<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-5231 ---------- ----------
------
McDONALD'S CORPORATION
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 36-2361282
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
McDonald's Plaza, Oak Brook, Illinois 60521
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (630) 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
--- ---
697,713,217
---------------------------------
(Number of shares of common stock
outstanding as of September 30, 1996)<PAGE>
<PAGE> 2
McDONALD'S CORPORATION
----------------------
INDEX
-----
Page Reference
Part I. Financial Information
Item 1 - Financial Statements
Condensed consolidated balance sheet,
September 30, 1996 (unaudited) and
December 31, 1995 3
Condensed consolidated statement of
income (unaudited), nine months and
third quarters ended September 30, 1996
and 1995 4
Condensed consolidated statement of
cash flows (unaudited), nine months and
third quarters ended September 30, 1996
and 1995 5
Financial comments (unaudited) 6
Item 2 - Management's Discussion and
Analysis of Financial Condition
and Results of Operations 7
Part II. Other Information
Item 6 - Exhibits and Reports on Form 8-K 16
(a) Exhibits
The exhibits listed in the
accompanying Exhibit Index are
filed as part of this report 16
(b) Reports on Form 8-K 20
Signature 21<PAGE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
-----------------------------
<TABLE>
CONDENSED CONSOLIDATED BALANCE SHEET
<CAPTION>
(unaudited)
Dollars in millions September 30, 1996 December 31, 1995
---------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents $ 255.5 $ 334.8
Accounts receivable 434.1 377.3
Notes receivable 35.1 36.3
Inventories, at cost, not in excess
of market 61.0 58.0
Prepaid expenses and other current
assets 170.1 149.4
---------------------------------------------------------------------------
TOTAL CURRENT ASSETS 955.8 955.8
---------------------------------------------------------------------------
OTHER ASSETS AND DEFERRED CHARGES 1,112.0 1,112.7
---------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Property and equipment, at cost 18,468.7 17,137.6
Accumulated depreciation and
amortization (4,660.3) (4,326.3)
---------------------------------------------------------------------------
NET PROPERTY AND EQUIPMENT 13,808.4 12,811.3
---------------------------------------------------------------------------
INTANGIBLE ASSETS-NET 666.9 534.8
---------------------------------------------------------------------------
TOTAL ASSETS $16,543.1 $15,414.6
===========================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 497.2 $ 413.0
Accounts payable 446.5 564.3
Income taxes 120.1 55.4
Other taxes 127.3 127.1
Accrued interest 99.3 117.4
Other accrued liabilities 371.2 352.5
Current maturities of long-term debt 105.4 165.2
---------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,767.0 1,794.9
---------------------------------------------------------------------------
LONG-TERM DEBT 4,618.3 4,257.8
OTHER LONG-TERM LIABILITIES AND
MINORITY INTERESTS 709.8 664.7
DEFERRED INCOME TAXES 893.6 835.9<PAGE>
SHAREHOLDERS' EQUITY
Preferred stock, no par value;
authorized - 165.0 million shares;
issued - 7.2 thousand 358.0 358.0
Common stock, 1996-$.01 par;
1995-no par value; authorized,
1996-3.5 billion shares;
1995-1.25 billion shares;
issued-830.3 million 8.3 92.3
Additional paid-in capital 548.0 387.4
Guarantee of ESOP notes (213.6) (214.2)
Retained earnings 10,822.0 9,831.3
Foreign currency translation
adjustment (144.1) (87.1)
---------------------------------------------------------------------------
11,378.6 10,367.7
---------------------------------------------------------------------------
Common stock in treasury, at cost;
132.6 and 130.6 million shares (2,824.2) (2,506.4)
---------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 8,554.4 7,861.3
---------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $16,543.1 $15,414.6
===========================================================================
See accompanying Financial comments.
/TABLE
<PAGE>
<PAGE> 4
<TABLE>
CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
<CAPTION>
Dollars in millions, except Nine Months Ended Quarters Ended
per common share data September 30 September 30
1996 1995 1996 1995
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Sales by Company-operated
restaurants $5,565.2 $5,051.3 $1,965.6 $1,811.9
Revenues from franchised
restaurants 2,299.7 2,157.7 808.2 768.2
------------------------------------------------------------------------------
TOTAL REVENUES 7,864.9 7,209.0 2,773.8 2,580.1
------------------------------------------------------------------------------
OPERATING COSTS AND EXPENSES
Company-operated restaurants 4,524.5 4,070.9 1,582.1 1,448.0
Franchised restaurants-
occupancy expenses 420.1 377.7 142.2 131.7
General, administrative and
selling expenses 985.4 894.9 347.9 314.1
Other operating (income)
expense-net (83.7) (89.7) (42.4) (35.8)
------------------------------------------------------------------------------
TOTAL OPERATING COSTS
AND EXPENSES 5,846.3 5,253.8 2,029.8 1,858.0
------------------------------------------------------------------------------
OPERATING INCOME 2,018.6 1,955.2 744.0 722.1
------------------------------------------------------------------------------
Interest expense 252.3 252.5 84.7 86.1
Nonoperating income
(expense)-net (38.8) (73.2) (9.4) (26.5)
------------------------------------------------------------------------------
INCOME BEFORE PROVISION FOR
INCOME TAXES 1,727.5 1,629.5 649.9 609.5
------------------------------------------------------------------------------
Provision for income taxes 564.9 569.0 209.3 209.4
------------------------------------------------------------------------------
NET INCOME $1,162.6 $1,060.5 $ 440.6 $ 400.1
==============================================================================
NET INCOME PER COMMON
SHARE $ 1.63 $ 1.46 $ 0.62 $ 0.56
------------------------------------------------------------------------------
Weighted average common shares
outstanding 699.1 699.6 697.8 698.4
------------------------------------------------------------------------------
See accompanying Financial comments.
