McDonaldโs Corporation is an American operator and franchisor of fast food restaurants represented worldwide and the biggest fast food company in the world.
1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1996 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 60521 ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code) (630) 575-3000 -------------------------------------------------------------- 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 --- --- 699,451,640 --------------------------------- (Number of shares of common stock outstanding as of June 30, 1996)
2 McDONALD'S CORPORATION ---------------------- INDEX ----- Page Reference Part I. Financial Information Item 1 - Financial Statements Condensed consolidated balance sheet, June 30, 1996 (unaudited) and December 31, 1995 3 Condensed consolidated statement of income (unaudited), six months and second quarters ended June 30, 1996 and 1995 4 Condensed consolidated statement of cash flows (unaudited), six months and second quarters ended June 30, 1996 and 1995 5 Financial comments (unaudited) 6 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 7 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 16 (a) Exhibits The exhibits listed in the accompanying Exhibit Index are filed as part of this report 16 (b) Reports on Form 8-K 20 Signature 21
3 PART I. FINANCIAL INFORMATION ------------------------------ Item 1. Financial Statements ----------------------------- <TABLE> CONDENSED CONSOLIDATED BALANCE SHEET <CAPTION> (unaudited) Dollars in millions June 30, 1996 December 31, 1995 --------------------------------------------------------------------------- <S> <C> <C> ASSETS CURRENT ASSETS Cash and equivalents $ 345.7 $ 334.8 Accounts receivable 415.2 377.3 Notes receivable 38.6 36.3 Inventories, at cost, not in excess of market 55.5 58.0 Prepaid expenses and other current assets 166.9 149.4 --------------------------------------------------------------------------- TOTAL CURRENT ASSETS 1,021.9 955.8 --------------------------------------------------------------------------- OTHER ASSETS AND DEFERRED CHARGES 1,082.2 1,112.7 --------------------------------------------------------------------------- PROPERTY AND EQUIPMENT Property and equipment, at cost 17,855.3 17,137.6 Accumulated depreciation and amortization (4,530.3) (4,326.3) --------------------------------------------------------------------------- NET PROPERTY AND EQUIPMENT 13,325.0 12,811.3 --------------------------------------------------------------------------- INTANGIBLE ASSETS-NET 592.3 534.8 --------------------------------------------------------------------------- TOTAL ASSETS $16,021.4 $15,414.6 =========================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Notes payable $ 654.5 $ 413.0 Accounts payable 447.9 564.3 Income taxes 103.1 55.4 Other taxes 135.1 127.1 Accrued interest 84.0 117.4 Other accrued liabilities 323.6 352.5 Current maturities of long-term debt 115.6 165.2 --------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 1,863.8 1,794.9 --------------------------------------------------------------------------- LONG-TERM DEBT 4,273.8 4,257.8 OTHER LONG-TERM LIABILITIES AND MINORITY INTERESTS 680.0 664.7 DEFERRED INCOME TAXES 884.7 835.9
SHAREHOLDERS' EQUITY Preferred stock, no par value; authorized - 165.0 million shares; issued - 7.2 thousand 358.0 358.0 Common stock, 1996-$.01 par; 1995-no par value; authorized, 1996-3.5 billion shares; 1995-1.25 billion shares; issued-830.3 million 8.3 92.3 Additional paid-in capital 545.3 387.4 Guarantee of ESOP notes (213.8) (214.2) Retained earnings 10,440.5 9,831.3 Foreign currency translation adjustment (128.2) (87.1) --------------------------------------------------------------------------- 11,010.1 10,367.7 --------------------------------------------------------------------------- Common stock in treasury, at cost; 130.9 and 130.6 million shares (2,691.0) (2,506.4) --------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 8,319.1 7,861.3 --------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $16,021.4 $15,414.6 =========================================================================== See accompanying Financial comments. /TABLE
