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 September 30, 1999 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from ________ to __________ Commission File Number 1-5231 MCDONALD'S CORPORATION (Exact name of registrant as specified in its charter) Delaware 36-2361282 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) McDonald's Plaza Oak Brook, Illinois 60523 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (630) 623-3000 -------------------------------------------------------------------- (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 _____ --- 1,354,019,453 ---------------------- (Number of shares of common stock outstanding as of September 30, 1999) ================================================================================
McDONALD'S CORPORATION ---------------------- INDEX ----- <TABLE> <CAPTION> Page Reference Part I. Financial Information <S> <C> Item 1 - Financial Statements Condensed consolidated balance sheet, September 30, 1999 (unaudited) and 3 December 31, 1998 Condensed consolidated statement of income (unaudited), quarters and nine months ended September 30, 1999 and 1998 4 Condensed consolidated statement of cash flows (unaudited), quarters and nine months ended September 30, 1999 and 1998 5 Financial comments (unaudited) 6 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 3 - Quantitative & Qualitative Disclosures About Market Risk 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 <TABLE> <CAPTION> - --------------------------------------------------------------------------------------------------------------- CONDENSED CONSOLIDATED BALANCE SHEET - --------------------------------------------------------------------------------------------------------------- (unaudited) In millions September 30, 1999 December 31, 1998 - --------------------------------------------------------------------------------------------------------------- <S> <C> <C> ASSETS CURRENT ASSETS Cash and equivalents $ 424.8 $ 299.2 Accounts and notes receivable 607.9 609.4 Inventories, at cost, not in excess of market 76.0 77.3 Prepaid expenses and other current assets 284.9 323.5 - --------------------------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 1,393.6 1,309.4 - --------------------------------------------------------------------------------------------------------------- OTHER ASSETS 2,933.1 2,433.4 PROPERTY AND EQUIPMENT Property and equipment, at cost 22,215.3 21,758.0 Accumulated depreciation and amortization (6,075.2) (5,716.4) - --------------------------------------------------------------------------------------------------------------- NET PROPERTY AND EQUIPMENT 16,140.1 16,041.6 - --------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $20,466.8 $19,784.4 =============================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Notes payable $ 682.5 $ 686.8 Accounts payable 448.8 621.3 Income taxes 142.0 94.2 Other taxes 154.7 143.5 Accrued interest 114.5 132.3 Other accrued liabilities 662.5 651.0 Current maturities of long-term debt 149.8 168.0 - --------------------------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 2,354.8 2,497.1 - --------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT 6,288.8 6,188.6 OTHER LONG-TERM LIABILITIES AND MINORITY INTERESTS 561.8 492.6 DEFERRED INCOME TAXES 1,071.5 1,081.9 COMMON EQUITY PUT OPTIONS 693.4 59.5 SHAREHOLDERS' EQUITY Preferred stock, no par value; authorized - 165.0 million shares; issued - none Common stock, $.01 par value; authorized - 3.5 billion shares; issued - 1,660.6 million 16.6 16.6 Additional paid-in capital 1,202.4 989.2 Guarantee of ESOP notes (149.0) (148.7) Retained earnings 15,142.5 13,879.6 Accumulated other comprehensive income (796.3) (522.5) Common stock in treasury, at cost; 306.6 and 304.4 million shares (5,919.7) (4,749.5) - --------------------------------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 9,496.5 9,464.7 - --------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $20,466.8 $19,784.4 =============================================================================================================== </TABLE> See accompanying Financial comments. 3
<TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------- CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) - ------------------------------------------------------------------------------------------------------- Quarters ended Nine months ended In millions, except September 30 September 30 per common share data 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> REVENUES Sales by Company-operated restaurants $2,474.4 $2,305.7 $7,087.6 $6,590.4 Revenues from franchised and affiliated restaurants 969.8 909.3 2,798.8 2,610.3 - ------------------------------------------------------------------------------------------------------- TOTAL REVENUES 3,444.2 3,215.0 9,886.4 9,200.7 - ------------------------------------------------------------------------------------------------------- OPERATING COSTS AND EXPENSES Company-operated restaurants 2,015.6 1,868.2 5,818.8 5,375.3 Franchised restaurants - occupancy expenses 186.8 172.0 546.0 496.6 Selling, general, and administrative expenses 368.0 358.5 1,073.4 1,066.4 Other operating (income) expense (40.9) (29.5) (71.9) (37.9) Made for You costs 7.0 10.6 17.3 15.6 Special charge - - - 160.0 - ------------------------------------------------------------------------------------------------------- TOTAL OPERATING COSTS AND EXPENSES 2,536.5 2,379.8 7,383.6 7,076.0 - ------------------------------------------------------------------------------------------------------- OPERATING INCOME 907.7 835.2 2,502.8 2,124.7 - ------------------------------------------------------------------------------------------------------- Interest expense 95.4 102.8 298.1 312.0 Nonoperating (income) expense 12.0 15.1 30.9 21.4 - ------------------------------------------------------------------------------------------------------- INCOME BEFORE PROVISION FOR INCOME TAXES 800.3 717.3 2,173.8 1,791.3 - ------------------------------------------------------------------------------------------------------- Provision for income taxes 259.4 235.1 712.1 589.7 - ------------------------------------------------------------------------------------------------------- NET INCOME $ 540.9 $ 482.2 $1,461.7 $1,201.6 ======================================================================================================= NET INCOME PER COMMON SHARE $ 0.40 $ 0.35 $ 1.08 $ 0.88 NET INCOME PER COMMON SHARE - DILUTED 0.39 0.34 1.04 0.85 - ------------------------------------------------------------------------------------------------------- DIVIDENDS PER COMMON SHARE $ .04875 $ .04500 $ .14653 $ .13125 - ------------------------------------------------------------------------------------------------------- WEIGHTED AVERAGE SHARES 1,354.7 1,362.1 1,355.8 1,369.0 WEIGHTED AVERAGE SHARES - DILUTED 1,403.1 1,404.7 1,405.4 1,408.4 - ------------------------------------------------------------------------------------------------------- </TABLE> See accompanying Financial comments. 4