/TABLE
<PAGE>
<PAGE> 5
<TABLE>
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<CAPTION>
Nine Months Ended Quarters Ended
September 30 September 30
Dollars in millions 1996 1995 1996 1995
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income $1,162.6 $1,060.5 $440.6 $400.1
Adjustments to reconcile to cash
provided by operations
Depreciation and amortization 546.7 521.8 175.1 175.9
Changes in operating working
capital items 12.7 72.3 106.7 153.0
Other 0.5 (34.4) (20.7) (51.1)
-------------------------------------------------------------------------------
CASH PROVIDED BY OPERATIONS 1,722.5 1,620.2 701.7 677.9
-------------------------------------------------------------------------------
INVESTING ACTIVITIES
Property and equipment expenditures (1,599.2) (1,380.7) (614.7) (587.8)
Purchases and sales of restaurant
businesses and sales of other property 37.4 72.5 20.0 52.3
Other (218.8) (120.2) (132.1) (35.7)
-------------------------------------------------------------------------------
CASH USED FOR INVESTING ACTIVITIES (1,780.6) (1,428.4) (726.8) (571.2)
-------------------------------------------------------------------------------
FINANCING ACTIVITIES
Notes payable and long-term
financing issuances and repayments 463.0 350.3 150.2 123.5
Treasury stock purchases (395.5) (284.1) (156.0) (195.0)
Common and preferred stock dividends (172.6) (170.6) (60.6) (56.2)
Other 83.9 50.3 1.3 19.6
-------------------------------------------------------------------------------
CASH USED FOR FINANCING ACTIVITIES (21.2) (54.1) (65.1) (108.1)
-------------------------------------------------------------------------------
CASH AND EQUIVALENTS INCREASE
(DECREASE) (79.3) 137.7 (90.2) (1.4)
-------------------------------------------------------------------------------
Cash and equivalents at beginning of
period 334.8 179.9 345.7 319.0
-------------------------------------------------------------------------------
CASH AND EQUIVALENTS AT END OF PERIOD $255.5 $317.6 $255.5 $317.6
===============================================================================
See accompanying Financial comments.
/TABLE
<PAGE>
<PAGE> 6
FINANCIAL COMMENTS (UNAUDITED)
BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements in the
Company's 1995 Annual Report to Shareholders. In the opinion of the
Company, all adjustments (consisting of normal recurring accruals)
necessary for a fair presentation have been included.
The results of operations of restaurant businesses purchased and
sold were not material to the condensed consolidated financial
statements for periods prior to purchase and sale.
NET INCOME PER COMMON SHARE
Net income per common share was computed using net income, reduced by
preferred stock cash dividends (net of tax) of $20.7 and $31.8 million
for the first nine months of 1996 and 1995, and $6.9 and $8.0 million
for the third quarters of 1996 and 1995, respectively. In addition,
net income per common share for the first nine months of 1995 was
reduced by $4.3 million for the one-time effect of the exchange of
preferred stock for debt completed in June 1995. Adjusted net income
was divided by the weighted average shares of common stock
outstanding: 699.1 and 699.6 million for the nine months ended
September 30, 1996 and 1995, and 697.8 and 698.4 million for the third
quarters of 1996 and 1995, respectively. During 1995, shares of Series
B and C Preferred Stock were converted into 8.7 million common shares.
Including the effect of potentially dilutive securities, fully diluted
earnings per common share amounts were $1.59 and $1.42 for the nine
months ended September 30, 1996 and 1995, and $0.61 and $0.55 for the
third quarters of 1996 and 1995, respectively.
CAPITAL STOCK
In May 1996, the shareholders of the Company approved an increase in
the total number of authorized shares of Common Stock from 1.25
billion shares with no par value to 3.5 billion shares with $.01 par
value. The change in par value did not affect any of the existing
rights of shareholders and has been recorded as an adjustment to
additional paid-in capital and common stock.
NEW ACCOUNTING STANDARD - ASSET IMPAIRMENT
The Company adopted Statement of Financial Accounting Standard No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed of, in the first quarter 1996. This
statement requires impairment losses be recognized for long-lived
assets, whether these assets are held for disposal or continue to be
used in operations, when indicators of impairment are present and the
fair value of assets are estimated to be less than carrying amounts.
The fair value of assets was based on projected future cash flows. The
adoption of this standard resulted in a $16 million noncash pre-tax
charge in first quarter 1996 to other operating (income) expense,
equivalent to 2 cents per common share, related to restaurant sites in
Mexico.<PAGE>
<PAGE> 7
Item 2. Management's Discussion And Analysis Of Financial Condition
--------------------------------------------------------------------
And Results Of Operations
-------------------------
<TABLE>
INCREASES (DECREASES) IN OPERATING RESULTS OVER 1995
<CAPTION>
Dollars in millions, except Nine Months Third Quarter
per common share data Ended September 30 Ended September 30
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SYSTEMWIDE SALES $1,348.1 6% $419.5 5%
-------------------------------------------------------------------------
REVENUES
Sales by Company-operated
restaurants $513.9 10% $153.7 8%
Revenues from franchised
restaurants 142.0 7 40.0 5
-------------------------------------------------------------------------
TOTAL REVENUES 655.9 9 193.7 8
-------------------------------------------------------------------------
OPERATING COSTS AND EXPENSES
Company-operated restaurants 453.6 11 134.1 9
Franchised restaurants-
occupancy costs 42.4 11 10.5 8
General, administrative
and selling expenses 90.5 10 33.8 11
Other operating (income)
expense-net 6.0 (7) (6.6) 18
-------------------------------------------------------------------------
TOTAL OPERATING COSTS
AND EXPENSES 592.5 11 171.8 9
-------------------------------------------------------------------------
OPERATING INCOME 63.4 3 21.9 3
-------------------------------------------------------------------------
Interest expense (0.2) 0 (1.4) (2)
Nonoperating income
(expense)-net 34.4 (47) 17.1 (65)
-------------------------------------------------------------------------
INCOME BEFORE PROVISION FOR
INCOME TAXES 98.0 6 40.4 7
-------------------------------------------------------------------------
Provision for income taxes (4.1) (1) (0.1) 0
-------------------------------------------------------------------------
NET INCOME $102.1 10% $40.5 10%
=========================================================================
NET INCOME PER COMMON
SHARE $ .17 12% $ .06 11%
-------------------------------------------------------------------------
/TABLE
<PAGE>
<PAGE> 8
CONSOLIDATED OPERATING RESULTS
Net income and net income per common share increased 10 and 12 percent
for the nine months, respectively, and 10 and 11 percent for the
quarter, respectively. Excluding the noncash charge for the adoption
of SFAS 121, net income and net income per common share increased 11
and 13 percent for the nine months, respectively. In the first nine
months of 1996, the Company repurchased about $390 million of its
common stock.
