McDonaldโs Corporation is an American operator and franchisor of fast food restaurants represented worldwide and the biggest fast food company in the world.
=============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended March 31, 1998 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 ----- ------ 687,430,149 --------------------- (Number of shares of common stock outstanding as of March 31, 1998) ===============================================================================
McDONALD'S CORPORATION ---------------------- INDEX ----- <TABLE> <CAPTION> Page Reference Part I. Financial Information <S> <C> <C> Item 1 - Financial Statements Condensed consolidated balance sheet, March 31, 1998 (unaudited) and 3 December 31, 1997 Condensed consolidated statement of income (unaudited), first quarters ended March 31, 1998 and 1997 4 Condensed consolidated statement of cash flows (unaudited), first quarters ended March 31, 1998 and 1997 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 6 - Exhibits and Reports on Form 8-K 12 (a) Exhibits The exhibits listed in the accompanying Exhibit Index are filed as part of this report 12 (b) Reports on Form 8-K 14 Signature 15 </TABLE> 2
PART I. FINANCIAL INFORMATION Item 1. Financial Statements - -------------------------------------------------------------------------------- CONDENSED CONSOLIDATED BALANCE SHEET - -------------------------------------------------------------------------------- <TABLE> <CAPTION> (unaudited) In millions March 31, 1998 December 31, 1997 - ----------------------------------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS <S> <C> <C> Cash and equivalents $ 353.8 $ 341.4 Accounts and notes receivable 498.5 483.5 Inventories, at cost, not in excess of market 67.2 70.5 Prepaid expenses and other current assets 261.0 246.9 - ---------------------------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 1,180.5 1,142.3 - ---------------------------------------------------------------------------------------------------------------- OTHER ASSETS 2,237.6 2,137.8 PROPERTY AND EQUIPMENT Property and equipment, at cost 20,275.2 20,088.2 Accumulated depreciation and amortization (5,277.1) (5,126.8) - ---------------------------------------------------------------------------------------------------------------- NET PROPERTY AND EQUIPMENT 14,998.1 14,961.4 - ---------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $18,416.2 $18,241.5 ================================================================================================================ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Notes payable $ 565.3 $ 1,293.8 Accounts payable 404.4 650.6 Income taxes 148.4 52.5 Other taxes 151.6 148.5 Accrued interest 124.7 107.1 Other accrued liabilities 442.7 396.4 Current maturities of long-term debt 46.9 335.6 - ---------------------------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 1,884.0 2,984.5 - ---------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT 5,848.5 4,834.1 OTHER LONG-TERM LIABILITIES AND MINORITY INTERESTS 422.7 427.5 DEFERRED INCOME TAXES 1,057.6 1,063.5 COMMON EQUITY PUT OPTIONS 81.4 80.3 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 - 830.3 million shares 8.3 8.3 Additional paid-in capital 790.1 699.2 Guarantee of ESOP notes (171.3) (171.3) Retained earnings 12,874.8 12,569.0 Accumulated other comprehensive income (510.2) (470.5) Common stock in treasury, at cost; 142.9 and 144.6 million shares (3,869.7) (3,783.1) - ---------------------------------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 9,122.0 8,851.6 - ---------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $18,416.2 $18,241.5 ================================================================================================================ </TABLE> See accompanying Financial comments. 3
- -------------------------------------------------------------------------------- CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) - -------------------------------------------------------------------------------- <TABLE> <CAPTION> Quarters Ended In millions, except March 31 per common share data 1998 1997 - ------------------------------------------------------------------------------------------------------------------- <S> <C> <C> REVENUES Sales by Company-operated restaurants $2,014.3 $1,853.2 Revenues from franchised and affiliated restaurants 790.6 764.4 - ------------------------------------------------------------------------------------------------------------------- TOTAL REVENUES 2,804.9 2,617.6 - ------------------------------------------------------------------------------------------------------------------- OPERATING COSTS AND EXPENSES Company-operated restaurants 1,663.4 1,527.1 Franchised restaurants - occupancy expenses 158.1 148.3 Selling, general, and administrative expenses 343.0 334.0 Other operating (income) expense-net (2.3) (6.0) - ------------------------------------------------------------------------------------------------------------------- TOTAL OPERATING COSTS AND EXPENSES 2,162.2 2,003.4 - ------------------------------------------------------------------------------------------------------------------- OPERATING INCOME 642.7 614.2 - ------------------------------------------------------------------------------------------------------------------- Interest expense 102.8 90.0 Nonoperating (income) expense-net (.3) 8.5 - ------------------------------------------------------------------------------------------------------------------- INCOME BEFORE PROVISION FOR INCOME TAXES 540.2 515.7 - ------------------------------------------------------------------------------------------------------------------- Provision for income taxes 178.0 171.2 - ------------------------------------------------------------------------------------------------------------------- NET INCOME $ 362.2 $ 344.5 =================================================================================================================== NET INCOME PER COMMON SHARE $ .53 $ .49 NET INCOME PER COMMON SHARE - DILUTED .52 .48 - ------------------------------------------------------------------------------------------------------------------- DIVIDENDS PER COMMON SHARE $ .0825 $ .075 - ------------------------------------------------------------------------------------------------------------------- WEIGHTED AVERAGE SHARES 686.4 691.6 WEIGHTED AVERAGE SHARES - DILUTED 701.9 707.5 - ------------------------------------------------------------------------------------------------------------------- </TABLE> See accompanying Financial comments. 4
- -------------------------------------------------------------------------------- CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) - -------------------------------------------------------------------------------- <TABLE> <CAPTION> Quarters Ended March 31 In millions 1998 1997 - ------------------------------------------------------------------------------------------------------------------- <S> <C> <C> OPERATING ACTIVITIES Net income $ 362.2 $ 344.5 Adjustments to reconcile to cash provided by operations Depreciation and amortization 203.9 191.9 Changes in operating working capital items (54.9) 14.4 Other 10.2 (18.9) - ------------------------------------------------------------------------------------------------------------------- CASH PROVIDED BY OPERATIONS 521.4 531.9 - ------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Property and equipment expenditures (401.9) (454.4) Purchases and sales of restaurant businesses and sales of other property 7.2 23.0 Other (36.7) (57.9) - ------------------------------------------------------------------------------------------------------------------- CASH USED FOR INVESTING ACTIVITIES (431.4) (489.3) - ------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Notes payable and long-term financing issuances and repayments 22.0 235.1 Treasury stock purchases (100.7) (296.4) Common and preferred stock dividends (56.6) (58.7) Other 57.7 47.3 - ------------------------------------------------------------------------------------------------------------------- CASH USED FOR FINANCING ACTIVITIES (77.6) (72.7) - ------------------------------------------------------------------------------------------------------------------- CASH AND EQUIVALENTS INCREASE (DECREASE) 12.4 (30.1) - ------------------------------------------------------------------------------------------------------------------- Cash and equivalents at beginning of period 341.4 329.9 - ------------------------------------------------------------------------------------------------------------------- CASH AND EQUIVALENTS AT END OF PERIOD $ 353.8 $ 299.8 =================================================================================================================== </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 in the Company's 1997 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 ended March 31, 1998 do not necessarily indicate the results that may be expected for the full year. The results of operations of restaurant businesses purchased and sold were not material to the condensed consolidated financial statements for periods prior to purchase and sale. Comprehensive Income Comprehensive income consists of net income and foreign currency translation adjustments and totaled $322.5 million and $253.0 million for the quarters ended March 31, 1998 and 1997, respectively. Per Common Share Information Income used in the computation of per common share information was reduced by preferred stock cash dividends of $6.9 million for the first quarter of 1997. The Company retired its remaining Series E Preferred Stock in December 1997. Diluted net income per common share includes the dilutive effect of stock options. Common Equity Put Options At March 31, 1998, 1.8 million of common equity put options were outstanding, of which .8 million were sold in first quarter 1998. The options expire at various dates through May 1998. The $81.4 million exercise price of the options outstanding was classified in common equity put options at March 31, 1998, and the related offset was recorded in common stock in treasury, net of premiums received. Segment Information The following table presents the Company's revenues and operating income by geographic segment: <TABLE> <CAPTION> Quarters Ended March 31 1998 1997 ----------------------- <S> <C> <C> Revenues U.S. $1,102.0 $1,083.9 Europe 990.3 890.5 Asia/Pacific 376.3 351.8 Latin America 192.9 149.1 Other 143.4 142.3 -------- -------- Total revenues $2,804.9 $2,617.6 ======== ======== Operating income U.S. $284.5 $271.2 Europe 228.6 205.0 Asia/Pacific 81.5 95.1 Latin America 39.8 32.8 Other 23.9 23.2 Corporate SG&A (15.6) (13.1) ------ ------ Total operating income $642.7 $614.2 ====== ====== </TABLE> 6
