<PAGE>
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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, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the transition period from __________ to __________
Commission File Number 1-5231
McDONALD'S CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-2361282
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
McDonald's Plaza
Oak Brook, Illinois 60523
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (630) 623-3000
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No ___
676,558,644
----------------------------
(Number of shares of common stock
outstanding as of September 30, 1998)
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McDONALD'S CORPORATION
----------------------
INDEX
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<TABLE>
<CAPTION>
Page Reference
<S> <C> <C>
Part I. Financial Information
Item 1 - Financial Statements
Condensed consolidated balance sheet,
September 30, 1998 (unaudited) and 3
December 31, 1997
Condensed consolidated statement of
income (unaudited), third quarters and nine months ended
September 30, 1998 and 1997 4
Condensed consolidated statement of
cash flows (unaudited), third quarters and nine months ended
ended September 30, 1998 and 1997 5
Financial comments (unaudited) 6
Item 2 - Management's Discussion and
Analysis of Financial Condition
and Results of Operations 8
Part II. Other Information
Item 6 - Exhibits and Reports on Form 8-K 18
(a) Exhibits
The exhibits listed in the
accompanying Exhibit Index are
filed as part of this report 18
(b) Reports on Form 8-K 20
Signature 21
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEET
- ---------------------------------------------------------------------------------------------------------------------------
(unaudited)
In millions September 30, 1998 December 31, 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents $ 304.3 $ 341.4
Accounts and notes receivable 549.4 483.5
Inventories, at cost, not in excess of market 71.6 70.5
Prepaid expenses and other current assets 324.9 246.9
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 1,250.2 1,142.3
- ---------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS 2,275.7 2,137.8
PROPERTY AND EQUIPMENT
Property and equipment, at cost 21,326.3 20,088.2
Accumulated depreciation and amortization (5,630.5) (5,126.8)
- ---------------------------------------------------------------------------------------------------------------------------
NET PROPERTY AND EQUIPMENT 15,695.8 14,961.4
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $19,221.7 $18,241.5
===========================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 608.1 $ 1,293.8
Accounts payable 423.4 650.6
Income taxes 162.3 52.5
Other taxes 166.0 148.5
Accrued interest 117.1 107.1
Other accrued liabilities 637.8 396.4
Current maturities of long-term debt 56.3 335.6
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 2,171.0 2,984.5
- ---------------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT 6,385.4 4,834.1
OTHER LONG-TERM LIABILITIES AND MINORITY INTERESTS 467.4 427.5
DEFERRED INCOME TAXES 1,071.7 1,063.5
COMMON EQUITY PUT OPTIONS 186.2 80.3
SHAREHOLDERS' EQUITY
Preferred stock, no par value; authorized - 165.0 million shares;
issued - none
Common stock, $.01 par value; authorized - 3.5 billion shares;
issued - 830.3 million shares 8.3 8.3
Additional paid-in capital 921.7 699.2
Guarantee of ESOP notes (171.3) (171.3)
Retained earnings 13,591.9 12,569.0
Accumulated other comprehensive income (552.1) (470.5)
Common stock in treasury, at cost; 153.8 and 144.6 million shares (4,858.5) (3,783.1)
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 8,940.0 8,851.6
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $19,221.7 $18,241.5
===========================================================================================================================
</TABLE>
See accompanying Financial comments.
3
<PAGE>
- -------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarters ended Nine months ended
In millions, except September 30 September 30
per common share data 1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Sales by Company-operated restaurants $2,305.7 $2,158.5 $6,590.4 $6,025.8
Revenues from franchised and affiliated restaurants 909.3 847.5 2,610.3 2,430.4
- -----------------------------------------------------------------------------------------------------
TOTAL REVENUES 3,215.0 3,006.0 9,200.7 8,456.2
- -----------------------------------------------------------------------------------------------------
OPERATING COSTS AND EXPENSES
Company-operated restaurants 1,868.2 1,756.1 5,375.3 4,923.3
Franchised restaurants - occupancy expenses 172.0 153.9 496.6 453.3
Selling, general, and administrative expenses 358.5 375.5 1,066.4 1,056.7
Special charge 160.0
Other operating (income) expense-net (18.9) (34.9) (22.3) (90.2)
- -----------------------------------------------------------------------------------------------------
TOTAL OPERATING COSTS AND EXPENSES 2,379.8 2,250.6 7,076.0 6,343.1
- -----------------------------------------------------------------------------------------------------
OPERATING INCOME 835.2 755.4 2,124.7 2,113.1
- -----------------------------------------------------------------------------------------------------
Interest expense 102.8 94.1 312.0 270.3
Nonoperating (income) expense-net 15.1 2.2 21.4 24.9
- -----------------------------------------------------------------------------------------------------
INCOME BEFORE PROVISION FOR INCOME TAXES 717.3 659.1 1,791.3 1,817.9
- -----------------------------------------------------------------------------------------------------
Provision for income taxes 235.1 210.2 589.7 586.3
- -----------------------------------------------------------------------------------------------------
NET INCOME $ 482.2 $ 448.9 $1,201.6 $1,231.6
=====================================================================================================
NET INCOME PER COMMON SHARE $ .71 $ .64 $ 1.76 $ 1.76
NET INCOME PER COMMON SHARE - DILUTED .69 .63 1.71 1.71
- -----------------------------------------------------------------------------------------------------
DIVIDENDS PER COMMON SHARE $ .0900 $ .0825 $ .2625 $ .2400
- -----------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES 681.1 688.5 684.5 689.9
WEIGHTED AVERAGE SHARES - DILUTED 702.3 704.4 704.2 706.3
- -----------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Financial comments.
4
<PAGE>
- -------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarters ended Nine months ended
September 30 September 30
In millions 1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 482.2 $ 448.9 $ 1,201.6 $ 1,231.6
Adjustments to reconcile to cash provided by operations
Depreciation and amortization 227.8 170.4 648.3 557.0
Changes in operating working capital items 66.1 179.7 126.0 26.8
Other 25.9 (54.6) 21.5 (95.2)
- -----------------------------------------------------------------------------------------------------
CASH PROVIDED BY OPERATIONS 802.0 744.4 1,997.4 1,720.2
- -----------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Property and equipment expenditures (492.7) (487.1) (1,350.1) (1,444.0)
Purchases and sales of restaurant businesses and
sales of property 34.1 (10.4) 45.5 27.5
Other (23.9) (67.2) (95.6) (129.7)
- -----------------------------------------------------------------------------------------------------
CASH USED FOR INVESTING ACTIVITIES (482.5) (564.7) (1,400.2) (1,546.2)
- -----------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Notes payable and long-term financing issuances and
repayments 207.9 (81.0) 390.1 415.0
Treasury stock purchases (544.3) (98.0) (1,049.1) (568.4)
Common and preferred stock dividends (61.2) (63.8) (179.5) (186.3)
Other 57.5 71.1 204.2 146.0
- -----------------------------------------------------------------------------------------------------
CASH USED FOR FINANCING ACTIVITIES (340.1) (171.7) (634.3) (193.7)
- -----------------------------------------------------------------------------------------------------
CASH AND EQUIVALENTS INCREASE (DECREASE) (20.6) 8.0 (37.1) (19.7)
- -----------------------------------------------------------------------------------------------------
Cash and equivalents at beginning of period 324.9 302.2 341.4 329.9
- -----------------------------------------------------------------------------------------------------
CASH AND EQUIVALENTS AT END OF PERIOD $ 304.3 $ 310.2 $ 304.3 $ 310.2
=====================================================================================================
</TABLE>
See accompanying Financial comments.
5
<PAGE>
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FINANCIAL COMMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
Basis of Presentation
The accompanying condensed consolidated financial statements should be read
in conjunction with the consolidated financial statements in the Company's 1997
Annual Report to Shareholders. In the opinion of the Company, all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation have
been included. The results for the quarter and the nine months ended September
30, 1998 do not necessarily indicate the results that may be expected for the
full year.
The results of operations of restaurant businesses purchased and sold were
not material to the condensed consolidated financial statements for periods
prior to purchase and sale.
Comprehensive Income
Comprehensive income consists of net income and foreign currency
translation adjustments and totaled $513.6 million and $450.7 million for the
third quarters of 1998 and 1997, respectively, and $1,120.0 million and $1,080.4
million for the nine months ended September 30, 1998 and 1997, respectively.
Per Common Share Information
Income used in the computation of per common share information was reduced
by preferred stock cash dividends of $6.9 million for the third quarter of 1997
and $20.7 million for the nine months ended September 30, 1997. The Company
retired its remaining Series E Preferred Stock in December 1997. Diluted net
income per common share includes the dilutive effect of stock options.
Common Equity Put Options
At September 30, 1998, 3.0 million of common equity put options were
outstanding, which expire at various dates through February 1999. The $186.2
million exercise price of the options outstanding was classified in common
equity put options at September 30, 1998, and the related offset was recorded in
common stock in treasury, net of premiums received.
New Accounting Standard - Financial Instruments
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, which is
required to be adopted in years beginning after June 15, 1999. The Statement
permits early adoption as of the beginning of any fiscal quarter and 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 assets, liabilities, or firm commitments
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. The Company is in the process of determining
when it will adopt the new Statement and management does not anticipate that the
adoption of the Statement will have a significant effect on earnings or
financial position.