Systemwide sales represent sales by Company-operated, franchised
and affiliated restaurants. Total revenues consist of sales by
Company-operated restaurants and fees from restaurants operated by
franchisees and affiliates. These fees are based upon a percent of
sales with specified minimum payments. The increases in sales and
revenues for both periods were due to worldwide expansion, offset in
part by negative comparable sales and weaker foreign currencies.
----------------------------------------------------------------------
SYSTEMWIDE RESTAURANT ADDITIONS Nine Months Quarters
Ended Ended
September 30 September 30
1996 1995 1996 1995
----------------------------------------------------------------------
Traditional restaurants
U.S. 319 326 136 142
Outside of the U.S. 878 568 450 250
----------------------------------------------------------------------
Total traditional restaurant 1,197 894 586 392
additions
----------------------------------------------------------------------
Satellite restaurants
U.S. 165 389 35 150
Outside of the U.S. 249 170 107 77
----------------------------------------------------------------------
Total satellite restaurant 414 559 142 227
additions
----------------------------------------------------------------------
Systemwide restaurants
U.S. 484 715 171 292
Outside of the U.S. 1,127 738 557 327
----------------------------------------------------------------------
Systemwide restaurant 1,611 1,453 728 619
additions
----------------------------------------------------------------------
TRADITIONAL RESTAURANTS UNDER CONSTRUCTION At September 30
1996 1995
----------------------------------------------------------------------
U.S. 191 203
Outside of the U.S. 396 313
----------------------------------------------------------------------
Total traditional restaurants under construction 587 516
----------------------------------------------------------------------<PAGE>
<PAGE> 9
Franchised margin dollars comprised about two-thirds of the
combined operating margins, the same as in the prior year. Franchised
margins as a percent of applicable revenues declined for both periods.
This decline reflected negative comparable sales and a higher
proportion of leased sites which have financing costs embedded in rent
expense, contrasted with owned sites whose financing costs are
reflected in interest expense. Company-operated margins as a percent
of sales decreased for both periods as food & paper and payroll costs
were relatively flat, while occupancy & other operating costs
increased as a percent of sales.
-----------------------------------------------------------------------
CONSOLIDATED OPERATING MARGINS Nine Months Ended Quarters Ended
September 30 September 30
1996 1995 1996 1995
-----------------------------------------------------------------------
In millions of dollars
Company-operated $1,040.7 $ 980.4 $383.5 $363.9
Franchised 1,879.6 1,780.0 666.0 636.5
As a percent of sales/revenues
Company-operated 18.7 19.4 19.5 20.1
Franchised 81.7 82.5 82.4 82.9
-----------------------------------------------------------------------
The increases in general, administrative & selling expenses were
primarily due to strategic global spending to support the Convenience,
Value and Execution Strategies including new country development and
new U.S. food taste initiatives.
The increases in consolidated operating income primarily reflected
higher combined operating margin dollars, partially offset by higher
general, administrative & selling expenses and lower other operating
income for the nine months.
Other operating (income) expense--net is composed of transactions
related to franchising and the foodservice business, the details of
which are shown in the following chart. The decrease in equity in
earnings for the nine months occurred primarily because of
nonrecurring income items recognized in 1995, partially offset by
stronger operating results from affiliates. A weaker Japanese Yen
contributed to the decreases for both periods. The increase in other
expenses for the nine months reflected the $16 million noncash charge
related to the adoption of SFAS 121 recorded in the first quarter of
1996 and increased provisions for property dispositions. The decrease
in other expenses for the quarter reflected lower provisions for
property dispositions.
------------------------------------------------------------------------
OTHER OPERATING (INCOME) Nine Months Ended Quarters Ended
EXPENSE-NET September 30 September 30
In millions of dollars 1996 1995 1996 1995
------------------------------------------------------------------------
Gains on sales of restaurant
businesses $(57.1) $(45.0) $(14.8) $(16.6)
Equity in earnings of
unconsolidated affiliates (60.8) (75.9) (26.4) (28.2)
Other 34.2 31.2 (1.2) 9.0
------------------------------------------------------------------------
Other operating (income)
expense--net $(83.7) $(89.7) $(42.4) $(35.8)
========================================================================<PAGE>
<PAGE> 10
The decreases in interest expense were due to lower average
interest rates and weaker foreign currencies, partially offset by
higher debt levels.
Nonoperating income (expense) was impacted by lower losses
associated with the Company's investment in Discovery Zone common
stock, as the carrying value of this investment was reduced to zero in
the first quarter of 1996. Nonoperating income (expense) also
reflected translation gains in 1996 compared to translation losses in
1995.
