Overview

The Company franchises and operates McDonald's restaurants. Of the 32,158 restaurants in 118 countries at June 30, 2009, 25,801 were operated by franchisees (including 18,645 operated by conventional franchisees, 3,084 operated by developmental licensees and 4,072 operated by foreign affiliated markets (affiliates) - primarily in Japan) and 6,357 were operated by the Company. Under our conventional franchise arrangement, franchisees provide a portion of the capital required by initially investing in the equipment, signs, seating and dιcor of their restaurant businesses, and by reinvesting in the business over time. The Company owns the land and building or secures long-term leases for both Company-operated and conventional franchised restaurant sites. This maintains long-term occupancy rights, helps control related costs and assists in alignment with franchisees. Under our developmental license arrangement, licensees provide capital for the entire business, including the real estate interest, while the Company has no capital invested. In addition, the Company has an equity investment in a limited number of foreign affiliates that invest in real estate and operate or franchise restaurants within a market.

We view ourselves primarily as a franchisor and continually review our mix of Company-operated and franchised (conventional franchised, developmental licensed and affiliated) restaurants to deliver a great customer experience and drive profitability. In most cases, franchising is the best way to achieve both goals. Although direct restaurant operation is more capital-intensive relative to franchising and results in lower restaurant margins as a percent of revenues, Company-operated restaurants are important to our success in both mature and developing markets. In our Company-operated restaurants, and in collaboration with our franchisees, we further develop and refine operating standards, marketing concepts and product and pricing strategies, so that only those that we believe are most beneficial are introduced Systemwide. In addition, we firmly believe that owning restaurants is paramount to being a credible franchisor and essential to providing Company personnel with restaurant operations experience. Our Company-operated business also helps to facilitate strategic changes in restaurant ownership.

The Company's revenues consist of sales by Company-operated restaurants and fees from restaurants operated by franchisees. Revenues from conventional franchised restaurants include rent and royalties based on a percent of sales along with minimum rent payments, and initial fees. Revenues from restaurants licensed to affiliates and developmental licensees include royalties based on a percent of sales, and generally include initial fees. Fees vary by type of site, amount of Company investment, if any, and local business conditions. These fees, along with occupancy and operating rights, are stipulated in franchise/license agreements that generally have 20-year terms.

The business is managed as distinct geographic segments. Significant reportable segments include the United States (U.S.), Europe, and Asia/Pacific, Middle East and Africa (APMEA). In addition, throughout this report we present "Other Countries & Corporate" that includes operations in Canada and Latin America, as well as Corporate activities. The U.S., Europe and APMEA segments account for approximately 35%, 40% and 20% of total revenues, respectively.

In February 2009, the Company sold its minority ownership interest in Redbox Automated Retail, LLC (Redbox) to Coinstar, Inc., the majority owner, for a value of at least $134 million. In connection with the sale, the Company received initial consideration valued at $51.6 million consisting of 1.5 million shares of Coinstar common stock at an agreed to value of $41.6 million and $10 million in cash with the balance of the purchase price deferred. In April, the Company sold all of its holdings in the Coinstar common stock for $46.8 million. In second quarter, the Company received $78.4 million in cash from Coinstar as deferred consideration. As of June 30, 2009 there was a receivable of approximately $9 million remaining from Coinstar for additional deferred consideration due by October 30, 2009.

As a result of the transaction, the Company recognized a nonoperating pretax gain of $17.8 million in the second quarter 2009 and $94.3 million for the six months.

In second quarter 2008, the Company sold its minority ownership interest in U.K.-based Pret A Manger. As a result of the sale, the Company received cash proceeds of $229.4 million and recognized a nonoperating pretax gain of $160.1 million

Strategic Direction and Financial Performance

McDonald's customer-centered Plan to Win - which is focused on being better, not just bigger - provides a common framework for our restaurants yet allows for local adaptation. The Plan facilitates the execution of multiple initiatives surrounding the five factors of exceptional customer experiences - people, products, place, price and promotion. Through the execution of these initiatives, we have enhanced the McDonald's experience for customers worldwide, growing sales and guest counts in each of the last five years. This Plan, coupled with financial discipline, has delivered strong results for shareholders. Our continued commitment and ability to deliver a relevant restaurant experience that provides consumers with a broad range of quality menu choices, affordable prices and unmatched convenience is driving operating performance. In the second quarter and first six months of 2009, our results were driven by positive comparable sales in every geographic segment.