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, which was finalized and approved by management in the second
quarter, 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 will reduce home office staffing by
approximately 525 positions, consolidate certain home office facilities
6
<PAGE>
and reduce other expenditures in a variety of areas. The $160 million second
quarter charge was primarily comprised of costs associated with employee
severance and outplacement and with the facilities consolidation.
Segment Information
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
1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
U.S. $1,240.9 $1,191.6 $3,659.7 $3,453.7
Europe 1,165.1 1,024.5 3,253.3 2,873.3
Asia/Pacific 434.2 428.6 1,209.1 1,139.8
Latin America 203.7 184.5 593.4 504.1
Other 171.1 176.8 485.2 485.3
- ---------------------------------------------------------------------------------------------
TOTAL REVENUES $3,215.0 $3,006.0 $9,200.7 $8,456.2
- ---------------------------------------------------------------------------------------------
OPERATING INCOME
U.S. (1) $ 361.6 $ 313.4 $ 873.4 $ 924.8
Europe 310.6 274.6 823.2 736.3
Asia/Pacific 101.1 105.9 260.1 287.2
Latin America 47.4 45.7 127.1 117.4
Other 36.4 34.4 95.0 92.6
Corporate SG&A (21.9) (18.6) (54.1) (45.2)
- ---------------------------------------------------------------------------------------------
TOTAL OPERATING INCOME $ 835.2 $ 755.4 $2,124.7 $2,113.1
- ---------------------------------------------------------------------------------------------
</TABLE>
(1) U. S. operating income for the nine months ended September 30, 1998 includes
the $160 million special charge related to the home office productivity
initiative recorded in the second quarter 1998.
7
<PAGE>
Item 2. Management's Discussion And Analysis Of Financial Condition And Results
Of Operations
- --------------------------------------------------------------------------------
INCREASES (DECREASES) IN OPERATING RESULTS OVER 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Dollars in millions, except Quarter ended Nine months ended
per common share data September 30 September 30
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SYSTEMWIDE SALES $446.5 5% $1,555.6 6%
- --------------------------------------------------------------------------------------------------------
REVENUES
Sales by Company-operated restaurants 147.2 7 564.6 9
Revenues from franchised and affiliated restaurants 61.8 7 179.9 7
- --------------------------------------------------------------------------------------------------------
TOTAL REVENUES 209.0 7 744.5 9
- --------------------------------------------------------------------------------------------------------
OPERATING COSTS AND EXPENSES
Company-operated restaurants 112.1 6 452.0 9
Franchised restaurants - occupancy costs 18.1 12 43.3 10
Selling, general, and administrative expenses (17.0) (5) 9.7 1
Special charge 160.0 (N/M)
Other operating (income) expense-net (1) 16.0 (N/M) 67.9 (N/M)
- --------------------------------------------------------------------------------------------------------
TOTAL OPERATING COSTS AND EXPENSES (1) 129.2 6 732.9 12
- --------------------------------------------------------------------------------------------------------
OPERATING INCOME (1) (2) 79.8 11 11.6 1
- --------------------------------------------------------------------------------------------------------
Interest expense 8.7 9 41.7 15
Nonoperating (income) expense-net 12.9 (N/M) (3.5) (N/M)
- --------------------------------------------------------------------------------------------------------
INCOME BEFORE PROVISION FOR INCOME TAXES (1) 58.2 9 (26.6) (1)
- --------------------------------------------------------------------------------------------------------
Provision for income taxes 24.9 12 3.4 1
- --------------------------------------------------------------------------------------------------------
NET INCOME (1) (2) $ 33.3 7% $ (30.0) (2)%
========================================================================================================
NET INCOME PER COMMON SHARE $ 0.07 11% - -
NET INCOME PER COMMON SHARE-DILUTED (1) (2) 0.06 10 - -
- --------------------------------------------------------------------------------------------------------
</TABLE>
(N/M) Not meaningful
(1) Includes "Made For You" expenses of $10.6 million ($7.1 million after tax
or $0.01 per diluted share) for the quarter and $15.6 million ($10.5
million after tax or $0.02 per diluted share) for the nine months ended
September 30, 1998.
(2) Excluding the $160 million pre-tax special charge ($110 million after tax
or $0.15 per diluted share) recorded in the second quarter 1998, operating
income increased $171.6 million or 8%, net income increased $80.0 million
or 6%, and diluted net income per share increased $0.15 or 9% for the nine
months ended September 30, 1998.
8
<PAGE>
CONSOLIDATED OPERATING RESULTS
Net income and diluted net income per common share increased seven and ten
percent for the quarter, respectively, while for the nine months, net income
decreased two percent and diluted net income per common share was flat.
Excluding costs associated with "Made For You" and the second quarter 1998
special charge, net income and diluted net income per common share increased
nine and 11 percent for the quarter, and seven and ten percent for the nine
months, respectively.
Changing foreign currencies significantly reduced reported results. Excluding
the foreign currency translation effect, "Made For You" costs and the second
quarter 1998 special charge, net income would have increased 13 percent for the
quarter and 11 percent for the nine months; diluted net income per common share
would have increased 14 percent for the quarter and 13 percent for the nine
months.
The spreads between the percent change in diluted net income per common share
compared with net income was a result of fewer shares outstanding and the
absence of preferred dividends in 1998, due to the retirement of our remaining
Series E Preferred Stock in December 1997.
During the third quarter, McDonald's repurchased about $600 million of the
Company's common stock, bringing total share repurchases for the nine months to
approximately $1.1 billion. Of the amount repurchased in the third quarter,
about $320 million completed the $2.0 billion repurchase program begun in 1996
and $280 million related to the new $3.5 billion repurchase program.
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 were due to expansion
and positive comparable sales trends, offset in part by weaker foreign
currencies.
Revenues increased at a faster rate than sales for the quarter and the nine
months. This was primarily due to the weakening Japanese Yen, which had a
greater negative effect on sales than revenues due to our affiliate structure in
Japan, and the higher growth rate in Company-operated versus franchised
restaurants.
9
<PAGE>
<TABLE>
<CAPTION>
Systemwide sales
Dollars in millions 1998 1997 Increase/(Decrease)
- -------------------------------------------------------------------------------
As In Constant
Reported Currencies*
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Quarters ended September 30
- -------------------------------------------------------------------------------
U.S. $ 4,600.9 $ 4,441.9 4% n/a
- -------------------------------------------------------------------------------
Europe 2,349.4 2,039.3 15 13%
- -------------------------------------------------------------------------------
Asia/Pacific 1,416.0 1,490.6 (5) 14
- -------------------------------------------------------------------------------
Latin America 445.8 397.0 12 18
- -------------------------------------------------------------------------------
Other 434.1 430.9 1 9
- -------------------------------------------------------------------------------
Total systemwide sales $ 9,246.2 $ 8,799.7 5% 9%
- -------------------------------------------------------------------------------
Nine months ended September 30
- -------------------------------------------------------------------------------
U.S. $13,639.7 $12,851.2 6% n/a
- -------------------------------------------------------------------------------
Europe 6,481.4 5,764.5 12 15%
- -------------------------------------------------------------------------------
Asia/Pacific 4,046.9 4,246.8 (5) 12
- -------------------------------------------------------------------------------
Latin America 1,276.6 1,080.5 18 24
- -------------------------------------------------------------------------------
Other 1,218.9 1,164.9 5 11
- -------------------------------------------------------------------------------
Total systemwide sales $26,663.5 $25,107.9 6% 10%
- -------------------------------------------------------------------------------
</TABLE>
* Excluding the effect of foreign currency translation on reported results
n/a Not applicable
U.S. sales increased due to positive comparable sales trends and restaurant
expansion in both periods. Successful Monopoly, Teenie Beanie Baby and Big Mac
promotions, combined with local market initiatives contributed to the sales
increases.
In Europe, the constant currency sales increase was driven by expansion and
positive comparable sales trends in both periods. England, France, Germany,
Italy and Spain were the primary contributors to the strong sales performance
for both periods.
In Asia/Pacific, the constant currency sales increase in both periods was
due to expansion, partly offset by negative comparable sales. Japan was the
primary contributor to the increases in both periods, despite its weak economy.
Difficult economic conditions in Southeast Asia continue to negatively impact
consumer spending.
In Latin America, the constant currency sales increase for the quarter was
driven primarily by expansion and for the nine months, by expansion and positive
comparable sales. The increases were driven by strong performances in Argentina,
Brazil, Mexico and Venezuela for both periods.