4 <TABLE> CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) <CAPTION> Dollars in millions, except Six Months Ended Quarters Ended per common share data June 30 June 30 1996 1995 1996 1995 ------------------------------------------------------------------------------ <S> <C> <C> <C> <C> REVENUES Sales by Company-operated restaurants $3,599.6 $3,239.4 $1,885.8 $1,727.8 Revenues from franchised restaurants 1,491.5 1,389.5 779.3 739.8 ------------------------------------------------------------------------------ TOTAL REVENUES 5,091.1 4,628.9 2,665.1 2,467.6 ------------------------------------------------------------------------------ OPERATING COSTS AND EXPENSES Company-operated restaurants 2,942.4 2,622.9 1,523.1 1,389.7 Franchised restaurants- occupancy expenses 277.9 246.0 140.7 127.8 General, administrative and selling expenses 637.5 580.8 326.3 305.4 Other operating (income) expense-net (41.3) (53.9) (37.1) (41.7) ------------------------------------------------------------------------------ TOTAL OPERATING COSTS AND EXPENSES 3,816.5 3,395.8 1,953.0 1,781.2 ------------------------------------------------------------------------------ OPERATING INCOME 1,274.6 1,233.1 712.1 686.4 ------------------------------------------------------------------------------ Interest expense 167.6 166.4 82.8 85.4 Nonoperating income (expense)-net (29.4) (46.7) (3.8) (16.1) ------------------------------------------------------------------------------ INCOME BEFORE PROVISION FOR INCOME TAXES 1,077.6 1,020.0 625.5 584.9 ------------------------------------------------------------------------------ Provision for income taxes 355.6 359.6 205.1 205.2 ------------------------------------------------------------------------------ NET INCOME $ 722.0 $ 660.4 $ 420.4 $ 379.7 ============================================================================== NET INCOME PER COMMON SHARE $ 1.01 $ .90 $ .59 $ .52 ------------------------------------------------------------------------------ DIVIDENDS PER COMMON SHARE $ .1425 $ .1275 $ .0750 $ .0675 ------------------------------------------------------------------------------ Weighted average common shares outstanding 699.8 700.2 699.1 700.1 ------------------------------------------------------------------------------ See accompanying Financial comments. /TABLE
5 <TABLE> CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) <CAPTION> Six Months Ended Quarter Ended June 30 June 30 Dollars in millions 1996 1995 1996 1995 ------------------------------------------------------------------------------- <S> <C> <C> <C> <C> OPERATING ACTIVITIES Net income $ 722.0 $660.4 $420.4 $379.7 Adjustments to reconcile to cash provided by operations Depreciation and amortization 371.6 345.9 185.0 177.1 Changes in operating working capital items (94.0) (80.7) (68.0) (8.4) Other 21.2 16.7 9.1 (11.9) ------------------------------------------------------------------------------- CASH PROVIDED BY OPERATIONS 1,020.8 942.3 546.5 536.5 ------------------------------------------------------------------------------- INVESTING ACTIVITIES Property and equipment expenditures (984.5) (792.9) (517.4) (445.2) Purchases and sales of restaurant businesses and sales of other property 17.4 20.2 12.8 12.1 Other (86.7) (84.5) (55.0) (76.4) ------------------------------------------------------------------------------- CASH USED FOR INVESTING ACTIVITIES (1,053.8) (857.2) (559.6) (509.5) ------------------------------------------------------------------------------- FINANCING ACTIVITIES Notes payable and long-term financing issuances and repayments 312.8 226.8 140.9 216.7 Treasury stock purchases (239.5) (89.1) (99.5) (82.2) Common and preferred stock dividends (112.0) (114.4) (58.5) (59.8) Other 82.6 30.7 46.4 19.1 ------------------------------------------------------------------------------- CASH PROVIDED BY FINANCING ACTIVITIES 43.9 54.0 29.3 93.8 ------------------------------------------------------------------------------- CASH AND EQUIVALENTS INCREASE 10.9 139.1 16.2 120.8 ------------------------------------------------------------------------------- Cash and equivalents at beginning of period 334.8 179.9 329.5 198.2 ------------------------------------------------------------------------------- CASH AND EQUIVALENTS AT END OF PERIOD $345.7 $319.0 $345.7 $319.0 =============================================================================== See accompanying Financial comments. /TABLE
6 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 1995 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 of operations of restaurant businesses purchased and sold were not material to the condensed consolidated financial statements for periods prior to purchase and sale. NET INCOME PER COMMON SHARE Net income per common share was computed using net income, reduced by preferred stock cash dividends (net of tax) of $13.8 and $23.8 million for the first six months of 1996 and 1995, and $6.9 and $11.9 million for the second quarters of 1996 and 1995, respectively. In addition, net income per common share for both 1995 periods was reduced by $3.9 million for the one-time effect of the exchange of preferred stock for debt completed in June 1995. Adjusted net income was divided by the weighted average shares of common stock outstanding: 699.8 and 700.2 million for the six months ended June 30, 1996 and 1995, and 699.1 and 700.1 million for the second quarters of 1996 and 1995, respectively. During 1995, shares of Series B and C Preferred Stock were converted into 8.7 million common shares. Including