The effective income tax rate was 32.7 percent for the first nine
months of 1996, compared to 34.9 percent for the first nine months of
1995 and 34.2 percent for the year 1995. The 1996 decrease was
primarily due to lower taxes related to foreign operations. For the
year, the Company expects the effective tax rate to be about 32.5
percent.
U.S. OPERATING RESULTS
Restaurant expansion was responsible for increasing U.S. sales as we
added 899 restaurants in the last 12 months. Comparable U.S. sales
were negative for both periods reflecting an extremely competitive
U.S. operating environment, and at times, difficult comparisons and
severe weather. The U.S. business continued its emphasis on value and
customer satisfaction in the form of Extra Value Meals, Happy Meals
and the three-tier value program as well as through promotions like
"When the U.S. Wins, You Win" in July and Walt Disney World 25th
Anniversary collector glasses in September.
----------------------------------------------------------------------
U.S. OPERATING RESULTS Nine Months Ended Quarters Ended
September 30 September 30
1996 1995 1996 1995
----------------------------------------------------------------------
Percent increase/(decrease)
Sales 3 7 2 5
Revenues 3 8 1 6
Operating income (3) 3 (5) 2
----------------------------------------------------------------------
As a percent of sales/revenues
Company-operated margins 16.8 17.8 16.8 18.3
Franchised margins 81.7 82.7 82.1 82.6
----------------------------------------------------------------------
The decreases in U.S. operating income for both periods reflected
lower Company-operated margin dollars and higher general,
administrative & selling expenses, partially offset by higher
franchised margin dollars. Higher other operating expenses also
contributed to the nine month decrease.
The declines in Company-operated margins as a percent of sales
primarily resulted from higher payroll and occupancy & other operating
expenses, partially offset by lower food & paper costs. The declines
in franchised margins as a percent of revenues were due to negative
comparable sales and increased rent expense reflecting a higher
proportion of leased sites resulting from accelerated expansion.<PAGE>
<PAGE> 11
OPERATING RESULTS OUTSIDE OF THE U.S.
Expansion was primarily responsible for sales increases outside of the
U.S., offset in part by weaker foreign currencies. The difference
between the percentage increase in sales and revenues for both periods
is primarily due to the weakening Japanese Yen that had a greater
effect on sales versus revenues and the higher growth rate in Company-
operated versus franchised restaurants. If exchange rates had
remained at 1995 levels, sales outside of the U.S. would have
increased 15 and 14 percent for the nine months and quarter,
respectively.
----------------------------------------------------------------------
OPERATING RESULTS OUTSIDE OF Nine Months Ended Quarters Ended
THE U.S. September 30 September 30
1996 1995 1996 1995
----------------------------------------------------------------------
Percent increase
Sales 10 30 9 24
Revenues 14 31 13 25
Operating income 9 34 11 25
----------------------------------------------------------------------
As a percent of sales/revenues
Company-operated margins 19.8 20.5 21.0 21.2
Franchised margins 81.7 82.1 82.8 83.2
----------------------------------------------------------------------
Of the fifteen largest international markets, the following had
strong sales and operating income growth for the first nine months of
1996: Japan and Hong Kong in Asia/Pacific; and England, Italy, Spain
and Sweden in Europe. In the third quarter, Hong Kong, England,
Italy, Spain, Sweden and Taiwan had strong sales and operating income
growth. In Latin America, Brazil's results were good compared with
exceptional performance last year. Results in Mexico continued to be
weak due to its adverse economy and currency devaluation; however, we
continue to believe this market offers long-term potential and are
encouraged by recent improvement in operating results.
Our business in Canada, France and Germany continued to be negatively
impacted by weak economies.
The increases in operating income outside of the U.S. were driven
by higher combined operating margin dollars resulting from expansion
and cost efficiencies, partially offset by weaker foreign currencies
and higher general, administrative & selling expenses driven by new
country development. Excluding the impact of weaker foreign currencies
and the $16 million noncash charge for the adoption of the accounting
standard for asset impairment for restaurant sites in Mexico recorded
in the first quarter of 1996, operating income outside of the U.S.
increased 13 percent for the nine months and 14 percent for the
quarter.<PAGE>
<PAGE> 12
Company-operated margins as a percent of sales declined for both
periods, however, the decrease continued to narrow in the third
quarter. The slight decrease for the quarter was primarily due to
increases in occupancy & other operating costs, significantly offset
by lower payroll costs. Food & paper costs were relatively flat for
the quarter. For the nine months, food & paper and occupancy & other
operating costs increased, while payroll costs were relatively flat.
While Brazil and Taiwan contributed to the decline in Company-operated
margins for the nine months, margin trends in both markets improved in
the third quarter and strategic initiatives implemented in both
markets resulted in sales and market share gains.
Franchised margins as a percent of revenues decreased slightly for
both periods, reflecting pressure on comparable sales primarily in
Europe and Canada.
IMPACT OF FOREIGN CURRENCIES ON REPORTED RESULTS
While changing foreign currencies impact reported results, McDonald's
lessens short-term cash exposures by primarily purchasing goods and
services in local currencies, financing in local currencies and
hedging foreign-denominated cash flows.
