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