the effect of potentially dilutive securities, fully diluted earnings per common share amounts were $0.98 and $0.88 for the six months ended June 30, 1996 and 1995, and $0.58 and $0.51 for the second quarters of 1996 and 1995, respectively. CAPITAL STOCK In May 1996, the shareholders of the Company approved an increase in the total number of authorized shares of Common Stock from 1.25 billion shares with no par value to 3.5 billion shares with $.01 par value. The change in par value did not affect any of the existing rights of shareholders and has been recorded as an adjustment to additional paid-in capital and common stock. NEW ACCOUNTING STANDARD - ASSET IMPAIRMENT The Company adopted Statement of Financial Accounting Standard No. 121, Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to be Disposed of, in the first quarter 1996. This statement requires impairment losses be recognized for long-lived assets, whether these assets are held for disposal or continue to be used in operations, when indicators of impairment are present and the fair value of assets are estimated to be less than carrying amounts. The fair value of assets was based on projected future cash flows. The adoption of this standard resulted in a $16 million noncash pre-tax charge in first quarter 1996 to other operating (income) expense, equivalent to 2 cents per common share, related to restaurant sites in Mexico.
7 Item 2. Management's Discussion And Analysis Of Financial Condition -------------------------------------------------------------------- And Results Of Operations ------------------------- <TABLE> INCREASES (DECREASES) IN OPERATING RESULTS OVER 1995 <CAPTION> Dollars in millions, except Six Months Second Quarter per common share data Ended June 30 Ended June 30 ------------------------------------------------------------------------- <S> <C> <C> <C> <C> SYSTEMWIDE SALES $928.6 6% $290.7 4% ------------------------------------------------------------------------- REVENUES Sales by Company-operated restaurants $360.2 11% $158.0 9% Revenues from franchised restaurants 102.0 7 39.5 5 ------------------------------------------------------------------------- TOTAL REVENUES 462.2 10 197.5 8 ------------------------------------------------------------------------- OPERATING COSTS AND EXPENSES Company-operated restaurants 319.5 12 133.4 10 Franchised restaurants- occupancy costs 31.9 13 12.9 10 General, administrative and selling expenses 56.7 10 20.9 7 Other operating (income) expense-net 12.6 (23) 4.6 (11) ------------------------------------------------------------------------- TOTAL OPERATING COSTS AND EXPENSES 420.7 12 171.8 10 ------------------------------------------------------------------------- OPERATING INCOME 41.5 3 25.7 4 ------------------------------------------------------------------------- Interest expense 1.2 1 (2.6) (3) Nonoperating income (expense)-net 17.3 (37) 12.3 (76) ------------------------------------------------------------------------- INCOME BEFORE PROVISION FOR INCOME TAXES 57.6 6 40.6 7 ------------------------------------------------------------------------- Provision for income taxes (4.0) (1) (0.1) 0 ------------------------------------------------------------------------- NET INCOME $61.6 9% $40.7 11% ========================================================================= NET INCOME PER COMMON SHARE $ .11 12% $ .07 13% ------------------------------------------------------------------------- /TABLE
8 CONSOLIDATED OPERATING RESULTS Net income and net income per common share respectively increased 9 and 12% for the six months, and 11 and 13% for the quarter. Excluding the noncash charge for the adoption of SFAS 121, net income and net income per common share increased 11 and 14% for the six months, respectively. In the first six months of 1996, the Company repurchased about $240 million of its common stock. Systemwide sales represent sales by Company-operated, franchised and affiliated restaurants. Total revenues consist of sales by Company-operated restaurants and fees from restaurants operated by franchisees and affiliates. These fees are based upon a percent of sales with specified minimum payments. The increases in sales and revenues were due to worldwide expansion and for the six months, positive comparable sales outside of the U.S., partially offset by weaker foreign currencies. ---------------------------------------------------------------------- SYSTEMWIDE RESTAURANT ADDITIONS Six Months Ended Quarters Ended June 30 June 30 1996 1995 1996 1995 ---------------------------------------------------------------------- Traditional restaurants U.S. 183 184 121 133 Outside of the U.S. 428 318 285 204 ---------------------------------------------------------------------- Total traditional restaurant additions 611 502 406 337 ---------------------------------------------------------------------- Satellite