The weakening of the Japanese Yen and Deutsche Mark were the
primary foreign currency changes impacting 1996 results. If exchange
rates had remained at 1995 levels, results would have been as follows:
--------------------------------------------------------------------------
FOREIGN CURRENCY IMPACT ON INTERNATIONAL RESULTS
--------------------------------------------------------------------------
Dollars in millions Nine Months Ended September 30, 1996
--------------------------------------------------------------------------
Reported Adjusted Adjustment Reported Adjusted
--------------------------------------------------------------------------
Sales $11,342.9 $11,835.4 $(492.5) 10% 15%
Operating income 1,131.1 1,159.4 (28.3) 9 12
--------------------------------------------------------------------------
Quarter Ended September 30, 1996
--------------------------------------------------------------------------
Reported Adjusted Adjustment Reported Adjusted
--------------------------------------------------------------------------
Sales $ 4,103.0 $ 4,282.5 $(179.5) 9% 14%
Operating income 439.6 450.8 (11.2) 11 14
--------------------------------------------------------------------------<PAGE>
<PAGE> 13
--------------------------------------------------------------------------
FOREIGN CURRENCY IMPACT ON WORLDWIDE RESULTS
--------------------------------------------------------------------------
Dollars in millions Nine Months Ended September 30, 1996
--------------------------------------------------------------------------
Reported Adjusted Adjustment Reported Adjusted
--------------------------------------------------------------------------
Systemwide sales $23,527.6 $24,020.1 $(492.5) 6% 8%
Operating income 2,018.6 2,046.9 (28.3) 3 5
Net income 1,162.6 1,171.1 (8.5) 10 10
--------------------------------------------------------------------------
Quarter Ended September 30, 1996
--------------------------------------------------------------------------
Reported Adjusted Adjustment Reported Adjusted
--------------------------------------------------------------------------
Systemwide sales $ 8,286.1 $ 8,465.6 $(179.5) 5% 8%
Operating income 744.0 755.2 (11.2) 3 5
Net income 440.6 445.0 (4.4) 10 11
--------------------------------------------------------------------------
FINANCIAL POSITION
Cash provided by operations for the nine months ended September 30,
1996 increased 6% compared to the same period a year ago. Together
with other sources of cash such as borrowings, cash provided by
operations was used primarily for capital expenditures, debt
repayments, share repurchases and dividends. In connection with
accelerated expansion, capital expenditures increased 16% in the first
nine months (3% in the U.S. and 26% outside of the U.S.).
NEW ACCOUNTING STANDARD
The Company adopted Statement of Financial Accounting Standard 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of, in the first quarter 1996. This statement
requires impairment losses be recognized for long-lived assets,
whether these assets are held for disposal or continue to be used in
operations, when indicators of impairment are present and the fair
value of assets are estimated to be less than carrying amounts. The
fair value of assets was based on projected future cash flows. The
adoption of this standard resulted in a $16 million noncash pre-tax
charge in other operating (income) expense, equivalent to 2 cents per
common share, related to restaurant sites in Mexico.<PAGE>
<PAGE> 14
<TABLE>
NINE MONTHS AND THIRD QUARTER 1996 HIGHLIGHTS
<CAPTION>
OPERATING RESULTS
--------------------------------------------------------------------------
Dollars in millions, except Nine Months Ended Quarters Ended
per common share data September 30 September 30
1996 1995 1996 1995
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Systemwide sales $23,527.6 $22,179.5 $8,286.1 $7,866.6
--------------------------------------------------------------------------
U.S. sales 12,184.7 11,854.2 4,183.1 4,103.3
Operated by franchisees 9,422.6 9,313.1 3,232.5 3,219.5
Operated by the Company 2,085.2 2,034.9 703.7 701.3
Operated by affiliates 676.9 506.2 246.9 182.5
--------------------------------------------------------------------------
Sales outside of the U.S. 11,342.9 10,325.3 4,103.0 3,763.3
Operated by franchisees 5,402.3 4,907.7 1,967.1 1,795.9
Operated by the Company 3,480.0 3,016.4 1,261.9 1,110.6
Operated by affiliates 2,460.6 2,401.2 874.0 856.8
--------------------------------------------------------------------------
Total Revenues 7,864.9 7,209.0 2,773.8 2,580.1
U.S. 3,432.5 3,328.0 1,168.5 1,153.5
Outside of the U.S. 4,432.4 3,881.0 1,605.3 1,426.6
--------------------------------------------------------------------------
Operating Income 2,018.6 1,955.2 744.0 722.1
U.S. 926.4 951.6 321.2 337.4
Outside of the U.S. (A) 1,131.1 1,038.2 439.6 396.9
Corporate G&A (38.9) (34.6) (16.8) (12.2)
--------------------------------------------------------------------------
Income before provision for
income taxes 1,727.5 1,629.5 649.9 609.5
Net income 1,162.6 1,060.5 440.6 400.1
Net income per common share 1.63 1.46 .62 .56
--------------------------------------------------------------------------
Cash provided by operations 1,722.5 1,620.2 701.7 677.9
--------------------------------------------------------------------------
Total assets 16,543.1 14,901.7
Total shareholders' equity 8,554.4 7,514.3
--------------------------------------------------------------------------
(A)Excluding the impact of weaker foreign currencies and the first
quarter $16 million noncash charge related to the adoption of SFAS
121, operating income outside of the U.S. increased 13 percent for
the nine months and 14 percent for the quarter.
/TABLE
<PAGE>
<PAGE> 15
<TABLE>
RESTAURANTS
<CAPTION>
-------------------------------------------------------------------------
At September 30, 1996 1995
-------------------------------------------------------------------------
<S> <C> <C>
Systemwide restaurants 19,991 17,403
-------------------------------------------------------------------------
Traditional U.S. restaurants 10,660 10,070
Operated by franchisees 8,403 7,989
Operated by the Company 1,604 1,607
Operated by affiliates 653 474
-------------------------------------------------------------------------
Traditional Restaurants outside of the U.S. 7,346 6,029
Operated by franchisees 3,440 2,878
Operated by the Company 2,174 1,743
Operated by affiliates 1,732 1,408
-------------------------------------------------------------------------
Satellite restaurants 1,985 1,304
U.S. 1,192 883
Outside U.S. 793 421
-------------------------------------------------------------------------
/TABLE
<PAGE>
<PAGE> 16
PART II
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------
(a) - Exhibits
--------------
Exhibit Number Description
-------------- -----------
(3) Restated Certificate of Incorporation, dated May 23, 1996,
incorporated herein by reference from Exhibit 3 of Form
10-Q for the quarter ended June 30, 1996; By-Laws dated
November 15, 1994, incorporated herein by reference from
Exhibit 3 of Form 10-K for the year ended December 31, 1994.
