Occupancy & other operating expenses $4,391 $4,402 $4,021 $912 $940 $941 $873 $3,666 $778 $800 $671 $554 $2,802 $1,982 Other $4 $1 $2 $0 $1 -$2 $0 $0 $2 $1 $1 $0 $4 $2 Company-operated restaurant expenses $15,579 $15,288 $13,977 $3,175 $3,248 $3,240 $3,036 $12,699 $2,816 $2,903 $2,480 $2,114 $10,313 $7,567 Restaurant profit $3,296 $2,881 $2,511 $578 $669 $733 $617 $2,596 $596 $666 $585 $456 $2,302 $1,710 Franchised occupancy expenses $1,624 $1,697 $1,647 $415 $431 $438 $435 $1,718 $430 $438 $457 $462 $1,787 $1,892 SG&A $2,386 $2,488 $2,434 $578 $596 $583 $628 $2,385 $521 $525 $567 $620 $2,233 $2,090 Other operating expenses, net -$247 $19 $34 -$45 -$98 -$101 -$38 -$282 -$126 -$112 -$90 -$50 -$378 -$305 Total operating expenses $19,341 $19,492 $18,093 $4,124 $4,177 $4,159 $4,060 $16,519 $3,642 $3,755 $3,414 $3,145 $13,956 $11,244 Operating Income, ex-items $8,764 $7,949 $7,275 $1,780 $2,088 $2,265 $1,969 $8,103 $2,034 $2,295 $2,340 $2,079 $8,749 $9,010 EBITDA, ex-items $10,349 $9,594 $8,830 $2,164 $2,471 $2,636 $2,348 $9,619 $2,359 $2,635 $2,696 $2,436 $10,126 $10,304 Interest expense $522 $571 $638 $218 $224 $221 $221 $885 $219 $231 $237 $240 $926 $973 Non operating expense $38 $7 -$49 -$14 -$16 $11 $13 -$6 $8 $3 $23 -$2 $32 -$10 Pretax Income, ex-items $8,205 $7,372 $6,685 $1,576 $1,880 $2,033 $1,735 $7,224 $1,808 $2,061 $2,081 $1,842 $7,791 $8,047 Taxes $2,619 $2,614 $2,034 $478 $617 $662 $542 $2,299 $593 $666 $645 $589 $2,493 $2,575 Net Income, ex-items $5,586 $4,758 $4,697 $1,099 $1,263 $1,370 $1,193 $4,925 $1,215 $1,395 $1,436 $1,252 $5,298 $5,472 Average Shares Outstanding - Diluted 1, Diluted EPS ex-items $5.55 $4.82 $4.97 $1.23 $1.45 $1.62 $1.44 $5.72 $1.47 $1.70 $1.76 $1.56 $6.50 $6.92 Margins Q16 2Q16 3Q16 4Q Q17 2Q17 3Q17 4Q17E 2017E 2018E Food & paper 33.7% 33.7% 33.7% 32.6% 31.8% 31.8% 31.9% 32.0% 31.9% 31.9% 31.4% 31.4% 31.7% 31.7% Payroll & employee benefits 25.6% 26.2% 26.7% 27.7% 27.1% 26.1% 27.3% 27.0% 27.8% 27.0% 27.6% 29.3% 27.8% 28.5% Occupancy & other operating expenses 23.3% 24.2% 24.4% 24.3% 24.0% 23.7% 23.9% 24.0% 22.8% 22.4% 21.9% 21.6% 22.2% 21.4% Restaurant margin 17.5% 15.9% 15.2% 15.4% 17.1% 18.4% 16.9% 17.0% 17.5% 18.7% 19.1% 17.7% 18.2% 18.4% Franchised margin 82.4% 81.7% 81.5% 80.7% 81.7% 82.2% 81.7% 81.6% 81.0% 82.3% 83.0% 82.6% 82.3% 82.8% SG&A 8.5% 9.1% 9.6% 9.8% 9.5% 9.1% 10.4% 9.7% 9.2% 8.7% 9.9% 11.9% 9.8% 10.3% Operating margin, ex-items 