<TABLE>
<CAPTION>
Consolidated operating margins Quarters ended Nine months ended
September 30 September 30
--------------------------------------------
1998 1997 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dollars in millions
- ------------------------------------------------------------------------------
Company-operated $ 437.5 $ 402.4 $1,215.1 $1,102.5
- ------------------------------------------------------------------------------
Franchised 737.3 693.6 2,113.7 1,977.1
- ------------------------------------------------------------------------------
Combined operating margins $1,174.8 $1,096.0 $3,328.8 $3,079.6
- ------------------------------------------------------------------------------
Percent of sales/revenues
- ------------------------------------------------------------------------------
Company-operated 19.0% 18.6% 18.4% 18.3%
- ------------------------------------------------------------------------------
Franchised 81.1 81.8 81.0 81.3
- ------------------------------------------------------------------------------
</TABLE>
Company-operated margins as a percent of sales increased for the quarter
and the nine months. Food & paper costs decreased as a percent of sales for both
periods while occupancy & other operating expenses increased. Payroll costs as a
percent of sales increased for the quarter and were flat for the nine months.
10
<PAGE>
As a percent of sales, U.S. Company-operated margins increased for the
quarter and the nine months, reflecting lower food & paper costs and higher
payroll costs as a percent of sales. Occupancy & other operating expenses
increased for the quarter and decreased for the nine months, as a percent of
sales.
Outside the U.S., the improvement in Company-operated margins as a percent
of sales in Europe and Canada was offset by lower margins in Latin America and
Asia/Pacific. Overall, Company-operated margins outside the U.S. reflected
higher occupancy & other operating expenses and lower food & paper costs as a
percent of sales. Payroll costs as a percent of sales increased for the quarter
and were flat for the nine months.
Franchised margin dollars comprised more than 60 percent of the combined
operating margins, the same as in the prior year. While franchised margins as a
percent of applicable revenues decreased for both periods, franchised margin
dollars increased six percent for the quarter and seven percent for the nine
months.
As a percent of revenues, U.S. franchised margins decreased for the quarter
and were flat for the nine months, reflecting higher occupancy costs, including
rent expense, driven by an increase in the number of leased sites. Both higher
occupancy costs and the consolidation of several affiliate markets negatively
affected franchised margins outside the U.S.
Selling, general & administrative expenses decreased for the quarter and
increased slightly for the nine months. In the U.S., selling, general and
administrative expenses decreased for both periods primarily due to lower
advertising costs. Outside the U.S., selling, general and administrative
expenses increased for both periods, primarily driven by spending to support
restaurant development and the consolidation of several affiliate markets. As a
result of the home office productivity initiative announced earlier this year,
the Company expects to save about $100 million of selling, general and
administrative expenses per year, beginning in 2000, with about two-thirds of
the savings expected to be realized in 1999.
<TABLE>
<CAPTION>
Other operating (income) expense--net Quarters ended Nine months ended
September 30 September 30
----------------------------------------
Dollars in millions 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gains on sales of restaurant businesses $(10.5) $ (9.5) $(32.5) $(37.1)
- ------------------------------------------------------------------------------------------
Equity in earnings of unconsolidated affiliates (31.5) (26.3) (65.9) (59.5)
- ------------------------------------------------------------------------------------------
Other (income) expense 12.5 0.9 60.5 6.4
- ------------------------------------------------------------------------------------------
"Made For You" expenses 10.6 - 15.6 -
- ------------------------------------------------------------------------------------------
Other operating (income) expense--net $(18.9) $(34.9) $(22.3) $(90.2)
- ------------------------------------------------------------------------------------------
Special charge - - $160.0 -
- ------------------------------------------------------------------------------------------
</TABLE>
Other operating (income) expense--net consists of transactions related to
franchising and the food service business. Other expenses increased reflecting
higher provisions for property dispositions. The "Made For You" expenses
included incentive payments made to owner/operators as well as accelerated
depreciation on equipment to be replaced in Company-operated restaurants. The
Company expects the total expenses related to the implementation of "Made For
You" to be approximately $190 million, the remainder of which will be incurred
by the end of 1999. Substantially all of this amount relates to incentive
payments to be paid to owner/operators. The special charge recorded in the
second quarter 1998 related to the Company's home office productivity initiative
and was primarily comprised of costs associated with employee severance and with
the consolidation of office facilities.
11
<PAGE>
<TABLE>
<CAPTION>
Operating income
Dollars in millions 1998 1997 Increase/(Decrease)
- --------------------------------------------------------------------------------------------------------------------------
As In Constant
Reported Currencies*
Quarters ended September 30
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. $ 361.6 $ 313.4 15% n/a
- --------------------------------------------------------------------------------------------------------------------------
Europe 310.6 274.6 13 12%
- --------------------------------------------------------------------------------------------------------------------------
Asia/Pacific 101.1 105.9 (5) 13
- --------------------------------------------------------------------------------------------------------------------------
Latin America 47.4 45.7 4 10
- --------------------------------------------------------------------------------------------------------------------------
Other 36.4 34.4 6 14
- --------------------------------------------------------------------------------------------------------------------------
Corporate SG&A (21.9) (18.6) 18 n/a
- --------------------------------------------------------------------------------------------------------------------------
Total operating income $ 835.2 $ 755.4 11% 13%
- --------------------------------------------------------------------------------------------------------------------------
Nine months ended September 30
- --------------------------------------------------------------------------------------------------------------------------
U.S. (1) $ 873.4 $ 924.8 (6)% n/a
- --------------------------------------------------------------------------------------------------------------------------
Europe 823.2 736.3 12 14%
- --------------------------------------------------------------------------------------------------------------------------
Asia/Pacific 260.1 287.2 (9) 6
- --------------------------------------------------------------------------------------------------------------------------
Latin America 127.1 117.4 8 15
- --------------------------------------------------------------------------------------------------------------------------
Other 95.0 92.6 3 9
- --------------------------------------------------------------------------------------------------------------------------
Corporate SG&A (54.1) (45.2) 20 n/a
- --------------------------------------------------------------------------------------------------------------------------
Total operating income (1) $2,124.7 $2,113.1 1% 4%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Excluding the effect of foreign currency translation on reported results
(1) Includes the $160 million pre-tax special charge related to the home office
productivity initiative recorded in the second quarter 1998. Excluding the
special charge, U.S. operating income was $1,033.4, or an increase of 12%,
and total operating income was $2,284.7, or an increase of 8%, for the nine
months ended September 30, 1998.
n/a Not applicable
Consolidated operating income increased $80 million or 11 percent for the
quarter and $12 million or one percent for the nine months. Excluding the second
quarter 1998 special charge, consolidated operating income increased $172
million or eight percent for the nine months. For both periods, consolidated
operating income reflected higher combined operating margin dollars, lower other
operating income and the "Made For You" expenses. Selling, general &
administrative expenses decreased for the quarter and increased slightly for the
nine months.
Constant currency consolidated operating income increased $100 million or
13 percent for the quarter and $248 million or 12 percent for the nine months,
excluding the second quarter special charge.
U.S. operating income increased $48 million or 15 percent for the quarter
and $109 million or 12 percent for the nine months, excluding the second quarter
special charge. The increases were driven by higher combined operating margin
dollars and lower selling, general & administrative expenses. Lower other
operating income and the "Made For You" expenses reduced the rate of increase.
Including the second quarter special charge, U.S. operating income decreased $51
million or six percent for the nine months.
In each of the segments outside the U.S., the increases in operating income
for both periods were primarily driven by higher combined operating margin
dollars, partially offset by increased selling, general & administrative
expenses. Lower other operating income, primarily in Europe, reduced the rate of
increase.
Results outside the U.S. were negatively affected by the strong U.S.
dollar. However, certain European currencies, principally the Deutsche Mark and
French Franc, recently strengthened, partially reducing the negative impact. In
addition, economic difficulties, primarily in Russia and Southeast Asia,
negatively affected results, and the Company expects this to continue during the
remainder of the year.
Higher interest expense reflected higher debt levels, offset in part by
slightly lower average interest rates and weaker foreign currencies.
12
<PAGE>
Nonoperating (income) expense-net for the quarter and for the nine months
reflected translation losses in 1998 compared with translation gains in 1997, as
well as lower charges for minority interests.
The effective income tax rate was 32.8 percent for the quarter and 32.9
percent for the nine months of 1998 compared with 31.9 percent for the third
quarter and 32.3 percent for the nine months of 1997.
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 Australian Dollar, Canadian Dollar and Japanese Yen, as well as the
significantly weakened Southeast Asian currencies, were the primary foreign
currencies that negatively affected reported results for the quarter and the
nine months. For the quarter, the Deutsche Mark and French Franc had a positive
impact on reported results, however, the Deutsche Mark negatively impacted
results for the nine months.
The following tables present 1998 results translated at 1997 rates compared
with reported results.