(4) Instruments defining the rights of security holders,
including indentures (A):
(a) Debt Securities. Indenture dated as of March 1, 1987
incorporated herein by reference from Exhibit 4(a) of
Form S-3 Registration Statement, SEC file no. 33-12364.
(i) Supplemental Indenture No. 5 incorporated herein
by reference from Exhibit (4) of Form 8-K dated
January 23, 1989.
(ii) Medium-Term Notes, Series B, due from nine
months to 30 years from Date of Issue.
Supplemental Indenture No. 12 incorporated
herein by reference from Exhibit (4) of Form 8-K
dated August 18, 1989 and Forms of Medium-Term
Notes, Series B, incorporated herein by
reference from Exhibit (4)(b) of Form 8-K dated
September 14, 1989.
(iii) Medium-Term Notes, Series C, due from nine
months to 30 years from Date of Issue. Form of
Supplemental Indenture No. 15 incorporated
herein by reference from Exhibit 4(b) of
Form S-3 Registration Statement, SEC file
no. 33-34762 dated May 14, 1990.
(iv) Medium-Term Notes, Series C, due from nine
months (U.S. Issue)/184 days (Euro Issue) to 30
years from Date of Issue. Amended and restated
Supplemental Indenture No. 16 incorporated
herein by reference from Exhibit (4) of Form
10-Q for the period ended March 31, 1991.<PAGE>
<PAGE> 17
Exhibit Number Description
-------------- -----------
(v) 8-7/8% Debentures due 2011. Supplemental
Indenture No. 17 incorporated herein by
reference from Exhibit (4) of Form 8-K dated
April 22, 1991.
(vi) Medium-Term Notes, Series D, due from nine
months (U.S. Issue)/184 days (Euro Issue) to 60
years from Date of Issue. Supplemental
Indenture No. 18 incorporated herein by
reference from Exhibit 4(b) of Form S-3
Registration Statement, SEC file no. 33-42642
dated September 10, 1991.
(vii) 7-3/8% Notes due July 15, 2002. Form of
Supplemental Indenture No. 19 incorporated
herein by reference from Exhibit (4) of Form 8-K
dated July 10, 1992.
(viii)6-3/4% Notes due February 15, 2003. Form of
Supplemental Indenture No. 20 incorporated
herein by reference from Exhibit (4) of Form 8-K
dated March 1, 1993.
(ix) 7-3/8% Debentures due July 15, 2033. Form of
Supplemental Indenture No. 21 incorporated
herein by reference from Exhibit (4)(a) of Form
8-K dated July 15, 1993.
(x) Medium-Term Notes, Series E, due from nine
months to 60 years from date of issue. Form of
Supplemental Indenture No. 22, incorporated
herein by reference from Exhibit (4) of Form
10-Q for the period ended June 30, 1995.
(xi) 6-5/8% Notes due September 1, 2005. Form of
Supplemental Indenture No. 23 incorporated
herein by reference from Exhibit 4(a) of Form
8-K dated September 5, 1995.
(xii) 7.05% Debentures due 2025. Form of Supplemental
Indenture No. 24 incorporated herein by
reference from Exhibit (4)(a) of Form 8-K dated
November 13, 1995.
(b) Form of Deposit Agreement dated as of November 25, 1992
by and between McDonald's Corporation, First Chicago
Trust Company of New York, as Depositary, and the
Holders from time to time of the Depositary Receipts.<PAGE>
<PAGE> 18
Exhibit Number Description
-------------- -----------
(c) Rights Agreement dated as of December 13, 1988 between
McDonald's Corporation and The First National Bank of
Chicago, incorporated herein by reference from
Exhibit 1 of Form 8-K dated December 23, 1988.
(i) Amendment No. 1 to Rights Agreement incorporated
herein by reference from Exhibit 1 of Form 8-K
dated May 25, 1989.
(ii) Amendment No. 2 to Rights Agreement incorporated
herein by reference from Exhibit 1 of Form 8-K
dated July 25, 1990.
(d) Indenture and Supplemental Indenture No. 1 dated as of
September 8, 1989, between McDonald's Matching and
Deferred Stock Ownership Trust, McDonald's Corporation
and Pittsburgh National Bank in connection with SEC
Registration Statement Nos. 33-28684 and 33-28684-01,
incorporated herein by reference from Exhibit (4)(a) of
Form 8-K dated September 14, 1989.
(e) Form of Supplemental Indenture No. 2 dated as of
April 1, 1991, supplemental to the Indenture between
McDonald's Matching and Deferred Stock Ownership Trust,
McDonald's Corporation and Pittsburgh National Bank in
connection with SEC Registration Statement Nos.
33-28684 and 33-28684-01, incorporated herein by
reference from Exhibit (4)(c) of Form 8-K dated
March 22, 1991.
(f) 8.35% Subordinated Deferrable Interest Debentures due
2025. Indenture incorporated herein by reference from
Exhibit 99.1 of Schedule 13E-4/A Amendment No. 2 dated
July 14, 1995.