31.2% 29.0% 28.6% 30.2% 33.3% 35.3% 32.7% 32.9% 35.8% 37.9% 40.7% 39.8% 38.5% 44.5% EBITDA margin, ex-items 36.8% 35.0% 34.7% 36.7% 39.4% 41.0% 38.9% 39.1% 41.6% 43.5% 46.9% 46.6% 44.6% 50.9% Tax Rate 31.9% 35.5% 30.4% 30.3% 32.8% 32.6% 31.2% 31.8% 32.8% 32.3% 31.0% 32.0% 32.0% 32.0% Net margin, ex-items 19.9% 17.3% 18.5% 18.6% 20.2% 21.3% 19.8% 20.0% 21.4% 23.1% 24.9% 24.0% 23.3% 27.0% Key growth rates (y/y % change) Q16 2Q16 3Q16 4Q Q17 2Q17 3Q17 4Q17E 2017E 2018E Company-operated revenue 1.5% -3.7% -9.3% -4.1% -8.1% -7.3% -9.4% -7.2% -9.1% -8.9% -22.9% -29.7% -17.5% -26.5% Franchised and affiliated revenue 3.0% 0.4% -3.7% 5.2% 5.0% 5.1% 2.8% 4.5% 5.3% 5.6% 9.7% 11.7% 8.2% 8.8% Total revenue 2.0% -2.4% -7.4% -0.9% -3.6% -2.9% -4.9% -3.1% -3.9% -3.4% -10.4% -13.3% -7.8% -10.8% Company-operated restaurant expenses 2.3% -1.9% -8.6% -5.3% -9.7% -10.2% -11.2% -9.1% -11.3% -10.6% -23.5% -30.4% -18.8% -26.6% Franchised occupancy expense 6.4% 4.5% -3.0% 2.8% 4.8% 5.2% 4.5% 4.3% 3.6% 1.6% 4.5% 6.2% 4.0% 5.9% SG&A -2.8% 4.3% -2.2% -0.8% 0.6% -0.2% -7.1% -2.0% -9.8% -11.9% -2.7% -1.3% -6.3% -6.4% Operating income, ex-items 1.9% -9.3% -8.5% 12.6% 10.2% 11.6% 8.5% 11.4% 14.3% 9.9% 3.3% 5.6% 8.0% 3.0% EBITDA, ex-items 2.5% -7.3% -8.0% 10.0% 8.1% 9.0% 6.5% 8.9% 9.0% 6.6% 2.3% 3.7% 5.3% 1.8% Net income, ex-items 2.2% -14.8% -1.3% 12.6% 2.4% 4.7% 1.3% 4.9% 10.6% 10.5% 4.8% 4.9% 7.6% 3.3% Diluted share count -1.4% -1.9% -4.3% -7.3% -9.0% -9.3% -9.8% -8.8% -7.8% -6.0% -4.0% -3.3% -5.3% -3.0% Diluted EPS, ex-items 3.7% -13.2% 3.1% 21.5% 12.5% 15.4% 12.3% 15.0% 19.9% 17.5% 9.2% 8.5% 13.6% 6.5% McDonald's Corp (MCD) 18

19 Figure 24: MCD Restaurant Counts, Same Store Sales and Cash Flow Summary Restaurant counts (systemwide) Q16 2Q16 3Q16 4Q Q17 2Q17 3Q17 4Q17E 2017E 2018E US 14,278 14,350 14,259 14,219 14,186 14,177 14,155 14,155 14,094 14,079 14,063 14,068 14,068 14,018 y/y 0.9% 0.5% -0.6% -0.8% -0.9% -0.9% -0.7% -0.7% -0.9% -0.8% -0.8% -0.6% -0.6% -0.4% International Lead 6,604 6,717 6,802 6,800 6,795 6,808 6,851 6,851 6,850 6,871 6,883 6,983 6,983 7,108 y/y 1.8% 1.7% 1.3% 1.3% 1.0% 1.2% 0.7% 0.7% 0.7% 1.1% 1.1% 1.9% 1.9% 1.8% High Growth 4,639 5,031 5,266 5,266 5,301 5,370 5,552 5,552 5,589 5,653 5,740 5,765 5,765 6,045 y/y 10.4% 8.5% 4.7% 3.8% 3.4% 4.3% 5.4% 5.4% 6.1% 6.6% 6.9% 3.8% 3.8% 4.9% Foundational 9,908 10,160 10,198 10,182 10,222 10,260 10,341 10,341 10,372 10,408 10,290 