McDonald Japan : Matters to be Provided Electronically at the Time of Convocation of the 52nd Annual General Meeting of Shareholders

Note: This document has been translated from the Japanese original for reference purposes only. In the event of any discrepancy between the translated document and the Japanese original, the Japanese original shall prevail.

McDonald's Holdings Company (Japan), Ltd. assumes no responsibility for this translation or for direct, indirect or any other forms of damages arising from the translation.

MATTERS TO BE PROVIDED ELECTRONICALLY

AT THE TIME OF CONVOCATION OF

THE 52nd ANNUAL GENERAL MEETING OF SHAREHOLDERS

Notes to Consolidated Financial Statements

Notes to Non-consolidated Financial Statements

The 52nd (from January 1, 2022 to December 31, 2022)

McDonald's Holdings Company (Japan), Ltd.

With regard to the above matters, in accordance with laws and regulations and Article 14 of our Articles of Incorporation, we omit the description in the document to be delivered to shareholders who have requested delivery of the document (the document stating the matters to be provided electronically).

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Explanatory Notes to Consolidated Financial Statements

1. Assumptions underlying preparation of consolidated financial statements

(2) Item relating to the fiscal years etc. of consolidated subsidiaries

All consolidated subsidiaries end their fiscal years on the same day as the date of closing of consolidated accounts.

(3) Items related to accounting standards

(a) Standards and methods of valuation for significant assets

(b) Major depreciable assets and methods of depreciation

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Provision for directors' retirement benefits:

In order to prepare for the payment of retirement benefit to directors, a provision is made for the estimated amount to be paid as of the end of the fiscal year based on the regulations of retirement allowance to retiring directors.

Provision for loss on disposal of inventories:

A reasonably estimated amount is recorded in provision for inventories as loss expected to occur from disposal in future.

(d) Accounting treatment for retirement benefit obligations

The attribution method for projected retirement benefits:

For the purpose of retirement benefit obligation, straight-line method is used in attributing the current term retirement benefits estimated value through the end of this fiscal year.

Amortization method of actuarial gain and loss:

Actuarial gain and loss is expensed by allocating in straight-line method in each year of occurrence over a certain time period (6 years) at the time of respective fiscal year.

1. Standards for recognition of significant revenues and expenses (Revenue recognition related to hamburger restaurant business)
   In store operations, sales transactions occur daily based on orders from customers, including sales transactions for orders received in stores, sales transactions for orders received via mobile ordering, and sales transactions through delivery services by company's own and using outside contractors. For mobile order and delivery services, order data from the customer is transferred to the POS system via the order receipt server and converted into sales transaction data.

(1) Company operated store sales

For sales at company-operated stores, the performance obligation is satisfied when the goods are provided to customers, and therefore, revenue is recognized at that point. Company-operated store sales are recorded when sales transactions at company-operated stores are recorded in the POS system and automatically transferred to the accounting system via the sales management system.

(2) Franchise revenue

Royalty income received from franchise corporations based on franchise agreements, is calculated based on the net sales of the franchise corporations, as they are promises to grant licenses to the franchise corporations, and revenue is recognized when such net sales are generated. Sales transactions at franchised stores are recorded in the POS system, automatically transferred to the accounting system via the sales management system, calculated based on the recorded sales transaction data and the rate stipulated in the franchise agreement, and recorded in the accounting system. For initial franchise fees received from franchise corporations based on franchise agreements, the Company recognizes the consideration as a contract liability when the franchise agreement is entered into and then recognizes it as revenue over some time in accordance with the satisfaction of performance obligations.

(f) Goodwill

Amortization of goodwill is computed by using the straight-line method over 5 years.

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2. Notes to changes in presentation

Application of accounting standards for revenue recognition:

From the beginning of the current consolidated fiscal year, the Company applies "Accounting Standard for Revenue Recognition" (ASBJ Statement No. 29, March 31, 2020) and recognizes revenue with the amounts expected to be received in exchange for the promised goods or services as the control of such goods or services are transferred to customers.

As a result, initial franchise fees income, which were previously recognized at a point in time, are recognized as the Company satisfies the performance obligation over the franchise term.

In addition, the Company changed its method of recognizing revenues from loyalty programs operated by other companies, in which the amount equivalent to the points awarded at the time of product sales was recorded as selling, general and administrative expenses, to recognizing revenues on a net basis.

The application of such changes in accounting policies follows the transitional treatment prescribed in the proviso of paragraph 84 of the Accounting Standard for Revenue Recognition. The cumulative effect of the retrospective application, assuming the new accounting policy had been applied to periods prior to the beginning of the current consolidated fiscal year, was added to or subtracted from the beginning balance of retained earnings of the current consolidated fiscal year.

As a result, for the consolidated cumulative fourth quarter, net sales decreased by 79 million yen, selling, general and administrative expenses decreased by 396 million yen, and each of operating income, ordinary income and income before income taxes increased by 317 million yen, accordingly. In addition, the beginning balance of retained earnings decreased by 2,307 million yen.