(10) Material Contracts
(a) Directors' Stock Plan, as amended and restated,
incorporated herein by reference from Form 10-K for the
year ended December 31, 1994.*
(b) Profit Sharing Program, as amended and restated,
incorporated herein by reference from Form 10-K for the
year ended December 31, 1995.*
(c) McDonald's Supplemental Employee Benefit Equalization
Plan, McDonald's Profit Sharing Program Equalization Plan
and McDonald's 1989 Equalization Plan, as amended and
restated, incorporated herein by reference from Form 10-K
for the year ended December 31, 1995.*<PAGE>
<PAGE> 19
Exhibit Number Description
-------------- -----------
(d) 1975 Stock Ownership Option Plan, as amended and
restated, incorporated herein by reference from Exhibit
10(d) of Form 10-Q for the period ended March 31, 1996.*
(e) 1992 Stock Ownership Incentive Plan, incorporated
herein by reference from Exhibit B on pages 29-41 of
McDonald's 1995 Proxy Statement and Notice of 1995
Annual Meeting of Shareholders dated April 12, 1995.*
(f) McDonald's Corporation Deferred Incentive Plan,
incorporated herein by reference from Form 10-K for the
year ended December 31, 1994.*
(i) Amendment No. 1 to McDonald's Corporation Deferred
Incentive Plan incorporated herein by reference
from Exhibit 10(f) of Form 10-Q for the period
ended March 31, 1996.
(ii) Amendment No. 2 to McDonald's Corporation Deferred
Incentive Plan, filed herewith.
(g) Non-Employee Director Stock Option Plan, incorporated
by reference from Exhibit A on pages 25-28 of
McDonald's 1995 Proxy Statement and Notice of 1995
Annual Meeting of Shareholders dated April 12, 1995.*
(11) Statement re: Computation of per share earnings.
(12) Statement re: Computation of ratios.
(27) Financial Data Schedule
--------------------
* Denotes compensatory plan.
(A) Other instruments defining the rights of holders of long-term
debt of the registrant and all of its subsidiaries for which
consolidated financial statements are required to be filed and
which are not required to be registered with the Securities and
Exchange Commission, are not included herein as the securities
authorized under these instruments, individually, do not exceed
10% of the total assets of the registrant and its subsidiaries on
a consolidated basis. An agreement to furnish a copy of any such
instruments to the Securities and Exchange Commission upon
request has been filed with the Commission.<PAGE>
<PAGE> 20
(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 November 13, 1996.
Financial Statements
Date of Report Item Number Required to be Filed
-------------- ----------- --------------------
07/18/96 Item 7 No
10/07/96 Item 7 No
10/18/96 Item 7 No
10/18/96 Item 5 No<PAGE>
<PAGE> 21
Signature
-----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
McDONALD'S CORPORATION
(Registrant)
By /s/ Michael L. Conley
-----------------
(Signature)
Michael L. Conley
Executive Vice President,
Chief Financial Officer
November 13, 1996
------------------
(Date)<PAGE>
EXHIBIT 10.f
SECOND AMENDMENT
OF THE
McDONALD'S CORPORATION DEFERRED INCENTIVE PLAN
(As amended and restated effective as of September 1, 1994)
WHEREAS, McDonald's Corporation (the "Company") established the
McDonald's Corporation Deferred Incentive Plan (the " Deferred Incentive
Plan") effective as of November 1, 1993 and amended and restated the
Deferred Incentive Plan effective as of September 1, 1994; which restated
plan was subsequently amended by the first amendment thereof effective as
of February 1, 1996; and
WHEREAS, the Compensation Committee of the Board of Directors of the
Company by resolutions dated July 8, 1996, has authorized the undersigned
officer to further amend the Deferred Incentive Plan effective as of
August 15, 1996 to change the provisions of the Deferred Incentive Plan
that apply to insiders under Section 16 of the Securities Exchange Act of
1934 to reflect regulatory changes made by the Securities and Exchange
Commission;
NOW, THEREFORE, the Deferred Incentive Plan is hereby amended,
effective as of August 15,1996, by substituting the following for Section
5.5 of the Deferred Incentive Plan:
5.5 Limitations For Section 16 Insiders. A "Section 16
Insider" shall include any Participant who has been deemed to be subject
to Section 16 of the Securities Exchange Act of 1934 (the "Exchange Act")
by the Board of Directors of the Company. Notwithstanding any provision
of the Plan to the contrary, the Deferral Account of each Section 16
Insider is subject to the following limitations:
(a) An Eligible Employee who is a Section 16 Insider at the time he
or she makes a Deferral Election may elect a McDonald's Common Stock
based return and at the same time must also specify the Payment Date and
whether the payment will be in a lump sum or the specific installment
period that will apply. The election of a McDonald's Common Stock based
return is irrevocable and cannot be changed by an investment election at
a later date. A Participant who is a Section 16 Insider may not make a
withdrawal or accelerate installments under Section 5.3 of any Deferral
Account(s) that are credited with a McDonald's Common Stock based return.
Section 16 Insiders who elect a McDonald's Common Stock based return and
a form of payment will not be able to change those elections, even if the
Plan is amended at a later date to provide increased flexibility.
<PAGE>
(b) A Section 16 Insider who elects to invest in McDonald's Common
Stock based return shall also elect, at the time the deferral is made,
whether the distribution will be paid in cash or in the form of
McDonald's Common Stock. This provision applies only to deferral
elections made on and after August 15, 1996. Amounts deferred under all
deferral elections made prior to August 15, 1996 will be paid in cash.
However, for these cash distributions only, to the extent that a Section
16 Insider uses the cash distribution to purchase shares of McDonald's
Common Stock on the open market in one or more transactions within seven
months after the date such amounts are distributed, the Company shall
reimburse the Section 16 Insider for all reasonable brokerage fees and
other transaction costs incurred in connection with such purchases upon
presentation of satisfactory evidence thereof not later than 60 days
after the date of each transaction.
(c) If any Participant becomes a Section 16 Insider after making a
Deferral Election under the Plan, any Deferral Account that is being
credited with a McDonald's Common Stock based return shall automatically
be converted to any non-McDonald's Common Stock based investment return
specified by the Participant on an investment election form as of the
Valuation Date immediately preceding the date the Participant is
designated a Section 16 Insider by the Board of Directors. This
automatic change to non-McDonald's Common Stock based returns will be
made to preserve the Participant's right to make investment choices for
investment options that do not involve McDonald's Common Stock, make
early withdrawals and elect accelerated installments under Section 5.3.