The U.S. business gained market share with a balanced focus on classic menu favorites, beverage value offerings and the national launch of the McCafι premium coffee line-up. These factors contributed to solid comparable sales and an operating income increase of 5% for the second quarter and 6% for the six months.

Europe delivered strong comparable sales of 6.9% for the quarter and 5.1% for the six months. Alignment behind Europe's key priorities of enhancing local relevance, upgrading the customer and employee experience and building brand transparency continues to deliver results. Europe reported a constant currency increase in operating income of 10% for the quarter and 6% for the six months.

APMEA reported a constant currency increase in operating income of 34% for the quarter and 22% for the six months driven by an emphasis on core menu favorites, convenience, value and breakfast, along with a sharp focus on improving operations and customer service.

The Company remains committed to returning value to shareholders through share repurchases and dividends. During the second quarter 2009, the Company repurchased 14.4 million shares of its stock for $807.2 million, bringing the total repurchases for 2009 to 29.0 million shares or $1.6 billion. During the second quarter 2009, the Company paid a quarterly dividend of $0.50 per share or $547.8 million, bringing the total dividends paid for 2009 to $1.1 billion. For the full years 2007 and 2008 and first six months of 2009 combined, the Company returned $14.3 billion toward the $15 billion to $17 billion targeted cash return to shareholders by the end of 2009. Given our strong balance sheet and operating performance, we will likely end the year in the upper half of this range. On July 22, McDonald's Board of Directors declared a quarterly cash dividend of $0.50 per share of common stock, payable on September 15, 2009 to shareholders of record at the close of business on September 1, 2009.

The Company continues to optimize its restaurant ownership mix, cash flow and returns through its refranchising strategy. The Company expects to refranchise 1,000 to 1,500 Company-operated restaurants between 2008 and 2010, primarily in its major markets. For the full year 2008 and first six months of 2009 combined, the Company refranchised about 865 restaurants. This shift to a greater percentage of franchised restaurants is expected to negatively impact consolidated revenues as Company-operated sales shift to franchised sales, where we receive rent and/or royalties. In addition, the Company expects a decrease in Company-operated margin dollars and an increase in franchised margin dollars. The impact on margin percentages will vary based on sales and operating costs of refranchised restaurants.

Operating Highlights Included:

• Global comparable sales increased 4.8% for the quarter and 4.6% for the six months

• Consolidated operating income increased 2% (11% in constant currencies) for the quarter and decreased 1% (increased 8% in constant currencies) for the six months

• Combined operating margin increased 200 basis points to 28.7% for the six months

• Net income per share was $0.98 for the quarter and $1.85 for the six months, including negative impact from foreign currency translation of $0.09 per share and $0.17 per share for the quarter and six months, respectively. The quarter and six months also included incremental income related primarily to the sale of Redbox Automated Retail, LLC of $0.01 per share and $0.05 per share, respectively. Results for the quarter and six months of 2008 included a $0.10 per share gain from the Company's sale of its minority interest in Pret A Manger

• During the six months, the Company returned $2.7 billion to shareholders through share repurchases and dividends

Outlook

While the Company does not provide specific guidance on net income per share, the following information is provided to assist in forecasting the Company's future results.

• Changes in Systemwide sales are driven by comparable sales and net restaurant unit expansion. The Company expects net restaurant additions to add nearly 2 percentage points to 2009 Systemwide sales growth (in constant currencies), most of which will be due to the 709 net traditional restaurants added in 2008.

• The Company does not generally provide specific guidance on changes in comparable sales. However, as a perspective, assuming no change in cost structure, a 1 percentage point increase in comparable sales for either the U.S. or Europe would increase annual net income per share by about 3 cents.

