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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the quarterly period ended June 30, 1999
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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1,354,687,353
--------------------
(Number of shares of common stock
outstanding as of June 30, 1999)
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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,
June 30, 1999 (unaudited) and
December 31, 1998 3
Condensed consolidated statement of
income (unaudited), quarters and six months ended
June 30, 1999 and 1998 4
Condensed consolidated statement of
cash flows (unaudited), quarters and six months
ended June 30, 1999 and 1998 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 16
Part II. Other Information
Item 4 - Submission of Matters to a Vote of
Security Holders 16
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 June 30, 1999 December 31, 1998
- -----------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and equivalents $ 407.8 $ 299.2
Accounts and notes receivable 643.6 609.4
Inventories, at cost, not in excess of market 71.9 77.3
Prepaid expenses and other current assets 297.2 323.5
- -----------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 1,420.5 1,309.4
- -----------------------------------------------------------------------------------------------------------------------
OTHER ASSETS 2,716.9 2,433.4
PROPERTY AND EQUIPMENT
Property and equipment, at cost 21,581.0 21,758.0
Accumulated depreciation and amortization (5,873.0) (5,716.4)
- -----------------------------------------------------------------------------------------------------------------------
NET PROPERTY AND EQUIPMENT 15,708.0 16,041.6
- -----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $19,845.4 $19,784.4
=======================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 560.8 $ 686.8
Accounts payable 422.0 621.3
Income taxes 168.0 94.2
Other taxes 154.3 143.5
Accrued interest 122.6 132.3
Other accrued liabilities 652.5 651.0
Current maturities of long-term debt 150.2 168.0
- -----------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 2,230.4 2,497.1
- -----------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT 6,203.1 6,188.6
OTHER LONG-TERM LIABILITIES AND MINORITY INTERESTS 512.2 492.6
DEFERRED INCOME TAXES 1,117.7 1,081.9
COMMON EQUITY PUT OPTIONS 725.0 59.5
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 1,117.7 989.2
Guarantee of ESOP notes (148.9) (148.7)
Retained earnings 14,667.9 13,879.6
Accumulated other comprehensive income (841.6) (522.5)
Common stock in treasury, at cost; 305.9 and 304.4 million shares (5,754.7) (4,749.5)
- -----------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 9,057.0 9,464.7
- -----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $19,845.4 $19,784.4
=======================================================================================================================
See accompanying Financial comments.
3
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
- --------------------------------------------------------------------------------
Quarters ended Six months ended
In millions, except June 30 June 30
per common share data 1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------
REVENUES
Sales by Company-operated restaurants $2,434.1 $2,270.4 $4,613.2 $4,284.7
Revenues from franchised and affiliated restaurants 973.0 910.4 1,829.0 1,701.0
- -----------------------------------------------------------------------------------------------------
TOTAL REVENUES 3,407.1 3,180.8 6,442.2 5,985.7
- -----------------------------------------------------------------------------------------------------
OPERATING COSTS AND EXPENSES
Company-operated restaurants 1,985.2 1,843.7 3,803.2 3,507.1
Franchised restaurants - occupancy expenses 180.4 166.5 359.2 324.6
Selling, general, and administrative expenses 365.5 364.9 705.4 707.9
Other operating (income) expense (13.6) (6.1) (31.0) (8.4)
Made for You costs 6.1 5.0 10.3 5.0
Special charge - 160.0 - 160.0
- -----------------------------------------------------------------------------------------------------
TOTAL OPERATING COSTS AND EXPENSES 2,523.6 2,534.0 4,847.1 4,696.2
- -----------------------------------------------------------------------------------------------------
OPERATING INCOME 883.5 646.8 1,595.1 1,289.5
- -----------------------------------------------------------------------------------------------------
Interest expense 97.5 106.4 202.7 209.2
Nonoperating (income) expense 13.2 6.6 18.9 6.3
- -----------------------------------------------------------------------------------------------------
INCOME BEFORE PROVISION FOR INCOME TAXES 772.8 533.8 1,373.5 1,074.0
- -----------------------------------------------------------------------------------------------------
Provision for income taxes 254.7 176.6 452.7 354.6
- -----------------------------------------------------------------------------------------------------
NET INCOME $ 518.1 $ 357.2 $ 920.8 $ 719.4
=====================================================================================================
NET INCOME PER COMMON SHARE $ 0.38 $ .26 $ 0.68 $ .52
NET INCOME PER COMMON SHARE - DILUTED 0.37 .25 0.65 .51
- -----------------------------------------------------------------------------------------------------
DIVIDENDS PER COMMON SHARE $ .04875 $ .04500 $ .09750 $ .08625
- -----------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES 1,355.5 1,372.1 1,356.4 1,372.4
WEIGHTED AVERAGE SHARES - DILUTED 1,405.6 1,415.1 1,407.1 1,409.4
- -----------------------------------------------------------------------------------------------------
See accompanying Financial comments.