<TABLE>
<CAPTION>
Effect of foreign currency translation on worldwide results excluding special charge
Increase
---------------------------
Dollars in millions, except per As In Constant As In Constant
common share data Reported Currencies* Change Reported Currencies*
- ------------------------------------------------------------------------------------------------
Quarter ended September 30, 1998
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Systemwide sales $ 9,246.2 $ 9,556.0 $ 309.8 5% 9%
- ------------------------------------------------------------------------------------------------
Total revenues 3,215.0 3,303.8 88.8 7 10
- ------------------------------------------------------------------------------------------------
Operating income 835.2 855.2 20.0 11 13
- ------------------------------------------------------------------------------------------------
Net income 482.2 500.1 17.9 7 11
- ------------------------------------------------------------------------------------------------
Net income per common share--
diluted .69 .71 .02 10 13
- ------------------------------------------------------------------------------------------------
Nine months ended September 30, 1998
- ------------------------------------------------------------------------------------------------
Systemwide sales $26,663.5 $27,675.4 $1,011.9 6% 10%
- ------------------------------------------------------------------------------------------------
Total revenues 9,200.7 9,540.2 339.5 9 13
- ------------------------------------------------------------------------------------------------
Operating income (1) 2,284.7 2,360.8 76.1 8 12
- ------------------------------------------------------------------------------------------------
Net income (1) 1,311.6 1,353.4 41.8 6 10
- ------------------------------------------------------------------------------------------------
Net income per common share --
diluted (1) 1.86 1.92 .06 9 12
- ------------------------------------------------------------------------------------------------
</TABLE>
* Excluding the effect of foreign currency translation on reported results
(1) Excluding the $160 million pre-tax special charge recorded in second quarter
1998 ($110 million after-tax or $0.15 per diluted share)
13
<PAGE>
<TABLE>
<CAPTION>
=================================================================================================
Effect of foreign currency translation on worldwide results excluding "Made For You" expenses and
special charge
-----------------------------------------------------------
Increase
--------------------------
Dollars in millions, except per As In Constant As In Constant
common share data Reported Currencies* Change Reported Currencies*
=================================================================================================
Quarter ended September 30, 1998 (1)
=================================================================================================
<S> <C> <C> <C> <C> <C>
Operating income $ 845.8 $ 865.8 $20.0 12% 15%
- -------------------------------------------------------------------------------------------------
Net income 489.3 507.2 17.9 9 13
- -------------------------------------------------------------------------------------------------
Net income per common share--
diluted .70 .72 .02 11 14
=================================================================================================
Nine months ended September 30, 1998 (2)
=================================================================================================
Operating income $2,300.3 $2,376.4 $76.1 9% 12%
- -------------------------------------------------------------------------------------------------
Net income 1,322.1 1,363.9 41.8 7 11
- -------------------------------------------------------------------------------------------------
Net income per common share--
diluted 1.88 1.94 .06 10 13
=================================================================================================
</TABLE>
* Excluding the effect of foreign currency translation on reported results
(1) Excluding "Made For You" expenses of $10.6 million for the quarter ($7.1
million after tax or $0.01 per diluted share), which included incentive payments
made to owner/operators as well as accelerated depreciation on equipment to be
replaced in Company-operated restaurants.
(2) Excluding the $160 million pre-tax special charge recorded in second quarter
1998 and $15.6 million of "Made For You" expenses, for a pre-tax total of $175.6
million ($120.5 million after tax or $0.17 per diluted share).
"MADE FOR YOU" SYSTEM
In March 1998, McDonald's announced the introduction of "Made For You", a new
food preparation system that is expected to be in all restaurants in the U.S.
and Canada by the end of 1999. Through advances in equipment and technology,
the new system allows the Company to serve hotter and fresher 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. As part of
the plans to introduce this system, the Company is providing financial incentive
payments of up to $12,500 per store to owner/operators to defray the cost of
equipment made obsolete as a result of conversion to the new system. The
Company may also share additional costs in special cases where the conversion to
"Made For You" is more extensive. The total amount of the incentive payments is
expected to be about $150 million.
Under the original program, an owner/operator had to purchase and install all
of the required "Made For You" equipment as a condition to receiving the
incentive payment. Based on encouraging preliminary results and the desire to
accelerate the roll-out of the new system, the Company revised the program in
third quarter 1998 to provide payments to owner/operators once they have been
scheduled for implementation of "Made For You". This revision was made to
provide owner/operators earlier access to funds which will assist them in making
their investment in the new equipment. Based on the change in the program
requirements, the Company anticipates making a significant amount of payments in
the fourth quarter of 1998.
FINANCIAL POSITION
Free cash flow - cash provided by operations less capital expenditures - for
the nine months ended September 30, 1998 increased $371.1 million to $647.3
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 7% for the nine months ended
September 30, 1998 was primarily due to a decrease in U.S. capital expenditures.
The Company plans to open in excess of 2,000 restaurants this year; however, net
additions are expected to be about 1,800 reflecting a decision to close nearly
200 low volume satellite restaurants, primarily in the U.S., and a more
selective growth strategy in the five Southeast Asian countries hit hardest by
the financial crisis. The Company expects to use cash provided by operations to
fund the cash costs related to the productivity initiative and the financial
incentive payments the Company is providing to owner/operators in connection
with the implementation of the "Made For You" system.
14
<PAGE>
NEW ACCOUNTING STANDARD - FINANCIAL INSTRUMENTS
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, which is
required to be adopted in years beginning after June 15, 1999. The Statement
permits early adoption as of the beginning of any fiscal quarter and 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 assets, liabilities, or firm commitments
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. The Company is in the process of determining
when it will adopt the new Statement and management does not anticipate that the
adoption of the Statement will have a significant effect on earnings or
financial position.
YEAR 2000
McDonald's has assessed its computerized systems to determine their ability to
correctly identify the Year 2000 and is devoting the necessary internal and
external resources to replace, upgrade or modify all significant systems which
do not correctly identify the Year 2000. The Company expects to complete most
of the necessary modifications and testing by the end of 1998 and expects to
complete the replacement of systems as well as the remaining modifications and
testing by the second quarter 1999.
McDonald's has implemented a formal ongoing program to review the status of
Year 2000 compliance of its key suppliers. Management does not expect the Year
2000 issue to pose significant operational or financial problems for the
Company; however, in the unlikely event McDonald's or a significant number of
its key suppliers are unable to resolve the issue in a timely manner, such
matters could have a material impact on the Company's results of operations.
Contingency plans are being developed to address Year 2000 issues that might
arise internally or within the supply chain.
The Company expects its total costs to address the Year 2000 issue for
existing systems to be less than $30 million, of which approximately $22 million
was incurred through September 30, 1998. The costs include internal
modification and testing costs as well as costs associated with supply chain
risk assessment and contingency planning. These 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.
FORWARD-LOOKING STATEMENTS
Certain forward-looking statements are included in this report. They use
such words as "may," "will," "expect," "believe," "plan" and other similar
terminology. These statements reflect management's current expectations and
involve a number of risks and uncertainties. Actual results could differ
materially due to the success of operating initiatives, advertising and
promotional efforts, and Year 2000 compliance efforts and changes in: global
and local business and economic conditions; currency exchange and interest
rates; food, labor and other operating costs; political or economic instability
in local markets; competition; consumer preferences, spending patterns and
demographic trends; availability and cost of land and construction; legislation
and government regulation; and accounting policies and practices.
15
<PAGE>
- --------------------------------------------------------------------------------
THIRD QUARTER AND NINE MONTHS HIGHLIGHTS
- --------------------------------------------------------------------------------
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Quarters ended Nine months ended
September 30 September 30
Dollars in millions 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Systemwide sales by type
Operated by franchisees $ 5,740.4 $ 5,430.8 $ 16,602.0 $15,592.7
Operated by the Company 2,305.7 2,158.5 6,590.4 6,025.8
Operated by affiliates 1,200.1 1,210.4 3,471.1 3,489.4
- ------------------------------------------------------------------------------------------------------------------------------
Systemwide sales 9,246.2 8,799.7 26,663.5 25,107.9
- ------------------------------------------------------------------------------------------------------------------------------
Revenues
U.S. 1,240.9 1,191.6 3,659.7 3,453.7
Europe 1,165.1 1,024.5 3,253.3 2,873.3
Asia/Pacific 434.2 428.6 1,209.1 1,139.8
Latin America 203.7 184.5 593.4 504.1
Other 171.1 176.8 485.2 485.3
- ------------------------------------------------------------------------------------------------------------------------------
Total revenues 3,215.0 3,006.0 9,200.7 8,456.2
- ------------------------------------------------------------------------------------------------------------------------------
Restaurant margins
Company-operated
U.S. 17.5% 15.9% 17.7% 16.6%
Outside the U.S. 19.6% 19.9% 18.8% 19.2%
Franchised
U.S. 80.9% 81.6% 81.2% 81.2%
Outside the U.S. 81.3% 82.2% 80.6% 81.6%
- ------------------------------------------------------------------------------------------------------------------------------
Operating income $ 835.2 $ 755.4 $2,124.7 (1) $ 2,113.1
Income before provision for income taxes 717.3 659.1 1,791.3 (1) 1,817.9
Net income 482.2 448.9 1,201.6 (1) 1,231.6
Net income per common share (2) .71 .64 1.76 (1) 1.76
Net income per common share - diluted (2) .69 .63 1.71 (1) 1.71
- ------------------------------------------------------------------------------------------------------------------------------
Cash provided by operations 802.0 744.4 1,997.4 1,720.2
- ------------------------------------------------------------------------------------------------------------------------------
Total assets 19,221.7 17,972.2
Total shareholders' equity 8,940.0 9,164.5
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes the $160 million pre-tax special charge ($110 million after tax or
$0.16 per basic share and $0.15 per diluted share) related to the home
office productivity initiative recorded in second quarter 1998.
