SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 22, 1999
McDONALD'S CORPORATION
(Exact name of Registrant as specified in its Charter)
Delaware 1-5231 36-2361282
(State of Incorporation) (Commission File No.) (IRS Employer
Identification No.)
One McDonald's Plaza
Oak Brook, Illinois 60523
(630) 623-3000
(Address and Phone Number of Principal Executive Offices)
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits
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(c) Exhibit
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(99) McDonald's Reports 12% Increase in Net Income Per Share
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 hereunto duly authorized.
McDONALD'S CORPORATION
(Registrant)
By: /s/ Gloria Santona
--------------------------------------
Gloria Santona
Vice President, Deputy General Counsel
and Secretary
EXHIBIT 99
Investor Release
FOR IMMEDIATE RELEASE FOR MORE INFORMATION CONTACT:
4/22/99 Investors: Mary Healy, 630-623-6429
Media: Chuck Ebeling, 630-623-6150
McDONALD'S REPORTS 12% INCREASE IN NET INCOME PER SHARE
OAK BROOK, IL _ McDonald's reported record global results with diluted
net income per common share increasing 12 percent for the quarter ended
March 31, 1999.
- Diluted net income per common share increased 12 percent.
- Systemwide sales and total revenues increased eight percent.
- Operating income increased 14 percent in the U.S., the fourth
consecutive quarter of double-digit increases.(1)
- More than 6,500, or nearly 50 percent of U.S. and Canadian
restaurants, are currently using the Made for You system.
- Sales were up 16 percent in Latin America, 13 percent in Europe and
eight percent in Asia/Pacific in constant currencies.
- Operating income increased 11 percent in Asia/Pacific, 10 percent in
Europe and two percent in Latin America in constant currencies.
Excluding Russia, Europe's operating income increased 15 percent in
constant currencies.
All information in constant currencies excludes the effect of
foreign currency translation on reported results, except for
hyperinflationary economies, such as Russia, whose functional currency is
the U.S. dollar.
Key highlights
Dollars in millions, except per
common share data 1999 1998 Increase
Quarters ended March 31
Systemwide sales $8,822.8 $8,169.7 $653.1 8%
Total revenues 3,035.1 2,804.9 230.2 8
Operating income 711.6 642.7 68.9 11
Net income 402.7 362.2 40.5 11
Net income per common share - diluted .29 .26* .03 12
* Restated for 2-for-1 common stock split in March 1999
(1) The double-digit increases exclude Made for You costs in the second
and fourth quarters of 1998 and the special charge related to the home
office productivity initiative in the second quarter of 1998.
SUMMARY COMMENTARY
President and Chief Executive Officer Jack M. Greenberg commented,
"Our investment in people, innovation and change continues to pay off for
McDonald's around the world. Our great start in 1999 is additional
evidence that we are on the right track, both in the U.S. and in our
international markets. It's another quarter that moves us closer to our
vision of being the world's best quick-service restaurant experience."
Jim Cantalupo, Vice Chairman McDonald's Corporation, Chairman and
Chief Executive Officer - McDonald's International said, "Our
international business reported another strong quarter - including
positive comparable sales. The results were especially noteworthy given
the continued economic challenges in some key markets such as Brazil and
Russia. International operating income increased nine percent in
constant currencies. Excluding Brazil and Russia, the increase was
14 percent in constant currencies.
"McDonald's continues to successfully manage through difficult
economic issues. Europe again led our results, in spite of the diminished
performance in Russia. And in Brazil, customer visits to McDonald's have
increased, reflecting the skill and effort of our Brazilian team. We are
cautiously optimistic that the Brazilian economy will improve as we move
through the year. All around the world, we continue to grow our position
in the marketplace, by focusing on value and profitable expansion and by
leveraging our global infrastructure to build on our significant
presence."
Alan D. Feldman, President - McDonald's U.S.A. said, "The strong
momentum in the U.S. business continued in the first quarter, despite
difficult weather in January. We generated our fifth consecutive quarter
of positive comparable sales. We again scored high in our core kids
business with two of our most successful Happy Meal promotions of all
time, Winnie the Pooh and, in late March, Furbies. I am proud of our
owner/operators and employees, whose upbeat perspective and enthusiasm
for the business greatly contributed to our performance.
"Made for You, our new food preparation system, continues to be a
top priority. About 5,500 U.S. restaurants have implemented the system
and we are on track to achieve our goal of installation in virtually all
U.S. restaurants by the end of 1999. As a result of Made for You, not
only are we serving fresher, great-tasting food, we continue to see lower
operating costs, increased customer satisfaction and improved employee
morale. In addition, the system will be a platform for menu innovation."
CONSOLIDATED OPERATING RESULTS
Net Income and Net Income per Common Share
For the quarter, net income and diluted net income per common share
increased 11 percent and 12 percent, respectively, both as reported and
in constant currencies.