4
- ----------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
- ----------------------------------------------------------
Quarters ended Six months ended
June 30 June 30
In millions 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 518.1 $ 357.2 $ 920.8 $ 719.4
Adjustments to reconcile to cash provided by operations
Depreciation and amortization 237.7 216.6 471.8 420.5
Changes in operating working capital items (35.8) 114.7 37.1 59.8
Other 45.9 (14.5) 53.1 (4.3)
- ---------------------------------------------------------------------------------------------------
CASH PROVIDED BY OPERATIONS 765.9 674.0 1,482.8 1,195.4
- ---------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Property and equipment expenditures (417.8) (455.6) (754.0) (857.5)
Purchases and sales of restaurant businesses and
sales of property 77.1 4.3 49.9 11.5
Other 20.5 (35.0) (260.0) (71.7)
- ---------------------------------------------------------------------------------------------------
CASH USED FOR INVESTING ACTIVITIES (320.2) (486.3) (964.1) (917.7)
- ---------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Notes payable and long-term financing issuances and
repayments (344.0) 160.2 (27.0) 182.2
Treasury stock purchases (283.6) (404.1) (441.3) (504.8)
Common stock dividends (66.0) (61.7) (132.3) (118.3)
Other 95.5 89.0 190.5 146.7
- ---------------------------------------------------------------------------------------------------
CASH USED FOR FINANCING ACTIVITIES (598.1) (216.6) (410.1) (294.2)
- ---------------------------------------------------------------------------------------------------
CASH AND EQUIVALENTS INCREASE (DECREASE) (152.4) (28.9) 108.6 (16.5)
- ---------------------------------------------------------------------------------------------------
Cash and equivalents at beginning of period 560.2 353.8 299.2 341.4
- ---------------------------------------------------------------------------------------------------
CASH AND EQUIVALENTS AT END OF PERIOD $ 407.8 $ 324.9 $ 407.8 $ 324.9
===================================================================================================
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 in the Company's 1998
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 six months ended June 30, 1999
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 and foreign currency translation
adjustments and totaled $459.6 million and $283.9 million for the second
quarters of 1999 and 1998, respectively, and $601.7 million and $606.4 million
for the six months ended June 30, 1999 and 1998, respectively.
Per Common Share Information
Common share amounts included in the accompanying financial statements have
been restated for the 2-for-1 common stock split in March, 1999. Diluted net
income per common share is calculated using net income divided by weighted
average shares on a diluted basis. Weighted average shares on a diluted basis
include weighted average shares outstanding plus the dilutive effect of stock
options, calculated using the treasury stock method, of 50.1 million shares and
43.0 million shares for the second quarters of 1999 and 1998, respectively, and
50.7 million shares and 36.9 million shares for the six months ended June 30,
1999 and 1998, respectively.
Common Equity Put Options
At June 30, 1999, 17.3 million of common equity put options were outstanding,
which expire at various dates through November 2000. The $725.0 million
exercise price of the options outstanding was classified in common equity put
options at June 30, 1999, and the related offset was recorded in common stock in
treasury, net of premiums received.
Special Charge
In the second quarter 1998, the Company recorded a $160 million pre-tax
special charge related to the results of the Company's home office productivity
initiative. The Company's home office productivity plan is designed to improve
staff alignment, focus and productivity and reduce ongoing selling, general and
administrative expenses. As a result of this initiative, the Company has
reduced home office staffing by approximately 525 positions, is consolidating
certain home office facilities and reduced other expenditures in a variety of
areas. The $160 million charge was primarily comprised of costs associated with
employee severance and outplacement and with the facilities consolidation.
As of June 30, 1999, the remaining accrual, primarily for employee related
costs, was approximately $73 million and is included in Other accrued
liabilities in the Condensed Consolidated Balance Sheet. No significant
adjustments have been made to the original plan approved by management in second
quarter 1998.
New Accounting Standard - Financial Instruments
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, subsequently
amended by Statement No. 137, which is required to be adopted in years beginning
after June 15, 2000. The Statement will require the Company to recognize all
derivatives on the balance sheet at fair value. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of derivatives
will either be offset against the change in fair value of the hedged item
through earnings or recognized in other comprehensive income until the hedged
item is
6
recognized in earnings. The Company expects to adopt the new Statement effective
January 1, 2001. Management does not anticipate that the adoption will have a
significant effect on the Company's results of operations or financial position.
Segment Information
The following table presents the Company's revenues and operating income by
geographic segment:
Quarters ended Six Months ended
June 30 June 30
1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------
REVENUES
U.S. $1,379.8 $1,316.8 $2,531.1 $2,418.8
Europe 1,237.1 1,097.9 2,393.3 2,088.2
Asia/Pacific 448.7 398.6 870.3 774.9
Latin America 165.8 196.8 329.4 389.7
Other 175.7 170.7 318.1 314.1
- -------------------------------------------------------------------------------------------------
TOTAL REVENUES $3,407.1 $3,180.8 $6,442.2 $5,985.7
- -------------------------------------------------------------------------------------------------
OPERATING INCOME
U.S. $ 427.8 $ 219.0(1) $ 741.9 $ 495.7(1)
Europe 303.5 278.6 556.3 502.4
Asia/Pacific 93.9 76.0 185.2 155.8
Latin America 25.7 39.1 57.6 78.1
Other 32.6 34.1 54.1 57.5
- -------------------------------------------------------------------------------------------------
TOTAL OPERATING INCOME* $ 883.5 $ 646.8 $1,595.1 $1,289.5
- -------------------------------------------------------------------------------------------------
* Corporate selling, general & administrative expenses (costs related to home
office support of the Company's global business) were allocated to the
various geographic segments, beginning in 1999. Prior year amounts have been
restated to conform to this presentation.
(1) Includes the $160 million special charge related to the home office
productivity initiative recorded in the second quarter 1998.