Item 2. Management's Discussion And Analysis Of Financial Condition And Results Of Operations <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ INCREASES (DECREASES) IN OPERATING RESULTS OVER 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Dollars in millions, except First Quarter per common share data Ended March 31 - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> SYSTEMWIDE SALES $336.6 4% - ------------------------------------------------------------------------------------------------------------------------------------ REVENUES Sales by Company-operated restaurants $161.1 9% Revenues from franchised and affiliated restaurants 26.2 3 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL REVENUES 187.3 7 - ------------------------------------------------------------------------------------------------------------------------------------ OPERATING COSTS AND EXPENSES Company-operated restaurants 136.3 9 Franchised restaurants - occupancy costs 9.8 7 Selling, general, and administrative expenses 9.0 3 Other operating (income) expense-net 3.7 (N/M) - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL OPERATING COSTS AND EXPENSES 158.8 8 - ------------------------------------------------------------------------------------------------------------------------------------ OPERATING INCOME 28.5 5 - ------------------------------------------------------------------------------------------------------------------------------------ Interest expense 12.8 14 Nonoperating (income) expense-net (8.8) (N/M) - ------------------------------------------------------------------------------------------------------------------------------------ INCOME BEFORE PROVISION FOR INCOME TAXES 24.5 5 - ------------------------------------------------------------------------------------------------------------------------------------ Provision for income taxes 6.8 4 - ------------------------------------------------------------------------------------------------------------------------------------ NET INCOME $ 17.7 5% ==================================================================================================================================== NET INCOME PER COMMON SHARE $ .04 8% NET INCOME PER COMMON SHARE - DILUTED .04 8 - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> (N/M) Not meaningful CONSOLIDATED OPERATING RESULTS Net income and diluted net income per common share for the quarter increased five percent and eight percent, respectively, over the same period of 1997. Changing foreign currencies significantly reduced reported results. Excluding the foreign currency translation effect, net income would have increased nine percent and diluted net income per common share would have increased 12 percent. During the first quarter, the Company repurchased $127 million of common stock. Fewer shares outstanding and the absence of preferred dividends in first quarter 1998, due to the retirement of the Company's remaining Series E Preferred Stock in December 1997, resulted in the higher increase in diluted net income per common share compared with net income. <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ Systemwide sales Quarters ended March 31 -------------------------------------------------------------------------------- Dollars in millions 1998 1997 Increase/(Decrease) - ------------------------------------------------------------------------------------------------------------------------------------ As In Constant Reported Currencies* - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> U.S. $4,119.2 $3,988.9 3% n/a - ------------------------------------------------------------------------------------------------------------------------------------ Europe 1,949.9 1,801.0 8 16% - ------------------------------------------------------------------------------------------------------------------------------------ Asia/Pacific 1,334.0 1,377.7 (3) 10 - ------------------------------------------------------------------------------------------------------------------------------------ Latin America 410.6 328.6 25 30 - ------------------------------------------------------------------------------------------------------------------------------------ Other 356.0 336.9 6 11 - ------------------------------------------------------------------------------------------------------------------------------------ Total Systemwide sales $8,169.7 $7,833.1 4% 9% - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> * Excluding the effect of foreign currency translation on reported results n/a Not applicable 7