Weighted average shares outstanding for the first quarter were lower
compared with the prior year due to the Company's share repurchase
program. However, diluted weighted average shares outstanding increased
over the prior year as the 63 percent increase in the stock price caused
outstanding stock options to be more dilutive.
During the first quarter, the Company repurchased five million
shares of its common stock for approximately $170 million, under the
Company's three-year, $3.5 billion program.
Systemwide Sales and Revenues
Systemwide sales represent sales by Company-operated, franchised and
affiliated restaurants. Total revenues include sales by Company-operated
restaurants and fees from restaurants operated by franchisees and
affiliates. These fees include rent, service fees and royalties that are
based on a percent of sales with specified minimum payments along with
initial fees.
On a global basis, the increases in sales and revenues for the
quarter were due to expansion and positive comparable sales. Foreign
currency translation had a slightly positive impact on Systemwide sales
and a slightly negative impact on total revenues, primarily because the
stronger Japanese Yen had a greater positive currency translation impact
on sales compared to revenues. This is due to our affiliate structure in
Japan. Under this structure, we record a small percentage of Japan's
sales as revenues, whereas 100 percent of their sales are included in
Systemwide sales. On a constant currency basis, revenues increased at a
higher rate than sales, due to the higher unit growth rate of Company-
operated restaurants outside the U.S. relative to Systemwide restaurants.
Systemwide sales
Dollars in millions 1999 1998 Increase/(Decrease)
As In Constant
Reported Currencies*
Quarters ended March 31
U.S. $4,287.4 $4,119.2 4% n/a
Europe 2,261.8 1,949.9 16 13%
Asia/Pacific 1,511.3 1,334.0 13 8
Latin America 393.6 410.6 (4) 16
Other 368.7 356.0 4 9
Total Systemwide sales $8,822.8 $8,169.7 8% 8%
* Excluding the effect of foreign currency translation on reported
results
n/a Not applicable
U.S. sales increased due to positive comparable sales and restaurant
expansion. Promotions, particularly Big Mac and Winnie the Pooh, and
local market initiatives contributed to the sales increase.
In Europe, positive comparable sales and expansion drove the
constant currency sales increase. Strong performances in Germany, Italy,
Spain and the U.K. drove this increase. Sales growth in France also
contributed to the increase. Continuing difficult economic conditions in
Russia negatively affected Europe's sales growth.
In Asia/Pacific, the constant currency sales increase was driven by
expansion, partly offset by negative comparable sales. Australia and
Japan were the principal contributors to the segment's total constant
currency sales increase.
In Latin America, the constant currency sales increase was driven by
expansion, partly offset by negative comparable sales. Sales in this
segment were negatively affected by the economic turmoil in Brazil,
including the significant devaluation of the Real. Double-digit
comparable sales increases in Mexico and Venezuela contributed to the
increase.
Combined Operating Margins
Combined operating margin dollars increased $54.9 million, or six
percent in the first quarter, primarily driven by expansion and positive
comparable sales.
Company-operated margins as a percent of sales decreased for the
quarter. Payroll costs and occupancy & other expenses increased as a
percent of sales, while food & paper costs decreased.
Combined operating margins Quarters ended
March 31
1999 1998
Dollars in millions
Company-operated $ 361.1 $350.9
Franchised 677.2 632.5
Combined operating margins $1,038.3 $983.4
Percent of sales/revenues
Company-operated 16.6% 17.4%
Franchised 79.1 80.0
As a percent of sales, U.S. Company-operated margins increased
slightly. Lower food & paper costs were partly offset by higher payroll
costs and higher occupancy & other operating expenses as a percent of
sales.
Outside the U.S., Company-operated margins decreased as a percent of
sales. Lower food & paper costs were offset by increases in payroll
costs and occupancy & other operating expenses as a percent of sales.
Economic difficulties in Russia and Brazil negatively impacted Company-
operated margins, accounting for nearly 70 percent of the decline from
the prior year in the margin percent outside the U.S.
Franchised margin dollars comprised more than 60 percent of the
combined operating margins, the same as in the prior year. Franchised
margin dollars increased seven percent for the quarter, despite a decline
in franchised margins as a percent of applicable revenues.
As a percent of revenues, U.S. franchised margins decreased slightly
for the quarter, reflecting higher occupancy costs, including rent
expense, driven by an increase in the number of leased sites. Higher
occupancy costs and the consolidation, for financial reporting purposes,
of Sweden in 1999 and South Korea and Thailand in second quarter 1998
negatively affected franchised margins outside the U.S. in the first
quarter.