7
Item 2. Management's Discussion And Analysis Of Financial Condition And Results
Of Operations
- --------------------------------------------------------------------------------
OPERATING RESULTS
- --------------------------------------------------------------------------------
Dollars in millions, except
per common share data Quarter ended June 30, 1999 Six months ended June 30, 1999
- -----------------------------------------------------------------------------------------------------------------------------
% Increase/ % Increase/
(Decrease) (Decrease)
-------------- ---------------
Amount Reported Adj/(1)/ Amount Reported Adj/(1)/
- -----------------------------------------------------------------------------------------------------------------------------
SYSTEMWIDE SALES $9,920.4 7% 7% $18,743.2 8% 8%
- -----------------------------------------------------------------------------------------------------------------------------
REVENUES
Sales by Company-operated restaurants 2,434.1 7 7 4,613.2 8 8
Revenues from franchised and affiliated restaurants 973.0 7 7 1,829.0 8 8
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 3,407.1 7 7 6,442.2 8 8
- -----------------------------------------------------------------------------------------------------------------------------
OPERATING COSTS AND EXPENSES
Company-operated restaurants 1,985.2 8 8 3,803.2 8 8
Franchised restaurants - occupancy costs 180.4 8 8 359.2 11 11
Selling, general, and administrative expenses 365.5 - - 705.4 - -
Other operating (income) expense (13.6) N/M N/M (31.0) N/M N/M
Made for You costs 6.1 N/M N/M 10.3 N/M N/M
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING COSTS AND EXPENSES 2,523.6 - 6 4,847.1 3 7
- -----------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 883.5 37 10 1,595.1 24 10
- -----------------------------------------------------------------------------------------------------------------------------
Interest expense 97.5 (8) (8) 202.7 (3) (3)
Nonoperating (income) expense 13.2 N/M N/M 18.9 N/M N/M
- -----------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE PROVISION FOR INCOME
TAXES 772.8 45 11 1,373.5 28 11
- -----------------------------------------------------------------------------------------------------------------------------
Provision for income taxes 254.7 44 12 452.7 28 12
- -----------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 518.1 45% 11% $ 920.8 28% 11%
=============================================================================================================================
NET INCOME PER COMMON SHARE $ 0.38 46% 12% $ 0.68 31% 13%
NET INCOME PER COMMON SHARE-DILUTED 0.37 48 12 0.65 27 10
- -----------------------------------------------------------------------------------------------------------------------------
N/M Not meaningful
(1) Excluding the second quarter 1998 $160 million special charge ($110
million after tax or $.08 per share) related to the home office
productivity initiative.
CONSOLIDATED OPERATING RESULTS
Net Income and Net Income per Common Share
Excluding the second quarter 1998 special charge related to the home office
productivity initiative of $160 million ($110 million after tax or $.08 per
diluted share), net income increased 11 percent for the quarter and six months
(13 and 12 percent in constant currencies, respectively). Diluted net income per
common share increased 12 percent for the quarter and 10 percent for the six
months (15 and 12 percent in constant currencies, respectively). Information in
constant currencies excludes the effect of foreign currency translation on
reported results. Reported net income and diluted net income per common share,
including the second quarter 1998 special charge, increased 45 percent and 48
percent for the quarter and 28 percent and 27 percent for the six months,
respectively.
Weighted average shares outstanding for the second quarter and the six
months were lower compared with the prior year primarily due to the Company's
share repurchase program. During the first six months of 1999, the Company
repurchased 12.8 million shares of its common stock for approximately $450
million, under its three-year, $3.5 billion program which is to be completed by
the end of 2001. In the first six months of 1999, the Company granted 21.0
million stock options to its employees, including the annual grant, compared
with 32.7 million for the first six months of 1998.
8
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.
On a global basis, the increases in sales and revenues for the quarter and six
months were due to expansion and positive comparable sales. Foreign currency
translation had a slightly negative effect on the Systemwide sales growth rate
for the quarter, but had no impact on the growth rate for the six months.
The negative impact of foreign currency translation on revenues was greater
than that on Systemwide sales for both periods primarily because the stronger
Japanese Yen had a greater positive currency translation effect on sales
compared to revenues. This is due to our affiliate structure in Japan. Under
this structure, we record a service fee in revenues based on a percentage of
Japan's sales, whereas 100 percent of its sales are included in Systemwide
sales. On a constant currency basis, revenues increased at a higher rate than
sales in both periods due to the higher unit growth rate of Company-operated
restaurants outside the U.S. relative to Systemwide restaurants.
- ---------------------------------------------------------------------------------------------------------------------
Systemwide sales
Dollars in millions 1999 1998 Increase/(Decrease)
- ---------------------------------------------------------------------------------------------------------------------
As In Constant
Reported Currencies*
- ---------------------------------------------------------------------------------------------------------------------
Quarters ended June 30
- --------------------------------------------------------------------------------------------------------------------
U.S. $ 5,175.6 $ 4,919.6 5% n/a
- --------------------------------------------------------------------------------------------------------------------
Europe 2,387.3 2,182.1 9 13%
- --------------------------------------------------------------------------------------------------------------------
Asia/Pacific 1,502.3 1,296.9 16 8
- --------------------------------------------------------------------------------------------------------------------
Latin America 402.1 420.2 (4) 15
- --------------------------------------------------------------------------------------------------------------------
Other 453.1 428.8 6 8
- --------------------------------------------------------------------------------------------------------------------
Total Systemwide sales $ 9,920.4 $ 9,247.6 7% 8%
- ---------------------------------------------------------------------------------------------------------------------
Six months ended June 30
- ---------------------------------------------------------------------------------------------------------------------
U.S. $ 9,463.0 $ 9,038.8 5% n/a
- --------------------------------------------------------------------------------------------------------------------
Europe 4,649.1 4,132.0 13 13%
- --------------------------------------------------------------------------------------------------------------------
Asia/Pacific 3,013.6 2,630.9 15 8
- --------------------------------------------------------------------------------------------------------------------
Latin America 795.7 830.8 (4) 16
- --------------------------------------------------------------------------------------------------------------------
Other 821.8 784.8 5 9
- --------------------------------------------------------------------------------------------------------------------
Total Systemwide sales $18,743.2 $17,417.3 8% 8%
- --------------------------------------------------------------------------------------------------------------------
* Excluding the effect of foreign currency translation on reported results
n/a Not applicable
U.S. sales increased due to positive comparable sales and restaurant expansion
in both periods. Successful promotions such as Furby, Teenie Beanie Babies,
Winnie the Pooh and Tarzan, combined with local market initiatives, such as our
bagel launch in 45 percent of the U.S., contributed to the sales increase.