<TABLE> <CAPTION> - ----------------------------------------------------------------------------------------------------- CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) - ----------------------------------------------------------------------------------------------------- Quarters ended Nine months ended September 30 September 30 In millions 1999 1998 1999 1998 - ----------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> OPERATING ACTIVITIES Net income $ 540.9 $ 482.2 $ 1,461.7 $ 1,201.6 Adjustments to reconcile to cash provided by operations Depreciation and amortization 248.6 227.8 720.4 648.3 Changes in operating working capital items 153.4 66.2 190.5 126.0 Other (52.6) 25.8 0.5 21.5 - ----------------------------------------------------------------------------------------------------- CASH PROVIDED BY OPERATIONS 890.3 802.0 2,373.1 1,997.4 - ----------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Property and equipment expenditures (491.7) (492.6) (1,245.7) (1,350.1) Purchases and sales of restaurant businesses and sales of property (106.6) 23.1 (133.7) 32.9 Other (82.0) (13.0) (265.0) (83.0) - ----------------------------------------------------------------------------------------------------- CASH USED FOR INVESTING ACTIVITIES (680.3) (482.5) (1,644.4) (1,400.2) - ----------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Notes payable and long-term financing issuances and repayments 124.8 207.9 97.8 390.1 Treasury stock purchases (202.6) (544.3) (643.9) (1,049.1) Common stock dividends (66.4) (61.2) (198.7) (179.5) Other (48.8) 57.5 141.7 204.2 - ----------------------------------------------------------------------------------------------------- CASH USED FOR FINANCING ACTIVITIES (193.0) (340.1) (603.1) (634.3) - ----------------------------------------------------------------------------------------------------- CASH AND EQUIVALENTS INCREASE (DECREASE) 17.0 (20.6) 125.6 (37.1) - ----------------------------------------------------------------------------------------------------- Cash and equivalents at beginning of period 407.8 324.9 299.2 341.4 - ----------------------------------------------------------------------------------------------------- CASH AND EQUIVALENTS AT END OF PERIOD $ 424.8 $ 304.3 $ 424.8 $ 304.3 ===================================================================================================== </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 1998 Annual Report to Shareholders. In the opinion of the Company, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation have been included. The results for the quarter and nine months ended September 30, 1999 do not necessarily indicate the results that may be expected for the full year. The results of operations of restaurant businesses purchased and sold were not material to the condensed consolidated financial statements for periods prior to purchase and sale. Comprehensive Income Comprehensive income consists of net income and foreign currency translation adjustments and totaled $586.2 million and $513.6 million for the third quarters of 1999 and 1998, respectively, and $1,187.9 million and $1,120.0 million for the nine months ended September 30, 1999 and 1998, respectively. Per Common Share Information Common share amounts included in the accompanying financial statements have been restated for the 2-for-1 common stock split in March, 1999. Diluted net income per common share is calculated using net income divided by weighted average shares on a diluted basis. Weighted average shares on a diluted basis include weighted average shares outstanding plus the dilutive effect of stock options, calculated using the treasury stock method, of 48.4 million shares and 42.6 million shares for the third quarters of 1999 and 1998, respectively, and 49.6 million shares and 39.4 million shares for the nine months ended September 30, 1999 and 1998, respectively. Common Equity Put Options At September 30, 1999, 16.6 million of common equity put options were outstanding, which expire at various dates through November 2000. The $693.4 million exercise price of the options outstanding was classified in common equity put options at September 30, 1999, and the related offset was recorded in common stock in treasury, net of premiums received. Special Charge In the second quarter 1998, the Company recorded a $160 million pre-tax special charge related to the results of the Company's home office productivity initiative. The Company's home office productivity plan is designed to improve staff alignment, focus and productivity and reduce ongoing selling, general and administrative expenses. As a result of this initiative, the Company has reduced home office staffing by approximately 525 positions, is consolidating certain home office facilities and has reduced other expenditures in a variety of areas. The $160 million charge was primarily comprised of costs associated with employee severance and outplacement and with the facilities consolidation. As of September 30, 1999, the remaining accrual, primarily for employee related costs, was approximately $58 million and is included in Other accrued liabilities in the Condensed Consolidated Balance Sheet. No significant adjustments have been made to the original plan approved by management in second quarter 1998. 6
New Accounting Standard - Financial Instruments In June 1998, the Financial Accounting Standards Board issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, subsequently amended by Statement No. 137, which is required to be adopted in years beginning after June 15, 2000. The Statement will require the Company to recognize all derivatives on the balance sheet at fair value. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged item through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The Company expects to adopt the new Statement effective January 1, 2001. Management does not anticipate that the adoption will have a significant effect on the Company's results of operations or financial position. Segment Information McDonald's operates primarily in the quick-service hamburger restaurant business, which we refer to as "Brand McDonald's". The Company also operates other branded restaurants: Donatos Pizza, Chipotle Mexican Grill and Aroma Cafe. Collectively these three businesses are referred to as "Other Brands". For the quarter and nine months ended September 30, 1999, Brand McDonald's comprised virtually all of consolidated operating results. 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 1999/(1)/ 1998 1999/(1)/ 1998 - ------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> REVENUES U.S. $1,303.1 $1,240.9 $3,834.2 $3,659.7 Europe 1,258.0 1,165.1 3,651.3 3,253.3 Asia/Pacific 503.9 434.2 1,374.2 1,209.1 Latin America 174.2 203.7 503.6 593.4 Other 182.8 171.1 500.9 485.2 - ------------------------------------------------------------------------------------------------------ TOTAL REVENUES $3,422.0 $3,215.0 $9,864.2 $9,200.7 - ------------------------------------------------------------------------------------------------------ OPERATING INCOME U.S. $ 389.6 $ 350.6 $1,132.8 $ 846.3/(2)/ Europe 324.8 303.7 881.1 806.1 Asia/Pacific 119.8 98.9 305.0 254.7 Latin America 36.5 46.4 94.1 124.5 Other 38.3 35.6 92.4 93.1 - ------------------------------------------------------------------------------------------------------ TOTAL OPERATING INCOME* $ 909.0 $ 835.2 $2,505.4 $2,124.7 - ------------------------------------------------------------------------------------------------------ </TABLE> * Corporate selling, general & administrative expenses (costs related to home office support of the Company's global business) were allocated to the various geographic segments, beginning in 1999. Prior year amounts have been restated to conform to this presentation. (1) Total revenues exclude $22.2 million for the third quarter and nine months ended September 30, 1999 related to Other Brands. Total Operating Income excludes a $1.3 million operating loss during the third quarter 1999 and a $2.6 million operating loss for the nine months ended September 30, 1999 related to Other Brands. (2) Includes the $160 million special charge related to the home office productivity initiative recorded in the second quarter 1998. 7
