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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 1-5231
McDONALD'S CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-2361282
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
McDonald's Plaza
Oak Brook, Illinois 60523
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (630) 623-3000
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(Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No _____
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1,285,442,236
----------------------------
(Number of shares of common stock
outstanding as of September 30, 2001)
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McDONALD'S CORPORATION
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INDEX
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Page Reference
Part I Financial Information
Item 1 - Financial Statements
Condensed consolidated balance sheet,
September 30, 2001 (unaudited) and
December 31, 2000 3
Condensed consolidated statement of income (unaudited),
quarters and nine months ended September 30, 2001 and 2000 4
Condensed consolidated statement of cash flows (unaudited),
quarters and nine months ended September 30, 2001 and 2000 5
Financial comments (unaudited) 6
Item 2 - Management's Discussion and
Analysis of Financial Condition
and Results of Operations 8
Item 3 - Quantitative & Qualitative Disclosures
About Market Risk 17
Part II Other Information
Item 6 - Exhibits and Reports on Form 8-K 17
(a) Exhibits
The exhibits listed in the
accompanying Exhibit Index are
filed as part of this report 17
(b) Reports on Form 8-K 19
Signature 20
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
(unaudited)
In millions September 30, 2001 December 31, 2000
- ------------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and equivalents $ 475.6 $ 421.7
Accounts and notes receivable 790.2 796.5
Inventories, at cost, not in excess of market 98.1 99.3
Prepaid expenses and other current assets 406.0 344.9
- ------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 1,769.9 1,662.4
- ------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS 3,531.5 2,973.5
PROPERTY AND EQUIPMENT
Property and equipment, at cost 23,788.6 23,569.0
Accumulated depreciation and amortization (6,784.7) (6,521.4)
- ------------------------------------------------------------------------------------------------------------------------
NET PROPERTY AND EQUIPMENT 17,003.9 17,047.6
- ------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 22,305.3 $ 21,683.5
========================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ - $ 275.5
Accounts payable 520.7 684.9
Income taxes 128.8 92.2
Other taxes 182.0 195.5
Accrued interest 173.1 149.9
Other accrued liabilities 664.7 608.4
Current maturities of long-term debt 2.5 354.5
- ------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,671.8 2,360.9
- ------------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT 8,685.3 7,843.9
OTHER LONG-TERM LIABILITIES AND MINORITY INTERESTS 615.6 489.5
DEFERRED INCOME TAXES 1,104.9 1,084.9
COMMON EQUITY PUT OPTIONS 462.5 699.9
SHAREHOLDERS' EQUITY
Preferred stock, no par value; authorized - 165.0 million shares;
issued - none
Common stock, $.01 par value; authorized - 3.5 billion shares;
issued - 1,660.6 million 16.6 16.6
Additional paid-in capital 1,570.5 1,441.8
Unearned ESOP compensation (106.8) (115.0)
Retained earnings 18,624.7 17,259.4
Accumulated other comprehensive income (1,630.9) (1,287.3)
Common stock in treasury, at cost; 375.2 and 349.3 million shares (8,708.9) (8,111.1)
- ------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 9,765.2 9,204.4
- ------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 22,305.3 $ 21,683.5
========================================================================================================================
See accompanying Financial comments.
3
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
- --------------------------------------------------------------------------------
Quarters ended Nine Months ended
In millions, except September 30 September 30
per common share data 2001 2000 2001 2000
- --------------------------------------------------------------------------------------------------------------------------
REVENUES
Sales by Company-operated restaurants $2,876.9 $2,768.5 $ 8,229.3 $ 7,790.4
Revenues from franchised and affiliated restaurants 1,002.4 980.5 2,869.2 2,863.0
- --------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 3,879.3 3,749.0 11,098.5 10,653.4
- --------------------------------------------------------------------------------------------------------------------------
OPERATING COSTS AND EXPENSES
Company-operated restaurants 2,440.8 2,297.6 7,025.8 6,477.7
Franchised restaurants - occupancy expenses 203.4 192.0 598.2 580.4
Selling, general, and administrative expenses 415.9 409.2 1,228.3 1,180.2
Other operating (income) expense, net 72.6 (60.6) 31.9 (140.6)
- --------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING COSTS AND EXPENSES 3,132.7 2,838.2 8,884.2 8,097.7
- --------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 746.6 910.8 2,214.3 2,555.7
- --------------------------------------------------------------------------------------------------------------------------
Interest expense 110.6 111.4 348.6 318.0
Nonoperating (income) expense, net (114.5) 10.3 (94.5) 12.9
- --------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE PROVISION FOR INCOME TAXES 750.5 789.1 1,960.2 2,224.8
- -------------------------------------------------------------------------------------------------------------------------
Provision for income taxes 205.0 240.6 595.5 699.5
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NET INCOME $ 545.5 $ 548.5 $ 1,364.7 $ 1,525.3
==========================================================================================================================
NET INCOME PER COMMON SHARE $ 0.42 $ 0.42 $ 1.06 $ 1.15
NET INCOME PER COMMON SHARE - DILUTED 0.42 0.41 1.04 1.12
- --------------------------------------------------------------------------------------------------------------------------
DIVIDENDS PER COMMON SHARE - $ .21500 - $ .21500
- --------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES 1,286.1 1,315.6 1,292.1 1,328.7
WEIGHTED AVERAGE SHARES - DILUTED 1,305.8 1,346.0 1,313.4 1,364.2
- --------------------------------------------------------------------------------------------------------------------------
See accompanying Financial comments.
