Exhibit 99
Investor Release
FOR IMMEDIATE RELEASE FOR MORE INFORMATION CONTACT:
04/17/98 Investors: Mary Healy, 630-623-6429
Media: Chuck Ebeling, 630-623-6150
McDONALD'S REPORTS GLOBAL RESULTS
OAK BROOK, IL -- McDonald's Corporation today announced record results
for the quarter ended March 31, 1998.
Constant currency information excludes the effect of foreign
currency translation on reported results.
- Diluted net income per common share rose 8%; 12% in constant
currencies.
- Net income grew 5%; 9% in constant currencies.
- Systemwide sales increased 4%; 9% in constant currencies.
- Total revenues exceeded $2.8 billion and increased 7%; 12% in constant
currencies.
- Operating income increased 5% in the U.S.; on a constant currency
basis, operating income increased 18% and 29% in Europe and Latin
America, respectively, and declined 5% in Asia/Pacific. The U.S.
and Europe comprised 80% of consolidated operating income.
- McDonald's added 214 restaurants, about 85% were outside the U.S.
Key highlights
Dollars in millions, Quarters ended March 31
except per
common share data 1998 1997 Increase
In
As Constant
Reported Currencies*
Systemwide sales $8,169.7 $7,833.1 4% 9%
Total revenues 2,804.9 2,617.6 7 12
Operating income 642.7 614.2 5 9
Net income 362.2 344.5 5 9
Net income per common
share - diluted .52 .48 8 12
* Excluding the effect of foreign currency translation on reported results
SUMMARY COMMENTARY
Chairman and Chief Executive Officer Michael R. Quinlan commented,
"McDonald's global food service business continued to deliver record
results despite the combined effects of the strong U.S. dollar, weak
economies in several key markets outside the U.S., the economic downturns
in Southeast Asia and a very competitive U.S. operating environment.
"I am encouraged by the positive momentum in our global business and
the direction we are taking. Our operations generate a significant
amount of cash. Our job is to effectively use this capital to maximize
shareholder returns, and we are focused on doing just that. Our plans
for 1998 include adding about 2,100 restaurants, approximately 85 percent
outside the U.S. Our free cash flow will be used for share repurchase as
we complete our $2 billion, three-year program by year end.
"The strategic initiatives announced last month are designed to
improve restaurant operations, enhance returns and reduce expenses. We
are rolling out our "Made for You" food preparation system in the U.S.
and Canada. We are giving our owner/operators the opportunity to own new
restaurant buildings in the U.S., which we expect will increase the
Company's return on new restaurants and increase cash flow while lowering
franchisees' occupancy costs. In addition, we have undertaken a study of
home office spending to determine alignment, productivity and cost
reduction opportunities. We plan to conclude the study by the end of the
second quarter. As previously announced, we anticipate recording a
second quarter 1998 special charge to operating income of approximately
$170-$190 million related to the conversion to "Made for You," as well
as any charge for one-time costs associated with decisions resulting from
the study of home office spending."
Jack M. Greenberg, Vice Chairman, Chairman and Chief Executive
Officer - U.S.A., said, "Our first quarter performance in the U.S.
exceeded our expectations, especially in light of the strong performance
in the first quarter of 1997. However, we still have a lot of work to do
to unlock the potential of our business. Our vision is to make
McDonald's America's best fast food restaurant experience. First and
foremost, we want to have the best quality, service and cleanliness for
customers. We also want to be the best place for employees to work, for
owner/operators to invest their hard work and capital, and for
shareholders to invest their money.
"To achieve these goals we must be the best innovators in the
industry, driving growth through new ideas. Our new "Made for You"
food preparation system is such an innovation. We are also refining our
core menu and testing new products to reflect customers' tastes. In
addition, we continue to focus on value and improving each customer's
experience through an emphasis on fast and accurate drive-thru operations
and excellent front-counter service. But innovations alone are not
enough; commitment is essential. I am encouraged by the alignment and
support expressed by our owner/operators, and I believe that together we
will continue the momentum in the U.S."
James R. Cantalupo, President and Chief Executive Officer -
International, said, "Our strategies are simple: provide everyday low
prices and outstanding restaurant operations, build market share, and
increase profitability by being more efficient and creating economies of
scale. And these strategies are working. Although first quarter results
were affected by the strong U.S. dollar and economic difficulties in a
number of markets, I am especially pleased with our strong underlying
performance in Europe and Latin America. In constant currencies, sales
and operating income in Europe increased 16 and 18 percent, respectively,
while sales and operating income in Latin America increased 30 and 29
percent, respectively.