Selling, General & Administrative Expenses
Selling, general & administrative expenses decreased slightly for
the quarter. In the U.S., selling, general & administrative expenses
decreased due to savings as a result of the home office productivity
initiative. Outside the U.S., selling, general & administrative expenses
increased at a rate substantially less than the sales growth rate. The
consolidation, for financial reporting purposes, of three affiliate
markets in 1999 and second quarter 1998 and spending to support
restaurant development primarily drove the increase. As a result of the
home office productivity initiative, the Company expects to save about
$100 million of selling, general & administrative expenses per year,
beginning in 2000, with about two-thirds of the annual savings expected
to be realized in 1999. About $15 million of these savings were realized
in 1998.
Other Operating (Income) Expense
Other operating (income) expense consists of transactions related to
franchising and the food service business. The increase in equity in
earnings of unconsolidated affiliates was primarily due to Japan, which
benefited from a lower effective tax rate and the stronger Japanese Yen.
Made for You costs related primarily to accelerated depreciation on
equipment being replaced in U.S. Company-operated restaurants.
Other operating (income) expense Quarters ended
March 31
Dollars in millions 1999 1998
Gains on sales of restaurant businesses $(11.3) $(8.0)
Equity in earnings of unconsolidated affiliates (21.7) (12.4)
Made for You costs 4.2 -
Other (income) expense 15.6 18.1
Other operating (income) expense $(13.2) $(2.3)
Operating Income
Consolidated operating income increased $68.9 million, or 11
percent, and U.S. operating income increased $37.4 million or 14 percent
for the quarter. These increases were driven by higher combined
operating margin dollars, higher other operating income and lower
selling, general & administrative expenses.
Operating income
Dollars in millions 1999 1998 Increase/(Decrease)
As In Constant
Reported Currencies*
Quarters ended March 31
U.S. $314.1 $276.7 14% n/a
Europe 252.8 223.8 13 10%
Asia/Pacific 91.3 79.8 14 11
Latin America 31.9 39.0 (18) 2
Other 21.5 23.4 (8) (3)
Total operating income** $711.6 $642.7 11% 11%
* Excluding the effect of foreign currency translation on reported
results
** For financial reporting purposes, Corporate selling, general &
administrative expenses (costs related to home office support of the
Company's global business) were allocated to the various geographic
segments, beginning in 1999. Prior year amounts have been restated to
conform to this presentation.
n/a Not applicable
Europe's operating income increased 10 percent for the quarter in
constant currencies. The strong results of Germany, Italy and Spain
drove this segment's performance. France and the U.K. also contributed
to the increase. In addition, Europe's operating income benefited from
the consolidation of Sweden, due to an increase in ownership. Europe's
growth was dampened by the difficult economic conditions in Russia.
Excluding Russia, Europe's operating income increased 15 percent for the
quarter in constant currencies.
Operating income in Asia/Pacific increased 11 percent for the
quarter in constant currencies. The increase was driven primarily by
Japan, which benefited from a lower effective tax rate. In addition, the
consolidation of South Korea and Thailand in second quarter 1998
contributed to the increase.
Latin America's operating income increased two percent for the
quarter in constant currencies. Mexico and Puerto Rico were the primary
contributors to this increase. Brazil's difficult economic conditions
and currency devaluation had a significant adverse effect on this
segment's operating results. We are cautiously optimistic that
improvements in the Brazilian economy will lessen the effect as we move
through the year. On an as reported basis, Brazil accounted for about 50
percent of Latin America's operating income for the quarter compared with
75 percent in the prior year.
Interest and Income Taxes
Slightly higher interest expense reflected higher debt levels and
stronger foreign currencies, partly offset by lower average interest
rates.
The effective income tax rate was 33.0 percent for the first quarter
of 1999 and 1998. For the year 1999, the Company expects the effective
tax rate to be in the range of 32.5 percent to 33.5 percent.
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 Deutsche Mark, French Franc and Japanese Yen were the primary
currencies positively affecting reported results, while the weakened
Australian Dollar, Brazilian Real and the Canadian Dollar had a negative
effect on reported results.
Effect of foreign currency Increase
translation on worldwide Over Prior Period
reported results
Dollars in millions, except
per common share data As In Constant Currency As In Constant
Reported Currencies* (Benefit)/Loss Reported Currencies*
Quarter ended March 31, 1999
Systemwide sales $8,822.8 $8,802.0 $(20.8) 8% 8%
Total revenues 3,035.1 3,069.8 34.7 8 9
Operating income 711.6 711.5 (0.1) 11 11
Net income 402.7 402.0 (0.7) 11 11
Net income per common
share - diluted .29 .29 - 12 12
* Excluding the effect of foreign currency translation on reported
results
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, Year 2000 compliance
efforts and Euro conversion efforts, as well as changes in: global and
local business and economic conditions; currency exchange and interest
rates; food, labor and other operating costs; political or economic
instability in local markets; competition; consumer preferences, spending
patterns and demographic trends; availability and cost of land and
construction; legislation and government regulation; and accounting
policies and practices.