Item 2. Management's Discussion And Analysis Of Financial Condition And Results Of Operations <TABLE> <CAPTION> - ----------------------------------------------------------------------------------------------------------------------------- OPERATING RESULTS - ----------------------------------------------------------------------------------------------------------------------------- Dollars in millions, except Quarter ended Nine months ended per common share data September 30, 1999 September 30, 1999 - ----------------------------------------------------------------------------------------------------------------------------- % Increase/ % Increase/ (Decrease) ------------------------ Amount (Decrease) Amount Reported Adjusted/(1)/ - ----------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> SYSTEMWIDE SALES $9,997.8 8% $28,741.0 8% 8% - ----------------------------------------------------------------------------------------------------------------------------- REVENUES Sales by Company-operated restaurants 2,474.4 7 7,087.6 8 8 Revenues from franchised and affiliated restaurants 969.8 7 2,798.8 7 7 - ----------------------------------------------------------------------------------------------------------------------------- TOTAL REVENUES 3,444.2 7 9,886.4 7 7 - ----------------------------------------------------------------------------------------------------------------------------- OPERATING COSTS AND EXPENSES Company-operated restaurants 2,015.6 8 5,818.8 8 8 Franchised restaurants - occupancy costs 186.8 9 546.0 10 10 Selling, general, and administrative expenses 368.0 3 1,073.4 1 1 Other operating (income) expense (40.9) N/M (71.9) N/M N/M Made for You costs 7.0 N/M 17.3 N/M N/M - ----------------------------------------------------------------------------------------------------------------------------- TOTAL OPERATING COSTS AND EXPENSES 2,536.5 7 7,383.6 4 7 - ----------------------------------------------------------------------------------------------------------------------------- OPERATING INCOME 907.7 9 2,502.8 18 10 - ----------------------------------------------------------------------------------------------------------------------------- Interest expense 95.4 (7) 298.1 (4) (4) Nonoperating (income) expense 12.0 N/M 30.9 N/M N/M - ----------------------------------------------------------------------------------------------------------------------------- INCOME BEFORE PROVISION FOR INCOME TAXES 800.3 12 2,173.8 21 11 - ----------------------------------------------------------------------------------------------------------------------------- Provision for income taxes 259.4 10 712.1 21 11 - ----------------------------------------------------------------------------------------------------------------------------- NET INCOME $ 540.9 12% $ 1,461.7 22% 11% ============================================================================================================================= NET INCOME PER COMMON SHARE $ 0.40 14% $ 1.08 23% 13% NET INCOME PER COMMON SHARE-DILUTED 0.39 15 1.04 22 12 - ----------------------------------------------------------------------------------------------------------------------------- </TABLE> N/M Not meaningful (1) Excluding the second quarter 1998 $160 million special charge ($110 million after tax or $.08 per share) related to the home office productivity initiative. CONSOLIDATED OPERATING RESULTS Net Income and Net Income per Common Share - Diluted Net income and diluted net income per common share increased 12 and 15 percent for the quarter, respectively (14 and 15 percent in constant currencies). For the nine months, net income increased 11 percent and diluted net income per common share increased 12 percent (13 percent for both in constant currencies), excluding the $160 million second quarter 1998 special charge related to the home office productivity initiative ($110 million after tax or $.08 per diluted share). Information in constant currencies excludes the effect of foreign currency translation on reported results. Including the second quarter 1998 special charge, both reported net income and diluted net income per common share increased 22 percent for the nine months. Weighted average shares outstanding for the third quarter and the nine months were lower compared with the prior year, due to the Company's share repurchase program. During the first nine months of 1999, the Company repurchased 17.5 million shares of its common stock for approximately $654.0 million, under its three-year, $3.5 billion program, which is scheduled to be completed by the end of 2001. Since the beginning of the program in fourth quarter 1998, the Company has repurchased 27.7 million shares for approximately $973.5 million through September 30, 1999. 8
OPERATING RESULTS McDonald's operates primarily in the quick-service hamburger restaurant business, which we refer to as "Brand McDonald's". The Company also operates other branded restaurants: Donatos Pizza, Chipotle Mexican Grill and Aroma Cafe. Collectively these three businesses are referred to as "Other Brands". For the quarter and nine months ended September 30, 1999, Brand McDonald's comprised virtually all of consolidated operating results. The following discussion includes only Brand McDonald's. Refer to the table on page twelve for summarized financial information of our Other Brands. Systemwide Sales and Revenues Systemwide sales represent sales by Company-operated, franchised and affiliated restaurants. Total revenues include sales by Company-operated restaurants and fees from restaurants operated by franchisees and affiliates. These fees include rent, service fees and royalties that are based on a percent of sales with specified minimum payments along with initial fees. On a global basis, the increases in sales and revenues for the quarter and nine months were due to expansion and positive comparable sales. Foreign currency translation had no impact on the total Systemwide sales growth rate for either the quarter or the nine months. However, it had a negative impact on the growth rate in revenues for both periods, primarily because the stronger Japanese Yen had a greater positive currency translation effect on sales. This is due to our affiliate structure in Japan. Under this structure, we record a service fee in revenues based on a percentage of Japan's sales, whereas 100 percent of its sales are included in Systemwide sales. On a constant currency basis, revenues increased at a higher rate than sales in both periods due to the higher unit growth rate of Company-operated restaurants outside the U.S. relative to Systemwide restaurants. <TABLE> <CAPTION> - ---------------------------------------------------------------------------------------------------------------------- Systemwide sales - Brand McDonald's Dollars in millions 1999 1998 Increase/(Decrease) - ---------------------------------------------------------------------------------------------------------------------- As In Constant Reported Currencies* - ---------------------------------------------------------------------------------------------------------------------- Quarters ended September 30 - ---------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> U.S. $ 4,870.8 $ 4,600.9 6% n/a - ---------------------------------------------------------------------------------------------------------------------- Europe 2,458.1 2,349.4 5 10% - ---------------------------------------------------------------------------------------------------------------------- Asia/Pacific 1,725.1 1,416.0 22 6 - ---------------------------------------------------------------------------------------------------------------------- Latin America 431.9 445.8 (3) 19 - ---------------------------------------------------------------------------------------------------------------------- Other 475.6 434.1 10 9 - ---------------------------------------------------------------------------------------------------------------------- Total Systemwide sales $ 9,961.5 $ 9,246.2 8% 8% - ---------------------------------------------------------------------------------------------------------------------- Nine months ended September 30 - ---------------------------------------------------------------------------------------------------------------------- U.S. $14,324.0 $13,639.7 5% n/a - ---------------------------------------------------------------------------------------------------------------------- Europe 7,107.2 6,481.4 10 12% - ---------------------------------------------------------------------------------------------------------------------- Asia/Pacific 4,738.7 4,046.9 17 7 - ---------------------------------------------------------------------------------------------------------------------- Latin America 1,227.6 1,276.6 (4) 17 - ---------------------------------------------------------------------------------------------------------------------- Other 1,297.4 1,218.9 6 9 - ---------------------------------------------------------------------------------------------------------------------- Total Systemwide sales $28,694.9 $26,663.5 8% 8% - ---------------------------------------------------------------------------------------------------------------------- </TABLE> * Excluding the effect of foreign currency translation on reported results. n/a Not applicable U.S. sales increased due to positive comparable sales and restaurant expansion for the quarter and the nine months. Successful promotions such as Furby, Teenie Beanie Babies, Winnie the Pooh, Tarzan and Inspector Gadget, combined with local market initiatives, such as our breakfast bagel sandwich launch in over 50 percent of the U.S. restaurants, contributed to the sales increases. In Europe, positive comparable sales and expansion drove the constant currency sales increases for the quarter and the nine months. Strong performances in France, Germany, Italy, Spain, and the U.K. drove these increases in both periods. 9