"On the other hand, we experienced some negative impact from the
economic downturns in several Southeast Asian countries. Despite these
cyclical issues, we are staying the course and positioning ourselves to
seize opportunities when the cycles turn. In the meantime, some of these
markets have adjusted their menus, changed supply sources, increased menu
prices and reduced planned openings in order to minimize the short-term
negative impact."
CONSOLIDATED OPERATING RESULTS
Net income and diluted net income per common share for the quarter
increased five percent and eight percent, respectively, over the same
period of 1997. Changing foreign currencies significantly reduced
reported results. Excluding the foreign currency translation effect, net
income would have increased nine percent and diluted net income per
common share would have increased 12 percent.
During the first quarter, we repurchased $127 million of our common
stock. Fewer shares outstanding and the absence of preferred dividends
in first quarter 1998, due to the retirement of our remaining Series E
Preferred Stock in December 1997, resulted in the higher increase in
diluted net income per common share compared with net income.
Systemwide sales Quarters ended March 31
Dollars in millions 1998 1997 Increase/(Decrease)
As In Constant
Reported Currencies*
U.S. $4,119.2 $3,988.9 3% n/a
Europe 1,949.9 1,801.0 8 16%
Asia/Pacific 1,334.0 1,377.7 (3) 10
Latin America 410.6 328.6 25 30
Other 356.0 336.9 6 11
Total Systemwide sales $8,169.7 $7,833.1 4% 9%
*Excluding the effect of foreign currency translation on reported results
n/a Not applicable
Systemwide sales represent sales by Company-operated, franchised and
affiliated restaurants. Comparable sales are measured on a constant
currency basis. Total revenues include sales by Company-operated
restaurants and fees from restaurants operated by franchisees and
affiliates. These fees include rent, service fees and royalties that are
based on a percent of sales with specified minimum payments along with
initial fees.
On a global basis, the increases in sales and revenues were
primarily due to expansion, offset in part by weaker foreign currencies.
U.S. sales increased primarily due to restaurant expansion as
comparable sales were relatively flat.
In Europe, the constant currency sales increase was driven by
expansion and positive comparable sales. England, France, Italy and
Spain were the primary contributors to the strong sales performance.
In Asia/Pacific, the constant currency sales increase was due to
expansion, partly offset by negative comparable sales. Difficult
economic conditions in Japan and the economic downturns in Southeast Asia
negatively impacted consumer spending.
In Latin America, the constant currency sales increase was driven by
expansion and positive comparable sales. Brazil accounted for more than
half of the sales growth. In addition, strong sales in Argentina,
Mexico, and Venezuela contributed to Latin America's strong performance.
Revenues increased at a faster rate than sales for first quarter
1998. This was primarily due to the weakening Japanese Yen, which had a
greater negative effect on sales than revenues due to our affiliate
structure in Japan, and the higher growth rate in Company-operated versus
franchised restaurants.
Consolidated operating margins Quarters ended
March 31
1998 1997
Dollars in millions
Company-operated $350.9 $326.1
Franchised 632.5 616.1
Combined operating margins $983.4 $942.2
Percent of sales/revenues
Company-operated 17.4% 17.6%
Franchised 80.0 80.6
Company-operated margins as a percent of sales decreased slightly
for the quarter. Occupancy & other operating expenses increased as a
percent of sales, while food & paper and payroll costs were relatively
flat.
U.S. Company-operated margins as a percent of sales increased for
the quarter, while Company-operated margins outside the U.S. declined,
primarily in Asia/Pacific. In the U.S., decreases in food & paper costs
and occupancy & other operating expenses as a percent of sales were
partially offset by increases in payroll costs. Outside the U.S., as a
percent of sales, increases in food & paper costs and occupancy & other
operating expenses were offset in part by decreases in payroll costs.
Franchised margin dollars comprised about two-thirds of the combined
operating margins, the same as in the prior year. While franchised
margins as a percent of applicable revenues decreased, franchised margin
dollars increased three percent.
As a percent of revenues, franchised margins declined both in the
U.S. and outside the U.S. The declines reflected higher occupancy costs,
including rent expense, driven by an increase in the number of leased
sites.
The increase in selling, general & administrative expenses was
primarily due to strategic global spending to support restaurant
development, value initiatives and execution strategies, offset in part
by the translation effect of weaker foreign currencies.
Other operating (income) expense-net Quarters ended
March 31
Dollars in millions 1998 1997
Gains on sales of restaurant businesses $ (8.0) $ (7.6)
Equity in earnings of unconsolidated affiliates (12.4) (15.9)
Other (income) expense 18.1 17.5
Other operating (income) expense-net $ (2.3) $ (6.0)
Other operating (income) expense-net consists of transactions
related to franchising and the food service business. The decrease in
equity in earnings of unconsolidated affiliates was due to the weaker
Japanese Yen; increased ownership in Singapore, changing its
classification from an affiliate to a consolidated subsidiary; and weak
performance in certain Asia/Pacific markets, partly offset by increased
equity in earnings of U.S. affiliates.