(2) Excluding "Made For You" expenses and the second quarter 1998 special
charge, net income per common share was $0.72 for the quarter and $1.93 for
the nine months ended September 30, 1998; diluted net income per common
share was $0.70 for the quarter and $1.88 for the nine months ended
September 30, 1998.
16
<PAGE>
- --------------------------------------------------------------------------------
THIRD QUARTER AND NINE MONTHS HIGHLIGHTS
- --------------------------------------------------------------------------------
RESTAURANTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
At September 30, 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
By type
Operated by franchisees 14,932 13,909
Operated by the Company 5,350 4,782
Operated by affiliates 3,847 3,555
- -----------------------------------------------------------------------------------------------------------------------------
Systemwide restaurants 24,129 22,246
- -----------------------------------------------------------------------------------------------------------------------------
Quarters ended Nine months ended
September 30 September 30
1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
Additions
U.S. 18 71 44 155
Europe 124 175 314 364
Asia/Pacific 142 179 410 482
Latin America 97 37 166 122
Other 22 1 63 101
- -----------------------------------------------------------------------------------------------------------------------------
Systemwide additions 403 463 997 1,224
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description
- -------------- -----------
(3) Restated Certificate of Incorporation, effective as of March 24, 1998,
incorporated herein by reference from Form 8-K dated April 17, 1998.
By-Laws, effective as of 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.
(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.
18
<PAGE>
Exhibit Number Description
- -------------- -----------
(iii) Medium-Term Notes, Series C, due from nine months (U.S.
Issue)/184 days (Euro Issue) to 30 years from Date of
Issue. Amended and restated Supplemental Indenture No. 16
incorporated herein by reference from Exhibit (4) of Form
10-Q for the period ended March 31, 1991.
(iv) 8-7/8% Debentures due 2011. Supplemental Indenture No. 17
incorporated herein by reference from Exhibit (4) of Form
8-K dated April 22, 1991.
(v) Medium-Term Notes, Series D, due from nine months (U.S.
Issue)/184 days (Euro Issue) to 60 years from Date of
Issue. Supplemental Indenture No. 18 incorporated herein
by reference from Exhibit 4(b) of Form S-3 Registration
Statement (File No. 33-42642), dated September 10, 1991.
(vi) 7-3/8% Notes due July 15, 2002. Form of Supplemental
Indenture No. 19 incorporated herein by reference from
Exhibit (4) of Form 8-K dated July 10, 1992.
(vii) 6-3/4% Notes due February 15, 2003. Form of Supplemental
Indenture No. 20 incorporated herein by reference from
Exhibit (4) of Form 8-K dated March 1, 1993.
(viii) 7-3/8% Debentures due July 15, 2033. Form of Supplemental
Indenture No. 21 incorporated herein by reference from
Exhibit (4)(a) of Form 8-K dated July 15, 1993.
(ix) Medium-Term Notes, Series E, due from nine months (U.S.
Issue)/ 184 days (Euro Issue) to 60 years from the Date of
Issue. Supplemental Indenture No. 22 incorporated herein
by reference from Exhibit 4(b) of Form S-3 Registration
Statement (File No. 33-60939), dated July 13, 1995.
(x) 6-5/8% Notes due September 1, 2005. Form of Supplemental
Indenture No. 23 incorporated herein by reference from
Exhibit (4)(a) of Form 8-K dated September 5, 1995.
(xi) 7.05% Debentures due 2025. Form of Supplemental Indenture
No. 24 incorporated herein by reference from Exhibit
(4)(a) of Form 8-K dated November 13, 1995.
(d) Rights Agreement dated as of December 13, 1988 between McDonald's
Corporation and The First National Bank of Chicago, incorporated
herein by reference from Exhibit 1 of Form 8-K dated December 23,
1988.
(i) Amendment No. 1 to Rights Agreement incorporated herein by
reference from Exhibit 1 of Form 8-K dated May 25, 1989.
(ii) Amendment No. 2 to Rights Agreement incorporated herein by
reference from Exhibit 1 of Form 8-K dated July 25, 1990.
(e) Indenture and Supplemental Indenture No. 1 dated as of September
8, 1989, between McDonald's Matching and Deferred Stock Ownership
Trust, McDonald's Corporation and Pittsburgh National Bank in
connection with SEC Registration Statement Nos. 33-28684 and 33-
28684-01, incorporated herein by reference from Exhibit (4)(a) of
Form 8-K dated September 14, 1989.
(f) Form of Supplemental Indenture No. 2 dated as of April 1, 1991,
supplemental to the Indenture between McDonald's Matching and
Deferred Stock Ownership Trust, McDonald's Corporation and
Pittsburgh National Bank in connection with SEC Registration
Statement Nos. 33-28684 and 33-28684-01, incorporated herein by
reference from Exhibit (4)(c) of Form 8-K dated March 22, 1991.
(10) Material Contracts
(a) Directors' Stock Plan, as amended and restated, incorporated
herein by reference from Exhibit 10(a) of Form 10-Q for the
quarter ended September 30, 1997.*
19
<PAGE>
Exhibit Number Description
- -------------- -----------
(b) Profit Sharing Program, as amended and restated, incorporated
herein by reference from Form 10-K for the year ended December
31, 1995.*
(i) Amendment No. 1 incorporated herein by reference from Form
10-Q for the quarter ended June 30, 1997.
(ii) Amendment No. 2 incorporated herein by reference from Form
10-Q for the quarter ended June 30, 1997.
(iii) Amendment No. 3 incorporated herein by reference from Form
10-Q for the quarter ended June 30, 1997.
(iv) Amendment No. 4 incorporated herein by reference from Form
10-K for the year ended December 31, 1997.
(c) McDonald's Supplemental Employee Benefit Equalization Plan,
McDonald's Profit Sharing Program Equalization Plan and
McDonald's 1989 Equalization Plan, as amended and restated,
incorporated herein by reference from Form 10-K for the year
ended December 31, 1995.*
(d) 1975 Stock Ownership Option Plan, as amended and restated,
incorporated herein by reference from Form 10-Q for the quarter
ended March 31, 1998.*
(e) 1992 Stock Ownership Incentive Plan, as amended and restated,
incorporated herein by reference from Form 10-Q for the quarter
ended March 31, 1998.*
(f) McDonald's Corporation Deferred Income Plan, as amended and
restated, filed herewith.*
(g) Non-Employee Director Stock Option Plan, incorporated herein by
reference from Exhibit A on pages 25-28 of McDonald's 1995 Proxy
Statement and Notice of 1995 Annual Meeting of Shareholders dated
April 12, 1995.*
(h) Employment Agreement, incorporated herein by reference from
Exhibit 10 (h) of Form 10-Q for the quarter ended September 30,
1997.*
(12) Statement re: Computation of ratios
(27.1) Financial Data Schedule
(27.2) Restated Financial Data Schedule
_____________________________________
* Denotes compensatory plan.
Other instruments defining the rights of holders of long-term debt of the
registrant and all of its subsidiaries for which consolidated financial
statements are required to be filed and which are not required to be registered
with the Securities and Exchange Commission, are not included herein as the
securities authorized under these instruments, individually, do not exceed 10%
of the total assets of the registrant and its subsidiaries on a consolidated
basis. An agreement to furnish a copy of any such instruments to the Securities
and Exchange Commission upon request has been filed with the Commission.
(b) Reports on Form 8-K
The following reports on Form 8-K were filed for the last quarter covered
by this report, and subsequently through November 12, 1998.
<TABLE>
<CAPTION>
Financial Statements
Date of Report Item Number Required to be Filed
-------------- ----------- --------------------
<S> <C> <C>
7/14/98 Item 7 No
7/20/98 Item 7 No
8/14/98 Item 7 No
9/28/98 Item 7 No
10/19/98 Item 7 No
</TABLE>
20
<PAGE>
SIGNATURE
-------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
McDONALD'S CORPORATION
(Registrant)
By Michael L. Conley
----------------------
(Signature)
Michael L. Conley
Executive Vice President,
Chief Financial Officer
---------------------------
21
<PAGE>
Exhibit 10(F)
McDONALD'S CORPORATION
----------------------
DEFERRED INCOME PLAN
--------------------
(As Amended and Restated Effective as of August 1, 1998)
Section 1
---------
Introduction
------------
1.1 The Plan and Effective Date. The McDonald's Corporation Deferred
Income Plan, formerly known as the McDonald's Corporation Deferred Incentive
Plan, ("Plan") was established November 1, 1993. The Plan was amended and
restated effective September 1, 1994 and was subsequently amended by the first
amendment thereof effective as of February 1, 1996 and the second amendment
thereof effective as of August 15, 1996 . The Plan was subsequently amended and
restated effective as of January 1, 1997 and was again amended and restated
effective as of July 15, 1997. The "effective date" of the amendment and
restatement of the Plan as set forth herein is August 1, 1998 (unless otherwise
indicated herein).
1.2 Purpose. McDonald's Corporation ("McDonald's" or the "Company") has
established the Plan for its officers, regional managers, department directors
and certain expatriate international country heads to retain and attract highly
qualified personnel by offering the benefits of a non-qualified, unfunded plan
of deferred compensation. The Company may also allow other subsidiaries or
affiliates to adopt the Plan in accordance with Section 7.