Systemwide sales represent sales by Company-operated, franchised and affiliated restaurants. Comparable sales are measured on a constant currency basis. Constant currency information excludes the effect of foreign currency translation on reported results. Total revenues include sales by Company- operated restaurants and fees from restaurants operated by franchisees and affiliates. These fees include rent, service fees and royalties that are based on a percent of sales with specified minimum payments along with initial fees. On a global basis, the increases in sales and revenues were primarily due to expansion, offset in part by weaker foreign currencies. U.S. sales increased primarily due to restaurant expansion as comparable sales were relatively flat. In Europe, the constant currency sales increase was driven by expansion and positive comparable sales. England, France, Italy and Spain were the primary contributors to the strong sales performance. In Asia/Pacific, the constant currency sales increase was due to expansion, partly offset by negative comparable sales. Difficult economic conditions in Japan and the economic downturns in Southeast Asia negatively impacted consumer spending. In Latin America, the constant currency sales increase was driven by expansion and positive comparable sales. Brazil accounted for more than half of the sales growth. In addition, strong sales in Argentina, Mexico, and Venezuela contributed to Latin America's strong performance. Revenues increased at a faster rate than sales for first quarter 1998. This was primarily due to the weakening Japanese Yen, which had a greater negative effect on sales than revenues due to our affiliate structure in Japan, and the higher growth rate in Company-operated versus franchised restaurants. <TABLE> <CAPTION> - ------------------------------------------------------------------------- Consolidated operating margins Quarters ended March 31 --------------------------- 1998 1997 - ------------------------------------------------------------------------- <S> <C> <C> Dollars in millions - ------------------------------------------------------------------------- Company-operated $350.9 $326.1 - ------------------------------------------------------------------------- Franchised 632.5 616.1 - ------------------------------------------------------------------------- Combined operating margins $983.4 $942.2 - ------------------------------------------------------------------------- Percent of sales/revenues - ------------------------------------------------------------------------- Company-operated 17.4% 17.6% - ------------------------------------------------------------------------- Franchised 80.0 80.6 - ------------------------------------------------------------------------- </TABLE> Company-operated margins as a percent of sales decreased slightly for the quarter. Occupancy & other operating expenses increased as a percent of sales, while food & paper and payroll costs were relatively flat. U.S. Company-operated margins as a percent of sales increased for the quarter, while Company-operated margins outside the U.S. declined, primarily in Asia/Pacific. In the U.S., decreases in food & paper costs and occupancy & other operating expenses as a percent of sales were partially offset by increases in payroll costs. Outside the U.S., as a percent of sales, increases in food & paper costs and occupancy & other operating expenses were offset in part by decreases in payroll costs. Franchised margin dollars comprised about two-thirds of the combined operating margins, the same as in the prior year. While franchised margins as a percent of applicable revenues decreased, franchised margin dollars increased three percent. As a percent of revenues, franchised margins declined both in the U.S. and outside the U.S. The declines reflected higher occupancy costs, including rent expense, driven by an increase in the number of leased sites. The increase in selling, general & administrative expenses was primarily due to strategic global spending to support restaurant development, value initiatives and execution strategies, offset in part by the translation effect of weaker foreign currencies. 8
<TABLE> <CAPTION> Other operating (income) expense-net Quarters ended March 31 ----------------- Dollars in millions 1998 1997 - -------------------------------------------------------------------------- <S> <C> <C> Gains on sales of restaurant businesses $ (8.0) $ (7.6) - -------------------------------------------------------------------------- Equity in earnings of unconsolidated affiliates (12.4) (15.9) - -------------------------------------------------------------------------- Other (income) expense 18.1 17.5 - -------------------------------------------------------------------------- Other operating (income) expense--net $ (2.3) $ (6.0) - -------------------------------------------------------------------------- </TABLE> Other operating (income) expense-net consists of transactions related to franchising and the food service business. The decrease in equity in earnings of unconsolidated affiliates was due to the weaker Japanese Yen; increased ownership in Singapore, changing its classification from an affiliate to a consolidated subsidiary; and weak performance in certain Asia/Pacific markets, partly offset by increased equity in earnings of U.S. affiliates. <TABLE> <CAPTION> Operating income Quarters ended March 31 ------------------------------------------ Dollars in millions 1998 1997 Increase/(Decrease) ------------------------------------------ As In Constant Reported Currencies* <S> <C> <C> <C> <C> U.S. $284.5 $271.2 5% n/a - --------------------------------------------------------------------------- Europe 228.6 205.0 12 18% - --------------------------------------------------------------------------- Asia/Pacific 81.5 95.1 (14) (5) - --------------------------------------------------------------------------- Latin America 39.8 32.8 21 29 - --------------------------------------------------------------------------- Other 23.9 23.2 3 8 - --------------------------------------------------------------------------- Corporate SG&A (15.6) (13.1 ) 19 n/a - --------------------------------------------------------------------------- Total operating income $642.7 $614.2 5% 9% - --------------------------------------------------------------------------- </TABLE> * Excluding the effect of foreign currency translation on reported results n/a Not applicable Consolidated operating income increased $55.7 million or nine percent in constant currencies. The increase reflected higher combined operating margin dollars, offset in part by higher selling, general & administrative expenses and slightly lower other operating income. U.S. operating income increased $13.3 million or five percent, reflecting higher combined operating margin dollars and relatively flat selling, general & administrative expenses and other operating income. Europe's operating income increased 18 percent in constant currencies. This performance was primarily due to strong results in England, France, Germany, Italy and Spain. Asia/Pacific's operating income decreased five percent in constant currencies. The benefit from the consolidation of our Singapore affiliate was more than offset by the depressed operating results in certain Southeast Asian markets. Latin America's operating income increased 29 percent in constant currencies, primarily driven by strong operating results in Brazil. Higher interest expense reflected higher debt levels, offset in part by weaker foreign currencies and lower average interest rates. The higher debt levels were primarily due to borrowings in the last half of 1997 to fund the retirement of preferred stock issued by a foreign subsidiary and the Company's Series E Preferred Stock. Nonoperating (income) expense-net reflected lower charges for minority interests. The effective income tax rate was 33.0 percent for first quarter 1998 compared with 33.2 percent for first quarter 1997. For the year 1998, the Company expects the effective tax rate to be in the range of 32.5 percent to 33.5 percent. 9
IMPACT OF FOREIGN CURRENCIES ON REPORTED RESULTS While changing foreign currencies affect reported results, McDonald's lessens exposures by financing in local currencies, hedging certain foreign- denominated cash flows and, where practical, by purchasing goods and services in local currencies. The weakening Australian Dollar, Deutsche Mark, French Franc and Japanese Yen, as well as the significantly weakened Southeast Asian currencies, were the primary foreign currencies that negatively affected reported results for first quarter 1998. The following table presents the 1998 results translated at 1997 rates compared with reported results. <TABLE> <CAPTION> ======================================================================================================= Effect of foreign currency translation on worldwide reported results - ------------------------------------------------------------------------------------------------------- Increase ------------------------------------------------------------------ Dollars in millions, except per As In Constant As In Constant common share data Reported Currencies* Change Reported Currencies* ======================================================================================================= Quarter ended March 31, 1998 ======================================================================================================= <S> <C> <C> <C> <C> <C> Systemwide sales $8,169.7 $8,526.9 $357.2 4% 9% - ------------------------------------------------------------------------------------------------------- Total revenues 2,804.9 2,935.4 130.5 7 12 - ------------------------------------------------------------------------------------------------------- Operating income 642.7 669.9 27.2 5 9 - ------------------------------------------------------------------------------------------------------- Net income 362.2 373.8 11.6 5 9 - ------------------------------------------------------------------------------------------------------- Net income per common share- diluted .52 .54 .02 8 12 ======================================================================================================= </TABLE> * Excluding the effect of foreign currency translation on reported results FINANCIAL POSITION Free cash flow - cash provided by operations less capital expenditures - for the quarter ended March 31, 1998 increased $42 million to $119.5 million. Together with other sources of cash such as borrowings, free cash flow was used primarily for debt repayments, share repurchases and dividends. The consolidated capital expenditure decrease of 12% in the first quarter is primarily due to a decrease in U.S. capital expenditures. The Company plans to add about 2,100 restaurants worldwide in 1998, with about 85% being outside the U.S. STRATEGIC INITIATIVES In March 1998, the Company announced initiatives to improve restaurant operations, enhance returns and reduce expenses. These initiatives include the introduction of a new "Made for You" food preparation system in the U.S. and Canada; a new financing approach to increase returns on new U.S. restaurants for owners/operators and the Company; and a comprehensive study undertaken to improve home office alignment, focus and productivity, and to reduce selling, general and administrative expenses. The Company anticipates recording a special charge to operating income in second quarter 1998 of approximately $170-$190 million related to the conversion to "Made for You." In