4
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
- --------------------------------------------------------------------------------
Quarters ended Nine months ended
September 30 September 30
In millions 2001 2000 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 545.5 $ 548.5 $ 1,364.7 $ 1,525.3
Adjustments to reconcile to cash provided by operations
Depreciation and amortization 270.9 250.2 809.6 779.5
Changes in operating working capital items 178.0 37.2 (80.1) (76.8)
Other (6.3) (34.7) (22.7) (91.9)
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CASH PROVIDED BY OPERATIONS 988.1 801.2 2,071.5 2,136.1
- ---------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Property and equipment expenditures (412.3) (446.7) (1,243.7) (1,301.0)
Purchases and sales of restaurant businesses and
sales of property 24.2 (18.0) (56.8) (59.4)
Other (44.3) (30.6) (107.0) (98.1)
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CASH USED FOR INVESTING ACTIVITIES (432.4) (495.3) (1,407.5) (1,458.5)
- ---------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Notes payable and long-term financing issuances and repayments (389.8) 26.9 87.6 854.2
Treasury stock purchases (172.0) (424.5) (895.7) (1,718.5)
Other 68.4 30.6 198.0 117.2
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CASH USED FOR FINANCING ACTIVITIES (493.4) (367.0) (610.1) (747.1)
- ---------------------------------------------------------------------------------------------------------------------------------
CASH AND EQUIVALENTS INCREASE (DECREASE) 62.3 (61.1) 53.9 (69.5)
- ---------------------------------------------------------------------------------------------------------------------------------
Cash and equivalents at beginning of period 413.3 411.1 421.7 419.5
- ---------------------------------------------------------------------------------------------------------------------------------
CASH AND EQUIVALENTS AT END OF PERIOD $ 475.6 $ 350.0 $ 475.6 $ 350.0
=================================================================================================================================
See accompanying Financial comments.
5
- --------------------------------------------------------------------------------
FINANCIAL COMMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
Basis of Presentation
The accompanying condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements contained in the
Company's 2000 Annual Report to Shareholders. In the opinion of the Company, all
adjustments (consisting of normal recurring accruals) necessary for a fair
presentation have been included. The results for the quarter and nine months
ended September 30, 2001 do not necessarily indicate the results that may be
expected for the full year.
The results of operations of restaurant businesses purchased and sold were
not material to the condensed consolidated financial statements for periods
prior to purchase and sale.
Comprehensive Income
Comprehensive income consists of net income, foreign currency translation
adjustments and net unrealized gains and losses on cash flow hedges and totaled
$540.0 million and $309.7 million for the third quarter of 2001 and 2000,
respectively, and $1,021.1 million and $1,066.4 million for the nine months
ended September 30, 2001 and 2000, respectively.
Common Equity Put Options
At September 30, 2001, 15.5 million of common equity put options were
outstanding, of which 3.5 million were sold in the third quarter 2001. The
options expire at various dates through August 2002, at exercise prices between
$27.50 and $31.41. The $462.5 million total exercise price of the options
outstanding was classified in common equity put options at September 30, 2001
and the related offset was recorded in common stock in treasury, net of premiums
received.
Restaurant Closings
During the third quarter, the Company closed 154 under performing
restaurants in international markets and recorded a pre-tax charge of $84.1
million ($63.9 million after-tax) in other operating expense.
Japan Initial Public Offering (IPO) Gain
On July 26, 2001 McDonald's Japan, the Company's largest market in the
Asia/Pacific segment, had an IPO. As a result of this transaction, the Company
retains a 50% ownership in McDonald's Japan. The Company's partner, Den Fujita
and his family own approximately 26% and continue to actively manage the
business. During the third quarter, the Company recorded a $137.1 million gain
(pre and after-tax) in non-operating income to reflect an increase in the
carrying value of its investment as a result of the cash proceeds from the IPO
received by McDonald's Japan.
Per Common Share Information
Diluted net income per common share is calculated using net income divided
by diluted weighted-average shares. Diluted weighted-average shares include
weighted average shares outstanding plus the dilutive effect of stock options,
calculated using the treasury stock method, of 19.7 million shares and 30.4
million shares for the third quarter of 2001 and 2000, respectively, and 21.3
million shares and 35.5 million shares for the nine months ended September 30,
2001 and 2000, respectively.
New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, "Business Combinations", effective for
acquisitions made after July 1, 2001 and No. 142, "Goodwill and Other Intangible
Assets", effective for fiscal years beginning after December 15, 2001. Under the
new rules, goodwill (and intangible assets deemed to have indefinite lives) will
no longer be amortized but will be subject to annual impairment tests. Other
intangible assets will continue to be amortized over their useful lives.
6
The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning January 1, 2002. Application of the nonamortization
provisions of the Statement is expected to result in an increase in net income
of approximately $30 million ($0.02 per share) per year. The Company will
perform the first of required impairment tests of goodwill as of January 1,
2002, and management does not anticipate that the result of this test will have
a material impact on the Company's financial statements.
Segment Information
The Company operates in the food service industry and primarily operates
quick service restaurant businesses under the McDonald's brand. The Company also
operates other restaurant concepts: Aroma Cafe, Boston Market, Chipotle and
Donatos Pizza. In addition, McDonald's has a minority interest in U.K.-based
Pret A Manger. The Other Segment includes McDonald's restaurant business
operations in Canada, Africa and the Middle East as well as the other restaurant
concepts.
The following table presents the Company's revenues and operating income by
geographic segment:
Quarters ended Nine months ended
September 30 September 30
In millions 2001 2000 2001 2000
- --------------------------------------------------------------------------------------------------
REVENUES
U.S. $ 1,390.8 $ 1,347.7 $ 4,060.8 $ 3,937.3
Europe 1,267.5 1,229.3 3,518.1 3,590.3
Asia/Pacific 552.0 520.4 1,559.4 1,523.5
Latin America 241.3 246.4 739.1 701.1
Other 427.7 405.2 1,221.1 901.2
- --------------------------------------------------------------------------------------------------
TOTAL REVENUES $ 3,879.3 $ 3,749.0 $ 11,098.5 $ 10,653.4
- --------------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS)*
U.S. $ 472.7 $ 466.8 $ 1,350.9 $ 1,337.4
Europe 288.0 330.4 775.0 903.9
Asia/Pacific 79.9 122.1 294.3 349.7
Latin America (22.3) 31.1 14.2 87.2
Other 20.2 26.0 27.6 74.8
Corporate (91.9) (65.6) (247.7) (197.3)
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TOTAL OPERATING INCOME $ 746.6 $ 910.8 $ 2,214.3 $ 2,555.7
- --------------------------------------------------------------------------------------------------
*Segment operating income has been restated for 2000 to break out corporate
expenses from other operating segments.