In Europe, positive comparable sales and expansion drove the constant currency
sales increases in both periods. Strong performances in Germany, Italy, Spain
and the U.K. drove these increases. Sales growth in France also contributed to
these increases.
In Asia/Pacific, the constant currency sales increases were driven by
expansion, partly offset by negative comparable sales for the quarter and six
months. Positive comparable sales in Australia, expansion in Japan, and double-
digit comparable sales growth in South Korea contributed to the segment's sales
increases in both periods.
In Latin America, constant currency sales increases for the quarter and six
months were driven by expansion, partly offset by negative comparable sales.
Sales in this segment continue to be negatively affected by the economic turmoil
in Brazil, including the significant devaluation of the Brazilian Real. Strong
positive comparable sales in Mexico and Venezuela in both periods contributed to
the segment's increases.
9
Combined Operating Margins
Combined operating margins Quarters ended Six months ended
June 30 June 30
---------------------------------------------------------------------------------
1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------------
Dollars in millions
- --------------------------------------------------------------------------------------------------------------------------
Company-operated $ 448.9 $ 426.7 $ 810.0 $ 777.6
- --------------------------------------------------------------------------------------------------------------------------
Franchised 792.6 743.9 1,469.8 1,376.4
- --------------------------------------------------------------------------------------------------------------------------
Combined operating margins $1,241.5 $1,170.6 $2,279.8 $2,154.0
- --------------------------------------------------------------------------------------------------------------------------
Percent of sales/revenues
- --------------------------------------------------------------------------------------------------------------------------
Company-operated 18.4% 18.8% 17.6% 18.1%
- --------------------------------------------------------------------------------------------------------------------------
Franchised 81.5 81.7 80.4 80.9
- --------------------------------------------------------------------------------------------------------------------------
Combined operating margin dollars increased $71 million for the quarter and
$126 million for the six months, a six percent increase in both periods. These
increases were primarily driven by expansion and positive comparable sales.
Company-operated margins as a percent of sales decreased for both periods.
Food & paper costs as a percent of sales increased for the quarter and decreased
for the six months, while occupancy & other expenses as a percent of sales
decreased for the quarter and increased for the six months. Payroll costs
increased as a percent of sales for both periods.
As a percent of sales, U.S. Company-operated margins increased for the quarter
and six months. Lower food & paper costs and occupancy & other operating
expenses were partly offset by higher payroll costs as a percent of sales for
both periods.
Outside the U.S., Company-operated margins decreased as a percent of sales for
the quarter and six months. However, the second quarter trend was better than
the first quarter. As a percent of sales, food & paper and payroll costs
increased for the quarter and six months, while occupancy & other operating
expenses were flat for the quarter and increased for the six months. Economic
difficulties in Brazil and Russia negatively impacted the Company-operated
margin percent outside the U.S., accounting for about 80 percent of the decline
in both periods.
Franchised margin dollars comprised more than 60 percent of the combined
operating margins for both periods, the same as in the prior year. Franchised
margin dollars increased seven percent for the quarter and the six months, while
franchised margins as a percent of applicable revenues declined.
As a percent of revenues, U.S. franchised margins increased slightly for the
quarter and decreased slightly for the six months, reflecting higher occupancy
costs, including rent expense, driven by an increase in the number of leased
sites. Higher occupancy costs and the consolidation, for financial reporting
purposes, of Sweden in 1999 negatively affected the franchised margin percent
outside the U.S. in both periods. As with Company-operated margins the second
quarter trend in the franchised margin percent outside the U.S. also improved
compared with the first quarter.
Selling, General & Administrative Expenses
Selling, general & administrative expenses were flat for the quarter and the
six months. In the U.S., selling, general & administrative expenses decreased
for both periods due to savings as a result of the home office productivity
initiative. Outside the U.S., selling, general & administrative expenses
increased at a rate substantially less than the sales growth rates for both
periods. The consolidation, for financial reporting purposes, of Sweden in 1999
and spending to support restaurant development primarily drove the increases.
As a result of the home office productivity initiative, the Company expects to
save about $100 million of selling, general & administrative expenses per year,
beginning in 2000, with about two-thirds of the annual savings expected to be
realized in 1999. About $15 million of these savings were realized in 1998.