Operating income Quarters ended March 31
Dollars in millions 1998 1997 Increase/(Decrease)
As In Constant
Reported Currencies*
U.S. $284.5 $271.2 5% n/a
Europe 228.6 205.0 12 18%
Asia/Pacific 81.5 95.1 (14) (5)
Latin America 39.8 32.8 21 29
Other 23.9 23.2 3 8
Corporate SG&A (15.6) (13.1) 19 n/a
Total operating
income $642.7 $614.2 5% 9%
*Excluding the effect of foreign currency translation on reported results
n/a Not applicable
Consolidated operating income increased $55.7 million or nine
percent in constant currencies. The increase reflected higher combined
operating margin dollars, offset in part by higher selling, general &
administrative expenses and slightly lower other operating income.
U.S. operating income increased $13.3 million or five percent,
reflecting higher combined operating margin dollars and relatively flat
selling, general & administrative expenses and other operating income.
Europe's operating income increased 18 percent in constant
currencies. This performance was primarily due to strong results in
England, France, Germany, Italy and Spain.
Asia/Pacific's operating income decreased five percent in constant
currencies. The benefit from the consolidation of our Singapore
affiliate was more than offset by the depressed operating results in
certain Southeast Asian markets.
Latin America's operating income increased 29 percent in constant
currencies, primarily driven by strong operating results in Brazil.
Higher interest expense reflected higher debt levels, offset in part
by weaker foreign currencies and lower average interest rates. The
higher debt levels were primarily due to borrowings in the last half of
1997 to fund the retirement of preferred stock issued by a foreign
subsidiary and the Company's Series E Preferred Stock.
Nonoperating (income) expense-net reflected lower charges for
minority interests.
The effective income tax rate was 33.0 percent for first quarter
1998 compared with 33.2 percent for first quarter 1997. For the year
1998, the Company expects the effective tax rate to be in the range of
32.5 percent to 33.5 percent.
IMPACT OF FOREIGN CURRENCIES ON REPORTED RESULTS
While changing foreign currencies affect reported results, McDonald's
lessens exposures by financing in local currencies, hedging certain
foreign-denominated cash flows and, where practical, by purchasing goods
and services in local currencies.
The weakening Australian Dollar, Deutsche Mark, French Franc and
Japanese Yen, as well as the significantly weakened Southeast Asian
currencies, were the primary foreign currencies that negatively affected
reported results for first quarter 1998.
The following table presents the 1998 results translated at 1997 rates
compared with reported results.
Effect of foreign currency translation on worldwide reported results
Increase
Dollars in millions, As In Constant As In Constant
except per common Reported Currencies* Change Reported Currencies*
share data
Quarter ended March 31, 1998
Systemwide sales $8,169.7 $8,526.9 $357.2 4% 9%
Total revenues 2,804.9 2,935.4 130.5 7 12
Operating income 642.7 669.9 27.2 5 9
Net income 362.2 373.8 11.6 5 9
Net income per common
share - diluted .52 .54 .02 8 12
* Excluding the effect of foreign currency translation on reported results
FORWARD-LOOKING STATEMENTS
Certain forward-looking statements are included in this report. They use
such words as "may," "will," "expect," "believe," "plan" and other
similar terminology. These statements reflect management's current
expectations and involve a number of risks and uncertainties. Actual
results could differ materially due to the success of operating
initiatives and advertising and promotional efforts and changes in:
global and local business and economic conditions; currency exchange and
interest rates; food, labor and other operating costs; political or
economic instability in local markets; competition; consumer preferences,
spending patterns and demographic trends; availability and cost of land
and construction; legislation and government regulation; and accounting
policies and practices.
McDONALD'S CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
Dollars and shares in millions, Quarters ended March 31
except per common share data --------------------------------------
Increase/(Decrease)
------------------
1998 1997 Dollars Percent
---- ---- ------- -------
SYSTEMWIDE SALES $8,169.7 $7,833.1 336.6 4
Revenues
Sales by Company-operated
restaurants $2,014.3 $1,853.2 161.1 9
Revenues from franchised and
affiliated restaurants 790.6 764.4 26.2 3
TOTAL REVENUES 2,804.9 2,617.6 187.3 7
Operating costs and expenses
Company-operated restaurants 1,663.4 1,527.1 136.3 9
Franchised restaurants--occupancy costs 158.1 148.3 9.8 7
Selling, general and administrative
expenses 343.0 334.0 9.0 3
Other operating (income) expense--net (2.3) (6.0) 3.7 n/m
Total operating costs and
expenses 2,162.2 2,003.4 158.8 8
OPERATING INCOME 642.7 614.2 28.5 5
Interest expense 102.8 90.0 12.8 14
Nonoperating (income) expense--net (0.3) 8.5 (8.8) n/m
Income before provision for
income taxes 540.2 515.7 24.5 5
Provision for income taxes 178.0 171.2 6.8 4
NET INCOME $ 362.2 $ 344.5 17.7 5
NET INCOME PER COMMON SHARE(1) $ 0.53 $ 0.49 0.02 8
NET INCOME PER COMMON SHARE-DILUTED(1) $ 0.52 $ 0.48 0.04 8
Weighted average common shares
outstanding 686.4 691.6
Weighted average common shares
outstanding-diluted 701.9 707.5
(1) Computed using net income reduced by preferred stock dividends of
$6.9 million for the first quarter of 1997. These preferred shares
were redeemed in December 1997.