In Asia/Pacific, the constant currency sales increases were driven by expansion, partly offset by negative comparable sales for the quarter and nine months. Expansion in Japan, as well as positive comparable sales in Australia and South Korea, contributed to the segment's sales increases in both periods. In Latin America, positive comparable sales and expansion drove the constant currency sales increase for the quarter. The results for the nine months were driven by expansion, partly offset by negative comparable sales. Brazil contributed to the increases due to expansion for both periods and positive comparable sales for the quarter. Both periods benefited from continued positive comparable sales in Mexico and Venezuela. <TABLE> <CAPTION> Combined Operating Margins - --------------------------------------------------------------------------------------------------------------- Combined operating margins - Quarters ended Nine months ended Brand McDonald's September 30 September 30 -------------------------- ---------------------------- 1999 1998 1999 1998 - --------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Dollars in millions - --------------------------------------------------------------------------------------------------------------- Company-operated $ 455.3 $ 437.5 $1,265.3 $1,215.1 - --------------------------------------------------------------------------------------------------------------- Franchised 782.7 737.3 2,252.5 2,113.7 - --------------------------------------------------------------------------------------------------------------- Combined operating margins $1,238.0 $1,174.8 $3,517.8 $3,328.8 - --------------------------------------------------------------------------------------------------------------- Percent of sales/revenues - --------------------------------------------------------------------------------------------------------------- Company-operated 18.6% 19.0% 17.9% 18.4% - --------------------------------------------------------------------------------------------------------------- Franchised 80.7 81.1 80.5 81.0 - --------------------------------------------------------------------------------------------------------------- </TABLE> Combined operating margin dollars increased $63 million, or five percent for the quarter and $189 million, or six percent for the nine months. These increases were primarily driven by expansion and positive comparable sales. Company-operated margins as a percent of sales decreased for both periods. Food & paper costs as a percent of sales increased for the quarter and were flat for the nine months. Payroll costs increased as a percent of sales for both periods, while occupancy & other expenses as a percent of sales were flat for the quarter and increased for the nine months. As a percent of sales, U.S. Company-operated margins decreased for the quarter and increased for the nine months. Food & paper costs as a percent of sales decreased for both periods, while payroll costs increased for both periods. Occupancy & other operating expenses increased for the quarter and were flat for the nine months. Outside 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 and payroll costs increased for the quarter and nine months, while occupancy & other operating expenses were flat for the quarter and increased for the nine months. Economic difficulties in Brazil and Russia negatively impacted the Company- operated margin percent outside the U.S., accounting for about 70 percent of the decline for both periods. Franchised margin dollars comprised more than 60 percent of the combined operating margins for both periods, the same as in the prior year. Franchised margin dollars increased six percent for the quarter and seven percent for the nine months, while franchised margins as a percent of applicable revenues decreased for the quarter and the nine months. As a percent of revenues, U.S. franchised margins increased for the quarter and the nine months, primarily due to positive comparable sales growth. Higher occupancy costs and the consolidation, for financial reporting purposes, of Sweden in 1999 negatively affected the franchised margin percent outside the U.S. in both periods. Selling, General & Administrative Expenses Selling, general & administrative expenses increased two percent for the quarter and were flat for the nine months. In the U.S., selling, general & administrative expenses decreased for both periods due to savings as a result of the home office productivity initiative. This decrease was less in the quarter than for the nine months since the productivity initiative savings were realized beginning in third quarter 1998 and due to an increase in performance based incentive compensation in third quarter 1999. Outside the U.S., selling, general & administrative expenses increased at a rate substantially less than the sales growth rates for both periods. The consolidation, for financial reporting purposes, of Sweden in 1999 and spending to support restaurant development primarily drove the increases. As a result of the home office productivity initiative, the Company expects to save about $100 million of selling, general & administrative expenses per year, beginning in 2000, with about two-thirds of the annual savings expected to be realized in 1999. About $15 million of these savings were realized in 1998. 10
<TABLE> <CAPTION> Other Operating (Income) Expense - ------------------------------------------------------------------------------------------------------------------------- Other operating (income) expense - Quarters ended Nine months ended Brand McDonald's September 30 September 30 ------------------------ -------------------------- Dollars in millions 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Gains on sales of restaurant businesses $(16.2) $(10.5) $ (38.6) $(32.5) - ------------------------------------------------------------------------------------------------------------------------- Equity in earnings of unconsolidated affiliates (36.5) (31.5) (111.7) (65.9) - ------------------------------------------------------------------------------------------------------------------------- Other (income) expense 9.8 12.5 75.1 60.5 - ------------------------------------------------------------------------------------------------------------------------ Other operating (income) expense $(42.9) $(29.5) $ (75.2) $(37.9) - ------------------------------------------------------------------------------------------------------------------------ Made for You costs $ 7.0 $ 10.6 $ 17.3 $ 15.6 - ------------------------------------------------------------------------------------------------------------------------ Special charge - - - $160.0 - ------------------------------------------------------------------------------------------------------------------------ </TABLE> Other operating (income) expense consists of transactions related