1.3 Administration. The Plan shall be administered by the Compensation
Committee of the Board of Directors of the Company (the "Committee"). The
Committee shall have the powers set forth in the Plan and the power to interpret
its provisions. Any decisions of the Committee shall be final and binding on
all persons with regard to the Plan. The Committee may delegate its authority
hereunder to an officer or officers of the Company.
Section 2
---------
Participation and Deferral Elections
------------------------------------
2.1 Eligibility and Participation. Subject to the conditions and
limitations of the Plan, all officers, regional managers and department
directors of the Company and international country heads who are on United
States payroll and who are identified as eligible by the Committee shall be
eligible to participate in the Plan ("Eligible Employees"). Notwithstanding
the foregoing, effective January 1, 1999, an individual who becomes employed in
one of the positions listed in the preceding sentence after the Due Date (as
defined in Section 2.3(b)) shall be eligible to participate in the Plan and
become an Eligible Employee on the first day of the month next following the
date of such employment. Any Eligible Employee who makes a Deferral Election as
described in Section 2.2 below shall become a participant in the Plan
("Participant") and shall remain a Participant until the entire balance of the
Participant's Deferral Accounts (defined in Section 4.1 below) is distributed.
2.2 Deferral Elections. Any Eligible Employee may make an election to
defer receipt of all or any portion of his or her incentive under the McDonald's
Target Incentive Plan ("TIP") for a calendar year. Subject to Section 2.3(b)
below, any Eligible Employee may also make an election to defer a percentage of
his or her base salary for the following calendar year in accordance with the
following schedule:
<TABLE>
<CAPTION>
Category of Eligible Employee
----------------------------- Maximum Deferral
(or Equivalent Compensation Band) Percentage
--------------------------------- ----------
<S> <C>
Highest paid five officers (ranked by the
total of base pay and the target incentive
under TIP for the current year) 90%
Executive Vice Presidents 80%
All other officers and regional managers 70%
Department Directors 60%
</TABLE>
provided, however, that the committee of officers designated by the Committee to
administer the Plan (the "Officer Committee") may, in its discretion, grant
individual requests for higher deferral percentages of base salary and provided
further that the Officer Committee may, in its discretion, authorize Eligible
Employees to modify their deferral percentages of base salary as may be
necessary to reflect organizational, title or compensation band changes. Such
modification may be made only with respect to base salary earned and paid after
the effective date of the modification.
22
<PAGE>
If applicable, any Eligible Employee may also make an election to defer all or a
portion of his or her Three-Year Incentive award ("Three-Year Incentive") under
the 1992 Stock Ownership Incentive Plan for a calendar year.
Elections to defer TIP, base salary or Three-Year Incentive awards are referred
to herein as "Deferral Elections". Exit bonuses, severance bonuses or bonuses
paid under the Executive Retention Plan during a transition or retention period
may not be deferred under this Plan.
2.3 Rules for Deferral Elections. Deferral Elections shall be made in
accordance with the rules set forth below:
(a) All Deferral Elections must be in writing on such forms as the
Committee may prescribe and must be returned to the Committee no later
than the date specified by the Committee (the "Due Date"). In no event
will the Due Date be later than the end of the year that precedes the
year that the amount deferred would otherwise be made available to such
Eligible Employee.
(b) An individual shall be eligible to make a Deferral Election only if he
or she is an Eligible Employee on the Due Date. Notwithstanding the
foregoing, effective January 1, 1999, an individual who becomes an
Eligible Employee after the Due Date in accordance with Section 2.1
will be eligible to make a base salary Deferral Election within 30 days
after the date he or she becomes an Eligible Employee. Such Deferral
Elections shall become effective as soon as administratively feasible
after the Deferral Election is made.
(c) If an Eligible Employee terminates employment in the same calendar year
in which he or she makes a Deferral Election, that Deferral Election
(and any Deferral Elections respecting future compensation in years
following the year of employment termination) will be null and void and
no deferral will be made.
(d) Amounts will be deferred to the "Payment Date" specified by the
Eligible Employee in the Deferral Election and payments will commence
within 30 days following the Payment Date in accordance with Section
5.1(b). The Payment Date specified must be no earlier than the March
31st of the calendar year following the year in which the deferred
amounts would otherwise have been paid and must be either a "Specific
Payment Date" or an "Employment Termination Payment Date" as follows:
(i) A "Specific Payment Date" is the 15th or last day of a specified
month (but not December 31) of a specified year.
(ii) An "Employment Termination Payment Date" is the March 31
following the year in which the Eligible Employee terminates
employment, unless the Eligible Employee elects a later
Employment Termination Date in accordance with Section 5.1(a).
If an Eligible Employee terminates employment and has one or more
Specific Payment Dates that would occur after the Employment
Termination Payment Date, all amounts deferred to those Specific
Payment Date(s) shall automatically be accelerated and payment will
commence in accordance with the Eligible Employee's Employment
Termination Payment Date election under Section 5.1(a). Participant
401(k) McDESOP Equalization Amounts and Company Profit Sharing
Equalization Credits described in Section 3 shall be deferred to the
Participant's Employment Termination Payment Date, even though a
Participant has elected a Specific Payment Date for the remainder of
his or her deferral.
Subject to Section 2.2, Deferral Elections cannot be modified or
revoked. Therefore, Deferral Elections made in prior years will be paid
according to the Payment Date specified at the time of deferral.
Section 3
---------
Equalization for McDonald's Corporation Profit Sharing Program
--------------------------------------------------------------
3.1 Equalization to Adjust for Participant 401(k) McDESOP Contributions.
Amounts deferred under this Plan are not considered compensation for the
McDonald's Corporation Profit Sharing Program (the "Profit Sharing Program") or
for the related non-qualified plans: the McDonald's 1989 Executive
Compensation Plan, the McDonald's Supplemental Employee Benefit Equalization
Plan and the McDonald's Profit Sharing Program Equalization Plan (the
"McCAP/McEqual Plans"). The McDESOP portion of the Profit Sharing Program
allows participants to contribute a percentage of their compensation as Section
401(k) contributions. Therefore, Eligible Employees who are Profit Sharing
Program participants and make Deferral Elections for base salary and TIP awards
under this Plan shall automatically have a portion of these deferred amounts set
aside until the Participant's Employment Termination Payment Date to adjust for
the fact that McDESOP Section 401(k) contributions cannot be made to the Profit
Sharing Program or the related non-qualified plans for these deferred amounts
(the "Participant 401(k) McDESOP Equalization Amount"). The Participant 401(k)
McDESOP Equalization Amount shall be based on the amount that would have been
contributed by the Participant under the McDESOP portion of the Profit Sharing
Program and the related non-qualified plans if the deferral of base salary and
TIP had not occurred. No Participant 401(k) McDESOP Equalization credit will be
made for deferrals of Three-Year Incentive awards under this Plan.
23
<PAGE>
3.2 Company Profit Sharing Equalization Credits. Amounts deferred under
this Plan are not considered as compensation under the Profit Sharing Program or
the McCAP/McEqual Plans. Therefore, base salary and TIP awards deferred under
this Plan shall be credited with an amount equal to the Company contribution
that the Participant would have received under the Profit Sharing Program and/or
McCAP/McEqual Plans if such deferral had not occurred ("Company Profit Sharing
Equalization Credit"). If a Participant is not eligible to participate in the
Profit Sharing Program or McCAP/McEqual Plans, or is not eligible to receive a
Company contribution under such plans with respect to a deferred amount, no
Company Profit Sharing Equalization Credit will be made. No Company Profit
Sharing Equalization Credit shall be made for Three-Year Incentive awards
deferred under this Plan.
3.3 Rules for Profit Sharing Equalization Amounts. Equalization amounts
under Sections 3.1 and 3.2 above (collectively referred to as "Equalization
Amounts") shall be deferred until the Participant's Employment Termination
Payment Date and cannot be withdrawn under Section 5.3. Equalization Amounts
will become part of the Participant's Deferral Account and will be credited with
earnings as part of that Deferral Account as described in Section 4.1.
Section 4
---------
Deferral Accounts
-----------------
4.1 Deferral Accounts. A bookkeeping account shall be established in the
Participant's name ("Deferral Account"). Each Participant's deferral account
may be further divided into:
(a) amounts deferred pursuant to that year's Deferral Election and earnings
thereon,
(b) Company Profit Sharing Equalization Credits associated with that year's
Deferral Election and earnings thereon; and
(c) Participant 401(k) McDESOP Equalization amounts associated with that
year's Deferral Election and earnings thereon.
The Committee may also authorize other divisions or subaccounts of the deferral
accounts as may be necessary to reflect the terms of the Plan as amended from
time to time.
Amounts deferred pursuant to a Deferral Election shall be credited to the
Deferral Account as of the date the Participant would otherwise have received
the deferred amounts in the absence of a Deferral Election. Any Equalization
Amounts shall be credited to the Deferral Account as of the date the amount
would have been allocated under the Profit Sharing Program or the McCAP/McEqual
Plans if the deferral had not occurred.