10,365 10,365 10,465 y/y 2.8% 2.5% 0.4% 0.2% 0.3% 0.5% 1.4% 1.4% 1.9% 1.8% 0.3% 0.2% 0.2% 1.0% Global 35,429 36,258 36,525 36,467 36,504 36,615 36,899 36,899 36,905 37,011 36,976 37,181 37,181 37,636 y/y 2.8% 2.3% 0.7% 0.5% 0.4% 0.6% 1.0% 1.0% 1.2% 1.4% 1.0% 0.8% 0.8% 1.2% Same store sales (systemwide) Q16 2Q16 3Q16 4Q Q17 2Q17 3Q17 4Q17E 2017E 2018E US -0.2% -2.1% 0.5% 5.4% 1.8% 1.3% -1.3% 1.7% 1.7% 3.9% 4.1% 4.5% 3.6% 2.8% International Lead 0.2% 0.8% 3.4% 5.2% 2.6% 3.3% 2.8% 3.4% 2.8% 6.3% 5.7% 4.5% 4.8% 3.0% High Growth -0.6% -2.8% 1.8% 3.6% 1.6% 1.5% 4.7% 2.8% 3.8% 7.0% 6.2% 3.5% 5.1% 3.5% Foundational 1.5% -0.1% 0.8% 11.0% 7.7% 10.1% 11.1% 10.0% 10.7% 13.0% 10.2% 6.0% 10.0% 3.5% Global 0.2% -1.0% 1.5% 6.2% 3.1% 3.5% 2.7% 3.8% 4.0% 6.6% 6.0% 4.7% 5.3% 3.1% Cash flow metrics Q16 2Q16 3Q16 4Q Q17 2Q17 3Q17 4Q17E 2017E 2018E Operating cash flow $7,121 $6,730 $6,539 $1,719 $1,248 $2,251 $1,539 $6,060 $1,544 $1,213 $1,685 $1,838 $6,280 $6,882 Capex -$2,825 -$2,583 -$1,814 -$392 -$353 -$405 -$672 -$1,821 -$428 -$369 -$417 -$487 -$1,700 -$2,000 Share buybacks -$1,778 -$3,199 -$6,099 -$4,312 -$3,381 -$1,970 -$1,509 -$11,171 -$748 -$1,108 -$2,082 -$2,000 -$5,937 -$4,150 Dividends -$3,115 -$3,216 -$3,230 -$781 -$759 -$745 -$773 -$3,058 -$771 -$762 -$755 -$811 -$3,098 -$3,250 Free cash flow (OCF - capex) $4,296 $4,147 $4,725 $1,327 $896 $1,846 $867 $4,239 $1,116 $845 $1,268 $1,352 $4,580 $4,882 Figure 25: CS MCD Model: Segment Forecasts Operating income Q16 2Q16 3Q16 4Q Q17 2Q17 3Q17 4Q17E 2017E 2018E Company operated US $830 $756 $632 $137 $164 $154 $163 $618 $128 $140 $124 $133 $526 $419 International Lead $1,078 $1,080 $961 $208 $228 $238 $213 $886 $189 $219 $236 $209 $852 $748 High-Growth $1,019 $780 $659 $169 $209 $245 $173 $796 $230 $264 $196 $92 $781 $456 Foundational $368 $264 $259 $64 $68 $96 $68 $296 $48 $44 $29 $22 $143 $86 Total Company operated $3,296 $2,881 $2,511 $578 $669 $733 $617 $2,596 $596 $666 $585 $456 $2,302 $1,709 Franchised and affiliated US $3,626 $3,572 $3,606 $865 $953 $961 $946 $3,726 $892 $992 $1,015 $1,000 $3,899 $4,083 International Lead $2,430 $2,486 $2,254 $535 $595 $635 $597 $2,363 $558 $640 $730 $697 $2,625 $2,945 High-Growth $531 $555 $520 $121 $135 $150 $144 $550 $133 $158 $203 $200 $694 $910 Foundational $1,021 $962 $898 $214 $235 $268 $255 $970 $251 $252 $286 $296 $1,084 $1,156 Total Franchised and affiliated $7,607 $7,575 $7,278 $1,735 $1,918 $2,014 $1,941 $7,609 $1,834 $2,042 $2,233 $2,193 $8,302 $9,094 Operating income growth (y/y) Q16 2Q16 3Q16 4Q Q17 2Q17 3Q17 4Q17E 2017E 2018E Company operated US -5.9% -8.9% -16.4% -9.5% -7.6% 16.4% -4.8% -2.3% -6.4% -14.5% -19.3% -18.3% -14.9% -20.3% International Lead -1.8% 0.2% -11.0% -4.5% -7.3% -7.4% -11.7% -7.8% -9.0% -4.0% -1.0% -2.1% -3.9% -12.2% High-Growth 0.1% -23.4% -15.6% 21.5% 16.2% 18.2% 30.9% 20.9% 36.0% 26.3% -20.3% -47.0% -1.9% -41.6% Foundational -3.2% -28.2% -1.9% 24.1% 9.8% 21.5% 1.7% 14.1% -25.3% -35.9% -69.4% -67.4% -51.6% -40.3% Total Company operated -2.5% -12.6% -12.8% 3.3% 0.6% 8.5% 0.9% 3.4% 3.0% -0.3% -20.2% -26.1% -11.3% -25.8% Franchised and affiliated US 0.9% -1.5% 0.9% 7.7% 4.5% 2.6% -0.8% 3.3% 3.1% 4.1% 5.6% 5.7% 4.6% 4.7% International Lead 3.2% 2.3% -9.3% 4.6% 5.4% 6.5% 2.7% 4.8% 4.2% 7.5% 14.8% 16.8% 11.1% 12.2% High-Growth 8.2% 4.4% -6.3% 3.8% 4.7% 6.9% 7.6% 5.8% 10.1% 17.2% 35.3% 39.0% 26.3% 31.0% Foundational 2.2% -5.7% -6.7% 2.1% 6.3% 10.5% 12.6% 8.1% 17.4% 7.4% 6.7% 16.2% 11.7% 6.6% Total Franchised and affiliated 2.3% -0.4% -3.9% 5.7% 5.0% 5.1% 2.4% 4.5% 5.7% 6.5% 10.9% 13.0% 9.1% 9.5% Segment margins Q16 2Q16 3Q16 4Q Q17 2Q17 3Q17 4Q17E 2017E 2018E Co.-operated restaurant margins US 18.4% 17.4% 15.1% 14.2% 16.8% 16.9% 18.3% 16.5% 15.3% 16.5% 15.6% 17.3% 16.2% 15.8% International Lead 19.6% 19.8% 20.0% 19.7% 20.7% 21.7% 20.7% 20.7% 20.1% 21.4% 21.9% 21.0% 21.1% 21.3% High-Growth 16.1% 12.9% 12.1% 13.4% 15.4% 17.0% 13.1% 14.8% 17.1% 18.1% 18.5% 13.3% 17.2% 17.1% Foundational 14.6% 11.5% 12.7% 13.7% 14.1% 18.3% 16.1% 15.6% 16.6% 18.3% 21.8% 18.1% 18.2% 19.4% Total Company operated 17.5% 15.9% 15.2% 15.4% 17.1% 18.4% 16.9% 17.0% 17.5% 18.7% 19.1% 17.7% 18.2% 18.4% Franchised and affiliated margins US 83.6% 83.1% 82.7% 82.1% 83.1% 82.7% 82.5% 82.6% 81.6% 82.8% 82.9% 82.7% 82.5% 82.7% International Lead 80.4% 80.1% 80.0% 79.1% 80.1% 81.2% 80.3% 80.2% 79.5% 80.8% 82.7% 80.7% 80.7% 81.4% High-Growth 73.6% 71.7% 71.1% 68.2% 69.8% 71.5% 71.2% 70.2% 69.4% 71.9% 76.0% 76.2% 73.7% 76.7% Foundational 88.9% 87.7% 88.4% 88.1% 88.5% 89.9% 89.7% 89.1% 90.7% 93.5% 93.8% 92.7% 92.7% 93.5% Total Franchised and affiliated 82.4% 81.7% 81.5% 80.7% 81.7% 82.2% 81.7% 81.6% 81.0% 82.3% 83.0% 82.6% 82.3% 82.8% Operating income mix (by region) Q16 2Q16 3Q16 4Q Q17 2Q17 3Q17 4Q17E 2017E 2018E US 40.9% 41.4% 43.3% 43.3% 43.2% 40.6% 43.4% 42.6% 42.0% 41.8% 40.4% 42.8% 41.7% 41.7% International Lead 32.2% 34.1% 32.9% 32.1% 31.8% 31.8% 31.7% 31.8% 30.8% 31.7% 34.3% 34.2% 32.8% 34.2% High-Growth 14.2% 12.8% 12.0% 12.5% 13.3% 14.4% 12.4% 13.2% 15.0% 15.6% 14.1% 11.0% 13.9% 12.6% Foundational 12.7% 11.7% 11.8% 12.0% 11.7% 13.2% 12.6% 12.4% 12.3% 10.9% 11.2% 12.0% 11.6% 11.5% McDonald's Corp (MCD) 19