to franchising and the food service business. The increase for the nine months in equity in earnings of unconsolidated affiliates was primarily due to a second quarter gain from the sale of real estate in a U.S. partnership. Results in Japan, which benefited from a lower effective tax rate and the stronger Japanese Yen, also contributed to the increases for both periods. Costs associated with implementation of the Made for You food preparation system related primarily to accelerated depreciation on equipment being replaced in U.S. Company-operated restaurants. The special charge in the second quarter 1998 reflected employee severance and outplacement, consolidation of facilities and other costs in connection with the home office productivity initiative. Operating Income Operating income increased $74 million, or nine percent for the quarter, and $221 million, or ten percent for the nine months, excluding the second quarter 1998 special charge. For both periods, these increases were primarily driven by higher combined operating margin dollars and higher other operating income, partly offset by weaker foreign currencies. <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------- Operating income - 1999 1998 Increase/(Decrease) Brand McDonald's (1) - ------------------------------------------------------------------------------------------------------------- Dollars in millions As In Constant Reported Currencies* - ------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Quarters ended September 30 - ------------------------------------------------------------------------------------------------------------- U.S. $ 389.6 $ 350.6 11% n/a - ------------------------------------------------------------------------------------------------------------- Europe 324.8 303.7 7 12% - ------------------------------------------------------------------------------------------------------------- Asia/Pacific 119.8 98.9 21 9 - ------------------------------------------------------------------------------------------------------------- Latin America 36.5 46.4 (21) 1 - ------------------------------------------------------------------------------------------------------------- Other 38.3 35.6 8 7 - ------------------------------------------------------------------------------------------------------------- Total operating income $ 909.0 $ 835.2 9% 11% - ------------------------------------------------------------------------------------------------------------- Nine months ended September 30 - ------------------------------------------------------------------------------------------------------------- U.S. (2) $1,132.8 $ 846.3 34% n/a - ------------------------------------------------------------------------------------------------------------- Europe 881.1 806.1 9 12% - ------------------------------------------------------------------------------------------------------------- Asia/Pacific 305.0 254.7 20 12 - ------------------------------------------------------------------------------------------------------------- Latin America 94.1 124.5 (24) (4) - ------------------------------------------------------------------------------------------------------------- Other 92.4 93.1 (1) 1 - ------------------------------------------------------------------------------------------------------------- Total operating income (2) $2,505.4 $2,124.7 18 19 - ------------------------------------------------------------------------------------------------------------- </TABLE> * Excluding the effect of foreign currency translation on reported results. (1) For financial reporting purposes, Corporate selling, general & administrative expenses (costs related to home office support of the Company's global business) were allocated to the various geographic segments, beginning in 1999. Prior year amounts have been restated to conform to this presentation. (2) Excluding the second quarter 1998 $160 million special charge related to the home office productivity initiative, U.S. operating income increased 13% and total operating income increased 10%, 11% in constant currencies. n/a Not applicable U.S. operating income increased $39 million, or 11 percent for the quarter and increased $127 million, or 13 percent for the nine months, excluding the second quarter 1998 special charge. The increases in both periods were driven by higher combined operating margin dollars, higher other operating income and lower selling, general & administrative expenses. 11
Europe's operating income increased 12 percent for both the quarter and nine months in constant currencies. The strong results in France, Germany, Italy, Spain and the U.K. drove this segment's performance in both periods. Additionally, Europe's operating income benefited from the consolidation of Sweden, due to an increase in ownership, but was dampened by the difficult economic conditions in Russia, which began in September 1998. Excluding Russia, Europe's constant currency operating income increased 15 percent for the quarter and 16 percent for the nine months. Operating income in Asia/Pacific increased nine percent for the quarter and 12 percent for the nine months in constant currencies, despite Japan's economic weakness and difficult comparisons with strong third quarter 1998 price-value promotions. For the quarter, the increase was primarily due to strong results in Australia and improved results in China, and for the nine months the increase was primarily due to Japan, which benefited from a lower effective tax rate. In both periods, improved results in several Southeast Asia markets contributed to the increases. The late September earthquake in Taiwan will likely temper fourth quarter results for Asia/Pacific, due primarily to its temporary negative impact on consumer spending patterns. Latin America's operating income increased one percent for the quarter and decreased four percent for the nine months in constant currencies. Difficult economic conditions in Brazil and other parts of the region, along with Brazil's currency devaluation, had a significant adverse effect on this segment's operating results. We are cautiously optimistic that improvements in the Brazilian economy and actions we have taken will continue to improve operating results as we move forward. Mexico and Venezuela contributed positively to this segment's performance with strong results in both periods. Summary of Operating Results by Brand The following table summarizes key operating results of Brand McDonald's and our Other Brands. <TABLE> <CAPTION> - -------------------------------------------------------------------------------------------------------------------------- Summary of Operating Results by Brand - -------------------------------------------------------------------------------------------------------------------------- Dollars in millions Brand Other McDonald's Brands Consolidated - -------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Quarter ended September 30, 1999 - -------------------------------------------------------------------------------------------------------------------------- Systemwide sales $ 9,961.5 $36.3 $ 9,997.8 - -------------------------------------------------------------------------------------------------------------------------- Revenues 3,422.0 22.2 3,444.2 - -------------------------------------------------------------------------------------------------------------------------- Combined operating margins 1,238.0 3.8 1,241.8 - -------------------------------------------------------------------------------------------------------------------------- Selling, general & administrative expenses 364.9 3.1 368.0 - -------------------------------------------------------------------------------------------------------------------------- Operating income (loss) $ 909.0 $(1.3) $ 907.7 - -------------------------------------------------------------------------------------------------------------------------- Nine months ended September 30, 1999 - -------------------------------------------------------------------------------------------------------------------------- Systemwide