4.2 Investment Elections and Earnings Credits. Each Participant in the
Plan shall make an investment election, as described below, and such election
shall apply to the entire amount credited to the Participant's Deferral Accounts
under the Plan. However, Section 16 Insiders, as defined in Section 5.5 of the
Plan may not make investment elections involving McDonald's Common Stock. (For
further details concerning these restrictions, see Section 5.5 of the Plan.)
A Participant may change his investment election effective as of the first day
of any month. All investment elections shall be made by filing an investment
election form with the Committee at such time and in such manner as the
Committee may specify. If no new investment election is filed, the
Participant's Deferral Account will continue to be invested in accordance with
his or her most recent investment election.
Investment elections may be split between the following equivalent rates of
return in increments of 10%, provided that the percentages specified must total
100%.
(a) a rate of return based upon the McDonald's Common Stock Fund under the
Profit Sharing Program, after adjustment for expenses ("McDonald's
Common Stock" equivalent);
(b) a rate of return based upon the Stable Value Fund under the Profit
Sharing Program, after adjustment for expenses ("Stable Value"
equivalent);
(c) a rate of return based upon the Diversified Stock Fund under the
Profit Sharing Program, after adjustment for expenses ("Diversified
Stock" equivalent);
(d) a rate of return based upon the Blended Stock/Bond Fund under the
Profit Sharing Program, after adjustment for expenses ("Blended
Stock/Bond" equivalent); and
24
<PAGE>
(e) a rate of return based upon the Money Market Fund under the Profit
Sharing Program, after adjustment for expenses ("Money Market"
equivalent).
If a Participant who is employed fails to make an investment election, amounts
shall be credited with the same rate of return as amounts for which no
investment election is received under the Profit Sharing component of the
McDonald's Corporation Profit Sharing Program. (Currently, this is the Money
Market equivalent rate of return.) All investment elections will continue in
effect for all Participants until the Participant files a new investment
election.
As of the 15th day (or if the 15th day of the month is not a business day, the
next previous business day) and the last business day of each calendar month, or
such additional dates as the Committee shall specify ("Valuation Date"), each
Deferral Account shall be credited with earnings, gains and losses equal to the
amount the Deferral Account would have earned, gained or lost, since the prior
Valuation Date if actually invested in the funds specified.
4.3 Vesting. A Participant shall be fully vested at all times in the
balance of his or her Deferral Account.
Section 5
---------
Payment of Benefits
-------------------
5.1 Time and Method of Payment. Payments of a Participant's Deferral
Account shall be made to a Participant, or the Participant's beneficiary if the
Participant is deceased, in accordance with the rules set forth below:
(a) Time of Payment. Payment shall be made in accordance with the
applicable Specific Payment Date or Employment Termination Payment
Date. A Participant may elect an Employment Termination Payment Date
that is later than the March 31 following the year in which the
Participant terminates employment, which later date shall be either
the 15th or last date of any month (but not December 31) specified by
the Participant. Such election shall be made in writing in such form
as the Committee shall require, no later than December 31 of the year
in which the Participant terminates employment.
(b) Commencement of Payment. Payment to the Participant or the
Participant's beneficiary shall commence within 30 days following the
Payment Date.
(c) Method of Payment. Payments to a Participant or Participant's
beneficiary shall automatically be paid in a lump sum, unless the
Participant or the Participant's beneficiary elects one of the
following installment payment methods:
(i) In monthly, quarterly or annual installments over a period of up
to 25 years, as specified by the Participant or the
Participant's beneficiary. Installment payments shall be made in
substantially equal installments over the installment period
specified. Each installment payment shall be computed by
dividing the balance of the Deferral Account that is to be paid
in installments by the number of payments remaining in the
installment period.
(ii) In monthly, quarterly or annual installments of a dollar amount
specified by the Participant or the Participant's beneficiary.
(iii) In an initial partial lump sum payment with subsequent
installment payments. The lump sum payment and first installment
payment shall be distributed in a year specified by the
Participant or the Participant's beneficiary and subsequent
monthly, quarterly or annual installment payments shall be made
either over a period of years (as described in (i) above) or of
a specified dollar amount (as described in (ii) above), as
specified by the Participant or the Participant's beneficiary.
An installment distribution election under this Section 5.1(c) shall
be made in writing in such form as the Committee shall require on or
before the December 31 of the calendar year preceding the Payment
Date. Such installment distribution election shall apply to all
payments that commence on the same Payment Date. Once an installment
election is filed for a Payment Date, it cannot be revoked.
Installment payments shall commence within 30 days after the Payment
Date.
Notwithstanding the foregoing, Deferral Elections made in 1993 which specified a
five year installment payment shall be null and void, and shall be paid in a
lump sum, unless the Participant or the Participant's beneficiary files a
written installment election prior to December 31 of the calendar year preceding
the Payment Date.
25
<PAGE>
5.2 Form of Payment. All payments shall be made in cash. However, a
Participant who has elected a McDonald's Common Stock based return may elect to
receive payment in the form of shares of McDonald's Common Stock by filing a
written request with the Committee prior to December 31 of the calendar year
preceding the Payment Date.
5.3 Early Withdrawals and Acceleration of Installment Payments. A
Participant shall have the right to withdraw in cash any portion of the balance
of his or her Deferral Accounts (except for the Equalization Amounts of the
Participant's Deferral Accounts under Sections 4.1(b) and (c) and amounts which
were not withdrawable under the terms of the Plan prior to September 1, 1994) at
any time prior to the applicable Payment Date, subject to the Committee's
consent and a 10% forfeiture penalty on the amount requested. A Participant who
is receiving installment payments may accelerate payment of any unpaid amount,
subject to the Committee's consent and 10% forfeiture penalty on the amount
accelerated. The withdrawal or accelerated installment (reduced by the 10%
forfeiture penalty) shall be paid within 30 days of the Valuation Date next
following the date the election to withdraw or accelerate payments is approved
by the Committee. Withdrawals and accelerated installments shall be made first
from the earliest maturing Deferral Account and shall be taken pro rata from the
investment rate equivalents elected by the Participant. Withdrawals shall be
subject to such procedures as the Committee shall establish from time to time.
5.4 Withholding of Taxes. The Company shall withhold any applicable
Federal, state or local income tax from payments due under the Plan in
accordance with such procedures as the Company may establish. Generally, any
Social Security taxes, including the Medicare portion of such taxes, shall be
withheld and paid at the time base salary payments or incentive payments under
TIP or the Three Year Incentive would otherwise have been paid to the
Participant. The Company shall also withhold any other employment taxes as
necessary to comply with applicable laws.
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
method 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.
(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.
5.6 Beneficiary. A Participant shall have the right to name a beneficiary
or beneficiaries who shall receive the balance of a Participant's Deferral
Account in the event of the Participant's death prior to the payment of his or
her entire Deferral Account. If no
26
<PAGE>
beneficiary is named by a Participant or if he or she survives all of the named
beneficiaries, the Deferral Account shall be paid to the same beneficiary or
beneficiaries to which the Deferral Account would have been paid if it were in
the Participant's Profit Sharing Fund Account under the Profit Sharing Program
as of the date of the Participant's death. To be effective, any beneficiary
designation shall be filed in writing with the Committee. A Participant may
revoke an existing beneficiary designation by filing another written beneficiary
designation with the Committee. The latest beneficiary designation received by
the Committee shall be controlling.
Section 6
---------
Miscellaneous
-------------
6.1 Funding. Benefits payable under the Plan to any Participant shall be
paid directly by the Company. The Company shall not be required to fund, or
otherwise segregate assets to be used for payment of benefits under the Plan.
While the Company may, in the discretion of the Committee, make investments (a)
in shares of McDonald's Common Stock through open market purchases or (b) in
other investments in amounts equal or unequal to amounts payable hereunder, the
Company shall not be under any obligation to make such investments and any such
investment shall remain an asset of the Company subject to the claims of its
general creditors. Notwithstanding the foregoing, the Company may maintain one
or more trusts ("Trust") to hold assets to be used for payment of benefits under
the Plan. Any payments by a Trust of benefits provided to a Participant under
the Plan shall be considered payment by the Company and shall discharge the
Company of any further liability under the Plan for such payments.
6.2 Account Statements. The Company shall provide Participants with
statements of the balance of their Deferral Accounts under the Plan at least
annually. The Committee may, in their discretion, also issue statements as of
the March 31, June 30, September 30 and December 31 Valuation Dates, or as of
any other Valuation Date that the Committee deems appropriate.
6.3 Employment Rights. Establishment of the Plan shall not be construed
to give any Eligible Employee the right to be retained in the Company's service
or to any benefits not specifically provided by the Plan.
6.4 Interests Not Transferable. Except as to withholding of any tax under
the laws of the United States or any state or locality and the provisions of
Section 5.6, no benefit payable at any time under the Plan shall be subject in
any manner to alienation, sale, transfer, assignment, pledge, attachment, or
other legal process, or encumbrance of any kind. Any attempt to alienate, sell,
transfer, assign, pledge or otherwise encumber any such benefits, whether
currently or thereafter payable, shall be void. No person shall, in any manner,
be liable for or subject to the debts or liabilities of any person entitled to
such benefits. If any person shall attempt to, or shall alienate, sell,
transfer, assign, pledge or otherwise encumber benefits under the Plan, or if by
any reason of the Participant's bankruptcy or other event happening at any time,
such benefits would devolve upon any other person or would not be enjoyed by the
person entitled thereto under the Plan, then the Company, in its discretion, may
terminate the interest in any such benefits of the person entitled thereto under
the Plan and hold or apply them to or for the benefit of such person entitled
thereto under the Plan or such individual's spouse, children or other
dependents, or any of them, in such manner as the Company may deem proper.