20 Figure 26: CS MCD Model: Same Store Sales Forecasts Q16 2Q16 3Q16 4Q Q17 2Q17 3Q17 4Q17E 2017E 2018E SAME STORE SALES US -0.2% -2.1% 0.5% 5.4% 1.8% 1.3% -1.3% 1.7% 1.7% 3.9% 4.1% 4.5% 3.6% 2.8% International Lead 0.2% 0.8% 3.4% 5.2% 2.6% 3.3% 2.8% 3.4% 2.8% 6.3% 5.7% 4.5% 4.8% 3.0% High Growth -0.6% -2.8% 1.8% 3.6% 1.6% 1.5% 4.7% 2.8% 3.8% 7.0% 6.2% 3.5% 5.1% 3.5% Foundational 1.5% -0.1% 0.8% 11.0% 7.7% 10.1% 11.1% 10.0% 10.7% 13.0% 10.2% 6.0% 10.0% 3.5% Total 0.2% -1.0% 1.5% 6.2% 3.1% 3.5% 2.7% 3.8% 4.0% 6.6% 6.0% 4.7% 5.3% 3.1% Q16 2Q16 3Q16 4Q Q17 2Q17 3Q17 4Q17E 2017E 2018E SAME STORE SALES -- 2-YEAR US 3.1% -2.3% -1.6% 2.8% -0.2% 2.2% 4.4% 2.2% 7.1% 5.7% 5.4% 3.2% 5.3% 6.3% International Lead 3.3% 1.0% 4.2% 6.1% 6.4% 7.9% 7.0% 6.8% 8.0% 8.9% 9.0% 7.3% 8.2% 7.8% High Growth 1.7% -3.4% -1.0% 0.4% 0.2% 10.4% 7.7% 4.6% 7.4% 8.6% 7.7% 8.2% 7.9% 8.6% Foundational 4.6% 1.4% 0.7% 5.7% 4.3% 16.2% 17.0% 10.8% 21.7% 20.7% 20.3% 17.1% 20.0% 13.5% Total 3.3% -0.8% 0.5% 3.9% 2.4% 7.5% 7.7% 5.3% 10.2% 9.7% 9.5% 7.4% 9.1% 8.4% Figure 27: CS MCD Model: Balance Sheet Balance sheet (in millions) Q16 2Q16 3Q16 4Q Q17 2Q17 3Q17 4Q17E 2017E 2018E Cash and equivalents $2,799 $2,078 $7,686 $3,310 $3,128 $2,267 $1,223 $1,223 $2,412 $2,392 $2,671 $1,462 $1,462 $725 Short-term investments $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Accounts and notes receiveables $1,320 $1,214 $1,299 $1,162 $1,267 $1,350 $1,474 $1,474 $1,337 $1,457 $1,569 $1,469 $1,469 $1,469 Inventories, at cost, not in excess of market $124 $110 $100 $94 $87 $91 $59 $59 $57 $57 $54 $54 $54 $54 Prepaid and other current assets $808 $783 $559 $486 $564 $595 $565 $565 $552 $598 $496 $496 $496 $496 Discontinued operations/held for sale $0 $0 $0 $0 $0 $0 $1,527 $1,527 $1,550 $1,389 $0 $0 $0 $0 Total Current Assets $5,050 $4,186 $9,643 $5,052 $5,047 $4,302 $4,849 $4,849 $5,907 $5,893 $4,790 $3,481 $3,481 $2,744 Investments in and advances to affiliates $1,209 $1,005 $793 $820 $852 $878 $726 $726 $767 $780 $1,000 $1,000 $1,000 $1,000 Goodwill, net $2,873 $2,735 $2,516 $2,570 $2,499 $2,505 $2,337 $2,337 $2,299 $2,345 $2,373 $2,373 $2,373 $2,373 Miscellaneous $1,747 $1,799 $1,869 $1,932 $1,899 $1,816 $1,855 $1,855 $1,933 $2,079 $2,418 $2,418 $2,418 $2,418 Property and equipment, net $25,747 $24,558 $23,118 $23,422 $22,850 $22,986 $21,258 $21,258 $21,214 $21,689 $21,979 $22,009 $22,009 $22,535 Total Assets $36,626 $34,281 $37,939 $33,795 $33,147 $32,487 $31,024 $31,024 $32,120 $32,785 $32,560 $31,281 $31,281 $31,069 Notes payable $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Accounts payable $1,086 $860 $875 $655 $575 $852 $756 $756 $678 $536 $685 $735 $735 $735 Dividend payable $0 $0 $0 $0 $0 $773 $0 $0 $0 $0 $797 $797 $797 $797 Income taxes $216 $167 $155 $299 $219 $561 $267 $267 $497 $213 $348 $398 $398 $398 Other taxes $383 $330 $309 $343 $302 $295 $266 $266 $275 $285 $292 $292 $292 $292 Accrued interest $222 $234 $233 $291 $213 $264 $248 $248 $276 $224 $279 $279 $279 $279 Accrued payroll and other liabilities $1,264 $1,157 $1,379 $1,272 $1,359 $1,731 $1,159 $1,159 $878 $948 $1,123 $1,123 $1,123 $1,123 Current maturities of long-term debt $0 $0 $0 $0 $0 $0 $77 $77 $223 $210 $216 $216 $216 $216 Discontinued operations/held for sale $0 $0 $0 $0 $0 $0 $695 $695 $392 $328 $0 $0 $0 $0 Total Current Liabilities $3,170 $2,748 $2,950 $2,859 $2,667 $4,477 $3,468 $3,468 $3,221 $2,743 $3,740 $3,840 $3,840 $3,840 Long-term debt $14,130 $14,990 $24,122 $23,353 $26,010 $26,007 $25,879 $25,879 $26,984 $28,151 $28,403 $28,403 $28,403 $29,403 Other long-term liabilities $1,669 $2,066 $2,074 $2,061 $2,208 $2,249 $2,064 $2,064 $2,139 $2,230 $2,292 $2,322 $2,322 $2,438 Deferred income taxes $1,648 $1,625 $1,704 $1,660 $1,621 $1,379 $1,817 $1,817 $1,807 $1,662 $1,602 $1,602 $1,602 $1,602 Total Liabilities $20,617 $21,428 $30,851 $29,932 $32,507 $34,111 $33,228 $33,228 $34,151 $34,786 $36,037 $36,167 $36,167 $37,283 Common stock $17 $17 $17 $17 $17 $17 $17 $17 $17 $17 $17 $17 $17 $17 Additional paid-in capital $5,994 $6,239 $6,533 $6,089 $6,138 $6,713 $6,758 $6,758 $6,810 $6,917 $6,994 $6,994 $6,994 $6,994 Unearned ESOPs $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Retained earnings $41,751 $43,295 $44,595 $44,912 $45,273 $45,030 $46,223 $46,223 $46,667 $47,301 $47,632 $48,073 $48,073 $50,295 Accumulated other comprehensive income (loss) $428 -$1,520 -$2,880 -$2,403 -$2,675 -$2,623 -$3,093 -$3,093 -$2,705 -$2,486 -$2,237 -$2,237 -$2,237 -$2,237 Common