10
Other Operating (Income) Expense
- -------------------------------------------------------------------------------------------------------------------------------
Other operating (income) expense Quarters ended Six months ended
June 30 June 30
---------------------------------------------------------------------------------
Dollars in millions 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
Gains on sales of restaurant businesses $(11.1) $(14.0) $(22.4) $(22.0)
- -------------------------------------------------------------------------------------------------------------------------------
Equity in earnings of unconsolidated
affiliates (52.2) (22.0) (73.9) (34.4)
- -------------------------------------------------------------------------------------------------------------------------------
Other (income) expense 49.7 29.9 65.3 48.0
- -------------------------------------------------------------------------------------------------------------------------------
Other operating (income) expense $(13.6) $ (6.1) $(31.0) $ (8.4)
- -------------------------------------------------------------------------------------------------------------------------------
Made for You costs $ 6.1 $ 5.0 $ 10.3 $ 5.0
- -------------------------------------------------------------------------------------------------------------------------------
Special charge - $160.0 - $160.0
- -------------------------------------------------------------------------------------------------------------------------------
Other operating (income) expense consists of transactions related to
franchising and the food service business. The increase for both the quarter
and the six months in equity in earnings of unconsolidated affiliates was
primarily due to a gain from the sale of real estate in a U.S. partnership.
Results in Japan, which benefited from a lower effective tax rate and the
stronger Japanese Yen, also contributed to the increases. Other (income)
expense increased for the quarter and six months primarily due to the write-off
of software not used in the business. Costs associated with implementation of
the Made for You food preparation system related primarily to accelerated
depreciation on equipment being replaced in U.S. Company-operated restaurants.
Also, the special charge in the second quarter 1998 reflected employee severance
and outplacement, consolidation of facilities and other costs in connection with
the home office productivity initiative.
Operating Income
Excluding the second quarter 1998 special charge, consolidated operating
income increased $77 million, or 10 percent for the quarter, and $146 million,
or 10 percent for the six months. For both periods, these increases were driven
by higher combined operating margin dollars and higher other operating income.
Selling, general & administrative expenses were flat for both periods.
- -------------------------------------------------------------------------------------------------------------------------
Operating Income** 1999 1998 Increase/(Decrease)
----------------------------------------------------------------------------------
Excluding 1998
special charge/(1)/
- -------------------------------------------------------------------------------------------------------------------------
Dollars in millions
As In Constant
Reported Adjusted Currencies*
- -------------------------------------------------------------------------------------------------------------------------
Quarters ended June 30
- -------------------------------------------------------------------------------------------------------------------------
U.S. $ 427.8 $ 219.0 95% 13% n/a
- -------------------------------------------------------------------------------------------------------------------------
Europe 303.5 278.6 9 9 13%
- -------------------------------------------------------------------------------------------------------------------------
Asia/Pacific 93.9 76.0 24 24 16
- -------------------------------------------------------------------------------------------------------------------------
Latin America 25.7 39.1 (34) (34) (16)
- -------------------------------------------------------------------------------------------------------------------------
Other 32.6 34.1 (4) (4) (3)
- -------------------------------------------------------------------------------------------------------------------------
Total operating income $ 883.5 $ 646.8 37% 10% 11%
- -------------------------------------------------------------------------------------------------------------------------
Six months ended June 30
- -------------------------------------------------------------------------------------------------------------------------
U.S. $ 741.9 $ 495.7 50% 13% n/a
- -------------------------------------------------------------------------------------------------------------------------
Europe 556.3 502.4 11 11 12%
- -------------------------------------------------------------------------------------------------------------------------
Asia/Pacific 185.2 155.8 19 19 14
- -------------------------------------------------------------------------------------------------------------------------
Latin America 57.6 78.1 (26) (26) (7)
- -------------------------------------------------------------------------------------------------------------------------
Other 54.1 57.5 (6) (6) (3)
- -------------------------------------------------------------------------------------------------------------------------
Total operating income $1,595.1 $1,289.5 24% 10% 11%
- -------------------------------------------------------------------------------------------------------------------------
* Excluding the effect of foreign currency translation on reported results.
** For financial reporting purposes, Corporate selling, general &
administrative expenses (costs related to home office support of the
Company's global business) were allocated to the various geographic
segments, beginning in 1999. Prior year amounts have been restated to
conform to this presentation.
(1) Excluding the second quarter 1998 $160 million special charge related to
the home office productivity initiative.
n/a Not applicable
Excluding the second quarter 1998 special charge, U.S. operating income
increased $49 million, or 13 percent for the quarter and $86 million, or 13
percent for the six months. The increases in both periods were driven by higher
combined operating margin dollars, higher other operating income and lower
selling, general & administrative expenses.
11
Europe's operating income increased 13 percent for the quarter and 12 percent
for the six months in constant currencies. The strong results of Germany,
Italy, Spain and the U.K. drove this segment's performance in both periods.
Additionally, Europe's operating income benefited from the consolidation of
Sweden, due to an increase in ownership, but was dampened by the difficult
economic conditions in Russia, which began at the end of the third quarter 1998.
Excluding Russia, Europe's constant currency operating income increased 18
percent for the quarter and 17 percent for the six months.
Operating income in Asia/Pacific increased 16 percent for the quarter and 14
percent for the six months in constant currencies. The increases were driven by
Japan, which benefited from a lower effective tax rate, and improved results in
several Southeast Asian markets.
Latin America's operating income decreased 16 percent for the quarter and
seven percent for the six months in constant currencies. Difficult economic
conditions in Brazil and other parts of the region, along with Brazil's currency
devaluation, had a significant adverse effect on this segment's operating
results. Strong results in Mexico and Venezuela partly offset the decrease in
both periods. We are cautiously optimistic that improvements in the Brazilian
economy and actions we have taken will lessen the negative effect in the second
half of 1999.
Interest, Nonoperating and Income Taxes
Lower interest expense in both periods reflected lower average interest rates,
partly offset by higher average debt levels. In addition, weaker foreign
currencies contributed to the decrease for the quarter.
Nonoperating (income) expense in both periods reflected translation losses in
1999 compared with translation gains in 1998.