sales $28,694.9 $46.1 $28,741.0 - -------------------------------------------------------------------------------------------------------------------------- Revenues 9,864.2 22.2 9,886.4 - -------------------------------------------------------------------------------------------------------------------------- Combined operating margins 3,517.8 3.8 3,521.6 - -------------------------------------------------------------------------------------------------------------------------- Selling, general & administrative expenses 1,070.3 3.1 1,073.4 - -------------------------------------------------------------------------------------------------------------------------- Operating income (loss) $ 2,505.4 $(2.6) $ 2,502.8 - -------------------------------------------------------------------------------------------------------------------------- </TABLE> Interest and Nonoperating Expense and Income Taxes Lower interest expense in both periods reflected lower average interest rates and weaker foreign currencies, partly offset by higher debt levels. Nonoperating (income) expense reflected lower translation losses for the quarter compared with 1998, and higher translation losses for the nine months. The effective income tax rate was 32.4 percent for the quarter and 32.8 percent for the nine months of 1999 compared with 32.8 percent for the quarter and 32.9 percent for the nine months of 1998. 12
IMPACT OF FOREIGN CURRENCIES ON REPORTED RESULTS While changing foreign currencies affect reported results, McDonald's lessens exposures, where practical, by financing in local currencies, hedging certain foreign-denominated cash flows and by purchasing goods and services in local currencies. The primary currencies positively affecting reported results in both periods were the Australian Dollar, the Japanese Yen and the Southeast Asian currencies. The Brazilian Real, the British Pound, and the Euro, which encompasses 11 of our European markets including Germany and France, had a negative effect on reported results in both periods. <TABLE> <CAPTION> - --------------------------------------------------------------------------------------------------------------------------------- Effect of foreign currency translation on Increase worldwide reported results - Consolidated Over Prior Period - --------------------------------------------------------------------------------------------------------------------------------- Dollars in millions, except per As In Constant As In Constant common share data Reported Currencies* Change Reported Currencies* - --------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Quarter ended September 30, 1999 - --------------------------------------------------------------------------------------------------------------------------------- Systemwide sales $ 9,997.8 $ 9,994.0 $ (3.8) 8% 8% - --------------------------------------------------------------------------------------------------------------------------------- Total revenues 3,444.2 3,532.1 87.9 7 10 - --------------------------------------------------------------------------------------------------------------------------------- Operating income 907.7 922.9 15.2 9 11 - --------------------------------------------------------------------------------------------------------------------------------- Net income 540.9 550.7 9.8 12 14 - --------------------------------------------------------------------------------------------------------------------------------- Net income per common share - diluted .39 .39 - 15 15 - --------------------------------------------------------------------------------------------------------------------------------- Nine months ended September 30, 1999 - --------------------------------------------------------------------------------------------------------------------------------- Systemwide sales $28,741.0 $28,783.1 $ 42.1 8% 8% - --------------------------------------------------------------------------------------------------------------------------------- Total revenues 9,886.4 10,091.4 205.0 7 10 - --------------------------------------------------------------------------------------------------------------------------------- Operating income (1) 2,502.8 2,530.9 28.1 10 11 - --------------------------------------------------------------------------------------------------------------------------------- Net income (1) 1,461.7 1,481.7 20.0 11 13 - --------------------------------------------------------------------------------------------------------------------------------- Net income per common share - diluted (1) 1.04 1.05 .01 12 13 - --------------------------------------------------------------------------------------------------------------------------------- </TABLE> * Excluding the effect of foreign currency translation on reported results. (1) The percentage increase over the prior period excludes the second quarter 1998 $160 million special charge ($110 million after tax or $.08 per diluted share) related to the home office productivity initiative. MADE FOR YOU SYSTEM In 1998, the Company announced the introduction of Made for You, a new food preparation system that is expected to be installed in virtually all restaurants in the U.S. and Canada by the end of 1999. Over 12,000 restaurants, including all Canadian and about 90 percent of U.S. restaurants, are currently using the new system. Through advances in equipment and technology, the new system allows us to serve fresher, better-tasting food at the speed of McDonald's. The system also supports future growth through product development because it can more easily accommodate an expanded menu. The Company is providing financial incentives of up to $12,500 per restaurant to owner/operators to defray the cost of equipment made obsolete as a result of converting to the new system. The Company is also making additional payments in special cases where the conversion to Made for You is more extensive. In 1999, the Company expects to incur about $30 million related to the implementation of Made for You, consisting of about $15 million of incentive payments and $15 million of accelerated depreciation on equipment being replaced in Company-operated restaurants. The Company incurred $7.0 million in the third quarter and $17.3 million for the nine months. The Company expects to use cash provided by operations to fund the financial incentive payments provided to owner/operators. SPECIAL CHARGE In the second quarter 1998, the Company recorded a $160 million pre-tax special charge related to the results of the Company's home office productivity initiative. The Company's home office productivity plan is designed to improve staff alignment, focus and productivity and reduce ongoing selling, general and administrative expenses. As a result of this initiative, the Company has reduced home office staffing by approximately 525 positions, is consolidating certain home office facilities and has reduced other expenditures in a variety of areas. The $160 million charge was primarily comprised of costs associated with employee severance and outplacement and with the facilities consolidation. The Company expects to use cash provided by operations to fund the remaining severance payments and other cash costs related to the productivity initiative. 13