restaurants U.S. 130 239 63 130 Outside of the U.S. 142 93 98 64 ---------------------------------------------------------------------- Total satellite restaurant 272 332 161 194 additions ---------------------------------------------------------------------- Systemwide restaurants U.S. 313 423 184 263 Outside of the U.S. 570 411 383 268 ---------------------------------------------------------------------- Systemwide restaurant additions 883 834 567 531 ---------------------------------------------------------------------- TRADITIONAL RESTAURANTS UNDER CONSTRUCTION At June 30 1996 1995 ---------------------------------------------------------------------- U.S. 153 130 Outside of the U.S. 389 260 ---------------------------------------------------------------------- Total traditional restaurants under construction 542 390 ----------------------------------------------------------------------
9 Franchised margin dollars comprised about two-thirds of the combined operating margins, the same as in the prior year. Franchised margins as a percent of applicable revenues declined for both periods, reflecting a higher proportion of leased sites which have financing costs embedded in rent expense, contrasted with owned sites whose financing costs are reflected in interest expense. While Company- operated margins as a percent of sales decreased for both periods, the decrease narrowed in the second quarter. For the six months, as a percent of sales, food and paper costs were relatively flat, while payroll costs and occupancy and other operating costs increased. For the quarter, as a percent of sales, food and paper costs decreased, while payroll and occupancy and other operating costs increased. ---------------------------------------------------------------------- CONSOLIDATED OPERATING MARGINS Six Months Ended Quarters Ended June 30 June 30 1996 1995 1996 1995 ---------------------------------------------------------------------- In millions of dollars Company-operated $ 657.2 $ 616.5 $362.7 $338.1 Franchised 1,213.6 1,143.5 638.6 612.0 As a percent of sales/revenues Company-operated 18.3 19.0 19.2 19.6 Franchised 81.4 82.3 81.9 82.7 ---------------------------------------------------------------------- The increases in general, administrative and selling expenses were primarily due to strategic global spending to support the Convenience, Value and Execution Strategies. The increases in consolidated operating income primarily reflected higher combined operating margin dollars, partially offset by higher general, administrative and selling expenses and lower other operating income which reflected the $16 million noncash charge related to the adoption of SFAS 121 in the first quarter of 1996. Other operating (income) expense-net is composed of transactions related to franchising and the foodservice business, the details of which are shown below. The decreases in equity in earnings occurred primarily because of nonrecurring income items recognized in both periods of 1995 and a weaker Japanese Yen, partially offset with stronger operating results from affiliates. The increases in other expenses reflected the $16 million noncash charge related to the adoption of SFAS 121 recorded in the first quarter 1996, and increased provisions for property dispositions in the second quarter 1996. ------------------------------------------------------------------------ OTHER OPERATING (INCOME) Six Months Ended Quarters Ended EXPENSE-NET June 30 June 30 In millions of dollars 1996 1995 1996 1995 ------------------------------------------------------------------------ Gains on sales of restaurant businesses $(42.3) $(28.4) $(33.3) $(16.5) Equity in earnings of unconsolidated affiliates (34.4) (47.7) (15.9) (28.5) Other 35.4 22.2 12.1 3.3 ------------------------------------------------------------------------ Other operating (income) expense--net $(41.3) $(53.9) $(37.1) $(41.7) ========================================================================
10 The increase in interest expense for the six months was due to higher debt levels, partially offset by lower average interest rates and weaker foreign currencies. For the quarter, interest expense decreased as higher debt levels were completely offset by lower average interest rates and weaker foreign currencies. Nonoperating income (expense) was impacted by lower losses associated with the Company's investment in Discovery Zone common stock, as the carrying value of this investment was reduced to zero in the first quarter 1996. Nonoperating income (expense) also reflected translation gains in 1996 compared to translation losses in 1995. The effective income tax rate was 33.0 and 35.3% for the first six months of 1996 and 1995, respectively, and 34.2% for the year 1995. The 1996 decrease was primarily due to lower taxes related to foreign operations. For the year, the Company