stock in treasury -$32,180 -$35,177 -$41,177 -$44,752 -$48,112 -$50,761 -$52,109 -$52,109 -$52,819 -$53,748 -$55,883 -$57,733 -$57,733 -$61,283 Total Shareholders' Equity $16,010 $12,853 $7,088 $3,863 $640 -$1,624 -$2,204 -$2,204 -$2,031 -$2,001 -$3,478 -$4,886 -$4,886 -$6,214 Total Liabilities & Shareholders' Equity $36,626 $34,281 $37,939 $33,795 $33,147 $32,487 $31,024 $31,024 $32,120 $32,785 $32,560 $31,281 $31,281 $31,069 Select balance sheet ratios Q16 2Q16 3Q16 4Q Q17 2Q17 3Q17 4Q17E 2017E 2018E Net debt $11,331 $12,912 $16,437 $20,043 $22,882 $23,740 $24,732 $24,732 $24,795 $25,968 $25,947 $27,156 $27,156 $28,894 Debt-to-capitalization 47% 54% 77% 86% 98% 107% 109% 109% 108% 108% 114% 121% 121% 127% Net debt-to-capitalization 41% 50% 70% 84% 97% 107% 110% 110% 109% 108% 115% 122% 122% 127% Debt-to-EBITDA (TTM) 1.4x 1.6x 2.7x 2.6x 2.8x 2.7x 2.7x 2.7x 2.8x 2.8x 2.9x 2.8x 2.8x 2.9x EBIT-to-avg assets 24.3% 22.4% 20.1% 22.8% 22.7% 24.3% 23.5% 23.5% 25.4% 26.0% 26.6% 28.1% 28.1% 28.9% McDonald's Corp (MCD) 20

21 Figure 28: CS MCD Model: Cash Flow Statement Fiscal year ending December (in millions) Q16 2Q16 3Q16 4Q Q17 2Q17 3Q17 4Q17E 2017E 2018E Operating Cash Flows Net income $5,586 $4,758 $4,529 $1,099 $1,093 $1,275 $1,220 $4,687 $1,215 $1,395 $1,884 $1,252 $5,746 $5,472 Depreciation and amortization $1,585 $1,645 $1,556 $384 $383 $371 $379 $1,517 $325 $340 $356 $356 $1,377 $1,294 Other $27 $370 $178 -$53 $239 $3 -$92 $97 -$113 $0 -$42 $0 -$155 $0 Deferred income taxes $25 -$91 -$1 $32 -$190 -$216 -$164 -$539 $86 $65 $225 $0 $376 $0 Income taxes audit benefit $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Impairment and other charges (credits) $0 $0 $0 $0 $0 $0 $0 $0 $0 -$76 $0 $0 -$76 $0 Share-based compensation $89 $113 $110 $41 $27 $34 $29 $131 $23 $21 $40 $30 $113 $116 Gains on sale of investments (incl. Chipotle) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 -$902 $0 -$902 $0 Changes in working capital Accounts receivable $56 $0 $0 $0 $0 $0 -$159 -$159 $0 $0 $0 $100 $100 $0 Inventories, prepaid expenses, other -$44 $0 $0 $0 $0 $0 $28 $28 $0 $0 $0 $0 $0 $0 Accounts payable -$61 $0 $0 $0 $0 $0 $90 $90 $0 $0 $0 $50 $50 $0 Income taxes -$154 $0 $0 $0 $0 $0 $170 $170 $0 $0 $0 $50 $50 $0 Other accrued liabilities $12 $0 $0 $0 $0 $0 $38 $38 $0 $0 $0 $0 $0 $0 Net change in working capital $0 -$64 $168 $217 -$304 $784 $167 $865 $8 -$531 $125 $0 -$398 $0 Net