The effective income tax rate was 33.0 percent for both periods of 1999 and
1998.
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.
The primary currencies positively affecting reported results were the Japanese
Yen in both periods as well as the Southeast Asian currencies for the six
months. The Brazilian Real and British Pound had a negative effect on reported
results in both periods, while the Euro, which encompasses 11 of our European
markets including Germany and France, negatively affected results for the
quarter.
- ---------------------------------------------------------------------------------------------------------------------------
Effect of foreign currency translation on worldwide Increase
reported results excluding the 1998 special charge Over Prior Period/(1)/
- ---------------------------------------------------------------------------------------------------------------------------
Dollars in millions, except per As In Constant As In Constant
common share data Reported Currencies* Change Reported Currencies*
- ---------------------------------------------------------------------------------------------------------------------------
Quarters ended June 30, 1999
- ---------------------------------------------------------------------------------------------------------------------------
Systemwide sales $ 9,920.4 $ 9,987.0 $ 66.6 7% 8%
- ---------------------------------------------------------------------------------------------------------------------------
Total revenues 3,407.1 3,489.5 82.4 7 10
- ---------------------------------------------------------------------------------------------------------------------------
Operating income 883.5 896.6 13.1 10 11
- ---------------------------------------------------------------------------------------------------------------------------
Net income 518.1 529.1 11.0 11 13
- ---------------------------------------------------------------------------------------------------------------------------
Net income per common share - diluted .37 .38 .01 12 15
- ---------------------------------------------------------------------------------------------------------------------------
Six months ended June 30, 1999
- ---------------------------------------------------------------------------------------------------------------------------
Systemwide sales $18,743.2 $18,788.9 $ 45.7 8% 8%
- ---------------------------------------------------------------------------------------------------------------------------
Total revenues 6,442.2 6,559.3 117.1 8 10
- ---------------------------------------------------------------------------------------------------------------------------
Operating income 1,595.1 1,608.0 12.9 10 11
- ---------------------------------------------------------------------------------------------------------------------------
Net income 920.8 931.1 10.3 11 12
- ---------------------------------------------------------------------------------------------------------------------------
Net income per common share - diluted .65 .66 .01 10 12
- ---------------------------------------------------------------------------------------------------------------------------
* Excluding the effect of foreign currency translation on reported results.
(1) Excluding the second quarter 1998 $160 million special charge ($110
million after tax or $.08 per diluted share) related to the home office
productivity initiative.
12
MADE FOR YOU SYSTEM
In 1998, the Company announced the introduction of Made for You, a new food
preparation system that is expected to be installed in virtually all restaurants
in the U.S. and Canada by the end of 1999. Nearly 9,500 restaurants, including
all Canadian and about two-thirds of U.S. restaurants, are currently using the
new system. Through advances in equipment and technology, the new system allows
us to serve fresher, better-tasting food at the speed of McDonald's. The system
also supports future growth through product development because it can more
easily accommodate an expanded menu. The Company is providing financial
incentives of up to $12,500 per restaurant to owner/operators to defray the cost
of equipment made obsolete as a result of converting to the new system. The
Company is also making additional payments in special cases where the conversion
to Made for You is more extensive.
In 1999, the Company expects to incur about $30 million related to the
implementation of Made for You, consisting of about $15 million of incentive
payments and $15 million of accelerated depreciation on equipment being replaced
in Company-operated restaurants. The Company incurred $6.1 million in the
second quarter and $10.3 million for the six months, primarily related to
accelerated depreciation. The Company expects to use cash provided by
operations to fund the financial incentive payments provided to owner/operators.
SPECIAL CHARGE
In the second quarter 1998, the Company recorded a $160 million pre-tax
special charge related to the results of the Company's home office productivity
initiative. The Company's home office productivity plan is designed to improve
staff alignment, focus and productivity and reduce ongoing selling, general and
administrative expenses. As a result of this initiative, the Company has
reduced home office staffing by approximately 525 positions, is consolidating
certain home office facilities and reduced other expenditures in a variety of
areas. The $160 million charge was primarily comprised of costs associated with
employee severance and outplacement and with the facilities consolidation. The
Company expects to use cash provided by operations to fund the remaining
severance payments and other cash costs related to the productivity initiative.
FINANCIAL POSITION
Free cash flow - cash provided by operations less capital expenditures -- for
the six months ended June 30, 1999 increased $391 million to $729 million.
Together with other sources of cash such as borrowings, free cash flow was used
primarily for share repurchases, debt repayments, and dividends. The
consolidated capital expenditure decrease of 12.1% for the six months ended June
30, 1999 was primarily due to fewer restaurant additions, weaker foreign
currencies and the continued focus on more efficient capital deployment. The
Company expects to add about 1,750 restaurants this year, with approximately 90
percent in locations outside the U.S.
NEW ACCOUNTING STANDARD - FINANCIAL INSTRUMENTS
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, subsequently
amended by Statement No. 137, which is required to be adopted in years beginning
after June 15, 2000. The Statement will require the Company to recognize all
derivatives on the balance sheet at fair value. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of derivatives
will either be offset against the change in fair value of the hedged item,
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. The Company expects to adopt the new Statement
effective January 1, 2001. Management does not anticipate that the adoption will
have a significant effect on the Company's results of operations or financial
position.
YEAR 2000
The Company has assessed its computerized systems to determine their ability
to correctly identify the Year 2000 and is devoting the necessary internal and
external resources to replace, upgrade or modify all significant systems which
do not correctly identify the Year 2000. All necessary modifications, testing
and replacements of significant systems have been completed, with one exception.