• With about 75% of McDonald's grocery bill comprised of 10 different commodities, a basket of goods approach is the most comprehensive way to look at the Company's commodity costs. For the full year 2009, the total basket of goods is expected to rise 3% to 3.5% in both the U.S. and Europe. Some volatility may be experienced between quarters in the normal course of business.

• The Company expects full-year 2009 selling, general & administrative expenses to decline, in constant currencies, although fluctuations will be experienced between quarters due to certain items in 2008 such as the biennial Worldwide Owner/Operator Convention and the Beijing Summer Olympics.

• A significant part of the Company's operating income is generated outside the U.S., and about 45% of its total debt is denominated in foreign currencies. Accordingly, earnings are affected by changes in foreign currency exchange rates, particularly the Euro, British Pound, Australian Dollar and Canadian Dollar. Collectively, these currencies represent approximately 70% of the Company's operating income outside the U.S. If all four of these currencies moved by 10% in the same direction compared with 2008, the Company's annual net income per share would change by about 12 to 15 cents. Due to the strengthening of the U.S. Dollar relative to virtually all foreign currencies, full year 2009 revenues and net income per share will likely be negatively impacted by foreign currency translation. If foreign currency rates approximate current levels, currency translation is expected to negatively impact full year 2009 revenues and net income per share by $1.6 billion and $0.21 per share, respectively.

• The Company expects the effective income tax rate for the full-year 2009 to be approximately 29% to 31%. Some volatility may be experienced between the quarters resulting in a quarterly tax rate that is outside the annual range.

• The Company expects capital expenditures for 2009 to be approximately $2.1 billion. About half of this amount will be reinvested in existing restaurants while the rest will primarily be used to open about 1,000 restaurants (950 traditional and 50 satellites). The Company expects net additions of about 650 restaurants (750 net traditional additions and 100 net satellite closings). These restaurant numbers include new unit openings (about 300 restaurants) in affiliated and developmental licensed markets, such as Japan and Latin America, where the Company does not fund any capital expenditures.

• For 2007 through 2009, the Company expects to return $15 billion to $17 billion to shareholders through share repurchases and dividends, subject to business and market conditions. For the full years 2007 and 2008 and first six months of 2009 combined, the Company returned $14.3 billion to shareholders. Given our strong balance sheet and operating performance, we will likely end the year in the upper half of this range.

• The Company continually reviews its restaurant ownership structures to optimize cash flow and returns and to enhance local relevance. The Company expects to refranchise 1,000 to 1,500 Company-operated restaurants between 2008 and 2010, primarily in its major markets, and will continue to utilize its developmental license strategy. For the full year 2008 and first six months of 2009 combined, the Company refranchised about 865 restaurants, primarily in its major markets.

The Following Definitions Apply to These Terms as Used Throughout This Form 10-Q:

• Constant currency results exclude the effects of foreign currency translation and are calculated by translating current year results at prior year average exchange rates. Management reviews and analyzes business results in constant currencies and bases certain incentive compensation plans on these results because they believe this better represents the Company's underlying business trends.

• Systemwide sales include sales at all restaurants, whether operated by the Company or by franchisees. While franchised sales are not recorded as revenues by the Company, management believes the information is important in understanding the Company's financial performance because these sales are the basis on which the Company calculates and records franchised revenues and are indicative of the financial health of the franchisee base.

• Comparable sales represent sales at all restaurants and comparable guest counts represent the number of transactions at all restaurants, including those operated by the Company or by franchisees, in operation at least thirteen months including those temporarily closed. Comparable sales exclude the impact of currency translation. Some of the reasons restaurants may be temporarily closed include reimaging or remodeling, rebuilding, road construction and natural disasters. Management reviews the increase or decrease in comparable sales and comparable guest counts compared with the same period in the prior year to assess business trends. The number of weekdays and weekend days, referred to as the calendar shift/trading day adjustment, can impact our comparable sales and guest counts. In addition, the timing of holidays can also impact comparable sales and guest counts.