expects the effective tax rate to be in the range of 32.5 to 33.5%. U.S. OPERATING RESULTS Restaurant expansion was responsible for increasing U.S. sales as we added 1,020 restaurants in the last 12 months. Comparable U.S. sales were negative for both periods reflecting an extremely challenging U.S. operating environment, difficult comparisons and severe weather. The U.S. business continued its emphasis on value and customer satisfaction in the form of Extra Value Meals, Happy Meals and the three-tier value program as well as promotional games like Deluxe Monopoly in June. In addition, the introduction of Arch Deluxe in May benefited U.S. sales in the second quarter. ---------------------------------------------------------------------- U.S. OPERATING RESULTS Six Months Ended Quarters Ended June 30 June 30 1996 1995 1996 1995 ---------------------------------------------------------------------- Percent increase Sales 3 8 3 9 Revenues 4 9 4 9 Operating income (1) 3 0 3 ---------------------------------------------------------------------- As a percent of sales/revenues Company-operated margins 16.8 17.6 18.3 18.7 Franchised margins 81.5 82.8 82.4 83.2 ---------------------------------------------------------------------- U.S. operating income decreased slightly for the six months and increased modestly, less than one percent, for the quarter. This performance reflected a slight decline in Company-operated margin dollars for the six months and a slight increase in Company-operated margin dollars for the quarter, and for both periods, higher franchised margin dollars, higher general, administrative and selling expenses and higher other operating expenses. The declines in Company-operated margins as a percent of sales for both periods primarily resulted from higher payroll and occupancy and other operating expenses, partially offset by lower food and paper costs. The declines in franchised margins as a percent of revenues were primarily due to increased rent expense reflecting a higher proportion of leased sites resulting from accelerated expansion.
11 OPERATING RESULTS OUTSIDE OF THE U.S. Expansion and higher year-to-date comparable sales were responsible for sales increases outside of the U.S., offset in part by weaker foreign currencies. The difference between the percentage increase in sales and revenues for both periods is primarily due to the weakening Japanese Yen that had a greater effect on sales versus revenues and the higher growth rate in Company-operated versus franchised restaurants. If exchange rates had remained at 1995 levels, sales outside of the U.S. would have increased 15% and 12% for the six months and quarter, respectively. ---------------------------------------------------------------------- OPERATING RESULTS OUTSIDE OF Six Months Ended Quarters Ended THE U.S. June 30 June 30 1996 1995 1996 1995 ---------------------------------------------------------------------- Percent increase Sales (1) 10 34 5 37 Revenues (1) 15 34 11 35 Operating income (2) 8 41 7 44 ---------------------------------------------------------------------- As a percent of sales/revenues Company-operated margins 19.2 20.1 19.8 20.2 Franchised margins 81.1 81.5 81.2 82.0 ---------------------------------------------------------------------- (1) Excluding the impact of weaker foreign currencies, sales and revenues, respectively, increased 15 and 17% for the six months, and 12 and 15% for the second quarter 1996. (2) Excluding the impact of weaker foreign currencies and the $16 million noncash charge related to SFAS 121, adopted in the first quarter 1996, operating income increased 13 and 11% for the six months and the second quarter, respectively. Of the fifteen largest international markets, the following had strong sales and operating income for both periods of 1996: Australia, Japan and Hong Kong in Asia/Pacific; England in Europe; and Brazil in Latin America. Results in Mexico continued to be weak due to its adverse economy and currency devaluation; however, we continue to believe this market offers long-term potential and are encouraged by indications that the economy and currency are becoming more stable. Our business in Canada continued to be negatively impacted by the weak economy. The increases in operating income outside of the U.S. were driven by higher combined operating margin dollars resulting from expansion and positive year-to-date comparable sales, partially offset by weaker foreign currencies, higher general, administrative and selling expenses and for the six months, lower other operating income. Excluding the impact of weaker foreign currencies and the $16 million noncash charge for the adoption of the accounting standard for asset impairment for restaurant sites in Mexico recorded in the first quarter of 1996, operating income outside of the U.S. increased 13% for the six months and 11% for the quarter.