7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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OPERATING RESULTS
- --------------------------------------------------------------------------------
Dollars in millions, except Quarter ended Nine months ended
per common share data September 30, 2001 September 30, 2001
- ---------------------------------------------------------------------------------------------------------------------
% Increase/ % Increase/
Amount (Decrease) Amount (Decrease)
- ---------------------------------------------------------------------------------------------------------------------
SYSTEMWIDE SALES $ 10,629.2 1 % $ 30,517.7 1%
- ---------------------------------------------------------------------------------------------------------------------
REVENUES
Sales by Company-operated restaurants 2,876.9 4 8,229.3 6
Revenues from franchised and affiliated restaurants 1,002.4 2 2,869.2 -
- ---------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 3,879.3 3 11,098.5 4
- ---------------------------------------------------------------------------------------------------------------------
OPERATING COSTS AND EXPENSES
Company-operated restaurants 2,440.8 6 7,025.8 8
Franchised restaurants - occupancy costs 203.4 6 598.2 3
Selling, general, and administrative expenses 415.9 2 1,228.3 4
Other operating expense, net 72.6 N/M 31.9 N/M
- ---------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING COSTS AND EXPENSES 3,132.7 10 8,884.2 10
- ---------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 746.6 (18) 2,214.3 (13)
- ---------------------------------------------------------------------------------------------------------------------
Interest expense 110.6 (1) 348.6 10
Nonoperating (income), net (114.5) N/M (94.5) N/M
- ---------------------------------------------------------------------------------------------------------------------
INCOME BEFORE PROVISION FOR INCOME TAXES 750.5 (5) 1,960.2 (12)
- ---------------------------------------------------------------------------------------------------------------------
Provision for income taxes 205.0 (15) 595.5 (15)
- ---------------------------------------------------------------------------------------------------------------------
NET INCOME $ 545.5 (1)% $ 1,364.7 (11)%
=====================================================================================================================
NET INCOME PER COMMON SHARE $ 0.42 - $ 1.06 (8)%
NET INCOME PER COMMON SHARE-DILUTED 0.42 2 1.04 (7)
- ---------------------------------------------------------------------------------------------------------------------
N/M Not meaningful
8
CONSOLIDATED OPERATING RESULTS
The Company operates in the food service industry and primarily operates
quick-service restaurant businesses under the McDonald's brand. To capture
additional meal occasions, the Company also operates other restaurant concepts:
Aroma Cafe, Boston Market, Chipotle and Donatos Pizza. Collectively these four
businesses are referred to as "Partner Brands." In addition, McDonald's has a
minority ownership in Pret A Manger.
The following table presents the growth rates for reported results and the
results on a constant currency basis for the nine months and quarter ended
September 30, 2001. Information on a constant currency basis excludes the effect
of foreign currency translation on reported results, except for
hyperinflationary economies, such as Russia, whose functional currency is the
U.S. Dollar.
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Key highlights - Consolidated
Percent
Dollars in millions, except per common share data Increase/(Decrease)
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As Constant
Quarters ended September 30 2001 2000 Reported Currency*
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Systemwide sales $ 10,629.2 $ 10,512.4 1 4
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Total revenues 3,879.3 3,749.0 3 6
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Operating income 746.6 910.8 (18) (16)
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Net income 545.5 548.5 (1) 3
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Net income per common share - diluted .42 .41 2 5
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Nine months ended September 30
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Systemwide sales $ 30,517.7 $ 30,256.7 1 5
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Total revenues 11,098.5 10,653.4 4 8
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Operating income 2,214.3 2,555.7 (13) (10)
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Net income 1,364.7 1,525.3 (11) (7)
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Net income per common share - diluted 1.04 1.12 (7) (4)
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* Information in constant currencies excludes the effect of foreign
currency translation on reported results, except for hyperinflationary
economies, such as Russia, whose functional currency is the U.S. Dollar.
Impact of Foreign Currencies on Reported Results
While changing foreign currencies affect reported results, McDonald's
lessens exposures, where practical, by financing in local currencies, hedging
certain foreign-denominated cash flows and by purchasing goods and services in
local currencies.
Reported results for the quarter and nine months were negatively affected
by foreign currency translation primarily due to the weaker Euro, British Pound,
Japanese Yen and the Australian Dollar.
If foreign currency exchange rates remain constant for the remainder of the
year, the Company expects translation will reduce full-year reported net income
per common share by 4 to 5 cents.
Net Income and Net Income Per Common Share-Diluted
Net income for the quarter was $545.5 million, a decrease of 1% while
diluted net income per common share increased 2% for the quarter to 42 cents.
For the nine months, net income decreased 11% to $1,364.7 million and diluted
net income per common share decreased 7% to $1.04. In constant currencies, net
income and diluted net income per common share increased 3% and 5%,
respectively, for the quarter, and decreased 7% and 4%, respectively, for the
nine months.
For the quarter, the Company recorded a $137.1 million after-tax gain
related to the IPO of McDonald's Japan. The Company also recorded $84.1 million
in after-tax charges primarily related to the closing of 154 under performing
restaurants in international markets and the write-off of certain technology
costs. In addition, the nine months included a $24.0 million after-tax asset
impairment charge in Turkey.
While the Company continues to target relatively flat constant currency
earnings per share for the year, in light of continued economic weakness and its
negative effect on consumer spending around the world, the Company expects
fourth quarter earnings per share of 34 to 36 cents in constant currencies,
excluding the anticipated fourth quarter 2001 special charge (as described on
page 14 of this Form 10-Q). The Company's goal in 2002 is to increase sales and
improve profitability and returns. As a result, the Company
9
expects 2002 net income per common share to increase by 5% to 10%, excluding
foreign currency translation and the impact of the fourth quarter 2001 special
charge.
Weighted average shares outstanding for the quarter and nine months were
lower compared with the prior year due to shares repurchased. In addition,
outstanding stock options had a less dilutive effect than in the prior year.