Operating Cash Flows $7,121 $6,730 $6,539 $1,719 $1,248 $2,251 $1,539 $6,060 $1,544 $1,213 $1,685 $1,838 $6,280 $6,882 Investing Cash Flows Property and equip. expenditures -$2,825 -$2,583 -$1,814 -$392 -$353 -$405 -$672 -$1,821 -$428 -$369 -$417 -$487 -$1,700 -$2,000 Purchases of restaurant businesses -$181 -$171 -$141 $0 -$12 $0 -$98 -$110 -$3 -$15 -$21 $0 -$39 $0 Sales of restaurant businesses and property $440 $490 $554 $148 $181 $104 $543 $976 $546 $304 $1,658 $100 $2,608 $180 Disposals of disc. ops. $0 $0 $0 $0 $0 $0 $83 $83 $65 $29 $0 $0 $94 $0 Other -$108 -$41 -$20 -$12 -$21 -$50 -$27 -$110 -$42 -$96 -$46 $0 -$184 $0 Net Investing Cash Flows -$2,674 -$2,305 -$1,420 -$256 -$204 -$351 -$171 -$982 $138 -$147 $1,175 -$387 $779 -$1,820 Financing Cash Flows Net short-term borrowings -$187 $510 $590 -$810 $147 -$80 $457 -$286 -$769 -$9 -$56 $0 -$834 $0 Long-term financing issues $1,417 $1,541 $10,220 $1 $3,371 $1 $407 $3,780 $1,993 $537 $0 $0 $2,531 $1,000 Long-term financing repayments -$695 -$548 -$1,055 -$214 -$600 -$6 -$3 -$823 -$402 -$1 -$4 $0 -$407 $0 Treasury stock purchases -$1,778 -$3,199 -$6,099 -$4,312 -$3,381 -$1,970 -$1,509 -$11,171 -$748 -$1,108 -$2,082 -$2,000 -$5,937 -$4,150 Common stock dividends -$3,115 -$3,216 -$3,230 -$781 -$759 -$745 -$773 -$3,058 -$771 -$762 -$755 -$811 -$3,098 -$3,250 Proceeds from stock option exercises $233 $235 $317 $131 $83 $36 $50 $299 $116 $174 $83 $150 $523 $600 Excess tax benefit on share-based comp. $93 $71 $51 $26 $0 $0 -$26 $0 $0 $0 $0 $0 $0 $0 Chipotle IPO proceeds $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Other -$12 -$13 -$59 $5 $3 -$12 $1 -$3 -$7 $2 $4 $0 -$1 $0 Net Financing Cash Flows -$4,043 -$4,618 $735 -$5,953 -$1,137 -$2,776 -$1,397 -$11,262 -$587 -$1,167 -$2,810 -$2,661 -$7,224 -$5,800 Effect of exchange rates $59 -$528 -$247 $114 -$90 $14 -$142 -$104 $55 $99 $76 $0 $230 $0 Change in cash and equivalents $463 -$721 $5,608 -$4,375 -$182 -$861 -$172 -$6,288 $1,150 -$1 $125 -$1,209 $65 -$738 Cash at beginning of period $2,336 $2,799 $2,078 $7,686 $3,310 $3,128 $2,267 $7,686 $1,397 $2,547 $2,546 $2,671 $1,397 $1,462 Cash at end of period $2,799 $2,078 $7,686 $3,310 $3,128 $2,267 $2,095 $1,397 $2,547 $2,546 $2,671 $1,462 $1,462 $725 Free cash flow (OCF-capex) $4,296 $4,147 $4,725 $1,327 $896 $1,846 $867 $4,239 $1,116 $845 $1,268 $1,352 $4,580 $4,882 FCF yield 3.3% 3.0% 3.2% 3.4% McDonald's Corp (MCD) 21