6.5 Forfeitures and Unclaimed Amounts. Unclaimed amounts shall consist of
the amounts of the Deferral Accounts of a Participant that cannot be distributed
because of the Committee's inability, after a reasonable search, to locate a
Participant or the Participant's beneficiary, as applicable, within a period of
two (2) years after the Payment Date upon which the payment of benefits become
due. Unclaimed amounts shall be forfeited at the end of such two-year period.
Penalties charged for withdrawals under Section 5.3 shall also be forfeited in
the year in which the penalty is charged. These forfeitures will reduce the
obligations of the Company under the Plan. After an unclaimed amount has been
forfeited, the Participant or beneficiary, as applicable, shall have no further
right to the Participant's Deferral Account.
6.6 Controlling Law. The law of Illinois, except its law with respect to
choice of law, shall be controlling in all matters relating to the Plan to the
extent not preempted by ERISA.
6.7 Action by the Company. Except as otherwise specifically provided
herein, any action required of or permitted by the Company under the Plan shall
be by resolution of the Board of Directors of the Company or by action of any
member of the Committee or person(s) authorized by resolution of the Board of
Directors of the Company.
Section 7
---------
Employer Participation
----------------------
7.1 Adoption of Plan. Any subsidiary or affiliate of the Company
("Employer") may, with the approval of the Committee and under such terms and
conditions as the Committee may prescribe, adopt the corresponding portions of
the Plan by resolution of its board of directors. The Committee may amend the
Plan as necessary or desirable to reflect the adoption of the Plan by an
Employer, provided however, that an adopting Employer shall not have the
authority to amend or terminate the Plan under Section 8.
27
<PAGE>
7.2 Withdrawal from the Plan by Employer. Any such Employer shall have
the right, at any time, upon the approval of and under such conditions as may be
provided by the Committee, to withdraw from the Plan by delivering to the
Committee written notice of its election so to withdraw. Upon receipt of such
notice by the Committee, the portion of the Deferral Accounts of Participants
and beneficiaries attributable to credits made while the Participants were
employees of such withdrawing Employer, plus any net earnings, gains and losses
on such credits, shall be distributed from the Trust at the direction of the
Committee in cash at such time or times as the Committee, in its sole
discretion, may deem to be in the best interest of such employees and their
beneficiaries. To the extent the amounts held in the Trust for the benefit of
such Participants and beneficiaries are not sufficient to satisfy the Employer's
obligation to such Participants and their beneficiaries accrued on account of
their employment with the Employer, the remaining amount necessary to satisfy
such obligation shall be an obligation of the Employer, and the Company shall
have no further obligation to such Participants and beneficiaries with respect
to such amounts.
Section 8
---------
Amendment and Termination
-------------------------
The Company intends the Plan to be permanent, but reserves the right at any time
by action of its Board of Directors or by the Committee (in accordance with the
restrictions in the following sentence) to modify, amend or terminate the Plan,
provided however, that any amendment or termination of the Plan shall not reduce
or eliminate any Deferral Account accrued through the date of such amendment or
termination.
The Committee shall have the same authority to adopt amendments to the Plan as
the Board of Directors of the Company in the following circumstances:
(a) to adopt amendments to the Plan which the Committee determines are
necessary or desirable for the Plan to comply with or to obtain
benefits or advantages under the provisions of applicable law,
regulations or rulings or requirements of the Internal Revenue Service
or other governmental or administrative agency or changes in such law,
regulations, rulings or requirements; and
(b) to adopt any other procedural or cosmetic amendment that the
Committee determines to be necessary or desirable that does not
materially change benefits to Participants or their beneficiaries or
materially increase the Company's or adopting Employers' credits to
the Plan.
The Committee shall provide notice of amendments adopted by the Committee to the
Board of Directors of the Company on a timely basis.
Executed in multiple originals this 10th day of November, 1998.
McDONALD'S CORPORATION
/s/ STANLEY R. STEIN
-------------------------------
By: Stanley R. Stein
Title: Executive Vice President
28
<PAGE>
Exhibit 12
McDONALD'S CORPORATION
STATEMENT RE: COMPUTATION OF RATIOS
Dollars In Millions
<TABLE>
<CAPTION>
Nine months
ended September 30, Years ended December 31,
1998 1997 1997 1996 1995 1994 1993
---------------------- ------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS AVAILABLE FOR FIXED CHARGES
- - Income before provision for income taxes (1)$ 1,791.3 $1,817.9 $2,407.3 $2,251.0 $2,169.1 $1,886.6 $1,675.7
- - 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 11.3 21.0 28.3 39.6 19.6 6.6 6.9
- - Provision for income taxes of 50% owned
affiliates included in consolidated income
before provision for income taxes 87.0 48.7 69.0 73.2 73.3 34.9 34.2
- - Portion of rent charges (after reduction
for rental income from subleased
properties) considered to be representative
of interest factors* 125.4 110.0 145.9 130.9 103.8 83.4 71.6
- - Interest expense, amortization of debt
discount and issuance costs, and
depreciation of capitalized interest* 350.9 315.3 424.8 392.2 388.8 346.0 358.0
--------------------- ------------------------------------------------
$2,365.9 $2,312.9 $3,075.3 $2,886.9 $2,754.6 $2,357.5 $2,146.4
===================== ================================================
FIXED CHARGES
- - Portion of rent charges (after reduction
for rental income from subleased
properties) considered to be representative
of interest factors* $ 125.4 $ 110.0 $ 145.9 $ 130.9 $ 103.8 $ 83.4 $ 71.6
- - Interest expense, amortization of debt
discount and issuance costs, and fixed
charges related to redeemable preferred
stock* 342.1 319.5 426.1 410.4 403.4 343.9 349.3
- - Capitalized interest* 13.6 15.3 23.7 23.5 22.8 21.0 20.7
--------------------- ------------------------------------------------
$ 481.1 $ 444.8 $ 595.7 $ 564.8 $ 530.0 $ 448.3 $ 441.6
===================== ================================================
RATIO OF EARNINGS TO FIXED CHARGES (2) 4.92 5.20 5.16 5.11 5.20 5.26 4.86
===================== ================================================
</TABLE>
*Includes amounts of the Registrant and its majority-owned subsidiaries, and
one-half of the amounts of 50%-owned affiliates.
(1) Includes the $160 million pre-tax special charge related to the home office
productivity initiative recorded in the second quarter 1998.
(2) Excluding the special charge, the ratio of earnings to fixed charges for
the nine months ended September 30, 1998 would have been 5.25.
29
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the Company's Form 10-Q for the quarterly period ended September 30, 1998 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 304
<SECURITIES> 0
<RECEIVABLES> 549
<ALLOWANCES> 0
<INVENTORY> 72
<CURRENT-ASSETS> 1,250
<PP&E> 21,326
<DEPRECIATION> 5,631
<TOTAL-ASSETS> 19,222
<CURRENT-LIABILITIES> 2,171
<BONDS> 6,385
0
0
<COMMON> 8
<OTHER-SE> 13,790
<TOTAL-LIABILITY-AND-EQUITY> 19,222
<SALES> 6,590
<TOTAL-REVENUES> 9,201
<CGS> 5,375
<TOTAL-COSTS> 5,872
<OTHER-EXPENSES> 138
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 312
<INCOME-PRETAX> 1,791
<INCOME-TAX> 590
<INCOME-CONTINUING> 1,202
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,202
<EPS-PRIMARY> 1.76
<EPS-DILUTED> 1.71
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the Company's Form 10-Q for the quarterly periods ended September 30, 1998 and
1997, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 310
<SECURITIES> 0
<RECEIVABLES> 435
<ALLOWANCES> 0
<INVENTORY> 62
<CURRENT-ASSETS> 1,075
<PP&E> 19,810
<DEPRECIATION> 5,079
<TOTAL-ASSETS> 17,972
<CURRENT-LIABILITIES> 2,221
<BONDS> 5,240
0
358
<COMMON> 8
<OTHER-SE> 12,377
<TOTAL-LIABILITY-AND-EQUITY> 17,972
<SALES> 6,026
<TOTAL-REVENUES> 8,456
<CGS> 4,923
<TOTAL-COSTS> 5,377
<OTHER-EXPENSES> (90)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 270
<INCOME-PRETAX> 1,818
<INCOME-TAX> 586
<INCOME-CONTINUING> 1,232
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,232
<EPS-PRIMARY> 1.76
<EPS-DILUTED> 1.71
<FN>
NOTE: Restatement reflected herein is the result of reclassification of prior
period's financial statements to conform to current period presentation
due to the adoption of SFAS No. 128, Earnings Per Share.
</FN>
</TABLE>