McDONALD'S CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
Dollars and shares in millions, except per common share data
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Inc/(Dec)
Quarters ended March 31, 1999 1998 $ %
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SYSTEMWIDE SALES $8,822.8 $8,169.7 653.1 8
Revenues
Sales by Company-operated
restaurants 2,179.1 2,014.3 164.8 8
Revenues from franchised
and affiliated restaurants 856.0 790.6 65.4 8
TOTAL REVENUES 3,035.1 2,804.9 230.2 8
Operating costs and expenses
Company-operated restaurants 1,818.0 1,663.4 154.6 9
Franchised restaurants
--occupancy costs 178.8 158.1 20.7 13
Selling, general &
administrative expenses 339.9 343.0 (3.1) (1)
Other operating (income)
expense (13.2) (2.3) (10.9) n/m
Total operating costs
and expenses 2,323.5 2,162.2 161.3 7
OPERATING INCOME 711.6 642.7 68.9 11
Interest expense 105.2 102.8 2.4 2
Nonoperating (income) expense 5.7 (0.3) 6.0 n/m
Income before provision
for income taxes 600.7 540.2 60.5 11
Provision for income taxes 198.0 178.0 20.0 11
NET INCOME $ 402.7 $ 362.2 40.5 11
NET INCOME PER COMMON SHARE $ 0.30 $ 0.26* 0.04 15
NET INCOME PER COMMON
SHARE - DILUTED $ 0.29 $ 0.26* 0.03 12
Weighted average common
shares outstanding 1,357.3 1,372.8*
Weighted average common
shares outstanding--diluted 1,409.2 1,403.9*
* Restated for 2-for-1 common stock split in March 1999.
n/m Not meaningful
MCDONALD'S CORPORATION FINANCIAL INFORMATION
Dollars in millions
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Inc/(Dec)
Quarters ended March 31, 1999 1998 $ %
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SYSTEMWIDE SALES
By Type
Operated by franchisees $5,439.9 $5,030.2 409.7 8
Operated by the Company 2,179.1 2,014.3 164.8 8
Operated by affiliates 1,203.8 1,125.2 78.6 7
$8,822.8 $8,169.7 653.1 8
TOTAL REVENUES
By Segment
U.S. $1,151.3 $1,102.0 49.3 4
Europe 1,156.2 990.3 165.9 17
Asia/Pacific 421.6 376.3 45.3 12
Latin America 163.6 192.9 (29.3) (15)
Other 142.4 143.4 (1.0) (1)
$3,035.1 $2,804.9 230.2 8
RESTAURANT MARGINS
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Quarters ended March 31
1999 1998
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Company-operated
U.S. 16.6% 16.4%
Outside the U.S. 16.6% 17.9%
Franchised
U.S. 79.9% 80.1%
Outside the U.S. 78.1% 79.8%
% CONTRIBUTION TO
CONSOLIDATED MARGINS
------------------------------------------
Quarters ended March 31
1999 1998
------------------------------------------
Company-operated
U.S. 31 30
Outside the U.S. 69 70
100 100
Franchised
U.S. 57 58
Outside the U.S. 43 42
100 100
MCDONALD'S CORPORATION RESTAURANT INFORMATION<PAGE>
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At March 31, 1999 1998 Increase
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By Type
Operated by franchisees 15,316 14,366 950
Operated by the Company 5,693 5,065 628
Operated by affiliates 3,946 3,915 31
Systemwide restaurants 24,955 23,346 1,609
By Segment
U.S. 12,462 12,413 49
Europe
Germany 932 855 77
England 817 757 60
France 722 647 75
Italy 202 173 29
Spain 191 151 40
Netherlands 187 177 10
Sweden 178 155 23
Other 1,241 1,028 213
Total Europe 4,470 3,943 527
Asia/Pacific
Japan 2,897 2,467 430
Australia 666 650 16
Taiwan 303 254 49
China 225 196 29
Philippines 198 164 34
Hong Kong 155 142 13
Other 685 674 11
Total Asia/Pacific 5,129 4,547 582
Latin America
Brazil 681 482 199
Argentina 170 138 32
Other 582 489 93
Total Latin America 1,433 1,109 324
Other
Canada 1,091 1,054 37
Other 370 280 90
Total Other 1,461 1,334 127
Systemwide restaurants 24,955 23,346 1,609
Countries 115 109
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Quarters ended March 31, 1999 1998
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Additions
U.S.* (10) 33
Europe 49 57
Asia/Pacific 74 91
Latin America 28 18
Other 14 15
Systemwide additions 155 214
* Includes the closing of about 30 low-volume satellite locations in
1999.