Due to the application of the Accounting Standard for Revenue Recognition, "Other" presented as "Current liabilities" in the consolidated balance sheet for the previous fiscal year is included in "Contract liabilities" from the current consolidated fiscal year. As a result, "Other" presented as "Current liabilities" in the consolidated balance sheet decreased by 2,006 million yen for the consolidated cumulative fourth quarter.

Application of accounting standard for fair value measurement:

From the beginning of the current consolidated fiscal year, the Company applies "Accounting Standard for Fair Value Measurement" (ASBJ Statement No. 30, July 4, 2019). In accordance with the transitional treatment prescribed in the paragraph 19 of the Accounting Standard for Fair Value Measurement and paragraph 44-2 of "Accounting Standard for Financial Instruments" (ASBJ Statement No. 10, July 4, 2019), new accounting policies prescribed by the Accounting Standard for Fair Value Measurement is adopted prospectively. There is no effect by this change on the consolidated financial statements.

In addition, in the notes of "Financial Instruments," the Company provides notices regarding the breakdown of financial instruments by market value level and other matters.

3. Notes on Changes in Presentation Methods

Application of the "Accounting Standard for Revenue Recognition"

With the adoption of the "Accounting Standard for Revenue Recognition" (ASBJ Statement No. 29, March 31, 2020) and others from the beginning of the current fiscal year, the Company has reclassified "Other" presented as "Current liabilities" in the balance sheet for the previous fiscal year to "Contract liabilities" and "Other" in the current fiscal year.

4. Notes on Accounting Estimates

1. Impairment of non-current assets
   A. Amount recorded in the consolidated financial statements for the current fiscal year

B. Information of significant accounting estimates for identified items

For groups of assets that are on the verge of impairment, the Group assess whether an impairment loss should be recognized. In the event that the total amount of undiscounted future cash flow is less than the book value of the assets, the carrying value of each asset group is reduced to its respective recoverable amount, and the amount of the reduction is recognized as an impairment loss. The undiscounted future cash flows are estimated based on the past sales, cost of sales, and expenses of the head office of each asset group, taking into account expected sales growth and expected changes in the cost of sales ratio in the following fiscal years and thereafter. Since there are many uncertainties over the key assumptions, actual cash flows may deviate from the estimated amount. If prolonged COVID-19 infection and other incidents cause the deterioration in profits of asset groups, the company may recognize an indication of

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impairment of its asset groups and may record an impairment loss in the following fiscal year.

(2) Valuation of long-term deferred account receivables

A. Amount recorded in the consolidated financial statements for the current fiscal year Long-term deferred account receivables 12,326 million yen

(including items to be collected within one year)

B. Information of significant accounting estimates for identified items

Long-term deferred account receivables are due from some franchise corporations for certain royalties and other payments due to McDonald's Company Japan, Ltd. a wholly owned subsidiary of the Company.

The recoverable amount of long-term deferred account receivables is estimated based on the debtor's business condition, future earnings and cash flow projections, and other factors. The key assumption in this estimation is the estimated amount of collection based on the debtor's repayment plan. As of the end of the current fiscal year, no allowance for doubtful accounts were recorded for long-term deferred account receivables, as it was determined that the full amount of these receivables was collectible.

Due to the uncertainty of estimates regarding such key assumptions, an allowance for doubtful accounts may be recorded in the following fiscal year or later if the debtor's business condition deteriorates more than expected.

5. Notes to consolidated balance sheets

1. Accumulated depreciation on property and equipment 82,946 million yen.
2. Due to selling of restaurant business to franchisee by entering franchise contracts, the amount of non-current assets transferred to other accounts was 1,102 million yen in book value (Buildings and Structures 602 million yen, Machinery and Equipment 239 million yen, Tools, Furniture and Fixtures 177 million yen and Lease Assets 31 million yen and Goodwill 50 million yen.).)
3. Revaluation of land
   As per the Law Regarding the Revaluation of Land (Public Law No. 34, March 31, 1998), land used for business purposes is revalued and any valuation differential is recorded under shareholders' equity
   Revaluation method:
   As per Article 2-3 of the Implementation Order for the Revaluation of Land (Public Ordinance No. 119, March 31, 1998), the calculation was carried out using a rational adjustment based on the valuation amount for property tax
   Date of revaluation: December 31, 2001
   Difference between book value and post-revaluation market value of revalued land at end of term: (820) million yen
4. Reductions of Property and Equipment from gains on insurance claims were 22 million yen.
5. "Other" asset in investments and other assets in the amount of 2,000 million yen is provided as guarantee deposits for the issuing of gift certificates (McCard), as per the relevant laws regulating prepaid gift certificates. Liabilities collateralized by these guaranteed deposits are Contract liabilities from customers in the amount of 3,513million yen. (Balance presented in the consolidated balance sheets is 2,006 million yen by deducting unredeemed McCards that are expected to end up remaining unused ultimately.)

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