addition, the Company expects to conclude the study of home office spending in second quarter 1998, at which time anticipated ongoing savings will be quantified and any related charge for one-time costs will be recorded. FORWARD-LOOKING STATEMENTS Certain forward-looking statements are included in this report. They use such words as "may," "will," "expect," "believe," "plan" and other similar terminology. These statements reflect management's current expectations and involve a number of risks and uncertainties. Actual results could differ materially due to the success of operating initiatives and advertising and promotional efforts and changes in: global and local business and economic conditions; currency exchange and interest rates; food, labor and other operating costs; political or economic instability in local markets; competition; consumer preferences, spending patterns and demographic trends; availability and cost of land and construction; legislation and government regulation; and accounting policies and practices. 10
- -------------------------------------------------------------------------------- FIRST QUARTER HIGHLIGHTS - -------------------------------------------------------------------------------- FINANCIAL INFORMATION <TABLE> <CAPTION> Quarters Ended March 31 Dollars in millions 1998 1997 - -------------------------------------------------------------------------------------------------------------------- <S> <C> <C> Systemwide sales by type Operated by franchisees $ 5,030.2 $ 4,864.1 Operated by the Company 2,014.3 1,853.2 Operated by affiliates 1,125.2 1,115.8 - -------------------------------------------------------------------------------------------------------------------- Systemwide sales 8,169.7 7,833.1 - -------------------------------------------------------------------------------------------------------------------- Revenues U.S. 1,102.0 1,083.9 Europe 990.3 890.5 Asia/Pacific 376.3 351.8 Latin America 192.9 149.1 Other 143.4 142.3 - -------------------------------------------------------------------------------------------------------------------- Total revenues 2,804.9 2,617.6 - -------------------------------------------------------------------------------------------------------------------- Restaurant margins Company-operated ---------------- U.S. 16.4% 16.0% Outside the U.S. 17.9% 18.4% Franchised ---------- U.S. 80.1% 80.5% Outside the U.S. 79.8% 80.7% - -------------------------------------------------------------------------------------------------------------------- Operating income $ 642.7 $ 614.2 Income before provision for income taxes 540.2 515.7 Net income 362.2 344.5 Net income per common share .53 .49 Net income per common share - diluted .52 .48 - -------------------------------------------------------------------------------------------------------------------- Cash provided by operations 486.9 531.9 - --------------------------------------------------------------------------------------------------------------------- Total assets 18,416.2 17,257.7 Total shareholders' equity 9,122.0 8,617.4 - --------------------------------------------------------------------------------------------------------------------- RESTAURANTS - -------------------------------------------------------------------------------------------------------------------- At March 31, 1998 1997 - --------------------------------------------------------------------------------------------------------------------- By type Operated by franchisees 14,366 13,510 Operated by the Company 5,065 4,406 Operated by affiliates 3,915 3,360 - -------------------------------------------------------------------------------------------------------------------- Systemwide restaurants 23,346 21,276 - --------------------------------------------------------------------------------------------------------------------- Quarters Ended March 31 1998 1997 - -------------------------------------------------------------------------------------------------------------------- Additions U.S. 33 10 Europe 57 61 Asia/Pacific 91 127 Latin America 18 30 Other 15 26 - -------------------------------------------------------------------------------------------------------------------- Systemwide additions 214 254 - -------------------------------------------------------------------------------------------------------------------- </TABLE> 11
PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit Number Description - -------------- ----------- (3) Restated Certificate of Incorporation, effective as of March 24, 1998, incorporated herein by reference from Form 8-K dated April 17, 1998. By-Laws, effective as of December 19, 1997, incorporated herein by reference from Form 8-K dated January 5, 1998. (4) Instruments defining the rights of security holders, including Indentures (A): (a) Senior Debt Securities Indenture dated as of October 19, 1996 incorporated herein by reference from Exhibit 4(a) of Form S-3 Registration Statement (File No. 333-14141). (i) 6 3/8% Debentures due January 8, 2028. Supplemental Indenture No. 1 dated as of January 8, 1998, incorporated herein by reference from Exhibit (4)(a) of Form 8-K dated January 5, 1998. (b) Subordinated Debt Securities Indenture dated as of October 18, 1996, incorporated herein by reference from Form 8-K dated October 18, 1996. (i) 7 1/2% Subordinated Deferrable Interest Debentures due 2036. Supplemental