CONSOLIDATED OPERATING RESULTS





Dollars in millions, except per                  Quarter Ended                       Six Months Ended
share data                                       June 30, 2009                        June 30, 2009
                                                          % Increase /                          % Increase /
                                          Amount           (Decrease)           Amount           (Decrease)
Revenues
Sales by Company-operated
restaurants                              $ 3,850.2                 (10 )      $  7,334.9                 (12 )
Revenues from franchised restaurants       1,797.0                   1           3,389.7                   -
Total revenues                             5,647.2                  (7 )        10,724.6                  (8 )
Operating costs and expenses
Company-operated restaurant expenses       3,159.3                 (11 )         6,079.8                 (12 )
Franchised restaurants - occupancy
expenses                                     318.0                   1             614.7                   -
Selling, general & administrative
expenses                                     531.5                 (11 )         1,028.8                 (11 )
Impairment and other charges, net              1.2                 n/m               2.4                 n/m
Other operating (income) expense,
net                                          (44.3 )               (55 )           (83.0 )               (20 )
Total operating costs and expenses         3,965.7                 (10 )         7,642.7                 (11 )
Operating income                           1,681.5                   2           3,081.9                  (1 )
Interest expense                             119.3                 (18 )           240.2                 (13 )
Nonoperating (income) expense, net           (12.0 )                61             (28.4 )                52
Gain on sale of investment                   (17.8 )                89             (94.3 )                41
Income before provision for income
taxes                                      1,592.0                  (6 )         2,964.4                  (3 )
Provision for income taxes                   498.3                  (2 )           891.2                  (4 )
Net income                               $ 1,093.7                  (8 )      $  2,073.2                  (3 )
Net income per common share-basic:       $    1.00                  (5 )      $     1.88                   -
Net income per common share-diluted:     $    0.98                  (6 )      $     1.85                   -

n/m Not meaningful

Impact of Foreign Currency Translation

While changes in foreign currency exchange rates affect reported results, McDonald's mitigates exposures, where practical, by financing in local currencies, hedging certain foreign-denominated cash flows, and purchasing goods and services in local currencies. Management reviews and analyzes business results excluding the effect of foreign currency translation and bases certain incentive compensation plans on these results because they believe this better represents the Company's underlying business trends. Results excluding the effect of foreign currency translation (also referred to as constant currency) are calculated by translating current year results at prior year average exchange rates.

IMPACT OF FOREIGN CURRENCY TRANSLATION
In millions, except per share data
                                                                                        Currency
                                                                                     Translation
                                                                                       Benefit /
                                                                                          (Cost)
Quarters Ended June 30,                                   2009            2008              2009
Revenues                                             $ 5,647.2       $ 6,075.3           $(643.4 )
Company-operated margins                                 690.9           760.8             (87.8 )
Franchised margins                                     1,479.0         1,464.0            (111.4 )
Selling, general & administrative expenses               531.5           598.7              38.8
Operating income                                       1,681.5         1,654.2            (161.1 )
Net income                                             1,093.7         1,190.5             (98.7 )
Net income per common share - diluted                     0.98            1.04             (0.09 )

IMPACT OF FOREIGN CURRENCY TRANSLATION
In millions, except per share data
                                                                                        Currency
                                                                                     Translation
                                                                                       Benefit /
                                                                                          (Cost)
Six Months Ended June 30,                                2009             2008              2009
Revenues                                           $ 10,724.6       $ 11,690.1         $(1,285.8 )
Company-operated margins                              1,255.1          1,420.0            (160.3 )
Franchised margins                                    2,775.0          2,780.2            (220.4 )
Selling, general & administrative expenses            1,028.8          1,151.1              81.8
Operating income                                      3,081.9          3,117.0            (299.0 )
Net income                                            2,073.2          2,136.6            (185.0 )
Net income per common share - diluted                    1.85             1.85             (0.17 )

Foreign currency translation had a negative impact on consolidated operating results for the quarter and six months as the U.S. Dollar strengthened against most currencies of foreign markets in which we operate, primarily the Euro, British Pound, Australian Dollar, Russian Ruble and Canadian Dollar.