During the first nine months of 2001, the Company repurchased 30.2 million
shares of its common stock for approximately $914 million.
Systemwide Sales and Revenues
Systemwide sales represent sales by Company-operated, franchised and affiliated
restaurants. 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.
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Systemwide sales
Percent
Dollars in millions Increase/(Decrease)
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As Constant
Quarters ended September 30 2001 2000 Reported Currency*
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U.S. $ 5,206.5 $ 5,051.4 3 n/a
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Europe 2,520.2 2,449.9 3 5
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Asia/Pacific 1,721.2 1,820.2 (5) 5
-------------------------------------------------------------- ----------------------------------------------------
Latin America 431.4 456.2 (5) 7
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Other** 749.9 734.7 2 5
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Total Systemwide sales $10,629.2 $10,512.4 1 4
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Nine months ended September 30
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U.S. $15,071.6 $14,748.9 2 n/a
----------------------------------------------------------------------------- -------------------------------------
Europe 6,969.6 7,082.4 (2) 4
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Asia/Pacific 5,043.9 5,302.1 (5) 6
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Latin America 1,318.4 1,319.8 - 9
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Other** 2,114.2 1,803.5 17 21
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Total Systemwide sales $30,517.7 $30,256.7 1 5
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* Excluding the effect of foreign currency translation on reported results.
** Includes Systemwide sales for Partner Brands in 2001 of $251.0 million for
the quarter and $718.7 million for the nine months. In 2000, Systemwide
sales for Partner Brands were $219.0 million for the quarter and $378.2
million for the nine months.
n/a Not applicable
On a global basis, the increases in sales and revenues for the quarter and
nine months were primarily due to restaurant expansion, partly offset by
negative comparable sales. The acquisition of Boston Market in the second
quarter 2000 also contributed to the increases for the nine months. Foreign
currency translation had a negative effect on the growth rates for both
Systemwide sales and revenues for both periods. On a constant currency basis,
revenues increased at a higher rate than sales for both the quarter and the nine
months partly due to a restructure of our ownership in the Philippines,
effective July 1, 2001. As a result of the restructuring, most of our
restaurants in the Philippines are now Company-operated rather than franchised.
The higher revenue increase for the nine months was also partly due to the
acquisition of Boston Market restaurants, which are all Company-operated. In
addition, revenues in both periods benefited from an increase in the royalty
percent received from our Japanese affiliate, effective January 1, 2001.
U.S. sales increased 3% for the quarter and 2% for the nine months
primarily due to expansion. Comparable sales were slightly positive for the
quarter and relatively flat for the nine months.
In Europe, Asia/Pacific and Latin America, constant currency sales
increased for the quarter and nine months due to expansion, partly offset by
negative comparable sales.
In Europe, France and the U.K. were primary contributors to the sales
growth for the quarter and nine months. Also, the Netherlands and Russia
delivered strong performances in both periods. Comparable sales continued to be
affected by consumer confidence issues regarding the European beef supply in
certain markets. We expect the impact from these issues to lessen as the fourth
quarter progresses. In addition, comparisons become easier since the initial
concerns arose last year in the fourth quarter.
10
Sales trends are improving in several markets, most notably France, which had
positive comparable sales in each month from March through September.
In Asia/Pacific, the quarter and nine months benefited from expansion in
Japan and strong performance in China. A weak economic environment in Taiwan and
weak consumer spending in Australia and Japan negatively impacted sales growth.
Although we are encouraged by improvement in Australia's comparable sales, Japan
continues to experience negative sales trends.
In Latin America, expansion and positive comparable sales in Mexico and
Venezuela were the primary contributors to the sales increases for the quarter
and nine months. In addition, expansion in Brazil contributed to the increases
for both periods. Weak consumer spending continued to negatively affect most
markets in this segment.
In the Other segment, the increases for the quarter and nine months were
driven by Canada and the Partner Brands.
Combined Operating Margins
The following combined operating margin information represents margins for
McDonald's restaurant business only.
------------------------------------------------------------------------------------------------------------
Combined operating margins
Quarters ended Nine months ended
September 30 September 30
--------------------------------------------------
2001 2000 2001 2000
------------------------------------------------------------------------------------------------------------
Dollars in millions
------------------------------------------------------------------------------------------------------------
Company-operated $ 419.2 $ 453.1 $1,164.5 $1,284.6
------------------------------------------------------------------------------------------------------------
Franchised 798.6 788.0 2,269.8 2,281.3
------------------------------------------------------------------------------------------------------------
Combined operating margins $1,217.8 $1,241.1 $3,434.3 $3,565.9
------------------------------------------------------------------------------------------------------------
Percent of sales/revenues
------------------------------------------------------------------------------------------------------------
Company-operated 15.9% 17.7% 15.4% 17.3%
------------------------------------------------------------------------------------------------------------
Franchised 79.7 80.4 79.1 79.7
------------------------------------------------------------------------------------------------------------
In constant currencies, combined operating margin dollars were relatively
flat, increasing $3.5 million for the quarter while decreasing $21.9 million, or
1%, for the nine months. The U.S. and Europe segments accounted for over 80% of
the combined margin dollars in both periods.
As a percent of sales, consolidated Company-operated margins decreased for
the quarter and nine months. Food & paper costs, payroll costs and occupancy &
other operating expenses all increased as a percent of sales for both periods.
In the U.S., Company-operated margins decreased as a percent of sales for
the quarter and nine months. As a percent of sales, food & paper costs decreased
while payroll costs and occupancy & other operating expenses increased for both
periods.
In each of the remaining segments, Company-operated margins decreased as a
percent of sales for the quarter and nine months, primarily due to negative
comparable sales. Higher food costs also contributed to the decline in Latin
America and Asia/Pacific for both periods and in Europe for the nine months.
Higher labor costs impacted Europe for both periods and Asia/Pacific for the
nine months. In Asia/Pacific, the change in restaurant classification in the
Philippines contributed to the declines for both periods because its
Company-operated margins are lower than the average for the Asia/Pacific
segment.