For the remaining system, the Company has completed a majority of the
modification and testing and has a planned completion date of October.
In addition, the Company has assessed the extent to which its operations may
be affected by the compliance efforts of its significant suppliers and
owner/operators and is taking the necessary steps to minimize potential
problems. The Company has implemented a Systemwide supply chain compliance
monitoring program, which encompasses supplier risk assessment and compliance
13
validation for significant suppliers. The assessment and compliance validation
process has been completed for all key U.S. and global suppliers. The assessment
and validation efforts are in progress for significant local suppliers in many
of the Company's international markets and are scheduled to be completed by the
end of the third quarter 1999. In addition, the Company has communicated the
business risks associated with the Year 2000 to its owner/operators and is
providing technical support to assist them in determining and resolving any Year
2000 issues experienced.
Management does not expect Year 2000 issues relating to internal systems, its
owner/operators or suppliers to pose significant operational or financial
difficulties for the Company; however, in the unlikely event McDonald's, a
significant number of its owner/operators or a significant number of its key
suppliers are unable to resolve these issues in a timely manner, such matters
could have a material impact on the Company's results of operations. In
addition, failures related to Year 2000 issues by providers of infrastructure
services could have a material adverse effect on results of operations.
Contingency plans are being developed, to the extent feasible, to address Year
2000 issues that might arise at the Company, with its owner/operators, within
the supply chain or by infrastructure service providers. The Company has
completed contingency plans for all critical lines of business in home office
and expects to complete the remaining plans for local markets by the end of the
third quarter 1999. The plans include certain suppliers maintaining an increased
inventory of critical products and equipment to ensure there is an adequate
supply, developing alternative methods of transportation to deliver products to
the restaurants and increasing restaurant support. In addition, the Company is
establishing a global crisis management process to ensure the rapid response to
and resolution of any unforeseen Year 2000 problems that may occur. The Company
has also put a technology freeze in place, whereby no new systems or
enhancements to existing systems will be implemented, from October 1, 1999
through February 15, 2000 to minimize the risk of unplanned disruptions to
critical year-end processes.
Modification and testing costs are expensed as incurred, while the costs of
new systems are capitalized. The Company expects its total Year 2000 costs to
be about $80 million, of which $77 million was spent through June 30, 1999,
including $25 million of capitalized costs related to new systems. The total
Year 2000 costs have not and are not expected to have a material adverse impact
on the Company's financial position, results of operations or cash flows.
All Year 2000 statements contained herein are designated as "Year 2000
Readiness Disclosures" pursuant to the Year 2000 Information and Readiness
Disclosure Act of 1998.
EURO CONVERSION
On January 1, 1999, 11 member countries of the European Union established
fixed conversion rates between their existing currencies ("legacy currencies")
and one common currency, the Euro. The Euro is now trading 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 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. In addition, since the Company uses foreign-denominated debt and
derivatives to meet its financing requirements and to minimize its foreign
currency risks, certain of these financial instruments are now being denominated
in Euros.
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, recalculating currency risk,
recalibrating derivatives and other financial instruments 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
the Company's 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 and
involve a number of risks and uncertainties. Actual results could differ
materially due to the effectiveness of operating initiatives, advertising and
promotional efforts, and Year 2000 compliance and Euro conversion efforts of the
Company, its owner/operators, suppliers and service providers, 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; availability and cost of land and
construction; legislation and government regulation; and accounting policies and
practices.
14
- --------------------------------------------------------------------------------
SECOND QUARTER AND SIX MONTHS HIGHLIGHTS
- --------------------------------------------------------------------------------
FINANCIAL INFORMATION
Quarters ended Six months ended
June 30 June 30
Dollars in millions 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------
Systemwide sales by type
Operated by franchisees $6,258.6 $5,831.5 $11,698.5 $10,861.7
Operated by the Company 2,434.1 2,270.4 4,613.2 4,284.7
Operated by affiliates 1,227.7 1,145.7 2,431.5 2,270.9
- ---------------------------------------------------------------------------------------------------
Systemwide sales 9,920.4 9,247.6 18,743.2 17,417.3
- ---------------------------------------------------------------------------------------------------
Restaurant margins
Company-operated
----------------
U.S. 19.4% 18.9% 18.1% 17.8%
Outside the U.S. 18.0% 18.7% 17.3% 18.3%
Franchised
----------
U.S. 82.5% 82.4% 81.3% 81.4%
Outside the U.S. 80.0% 80.7% 79.1% 80.3%
- ---------------------------------------------------------------------------------------------------
Operating income (1) $ 883.5 $ 646.8 $ 1,595.1 $ 1,289.5
Income before provision for income taxes (1) 772.8 533.8 1,373.5 1,074.0
Net income (1) 518.1 357.2 920.8 719.4
Net income per common share (1) 0.38 0.26* 0.68 0.52*
Net income per common share - diluted (1) 0.37 0.25* 0.65 0.51*
- ---------------------------------------------------------------------------------------------------
Cash provided by operations $ 765.9 $ 674.0 $ 1,482.8 $ 1,195.4
Property and equipment expenditures 417.8 455.6 754.0 857.5
Free cash flow 348.1 218.4 728.8 337.9
- ---------------------------------------------------------------------------------------------------
Total assets $19,845.4 $18,849.6
Total shareholders' equity 9,057.0 8,851.7
- ---------------------------------------------------------------------------------------------------
* Restated for 2-for-1 common stock split in March 1999.