12 While Company-operated margins as a percent of sales declined for both periods, the decrease narrowed in the second quarter. For the six months, all costs increased, while for the quarter, food and paper costs were flat, payroll costs increased and occupancy and other operating costs decreased. Brazil and Taiwan contributed the most to the decline in Company-operated margins as a percent of sales due to higher payroll costs in both markets and higher food and paper costs in Taiwan. These higher costs reflected strategic pricing concessions which resulted in strong comparable sales and substantial market share gains. Margin trends in both markets are improving. While franchised margins as a percent of revenues decreased for both periods, the current levels are reflective of historical trends. IMPACT OF FOREIGN CURRENCIES ON REPORTED RESULTS While changing foreign currencies impact reported results, McDonald's lessens short-term cash exposures by primarily purchasing goods and services in local currencies, financing in local currencies and hedging foreign-denominated cash flows. The weakening of the Japanese Yen and Deutsche Mark were the primary foreign currency changes impacting 1996 results. If exchange rates had remained at 1995 levels, results would have been as follows: -------------------------------------------------------------------------- FOREIGN CURRENCY IMPACT ON INTERNATIONAL RESULTS -------------------------------------------------------------------------- Dollars in millions Six Months Ended June 30, 1996 -------------------------------------------------------------------------- Reported Adjusted Adjustment Reported Adjusted -------------------------------------------------------------------------- Sales $7,239.9 $7,552.9 $(313.0) 10% 15% Operating income 691.5 708.6 (17.1) 8 10 -------------------------------------------------------------------------- Quarter Ended June 30, 1996 -------------------------------------------------------------------------- Reported Adjusted Adjustment Reported Adjusted -------------------------------------------------------------------------- Sales $3,653.2 $3,913.1 $(259.9) 5% 12% Operating income 377.3 393.5 (16.2) 7 11 --------------------------------------------------------------------------
13 -------------------------------------------------------------------------- FOREIGN CURRENCY IMPACT ON WORLDWIDE RESULTS -------------------------------------------------------------------------- Dollars in millions Six Months Ended June 30, 1996 -------------------------------------------------------------------------- Reported Adjusted Adjustment Reported Adjusted -------------------------------------------------------------------------- Systemwide sales $15,241.5 $15,554.5 $(313.0) 6% 9% Revenues 5,091.1 5,143.3 (52.2) 10 11 Operating income 1,274.6 1,291.7 (17.1) 3 5 Net income 722.0 726.1 (4.1) 9 10 -------------------------------------------------------------------------- Quarter Ended June 30, 1996 -------------------------------------------------------------------------- Reported Adjusted Adjustment Reported Adjusted -------------------------------------------------------------------------- Systemwide sales $7,932.0 $8,191.9 $(259.9) 4% 7% Revenues 2,665.1 2,715.8 (50.7) 8 10 Operating income 712.1 728.3 (16.2) 4 6 Net income 420.4 424.4 (4.0) 11 12 -------------------------------------------------------------------------- FINANCIAL POSITION Cash provided by operations for the six months increased 8%. Together with other sources of cash such as borrowings, cash provided by operations was used primarily for capital expenditures, debt repayments, share repurchases and dividends. In connection with accelerated expansion, capital expenditures increased 24% in the first six months (13% in the U.S. and 33% outside of the U.S.).