Franchised margins as a percent of applicable revenues increased in
Asia/Pacific and decreased in the U.S., Europe and Latin America for the quarter
and nine months.
Franchised margins as a percent of revenues in all segments were negatively
impacted by weak comparable sales and by higher occupancy costs as a result of
our strategy to lease more sites. By leasing a higher proportion of new sites,
we have reduced initial capital requirements. However, as anticipated, this
practice reduces franchised margins because the financing costs implicit in the
lease are included in occupancy expense, whereas for owned sites, financing
costs are reflected in interest expense.
The decreases in franchised margins as a percent of revenues in Europe for
the nine months and in Latin America for both periods were also partly due to
rent assistance provided to franchisees. The franchised margin percent in
Asia/Pacific increased for both periods primarily due to an increase in the
royalty percent received from our Japanese affiliate and the restructuring of
the Philippines' operations, which resulted in the reclassification of
franchised margins that were lower than the average for the segment.
11
Selling, General & Administrative Expenses
Selling, general & administrative expenses increased 2% for the quarter and
4% for the nine months. The increases were partly due to increased spending on
future restaurant technology improvements. Both periods benefited from weaker
foreign currencies.
Other Operating Income (Expense), net
Equity in earnings of unconsolidated affiliates decreased for both periods,
primarily due to weaker results in Japan, the increase in Japan's royalty
expense and a weaker Japanese Yen. Although the increase in royalty expense
reduced McDonald's equity in earnings for Japan, it was more than offset by the
royalty benefit McDonald's received in franchised revenues. Other income
(expense) for the quarter and nine months included $101.5 million of charges
primarily related to the closing of 154 under performing restaurants and the
write-off of certain technology costs. The Company expects to close about 10
additional under performing restaurants in the fourth quarter. Other income
(expense) for the nine months also included a $24.0 million asset impairment
charge in Turkey.
----------------------------------------------------------------------------------------------------------------------------
Other operating income (expense), net Quarters ended Nine months ended
Dollars in millions September 30 September 30
----------------------------------------------------------------------------------------------------------------------------
2001 2000 2001 2000
----------------------------------------------------------------------------------------------------------------------------
Gains on sales of restaurant businesses $ 21.0 $20.5 $ 67.3 $ 58.4
----------------------------------------------------------------------------------------------------------------------------
Equity in earnings of unconsolidated affiliates 12.4 32.9 49.5 92.8
----------------------------------------------------------------------------------------------------------------------------
Other expense (expense) (106.0) 7.2 (148.7) (10.6)
----------------------------------------------------------------------------------------------------------------------------
Total $ (72.6) $60.6 $(31.9) $140.6
----------------------------------------------------------------------------------------------------------------------------
12
Operating Income
Consolidated operating income decreased $150.2 million, or 16% for the
quarter and $263.6 million, or 10%, for the nine months, in constant currencies.
Excluding the charge related to restaurant closings, the technology cost
write-off and the Turkey asset impairment, adjusted consolidated operating
income decreased 5% for both periods. The adjusted operating income decreases
for both periods were due to lower combined operating margin dollars, lower
other operating income and higher selling, general & administrative expenses.
- -----------------------------------------------------------------------------------------------------------------------------
Operating income***
Dollars in millions Percent Increase/(Decrease)
- -----------------------------------------------------------------------------------------------------------------------------
Adjusted
As Constant Constant
Quarters ended September 30 2001 2000 Reported Currency* Currency**
- -----------------------------------------------------------------------------------------------------------------------------
U.S. $ 472.7 $ 466.8 1 n/a n/a
- -----------------------------------------------------------------------------------------------------------------------------
Europe 288.0 330.4 (13) (10) -
- -----------------------------------------------------------------------------------------------------------------------------
Asia/Pacific 79.9 122.1 (35) (28) (18)
- -----------------------------------------------------------------------------------------------------------------------------
Latin America (22.3) 31.1 n/m n/m (53)
- -----------------------------------------------------------------------------------------------------------------------------
Other**** 20.2 26.0 (22) (18) 2
- -----------------------------------------------------------------------------------------------------------------------------
Corporate (91.9) (65.6) (40) n/a (18)
- -----------------------------------------------------------------------------------------------------------------------------
Total operating income $ 746.6 $ 910.8 (18) (16) (5)
- -----------------------------------------------------------------------------------------------------------------------------
Nine months ended September 30
- -----------------------------------------------------------------------------------------------------------------------------
U.S. $1,350.9 $1,337.4 1 n/a n/a
- -----------------------------------------------------------------------------------------------------------------------------
Europe 775.0 903.9 (14) (9) (6)
- -----------------------------------------------------------------------------------------------------------------------------
Asia/Pacific 294.3 349.7 (16) (6) (3)
- -----------------------------------------------------------------------------------------------------------------------------
Latin America 14.2 87.2 n/m n/m (39)
- -----------------------------------------------------------------------------------------------------------------------------
Other**** 27.6 74.8 (63) (59) (20)
- -----------------------------------------------------------------------------------------------------------------------------
Corporate (247.7) (197.3) (26) n/a (18)
- -----------------------------------------------------------------------------------------------------------------------------
Total operating income $2,214.3 $2,555.7 (13) (10) (5)
- -----------------------------------------------------------------------------------------------------------------------------
* Excluding the effect of foreign currency translation on reported results.
** Excluding the effect of foreign currency translation on reported results
where applicable and excluding the unusual items noted above.
*** Segment operating income has been restated for 2000 to break out corporate
expenses from the other operating segments.
**** Includes operating losses for Partner Brands in 2001 of $10.4 million for
the quarter and $37.8 million for the nine months. In 2000, operating
losses for Partner Brands were $15.5 million for the quarter and $33.4
million for the nine months.
n/a Not applicable
n/m Not meaningful
U.S. operating income increased 1% for the quarter and nine months. The
increases were due to higher combined operating margin dollars. The quarter
included lower selling, general & administrative expenses and lower other
operating income, while the nine months included higher selling, general &
administrative expenses and higher other operating income.