(1) Includes the $160 million pre-tax special charge ($110 million after tax or
$.08 per share) related to the home office productivity initiative
recorded in second quarter 1998.
RESTAURANTS
- --------------------------------------------------------------------------------
At June 30, 1999 1998
- --------------------------------------------------------------------------------
By type
Operated by franchisees 15,565 14,556
Operated by the Company 5,725 5,283
Operated by affiliates 4,051 3,887
- ---------------------------------------------------------------------------------
Systemwide restaurants 25,341 23,726
- ---------------------------------------------------------------------------------
Quarters ended Six months ended
June 30 June 30
1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------
Additions
U.S. 28 (7) 18 26
Europe 88 133 137 190
Asia/Pacific 132 177 206 268
Latin America 121 51 149 69
Other 17 26 31 41
- --------------------------------------------------------------------------------------------------------
Systemwide additions 386 380 541 594
- --------------------------------------------------------------------------------------------------------
15
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There are no material changes to the disclosure made in the Annual Report on
Form 10-K for the year ended December 31, 1998 regarding this matter.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders was held on May 20, 1999.
(b) Not Applicable.
(c) At the Annual Meeting of Shareholders, the shareholders voted on the
following matters: (1) the election of four directors to serve until the
2002 Annual Meeting of Shareholders, (2) the approval of auditors and (3) a
shareholder proposal to declassify the Board of Directors. The voting
results are as follows:
(1) Each nominee was elected by a vote of the shareholders as follows:
Director For Withheld
------- --- --------
Hall Adams, Jr 1,178,046,219 6,949,141
Gordon C. Gray 1,177,558,893 7,436,467
Terry L. Savage 1,178,212,155 6,783,205
Fred L. Turner 1,178,450,625 6,544,735
Additional Directors, whose terms of office as Directors continued
after the meeting, are as follows:
Term Expiring in 2000 Term Expiring in 2001
--------------------- ---------------------
James R. Cantalupo Jack M. Greenberg
Enrique Hernandez, Jr. Donald G. Lubin
Donald R. Keough Walter E. Massey
Michael R. Quinlan Andrew J. McKenna
B. Blair Vedder Roger W. Stone
Robert N. Thurston
(2) The proposal to approve the appointment of independent auditors was
approved by shareholders as follows:
For Against Abstain
--- ------- -------
1,179,520,132 1,903,309 3,571,919
(3) The shareholder proposal to declassify the board was not approved by
shareholders as follows:
For Against Abstain Non-Votes
--- ------- ------- ---------
444,673,383 536,919,196 12,119,939 191,282,842
(d) Not Applicable.
16
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description
- -------------- -----------
(3) Restated Certificate of Incorporation, effective as of March 24, 1998,
incorporated herein by reference from Form 8-K dated April 17, 1998.
By-Laws, effective as of July 8, 1998, incorporated herein by
reference from Form 10-Q for the quarter ended June 30, 1998.
(4) Instruments defining the rights of security holders, including
Indentures (A):
(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) 5.90% REset Put Securities due 2011. Supplemental Indenture
No. 2 dated as of May 11, 1998, incorporated herein by
reference from Exhibit 4(a) of Form 8-K dated May 6, 1998.
(iii) 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.
(iv) 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.
(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).
(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.
17
Exhibit Number Description
- -------------- -----------
(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) 6-3/4% Notes due February 15, 2003. Form of
Supplemental Indenture No. 20 incorporated herein by
reference from Exhibit (4) of Form 8-K dated
March 1, 1993.
(vii) 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.
(viii) 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.
(ix) 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.
(x) 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.
(d) Indenture and Supplemental Indenture No. 1 dated as of September
8, 1989, between McDonald's Matching and Deferred Stock Ownership
Trust, McDonald's Corporation and Pittsburgh National Bank in
connection with SEC Registration Statement Nos. 33-28684 and 33-
28684-01, incorporated herein by reference from Exhibit (4)(a) of
Form 8-K dated September 14, 1989.
(e) Form of Supplemental Indenture No. 2 dated as of April 1, 1991,
supplemental to the Indenture between McDonald's Matching and
Deferred Stock Ownership Trust, McDonald's Corporation and
Pittsburgh National Bank in connection with SEC Registration
Statement Nos. 33-28684 and 33-28684-01, incorporated herein by
reference from Exhibit (4)(c) of Form 8-K dated March 22, 1991.
(10) Material Contracts
(a) Directors' Stock Plan, as amended and restated, incorporated
herein by reference from Exhibit 10(a) of Form 10-Q for the
quarter ended September 30, 1997.*
(b) Profit Sharing Program, as amended and restated, incorporated by
reference from Form 10-K for the year ended December 31, 1998.*
(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.*
(d) 1975 Stock Ownership Option Plan, as amended and restated, filed
herewith.*
(e) 1992 Stock Ownership Incentive Plan, as amended and restated,
filed herewith.*
(f) McDonald's Corporation Deferred Income Plan, as amended and
restated, incorporated by reference from Form 10-K for the year
ended December 31, 1998.*
(g) 1999 Non-Employee Director Stock Option Plan, filed herewith.*
(h) Executive Retention Plan, incorporated by reference from Form
10-K for the year ended December 31, 1998.*
(12) Statement re: Computation of Ratios
(27) Financial Data Schedule
18
_______________________
* 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 August 12, 1999.
Financial Statements
Date of Report Item Number Required to be Filed
-------------- ----------- --------------------
4/23/99 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 Michael L. Conley
---------------------
(Signature)
Michael L. Conley
Executive Vice President,
Chief Financial Officer
August 12, 1999
- ---------------
20