Net Income and Diluted Net Income per Common Share

For the second quarter and six months ended June 30, 2009, net income was $1,093.7 million and $2,073.2 million, respectively, and diluted net income per share was $0.98 and $1.85, respectively. Results benefited by an after tax gain of $11.1 million, or $0.01 per share, for the quarter and $58.5 million, or $0.05 per share, for the six months, related to the sale of the Company's minority interest in Redbox. Results were negatively impacted due to the effect of foreign currency translation by $0.09 per share and $0.17 per share for the quarter and six months, respectively.

For the second quarter and six months ended June 2008, net income was $1,190.5 million and $2,136.6 million, respectively, and diluted net income per share was $1.04 and $1.85, respectively. Both periods benefited by an after tax gain of $109.0 million or $0.10 per share due to the sale of the Company's minority interest in Pret A Manger.

During the second quarter 2009, the Company repurchased 14.4 million shares of its stock for $807.2 million, bringing the total repurchases for 2009 to 29.0 million shares or $1.6 billion. During the second quarter 2009, the Company paid a quarterly dividend of $0.50 per share or $547.8 million, bringing the total dividends paid for 2009 to $1.1 billion.

Revenues

Revenues consist of sales by Company-operated restaurants and fees from restaurants operated by franchisees. Revenues from conventional franchised restaurants include rent and royalties based on a percent of sales along with minimum rent payments, and initial fees. Revenues from franchised restaurants that are licensed to affiliates and developmental licensees include royalties based on a percent of sales, and generally include initial fees.

 REVENUES
 Dollars in millions
                                                                                 % Inc /
                                                                                   (Dec)
                                                                               Excluding
                                                               % Inc /          Currency
 Quarters Ended June 30,            2009            2008         (Dec)       Translation
 Company-operated sales
 U.S.                          $ 1,115.5       $ 1,195.0            (7 )              (7 )
 Europe                          1,651.6         1,959.6           (16 )               4
 APMEA                             901.2           913.6            (1 )               7
 Other Countries & Corporate       181.9           227.8           (20 )              (8 )
 Total                         $ 3,850.2       $ 4,296.0           (10 )               1
 Franchised revenues
 U.S.                          $   928.7       $   871.2             7                 7
 Europe                            612.4           646.6            (5 )              11
 APMEA                             146.7           144.3             2                16
 Other Countries & Corporate       109.2           117.2            (7 )               7
 Total                         $ 1,797.0       $ 1,779.3             1                 9
 Total revenues
 U.S.                          $ 2,044.2       $ 2,066.2            (1 )              (1 )
 Europe                          2,264.0         2,606.2           (13 )               6
 APMEA                           1,047.9         1,057.9            (1 )               8
 Other Countries & Corporate       291.1           345.0           (16 )              (3 )
 Total                         $ 5,647.2       $ 6,075.3            (7 )               4

REVENUES
Dollars in millions
                                                                                  % Inc /
                                                                                    (Dec)
                                                                                Excluding
                                                                % Inc /          Currency
Six Months Ended June 30,           2009             2008         (Dec)       Translation
Company-operated sales
U.S.                          $  2,159.0       $  2,305.1            (6 )              (6 )
Europe                           3,065.3          3,745.2           (18 )               2
APMEA                            1,776.9          1,809.2            (2 )               8
Other Countries & Corporate        333.7            435.3           (23 )              (9 )
Total                         $  7,334.9       $  8,294.8           (12 )               1
Franchised revenues
U.S.                          $  1,761.6       $  1,657.7             6                 6
Europe                           1,146.9          1,236.6            (7 )               9
APMEA                              280.1            281.1             -                16
Other Countries & Corporate        201.1            219.9            (9 )               8
Total                         $  3,389.7       $  3,395.3             -                 8
Total revenues
U.S.                          $  3,920.6       $  3,962.8            (1 )              (1 )
. . .