Europe's adjusted operating income was flat for the quarter and decreased
6% for the nine months in constant currencies. Strong results in France and
Russia drove this segment's improved performance in the quarter. However,
operating income continued to be negatively affected by the decline in consumer
confidence regarding the safety of the European beef supply in certain markets.
The adjusted operating income in Asia/Pacific decreased 18% for the quarter
and 3% for the nine months in constant currencies. In both periods, strong
performance in China and the increase in the royalty percent received from Japan
was more than offset by weak operating results in Australia, Japan and Taiwan.
In addition, a gain on the sale of real estate in Singapore contributed to the
results for the nine months.
Latin America's adjusted operating income decreased 53% for the quarter and
39% for the nine months in constant currencies. Both periods were negatively
impacted by the continuing difficult economic conditions experienced by most
markets in the region.
In the Other segment, Canada's continued strong performance was offset by
weak results in several markets in the Middle East & Africa for both periods.
13
INTEREST, NONOPERATING EXPENSE AND INCOME TAXES
Interest expense decreased slightly for the quarter and increased for the nine
months. Lower average interest rates were partly offset for the quarter and more
than offset for the nine months by higher average debt levels. The higher
average debt levels were a result of the Company using its available credit
capacity to repurchase shares of its common stock. Both periods benefited from
weaker foreign currencies.
Nonoperating (income) expense for the quarter and nine months included a
$137.1 million gain on the IPO of McDonald's Japan. The gain was due to the
increase in the carrying value of our investment as a result of the cash
proceeds from the IPO received by McDonald's Japan. Also contributing to the
nonoperating income for both periods were higher foreign currency translation
gains. Partly offsetting the income for the quarter was the write-off of a
domestic investment. The nine months included nonoperating expenses associated
with the write-off of a financing receivable from a Latin American supplier and
minority interest expense related to the sale of real estate in Singapore.
The third quarter effective income tax rate was 27.3% compared with 30.5%
in 2000. The effective tax rate for the nine months was 30.4% compared with
31.4% in 2000. The decrease in the income tax rate in 2001 was the result of the
Japan IPO gain, partly offset by certain restaurant closing charges and the
Turkey asset impairment charge, none of which were tax-effected for financial
reporting purposes. For the full year, we expect the tax rate to be about 30.0%.
SPECIAL CHARGE
In the fourth quarter 2001, the Company expects to record a $175 million to $200
million pre-tax special charge to prepare the Company for future growth by
implementing a number of change initiatives around the world. As a result of
these initiatives, the Company anticipates 500 to 700 field and home office
positions will be eliminated. The $175 million to $200 million charge will
primarily be for employee severance and outplacement, consolidation of
facilities and related costs. The Company expects to use cash provided by
operations to fund the severance payments and other cash costs related to the
change initiatives.
After redeploying more than $50 million, the Company expects ongoing annual
selling, general and administrative savings of about $100 million beginning in
2002, compared with what otherwise would be spent.
CASH FLOWS AND FINANCIAL POSITION
Free cash flow - cash provided by operations less capital expenditures - for the
nine months ended September 30, 2001 totaled $827.8 million compared with $835.1
million for the nine months ended September 30, 2000. Free cash flow together
with other sources of cash such as borrowings, was and is expected to continue
to be used primarily for share repurchases and debt repayments. Capital
expenditures decreased 4.4% as expenditures related to McDonald's restaurant
business declined 10.2%, partly offset by an increase in expenditures related to
the Partner Brands. The Company added 658 McDonald's restaurants and 52 Partner
Brands restaurants for the nine months ended September 30, 2001. For the full
year, the Company expects to add about 1,400 McDonald's restaurants and 60
restaurants under its Partner Brands, after including the impact of the closing
of 154 under performing restaurants. Given the weak global economic environment,
the Company expects to open approximately 200 fewer McDonald's restaurants in
2002 than in 2001. Net of restaurant closings, this reflects plans to add 1,300
to 1,400 McDonald's restaurants in 2002, in addition to 100 to 150 restaurants
under its Partner Brands.
The Company believes that buying back its stock enhances shareholder value.
Therefore, the Company purchased approximately $914 million, or 30.2 million
shares of its common stock in the first nine months of 2001. This brought
cumulative purchases to $4.2 billion, or 121.3 million shares under the
Company's three-year, $4.5 billion share repurchase program. In October 2001,
the Company announced a new $5 billion share repurchase program, which is
expected to be completed during the next several years.
In October 2001, the Board of Directors declared an annual dividend of 22.5
cents per share, payable on December 3, 2001 to shareholders of record at the
close of business on November 15, 2001.
14
NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, "Business Combinations", effective for
acquisitions made after July 1, 2001 and No. 142, "Goodwill and Other Intangible
Assets", effective for fiscal years beginning after December 15, 2001. Under the
new rules, goodwill (and intangible assets deemed to have indefinite lives) will
no longer be amortized but will be subject to annual impairment tests. Other
intangible assets will continue to be amortized over their useful lives.
The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning January 1, 2002. Application of the nonamortization
provisions of the Statement is expected to result in an increase in net income
of approximately $30 million ($0.02 per share) per year. The Company will
perform the first of required impairment tests of goodwill as of January 1,
2002, and management does not anticipate that the result of this test will have
a material impact on the Company's financial statements.
EURO CONVERSION
Twelve member countries of the European Union have established fixed conversion
rates between their existing currencies ("legacy currencies") and one common
currency, the Euro. The Euro is traded on currency exchanges and may be used in
certain transactions, such as electronic payments. Beginning in January 2002,
new Euro-denominated notes and coins will be issued, and legacy currencies will
be withdrawn from circulation. The Company uses foreign-denominated debt and
derivatives to meet its financing requirements and to reduce its foreign
currency risks and certain of these financial instruments are denominated in
Euro. The conversion to the Euro has eliminated currency exchange rate risk for
transactions between the member countries, which for the Company, primarily
consist of payments to suppliers.