n/m Not meaningful
McDONALD'S CORPORATION
FINANCIAL INFORMATION
Dollars in millions Quarters ended March 31
-----------------------------------------
Increase
-------------------
1998 1997 Dollars Percent
---- ---- ------- -------
SYSTEMWIDE SALES
----------------
By Type
-------
Operated by franchisees $ 5,030.2 $ 4,864.1 166.1 3
Operated by the Company 2,014.3 1,853.2 161.1 9
Operated by affiliates 1,125.2 1,115.8 9.4 1
--------- --------- ------- --
$ 8,169.7 $ 7,833.1 336.6 4
========= ========= ======= ==
--------------------------------------------------------------------------
TOTAL REVENUES
U.S. $ 1,102.0 $ 1,083.9 18.1 2
Europe 990.3 890.5 99.8 11
Asia/Pacific 376.3 351.8 24.5 7
Latin America 192.9 149.1 43.8 29
Other 143.4 142.3 1.1 1
--------- --------- ------- --
$ 2,804.9 $ 2,617.6 187.3 7
========= ========= ======= ==
--------------------------------------------------------------------------
RESTAURANT MARGINS
Company-operated
----------------
U.S. 16.4% 16.0%
Outside the U.S. 17.9% 18.4%
Franchised
----------
U.S. 80.1% 80.5%
Outside the U.S. 79.8% 80.7%
--------------------------------------------------------------------------
PERCENT CONTRIBUTION TO
CONSOLIDATED MARGINS
Company-operated
----------------
U.S. 30 31
Outside the U.S. 70 69
--- ---
100 100
=== ===
Franchised
----------
U.S. 58 58
Outside the U.S. 42 42
--- ---
100 100
=== ===
--------------------------------------------------------------------------
CONSOLIDATED COMPANY-OPERATED MARGINS
AS A PERCENT OF SALES
Food & paper 33.9 33.8
Payroll & employee benefits 25.4 25.5
Occupancy & other operating
expenses 23.3 23.1
---- ----
Total expenses 82.6 82.4
==== ====
Company-operated margins 17.4 17.6
==== ====
--------------------------------------------------------------------------
McDONALD'S CORPORATION
RESTAURANT INFORMATION
At March 31
-----------------------
1998 1997 Increase
---- ---- --------
By Type
-------
Operated by franchisees 14,366 13,510 856
Operated by the Company 5,065 4,406 659
Operated by affiliates 3,915 3,360 555
------ ------ -----
Systemwide restaurants 23,346 21,276 2,070
------ ------ -----
--------------------------------------------------------------------------
By Segment
----------
U.S. 12,413 12,104 309
Europe
Germany 855 751 104
England 757 661 96
France 647 554 93
Netherlands 177 152 25
Italy 173 144 29
Sweden 155 131 24
Spain 151 122 29
Other 1,028 829 199
------ ------ -----
Total Europe 3,943 3,344 599
Asia/Pacific
Japan 2,467 2,055 412
Australia 650 616 34
Taiwan 254 181 73
China 196 132 64
Philippines 164 114 50
Other 816 662 154
------ ------ -----
Total Asia/Pacific 4,547 3,760 787
Latin America
Brazil 482 346 136
Other 627 521 106
------ ------ -----
Total Latin America 1,109 867 242
Other
Canada 1,054 1,004 50
Other 280 197 83
------ ------ -----
Total Other 1,334 1,201 133
------ ------ -----
Systemwide restaurants 23,346 21,276 2,070
====== ====== =====
-------------------------------------------------------------------------
Countries 109 101
-------------------------------------------------------------------------
Quarters ended
March 31
--------------
1998 1997
---- ----
Additions
---------
U.S. 33 10
Europe 57 61
Asia/Pacific 91 127
Latin America 18 30
Other 15 26
--- ---
Systemwide additions 214 254
=== ===