FINANCIAL POSITION Free cash flow - cash provided by operations less capital expenditures - for the nine months ended September 30, 1999 increased $480.1 million to $1,127.4 million. Together with other sources of cash such as borrowings, free cash flow was used primarily for share repurchases, debt repayments, and dividends. The consolidated capital expenditure decrease of 8% for the nine months ended September 30, 1999 was primarily due to fewer restaurant additions, weaker foreign currencies and the continued focus on more efficient capital deployment. The Company expects to add about 1,750 restaurants this year, with about 90 percent in locations outside the U.S. NEW ACCOUNTING STANDARD - FINANCIAL INSTRUMENTS In June 1998, the Financial Accounting Standards Board issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, subsequently amended by Statement No. 137, which is required to be adopted in years beginning after June 15, 2000. The Statement will require the Company to recognize all derivatives on the balance sheet at fair value. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged item, through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The Company expects to adopt the new Statement effective January 1, 2001. Management does not anticipate that the adoption will have a significant effect on the Company's results of operations or financial position. YEAR 2000 The Company assessed its computerized systems to determine their ability to correctly identify the Year 2000 and has devoted the necessary internal and external resources to replace, upgrade or modify all of its significant systems which did not correctly identify the Year 2000. All necessary modifications, testing and replacements of significant systems have been completed. In addition, the Company has assessed the extent to which its operations may be affected by the compliance efforts of its significant suppliers and owner/operators and is taking the necessary steps to minimize potential problems. The Company has implemented a Systemwide supply chain compliance monitoring program, which encompasses supplier risk assessment and compliance validation for significant suppliers. The assessment and compliance validation process has been completed for all key U.S. and global suppliers as well as significant local suppliers in many of the Company's international markets. In addition, the Company has communicated the business risks associated with the Year 2000 to its owner/operators and is providing technical support to assist them in determining and resolving any Year 2000 issues experienced. Management does not expect Year 2000 issues relating to internal systems, its owner/operators or suppliers to pose significant operational or financial difficulties for the Company; however, in the unlikely event McDonald's, a significant number of its owner/operators or key suppliers are unable to resolve their issues in a timely manner, such matters could have a material impact on the Company's results of operations. In addition, failures related to Year 2000 issues by providers of infrastructure services could have a material adverse effect on results of operations. Possible consequences include delays in the delivery of products to restaurants and temporary isolated restaurant closures. Contingency plans continue to be developed, to the extent feasible, to address Year 2000 issues that might arise at the Company, with its owner/operators, within the supply chain or by infrastructure service providers. The plans include certain suppliers maintaining an increased inventory of critical products and equipment, developing alternative methods of transportation to deliver products to the restaurants, establishing back-up cash management procedures and increasing restaurant support. In addition, the Company has established a global crisis management process to ensure the rapid response to, and resolution of any unforeseen Year 2000 problems that may occur. The Company has also put a technology freeze in place, whereby no new systems or enhancements to existing systems are being implemented, from October 1, 1999 through February 15, 2000 to minimize the risk of unplanned disruptions to critical year-end processes. Modification and testing costs are expensed as incurred, while the costs of new systems are capitalized. The Company expects its total Year 2000 costs to be about $80 million, of which $78 million was spent through September 30, 1999, including $25 million of capitalized costs related to new systems. The total Year 2000 costs have not and are not expected to have a material adverse impact on the Company's financial position, results of operations or cash flows. All Year 2000 statements contained herein are designated as "Year 2000 Readiness Disclosures" pursuant to the Year 2000 Information and Readiness Disclosure Act of 1998. 14
EURO CONVERSION On January 1, 1999, 11 member countries of the European Union established fixed conversion rates between their existing currencies ("legacy currencies") and one common currency, the Euro. The Euro is now trading on currency exchanges and may be used in certain transactions such as electronic payments. Beginning in January 2002, new Euro-denominated notes and coins will be issued, and legacy currencies will be withdrawn from circulation. The conversion to the Euro has eliminated currency exchange rate risk for transactions between the member countries, which for the Company, primarily consist of payments to suppliers. In addition, since the Company uses foreign-denominated debt and derivatives to meet its financing requirements and to minimize its foreign currency risks, certain of these financial instruments are now being denominated in Euros. The Company has restaurants located in all member countries and has been preparing for the introduction of the Euro for the past several years. The Company is currently addressing the issues involved with the new currency, which include converting information technology systems, recalculating currency risk, recalibrating derivatives and other financial instruments and revising processes for preparing accounting and taxation records. Based on the work to date, the Company does not believe the Euro conversion will have a significant impact on the Company's financial position, results of operations or cash flows. FORWARD-LOOKING STATEMENTS Certain forward-looking statements are included in this report. They use such words as "may," "will," "expect," "believe," "plan" and other similar terminology. These statements reflect management's current expectations and involve a number of risks and uncertainties. Actual results could differ materially due to the effectiveness of operating initiatives, advertising and promotional efforts, and Year 2000 compliance and Euro conversion efforts of the Company, its owner/operators, suppliers and service providers, as well as changes in: global and local business and economic conditions; currency exchange and interest rates; food, labor and other operating costs; political or economic instability in local markets; competition; consumer preferences, spending patterns and demographic trends; availability and cost of land and construction; legislation and government regulation; and accounting policies and practices. 15
<TABLE> <CAPTION> - ----------------------------------------------------------------------------------------------- THIRD QUARTER AND NINE MONTHS HIGHLIGHTS - ----------------------------------------------------------------------------------------------- FINANCIAL INFORMATION - BRAND McDONALD'S Quarters ended Nine months ended September 30 September 30 Dollars in millions 1999 1998 1999 1998 - ----------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Systemwide sales by type Operated by franchisees $6,154.6 $5,740.4 $17,853.1 $16,602.0 Operated by the Company 2,452.5 2,305.7 7,065.7 6,590.4 Operated by affiliates 1,354.4 1,200.1 3,776.1 3,471.1 - ----------------------------------------------------------------------------------------------- Systemwide sales 9,961.5 9,246.2 28,694.9 26,663.5 - ----------------------------------------------------------------------------------------------- Restaurant margins Company-operated ---------------- U.S. 17.2% 17.5% 17.8% 17.7% Outside the U.S. 19.2% 19.6% 18.0% 18.8% Franchised ---------- U.S. 81.2% 80.9% 81.3% 81.2% Outside the U.S. 80.1% 81.3% 79.4% 80.6% - ----------------------------------------------------------------------------------------------- <CAPTION> RESTAURANTS - BRAND McDONALD'S - ------------------------------------------------------------------------------------------ At September 30, 1999 1998 - ------------------------------------------------------------------------------------------ <S> <C> <C> By type Operated by franchisees 15,713 14,932 Operated by the Company 5,909 5,350 Operated by affiliates 4,137 3,847 - ------------------------------------------------------------------------------------------ Systemwide restaurants 25,759 24,129 - ------------------------------------------------------------------------------------------ <CAPTION> Quarters ended Nine months ended September 30 September 30 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> Additions U.S. 39 18 57 44 Europe 131 124 268 314 Asia/Pacific 138 142 344 410 Latin America 66 97 215 166 Other 44 22 75 63 - ------------------------------------------------------------------------------------------ Systemwide additions 418 403 959 997 - ------------------------------------------------------------------------------------------ <CAPTION> RESTAURANTS - OTHER BRANDS - ------------------------------------------------------------------------------------------ At September 30, 1999 1998 - ------------------------------------------------------------------------------------------ <S> <C> <C> Donatos Pizza 147 * Chipotle Mexican Grill 29 16 Aroma Cafe 19 * - ------------------------------------------------------------------------------------------ TOTAL OTHER BRANDS 195 16 - ------------------------------------------------------------------------------------------ </TABLE> *Business acquired in 1999. 16
Item 3. Quantitative and Qualitative Disclosures About Market Risk There are no material changes to the disclosure made in the Annual Report on Form 10-K for the year ended December 31, 1998 regarding this matter. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit Number Description - -------------- ----------- (3) Restated Certificate of Incorporation, effective as of March 24, 1998, incorporated herein by reference from Form 8-K dated April 17, 1998. By-Laws, effective as of July 8, 1998, incorporated herein by reference from Form 10-Q for the quarter ended June 30, 1998. (4) Instruments defining the rights of security holders, including Indentures (A): (a) Senior Debt Securities Indenture dated as of October 19, 1996 incorporated herein by reference from Exhibit 4(a) of Form S-3 Registration Statement (File No. 333-14141). (i) 6 3/8% Debentures due January 8, 2028. Supplemental Indenture No. 1 dated as of January 8, 1998, incorporated herein by reference from Exhibit (4)(a) of Form 8-K dated January 5, 1998. (ii) 5.90% REset Put Securities due 2011. Supplemental Indenture No. 2 dated as of May 11, 1998, incorporated herein by reference from Exhibit 4(a) of Form 8-K dated May 6, 1998. (iii) 6% REset Put Securities due 2012. Supplemental Indenture No. 3 dated as of June 23, 1998, incorporated herein by reference from Exhibit 4(a) of Form 8-K dated June 18, 1998. (iv) Medium-Term Notes, Series F, due from 1 year to 60 years from the Date of Issue. Supplemental Indenture No. 4 incorporated herein by reference from Exhibit (4) (c) of Form S-3 Registration Statement (File No. 333-59145), dated July 15, 1998. (b) Subordinated Debt Securities Indenture dated as of October 18, 1996, incorporated herein by reference from Form 8-K dated October 18, 1996. (i) 7 1/2% Subordinated Deferrable Interest Debentures due 2036. Supplemental Indenture No. 1 dated as of November 5, 1996, incorporated herein by reference from Exhibit (4)(b) of Form 8-K dated October 18, 1996. (ii) 7 1/2% Subordinated Deferrable Interest Debentures due 2037. Supplemental Indenture No. 2 dated as of January 14, 1997, incorporated herein by reference from Exhibit (4)(b) of Form 8-K dated January 9, 1997. (iii) 7.31% Subordinated Deferrable Interest Debentures due 2027. Supplemental Indenture No. 3 dated September 24, 1997, incorporated herein by reference from Exhibit (4)(b) of Form 8-K dated September 19, 1997. (c) Debt Securities. Indenture dated as of March 1, 1987 incorporated herein by reference from Exhibit 4(a) of Form S-3 Registration Statement (File No. 33-12364). (i) Medium-Term Notes, Series B, due from nine months to 30 years from Date of Issue. Supplemental Indenture No. 12 incorporated herein by reference from Exhibit (4) of Form 8-K dated August 18, 1989 and Forms of Medium-Term Notes, Series B, incorporated herein by reference from Exhibit (4)(b) of Form 8-K dated September 14, 1989. 17
Exhibit Number Description - -------------- ----------- (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) 6-3/4% Notes due February 15, 2003. Form of Supplemental Indenture No. 20 incorporated herein by reference from Exhibit (4) of Form 8-K dated March 1, 1993. (vii) 7-3/8% Debentures due July 15, 2033. Form of Supplemental Indenture No. 21 incorporated herein by reference from Exhibit (4)(a) of Form 8-K dated July 15, 1993. (viii) Medium-Term Notes, Series E, due from nine months (U.S. Issue)/ 184 days (Euro Issue) to 60 years from the Date of Issue. Supplemental Indenture No. 22 incorporated herein by reference from Exhibit 4(b) of Form S-3 Registration Statement (File No. 33-60939), dated July 13, 1995. (ix) 6-5/8% Notes due September 1, 2005. Form of Supplemental Indenture No. 23 incorporated herein by reference from Exhibit (4)(a) of Form 8-K dated September 5, 1995. (x) 7.05% Debentures due 2025. Form of Supplemental Indenture No. 24 incorporated herein by reference from Exhibit (4)(a) of Form 8-K dated November 13, 1995. (d) Indenture and Supplemental Indenture No. 1 dated as of September 8, 1989, between McDonald's Matching and Deferred Stock Ownership Trust, McDonald's Corporation and Pittsburgh National Bank in connection with SEC Registration Statement Nos. 33-28684 and 33-28684-01, incorporated herein by reference from Exhibit (4)(a) of Form 8-K dated September 14, 1989. (e) Form of Supplemental Indenture No. 2 dated as of April 1, 1991, supplemental to the Indenture between McDonald's Matching and Deferred Stock Ownership Trust, McDonald's Corporation and Pittsburgh National Bank in connection with SEC Registration Statement Nos. 33-28684 and 33-28684-01, incorporated herein by reference from Exhibit (4)(c) of Form 8-K dated March 22, 1991. (10) Material Contracts (a) Directors' Stock Plan, as amended and restated, incorporated herein by reference from Exhibit 10(a) of Form 10-Q for the quarter ended September 30, 1997.* (b) Profit Sharing Program, as amended and restated, incorporated by reference from Form 10-K for the year ended December 31, 1998.* (i) First amendment to the McDonald's Profit Sharing Program filed herewith.* (c) McDonald's Supplemental Employee Benefit Equalization Plan, McDonald's Profit Sharing Program Equalization Plan and McDonald's 1989 Equalization Plan, as amended and restated, incorporated herein by reference from Form 10-K for the year ended December 31, 1995.* (d) 1975 Stock Ownership Option Plan, as amended and restated, incorporated by reference from Form 10-Q for the quarter ended June 30, 1999.* 18
(e) 1992 Stock Ownership Incentive Plan, as amended and restated, incorporated by reference from Form 10-Q for the quarter ended June 30, 1999.* (f) McDonald's Corporation Deferred Income Plan, as amended and restated, filed herewith.* (g) 1999 Non-Employee Director Stock Option Plan, incorporated by reference from Form 10-Q for the quarter ended June 30, 1999.* (h) Executive Retention Plan, incorporated by reference from Form 10-K for the year ended December 31, 1998.* (12) Statement re: Computation of Ratios (27) Financial Data Schedule (99) Press Release dated November 2, 1999 -- McDonald's Corporation's 1999 Biennial Analyst Meeting Highlights _______________________ * 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 10, 1999. Financial Statements Date of Report Item Number Required to be Filed -------------- ----------- -------------------- 9/29/99 Item 7 No 10/21/99 Item 7 No 19
SIGNATURE --------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. McDONALD'S CORPORATION (Registrant) By /s/ Michael L. Conley --------------------- (Signature) Michael L. Conley Executive Vice President, Chief Financial Officer November 10, 1999 - ----------------- 20