The Company has restaurants located in all member countries and has been
preparing for the introduction of the Euro for the past several years. The
Company is currently addressing the issues involved with the new currency, which
include converting information technology systems, adapting operational
procedures in the restaurants and revising processes for preparing accounting
and taxation records. Based on the work to date, the Company does not believe
the Euro conversion will have a significant impact on its financial position,
results of operations or cash flows.
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
regarding future events and operating performance and speak only as of the date
of this report. These forward-looking statements involve a number of risks and
uncertainties. The following are some of the factors that could cause actual
results to differ materially from those expressed in or underlying our
forward-looking statements: the effectiveness of operating initiatives and
advertising and promotional efforts, the effects of the Euro conversion, as well
as 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; legislation and governmental
regulation; and accounting policies and practices. The foregoing list of
important factors is not exclusive.
The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
15
- --------------------------------------------------------------------------------
THIRD QUARTER AND NINE MONTHS HIGHLIGHTS
- --------------------------------------------------------------------------------
FINANCIAL INFORMATION
Quarters ended Nine months ended
September 30 September 30
Dollars in Millions 2001 2000 2001 2000
- -----------------------------------------------------------------------------------------------------------------------
Systemwide sales by type
Operated by franchisees $ 6,485.3 $ 6,391.8 $18,606.1 $18,521.7
Operated by the Company 2,876.9 2,768.5 8,229.3 7,790.4
Operated by affiliates 1,267.0 1,352.1 3,682.3 3,944.6
- -----------------------------------------------------------------------------------------------------------------------
Systemwide sales $10,629.2 $10,512.4 $30,517.7 $30,256.7
- -----------------------------------------------------------------------------------------------------------------------
Restaurant margins*
Company-operated
----------------
U.S. 15.9% 17.1% 16.2% 17.1%
Europe 18.9 19.9 16.8 18.7
Asia/Pacific 12.9 16.8 13.9 17.0
Latin America 10.1 12.8 11.1 12.8
Other 13.8 16.3 13.6 15.1
Total 15.9% 17.7% 15.4% 17.3%
Franchised
----------
U.S. 79.9% 80.9% 79.9% 80.5%
Europe 78.4 80.1 77.1 78.6
Asia/Pacific 88.9 83.1 86.9 82.6
Latin America 68.4 73.4 68.6 74.1
Other 81.9 81.0 79.9 79.0
Total 79.7% 80.4% 79.1% 79.7%
* Restaurant margin information represents margins for the McDonald's restaurant
business only.
RESTAURANTS
- -----------------------------------------------------------------------------------------------------------------------
At September 30, 2001 2000*
- -----------------------------------------------------------------------------------------------------------------------
By type
Operated by franchisees 17,015 16,453
Operated by the Company 8,137 7,306
Operated by affiliates 4,265 4,134
- -----------------------------------------------------------------------------------------------------------------------
Systemwide restaurants 29,417 27,893
- -----------------------------------------------------------------------------------------------------------------------
Quarters ended Nine months ended
September 30 September 30
2001* 2000** 2001* 2000**
- -----------------------------------------------------------------------------------------------------------------------
Additions
U.S. 74 45 149 74
Europe 27 110 162 299
Asia/Pacific 63 158 263 334
Latin America (28) 45 36 132
Other - McDonald's 18 21 48 39
Partner Brands 13 12 52 706***
- -----------------------------------------------------------------------------------------------------------------------
Systemwide additions 167 391 710 1,584
- -----------------------------------------------------------------------------------------------------------------------
* Under performing restaurant closings by segment: Europe 47; Asia/Pacific 37;
Latin America 56; Other McDonald's 14.
** Adjusted to exclude dessert-only kiosks.
*** Primarily relates to the acquisition of Boston Market in second quarter
2000.
16
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There were no material changes to the disclosure made in the Annual Report
on Form 10-K for the year ended December 31, 2000 regarding this matter.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description
- -------------- -----------
(3) (i) Restated Certificate of Incorporation, effective as of March 24,
1998, incorporated herein by reference from Form 8-K dated April
17, 1998.
(ii) By-Laws, effective as of June 1, 2000, incorporated herein by
reference from Form 10-Q for the quarter ended June 30, 2000.
(4) Instruments defining the rights of security holders, including
Indentures: **
(a) Senior Debt Securities Indenture dated as of October 19, 1996
incorporated herein by reference from Exhibit 4(a) of Form S-3
Registration Statement (File No. 333-14141).
(i) 6 3/8% Debentures due January 8, 2028. Supplemental
Indenture No. 1 dated as of January 8, 1998,
incorporated herein by reference from Exhibit (4)(a) of
Form 8-K dated January 5, 1998.
(ii) 6% REset Put Securities due 2012. Supplemental Indenture
No. 3 dated as of June 23, 1998, incorporated herein by
reference from Exhibit 4(a) of Form 8-K dated June 18,
1998.
(iii) Medium-Term Notes, Series F, due from 1 year to 60 years
from the Date of Issue. Supplemental Indenture No. 4
incorporated herein by reference from Exhibit (4)(c) of
Form S-3 Registration Statement (File No. 333-59145),
dated July 15, 1998.
(iv) Medium-Term Notes, Series G, due from 1 Year to 60 Years
from Date of Issue. Supplemental Indenture, No 6
incorporated herein by reference from Exhibit 4(c) of
Form S-3 Registration Statement (File No. 333-60170),
dated May 3, 2001.
(b) Subordinated Debt Securities Indenture dated as of October 18,
1996, incorporated herein by reference from Form 8-K dated
October 18, 1996.
(i) 7 1/2% Subordinated Deferrable Interest Debentures due
2036. Supplemental Indenture No. 1 dated as of November
5, 1996, incorporated herein by reference from Exhibit
(4)(b) of Form 8-K dated October 18, 1996.
(ii) 7 1/2% Subordinated Deferrable Interest Debentures due
2037. Supplemental Indenture No. 2 dated as of January
14, 1997, incorporated herein by reference from Exhibit
(4)(b) of Form 8-K dated January 9, 1997.
(iii) 7.31% Subordinated Deferrable Interest Debentures due
2027. Supplemental Indenture No. 3 dated September 24,
1997, incorporated herein by reference from Exhibit
(4)(b) of Form 8-K dated September 19, 1997.