14 <TABLE> SIX MONTHS AND SECOND QUARTER 1996 HIGHLIGHTS <CAPTION> OPERATING RESULTS -------------------------------------------------------------------------- Dollars in millions, except Six Months Ended Quarters Ended per common share data June 30 June 30 1996 1995 1996 1995 -------------------------------------------------------------------------- <S> <C> <C> <C> <C> Systemwide sales $15,241.5 $14,312.9 $7,932.0 $7,641.3 -------------------------------------------------------------------------- U.S. sales 8,001.6 7,750.9 4,278.8 4,146.3 Operated by franchisees 6,190.1 6,093.6 3,305.4 3,257.6 Operated by the Company 1,381.5 1,333.6 741.5 711.3 Operated by affiliates 430.0 323.7 231.9 177.4 -------------------------------------------------------------------------- Sales outside of the U.S. 7,239.9 6,562.0 3,653.2 3,495.0 Operated by franchisees 3,435.2 3,111.8 1,748.9 1,661.8 Operated by the Company 2,218.1 1,905.8 1,144.3 1,016.5 Operated by affiliates 1,586.6 1,544.4 760.0 816.7 -------------------------------------------------------------------------- Total Revenues 5,091.1 4,628.9 2,665.1 2,467.6 U.S. 2,264.0 2,174.5 1,211.0 1,160.6 Outside of the U.S. 2,827.1 2,454.4 1,454.1 1,307.0 -------------------------------------------------------------------------- Operating Income* 1,274.6 1,233.1 712.1 686.4 U.S. 605.2 614.2 346.0 344.8 Outside of the U.S.* 691.5 641.3 377.3 353.2 Corporate G&A (22.1) (22.4) (11.2) (11.6) -------------------------------------------------------------------------- Income before provision for income taxes* 1,077.6 1,020.0 625.5 584.9 Net income* 722.0 660.4 420.4 379.7 Net income per common share* 1.01 .90 .59 .52 -------------------------------------------------------------------------- Cash provided by operations 1,020.8 942.3 546.5 536.5 -------------------------------------------------------------------------- Total assets 16,021.4 14,657.5 Total shareholders' equity 8,319.1 7,319.1 -------------------------------------------------------------------------- * Including the $16 million noncash charge related to the adoption of SFAS 121. /TABLE
15 <TABLE> RESTAURANTS <CAPTION> ------------------------------------------------------------------------- At June 30, 1996 1995 ------------------------------------------------------------------------- <S> <C> <C> Systemwide restaurants 19,263 16,784 ------------------------------------------------------------------------- Traditional U.S. restaurants 10,524 9,928 Operated by franchisees 8,282 7,902 Operated by the Company 1,643 1,598 Operated by affiliates 599 428 ------------------------------------------------------------------------- Traditional Restaurants outside of the U.S. 6,896 5,779 Operated by franchisees 3,251 2,770 Operated by the Company 2,061 1,642 Operated by affiliates 1,584 1,367 ------------------------------------------------------------------------- Satellite restaurants 1,843 1,077 U.S. 1,157 733 Outside U.S. 686 344 ------------------------------------------------------------------------- /TABLE
16 PART II Item 4. Submission of Matters to a Vote of Security Holders ------------------------------------------------------------ (a) The Annual Meeting of Shareholders was held on May 23, 1996. (b) Not Applicable. (c) At the Annual Meeting, the shareholders: (i) Voted to elect five directors to serve until the 1999 Annual Meeting of Shareholders. Each nominee was elected by a vote of the Shareholders as follows: Director For Withheld -------- --- -------- Hall Adams, Jr. 599,242,413 6,743,020 Robert M. Beavers, Jr. 599,014,921 6,970,512 Gordon C. Gray 599,251,652 6,733,781 Terry L. Savage 599,306,389 6,679,044 Fred L. Turner 598,927,967 7,057,466 (ii) Voted upon the amendment to the Company's Restated Certificate of Incorporation, which was approved by a vote of shareholders as follows: FOR: 492,392,655 AGAINST: 110,520,794 ABSTAIN: 3,057,304 Item 6. Exhibits and Reports on Form 8-K ----------------------------------------- (a) - Exhibits -------------- Exhibit Number Description -------------- ----------- (3) Restated Certificate of Incorporation, dated May 23, 1996, filed herewith; By-Laws dated November 15, 1994, incorporated herein by reference from Exhibit 3 of Form 10-K for the year ended December 31, 1994. (4) Instruments defining the rights of security holders, including indentures (A): (a) Debt Securities. Indenture dated as of March 1, 1987 incorporated herein by reference from Exhibit 4(a) of Form S-3 Registration Statement, SEC file no. 33-12364.