(d) Elections to invest in McDonald's Common Stock based returns
can be made by Section 16 Insiders only at the time the deferral election
is made. Investment elections which would result in a transfer into the
McDonald's Common Stock based return at a later date are not permitted
for Section 16 Insiders.
In addition, the Committee may take such other actions as are
necessary so that transactions by Section 16 Insiders do not result in
liability under Section 16(b) of the Exchange Act.
IN WITNESS WHEREOF, Stanley R. Stein, as authorized officer of the
Company, has executed this Second Amendment of the McDonald's Corporation
Deferred Incentive Plan in multiple originals this 30th day of September,
1996.
/s/ Stanley R. Stein
--------------------------
Stanley R. Stein
Senior Vice President
<PAGE> 22
<TABLE>
Exhibit 11
McDONALD'S CORPORATION
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
Dollars and shares in millions, except per common share data
<CAPTION> Nine Months Ended Quarters Ended
September 30 September 30
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $1,162.6 $1,060.5 $440.6 $400.1
Preferred stock dividends (net of tax benefits) (20.7) (31.8) (6.9) (8.0)
--------- --------- ------- -------
Net income available after preferred stock dividends (A) 1,141.9 1,028.7 433.7 392.1
Effect of preferred stock exchange (B) .0 (4.3) .0 (0.4)
Common stock dividends on assumed conversion of preferred stock .0 .6 .0 .1
--------- --------- ------- -------
Net income available to common shareholders $1,141.9 $1,025.0 $433.7 $391.8
========= ========= ======= =======
Weighted average number of common shares outstanding during the
period (A) 699.1 699.6 697.8 698.4
Additional shares related to potentially dilutive securities 19.1 19.9 17.9 19.2
--------- --------- ------- -------
Adjusted weighted average common shares 718.2 719.5 715.7 717.6
========= ========= ======= =======
Fully diluted net income per common share $ 1.59 $ 1.42 $ 0.61 $ 0.55
--------- --------- ------- -------
NOTES:
(A) Refer to Condensed consolidated statement of income on page 4 and to Financial comments -
Net income per common share on page 6 of this report.
(B) The 1995 periods include $3.9 million for the one-time effect of the Company's exchange of Series E Cumulative
Preferred Stock for subordinated debt securities completed in June, 1995, and an additional .4 million for the
effect of the Company's repurchase of additional Series E preferred stock in the third quarter.
/TABLE
<PAGE>
<PAGE> 23
<TABLE> Exhibit 12
McDONALD'S CORPORATION
STATEMENT RE: COMPUTATION OF RATIOS
Dollars in Millions
<CAPTION> Nine Months
Ended September 30, Year Ended December 31,
------------------- --------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS AVAILABLE FOR FIXED CHARGES
- Income before provision for income taxes $1,727.6 $1,629.5 $2,169.1 $1,886.6 $1,675.7 $1,448.1 $1,299.4
- Minority interest in operating results of
majority-owned subsidiaries, including
fixed charges related to redeemable
preferred stock, less equity in
undistributed operating results of
less-than-50% owned affiliates 27.9 11.2 19.6 6.6 6.9 5.3 5.1
- Provision for income taxes of 50% owned
affiliates included in consolidated income
before provision for income taxes 53.5 49.4 73.3 34.9 34.2 29.4 34.1
- Portion of rent charges (after reduction
for rental income from subleased
properties) considered to be representative
of interest factors* 97.9 82.0 103.8 83.4 71.6 70.1 67.9
- Interest expense, amortization of debt
discount and issuance costs, and
depreciation of capitalized interest* 287.9 286.5 388.8 346.0 358.0 413.8 433.9
---------------------------------------------------------------------------
$2,194.8 $2,058.6 $2,754.6 $2,357.5 $2,146.4 $1,966.7 $1,840.4
===========================================================================
FIXED CHARGES
- Portion of rent charges (after reduction
for rental income from subleased
properties) considered to be representative
of interest factors* $97.9 $82.0 $103.8 $83.4 $71.6 $70.1 $67.9
- Interest expense, amortization of debt
discount and issuance costs, and fixed
charges related to redeemable preferred
stock* 302.8 296.9 403.4 343.9 349.3 405.4 425.7
- Capitalized interest* 16.4 15.8 22.8 21.0 20.7 20.5 28.5
---------------------------------------------------------------------------
$417.1 $394.7 $530.0 $448.3 $441.6 $496.0 $522.1
===========================================================================
RATIO OF EARNINGS TO FIXED CHARGES 5.26 5.22 5.20 5.26 4.86 3.96 3.53
===========================================================================
*Includes amounts of the Registrant and its majority-owned subsidiaries, and one-half of the amounts of 50%-owned affiliates.
/TABLE
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5 EXHIBIT 27
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 256
<SECURITIES> 0
<RECEIVABLES> 469
<ALLOWANCES> 0
<INVENTORY> 61
<CURRENT-ASSETS> 956
<PP&E> 18,469
<DEPRECIATION> 4,660
<TOTAL-ASSETS> 16,543
<CURRENT-LIABILITIES> 1,767
<BONDS> 4,618
0
358
<COMMON> 8
<OTHER-SE> 11,012
<TOTAL-LIABILITY-AND-EQUITY> 16,543
<SALES> 5,565
<TOTAL-REVENUES> 7,865
<CGS> 4,525
<TOTAL-COSTS> 4,945
<OTHER-EXPENSES> (84)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 252
<INCOME-PRETAX> 1,728
<INCOME-TAX> 565
<INCOME-CONTINUING> 1,163
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,163
<EPS-PRIMARY> 1.63
<EPS-DILUTED> 0
</TABLE>