(c) Debt Securities. Indenture dated as of March 1, 1987
incorporated herein by reference from Exhibit 4(a) of Form S-3
Registration Statement (File No. 33-12364).
17
(i) Medium-Term Notes, Series B, due from nine months to 30 years
from Date of Issue. Supplemental Indenture No. 12 incorporated
herein by reference from Exhibit (4) of Form 8-K dated August
18, 1989 and Forms of Medium-Term Notes, Series B, incorporated
herein by reference from Exhibit (4)(b) of Form 8-K dated
September 14, 1989.
(ii) Medium-Term Notes, Series C, due from nine months to 30 years
from Date of Issue. Form of Supplemental Indenture No. 15
incorporated herein by reference from Exhibit 4(b) of Form S-3
Registration Statement (File No. 33-34762), dated May 14, 1990.
(iii) Medium-Term Notes, Series C, due from nine months (U.S.
Issue)/184 days (Euro Issue) to 30 years from Date of Issue.
Amended and restated Supplemental Indenture No. 16 incorporated
herein by reference from Exhibit (4) of Form 10-Q for the
period ended March 31, 1991.
(iv) 8-7/8% Debentures due 2011. Supplemental Indenture No. 17
incorporated herein by reference from Exhibit (4) of Form 8-K
dated April 22, 1991.
(v) Medium-Term Notes, Series D, due from nine months (U.S.
Issue)/184 days (Euro Issue) to 60 years from Date of Issue.
Supplemental Indenture No. 18 incorporated herein by reference
from Exhibit 4(b) of Form S-3 Registration Statement (File No.
33-42642), dated September 10, 1991.
(vi) 7-3/8% Debentures due July 15, 2033. Form of Supplemental
Indenture No. 21 incorporated herein by reference from Exhibit
(4)(a) of Form 8-K dated July 15, 1993.
(vii) Medium-Term Notes, Series E, due from nine months (U.S. Issue)/
184 days (Euro Issue) to 60 years from the Date of Issue.
Supplemental Indenture No. 22 incorporated herein by reference
from Exhibit 4(b) of Form S-3 Registration Statement (File No.
33-60939), dated July 13, 1995.
(viii) 6-5/8% Notes due September 1, 2005. Form of Supplemental
Indenture No. 23 incorporated herein by reference from Exhibit
(4)(a) of Form 8-K dated September 5, 1995.
(ix) 7.05% Debentures due 2025. Form of Supplemental Indenture No.
24 incorporated herein by reference from Exhibit (4)(a) of Form
8-K dated November 13, 1995.
(10) Material Contracts
(a) Directors' Stock Plan, as amended and restated, incorporated herein by
reference from Form 10-Q for the quarter ended June 30, 2001.*
(b) Profit Sharing Program, as amended and restated, incorporated herein
by reference from Form 10-K for the year ended December 31, 1999.*
(i) First Amendment to the McDonald's Profit Sharing Program,
incorporated herein by reference from Form 10-Q for the quarter
ended September 30, 2000.*
(ii) Second Amendment to the McDonald's Profit Sharing Program,
incorporated herein by reference from Form 10-Q for the quarter
ended March 31, 2001.*
(iii) Third Amendment to the McDonald's Profit Sharing Program,
incorporated herein by reference from Form 10-Q for the quarter
ended March 31, 2001.*
(c) McDonald's Supplemental Employee Benefit Equalization Plan, McDonald's
Profit Sharing Program Equalization Plan and McDonald's 1989
Equalization Plan, as amended and restated, incorporated herein by
reference from Form 10-K for the year ended December 31, 1995.*
18
(d) 1975 Stock Ownership Option Plan, as amended and restated, filed
herewith.*
(e) 1992 Stock Ownership Incentive Plan, as amended and restated,
incorporated herein by reference from Form 10-Q for the quarter
ended March 31, 2001.*
(f) McDonald's Corporation Deferred Income Plan, as amended and
restated, incorporated herein by reference from Form 10-K for the
year ended December 31, 2000. *
(g) 1999 Non-Employee Director Stock Option Plan, as amended and
restated, incorporated herein by reference from Form 10-Q for the
quarter ended September 30, 2000. *
(h) Executive Retention Plan, as amended March 20, 2001, incorporated
herein by reference from Form 10-Q for the quarter ended March
31, 2001.*
(i) Senior Director Letter Agreement between Gordon C. Gray and the
Company, incorporated herein by reference from Form 10-Q for the
quarter ended June 30, 2001.*
(j) Senior Director Letter Agreement between Donald R. Keough and the
Company, incorporated herein by reference from Form 10-Q for the
quarter ended June 30, 2001.*
(k) McDonald's Corporation 2001 Omnibus Stock Ownership Plan,
incorporated herein by reference from Form 10-Q for the quarter
ended June 30, 2001.*
(12) Statement re: Computation of Ratios
__________________________
*Denotes compensatory plan.
**Other instruments defining the rights of holders of long-term debt of the
registrant and all of its subsidiaries for which consolidated financial
statements are required to be filed and which are not required to be
registered with the Securities and Exchange Commission, are not included
herein as the securities authorized under these instruments, individually,
do not exceed 10% of the total assets of the registrant and its subsidiaries
on a consolidated basis. An agreement to furnish a copy of any such
instruments to the Securities and Exchange Commission upon request has been
filed with the Commission.
(b) Reports on Form 8-K
The following reports on Form 8-K were filed for the last quarter covered
by this report, and subsequently through November 9, 2001.
Financial Statements
Date of Report Item Number Required to be Filed
-------------- ----------- --------------------
9/19/01 Item 5 and Item 7 No
10/17/01 Item 5 and Item 7 No
10/29/01 Item 5 and Item 7 No
19
SIGNATURE
-----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
McDONALD'S CORPORATION
(Registrant)
By Matthew H. Paull
---------------------
(Signature)
Matthew H. Paull
Executive Vice President,
Chief Financial Officer
November 9, 2001
----------------
20