17 Exhibit Number Description -------------- ----------- (i) Supplemental Indenture No. 5 incorporated herein by reference from Exhibit (4) of Form 8-K dated January 23, 1989. (ii) 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. (iii) 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, SEC file no. 33-34762 dated May 14, 1990. (iv) 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. (v) 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. (vi) 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, SEC file no. 33-42642 dated September 10, 1991. (vii) 7-3/8% Notes due July 15, 2002. Form of Supplemental Indenture No. 19 incorporated herein by reference from Exhibit (4) of Form 8-K dated July 10, 1992. (viii)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. (ix) 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.
18 Exhibit Number Description -------------- ----------- (x) Medium-Term Notes, Series E, due from nine months to 60 years from date of issue. Form of Supplemental Indenture No. 22, incorporated herein by reference from Exhibit (4) of Form 10-Q for the period ended June 30, 1995. (xi) 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. (xii) 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. (b) Form of Deposit Agreement dated as of November 25, 1992 by and between McDonald's Corporation, First Chicago Trust Company of New York, as Depositary, and the Holders from time to time of the Depositary Receipts. (c) Rights Agreement dated as of December 13, 1988 between McDonald's Corporation and The First National Bank of Chicago, incorporated herein by reference from Exhibit 1 of Form 8-K dated December 23, 1988. (i) Amendment No. 1 to Rights Agreement incorporated herein by reference from Exhibit 1 of Form 8-K dated May 25, 1989. (ii) Amendment No. 2 to Rights Agreement incorporated herein by reference from Exhibit 1 of Form 8-K dated July 25, 1990. (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.
19 Exhibit Number Description -------------- ----------- (f) 8.35% Subordinated Deferrable Interest Debentures due 2025. Indenture incorporated herein by reference from Exhibit 99.1 of Schedule 13E-4/A Amendment No. 2 dated July 14, 1995. (10) Material Contracts (a) Directors' Stock Plan, as amended and restated, incorporated herein by reference from Form 10-K for the year ended December 31, 1994.* (b) Profit Sharing Program, as amended and restated, incorporated herein by reference from Form 10-K for the year ended December 31, 1995.* (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, incorporated herein by reference from Exhibit 10(d) of Form 10-Q for the period ended March 31, 1996.* (e) 1992 Stock Ownership Incentive Plan, incorporated herein by reference from Exhibit B on pages 29-41 of McDonald's 1995 Proxy Statement and Notice of 1995 Annual Meeting of Shareholders dated April 12, 1995.* (f) McDonald's Corporation Deferred Incentive Plan, incorporated herein by reference from Form 10-K for the year ended December 31, 1994.* (i) Amendment No. 1 to McDonald's Corporation Deferred Incentive Plan incorporated herein by reference from Exhibit 10(f) of Form 10-Q for the period ended March 31, 1996. (g) Non-Employee Director Stock Option Plan, incorporated by reference from Exhibit A on pages 25-28 of McDonald's 1995 Proxy Statement and Notice of 1995 Annual Meeting of Shareholders dated April 12, 1995.* (11) Statement re: Computation of per share earnings. (12) Statement re: Computation of ratios. (27) Financial Data Schedule -------------------- * Denotes compensatory plan.
20 (A) 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 up to August 12, 1996. Financial Statements Date of Report Item Number Required to be Filed -------------- ----------- -------------------- 07/18/96 Item 7 No
21 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 /s/ Jack M. Greenberg ----------------- (Signature) Jack M. Greenberg Vice Chairman, Chief Financial Officer August 12, 1996 ----------------- (Date)