Indenture No. 1 dated as of November 5, 1996, incorporated herein by reference from Exhibit (4)(b) of Form 8-K dated October 18, 1996. (ii) 7 1/2% Subordinated Deferrable Interest Debentures due 2037. Supplemental Indenture No. 2 dated as of January 14, 1997, incorporated herein by reference from Exhibit (4)(b) of Form 8-K dated January 9, 1997. (iii) 7.31% Subordinated Deferrable Interest Debentures due 2027. Supplemental Indenture No. 3 dated September 24, 1997, incorporated herein by reference from Exhibit (4)(b) of Form 8-K dated September 19, 1997. (c) Debt Securities. Indenture dated as of March 1, 1987 incorporated herein by reference from Exhibit 4(a) of Form S-3 Registration Statement (File No. 33-12364). (i) Medium-Term Notes, Series B, due from nine months to 30 years from Date of Issue. Supplemental Indenture No. 12 incorporated herein by reference from Exhibit (4) of Form 8-K dated August 18, 1989 and Forms of Medium-Term Notes, Series B, incorporated herein by reference from Exhibit (4)(b) of Form 8-K dated September 14, 1989. (ii) Medium-Term Notes, Series C, due from nine months to 30 years from Date of Issue. Form of Supplemental Indenture No. 15 incorporated herein by reference from Exhibit 4(b) of Form S-3 Registration Statement (File no. 33-34762), dated May 14, 1990. (iii) Medium-Term Notes, Series C, due from nine months (U.S. Issue)/184 days (Euro Issue) to 30 years from Date of Issue. Amended and restated Supplemental Indenture No. 16 incorporated herein by reference from Exhibit (4) of Form 10-Q for the period ended March 31, 1991. 12
Exhibit Number Description - -------------- ----------- (iv) 8-7/8% Debentures due 2011. Supplemental Indenture No. 17 incorporated herein by reference from Exhibit (4) of Form 8-K dated April 22, 1991. (v) Medium-Term Notes, Series D, due from nine months (U.S. Issue)/184 days (Euro Issue) to 60 years from Date of Issue. Supplemental Indenture No. 18 incorporated herein by reference from Exhibit 4(b) of Form S-3 Registration Statement (File No. 33-42642), dated September 10, 1991. (vi) 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. (vii) 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. (viii) 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. (ix) 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. (x) 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. (xi) 7.05% Debentures due 2025. Form of Supplemental Indenture No. 24 incorporated herein by reference from Exhibit (4)(a) of Form 8-K dated November 13, 1995. (d) 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. (e) 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. (f) Form of Supplemental Indenture No. 2 dated as of April 1, 1991, supplemental to the Indenture between McDonald's Matching and Deferred Stock Ownership Trust, McDonald's Corporation and Pittsburgh National Bank in connection with SEC Registration Statement Nos. 33-28684 and 33-28684-01, incorporated herein by reference from Exhibit (4)(c) of Form 8-K dated March 22, 1991. (10) Material Contracts (a) Directors' Stock Plan, as amended and restated, incorporated herein by reference from Exhibit 10(a) of Form 10-Q for the quarter ended September 30, 1997.* 13
Exhibit Number Description - -------------- ----------- (b) Profit Sharing Program, as amended and restated, incorporated herein by reference from Form 10-K for the year ended December 31, 1995.* (i) Amendment No. 1 incorporated herein by reference from Form 10-Q for the quarter ended June 30, 1997. (ii) Amendment No. 2 incorporated herein by reference from Form 10-Q for the quarter ended June 30, 1997. (iii) Amendment No. 3 incorporated herein by reference from Form 10-Q for the quarter ended June 30, 1997. (iv) Amendment No. 4 incorporated herein by reference from Form 10-K for the year ended December 31, 1997. (c) McDonald's Supplemental Employee Benefit Equalization Plan, McDonald's Profit Sharing Program Equalization Plan and McDonald's 1989 Equalization Plan, as amended and restated, incorporated herein by reference from Form 10-K for the year ended December 31, 1995.* (d) 1975 Stock Ownership Option Plan, as amended and restated, filed herewith.* (e) 1992 Stock Ownership Incentive Plan, as amended and restated, filed herewith.* (f) McDonald's Corporation Deferred Income Plan, as amended and restated, incorporated herein by reference from Exhibit 10(f) of Form 10-Q for the quarter ended September 30, 1997.* (g) Non-Employee Director Stock Option Plan, incorporated herein 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.* (h) Employment Agreement, incorporated by reference from Exhibit 10 (h) of Form 10-Q for the quarter ended September 30, 1997.* (12) Statement re: Computation of ratios (27.1) Financial Data Schedule (27.2) Restated Financial Data Schedule - --------------------- * 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 up to May 14, 1998. <TABLE> <CAPTION> Financial Statements Date of Report Item Number Required to be Filed -------------- ----------- -------------------- <C> <S> <C> 1/5/98 Item 5 No 2/10/98 Item 7 No 4/17/98 Item 7 No 4/30/98 Item 7 No 5/6/98 Item 5 No </TABLE> 14
SIGNATURE --------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. McDONALD'S CORPORATION (Registrant) By Michael L. Conley ----------------- (Signature) Michael L. Conley Executive Vice President, Chief Financial Officer May 14, 1998 - -------------- (Date) 15