-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O6xbbpfHL9SC1k6PyjyQRdR26IbmZG4FCAUO/d0myJCTeUbHWhD2o8BWwaiSSBkA 0jHsJu2miBM4wtoEbiC0IQ== 0000950131-01-504054.txt : 20020410 0000950131-01-504054.hdr.sgml : 20020410 ACCESSION NUMBER: 0000950131-01-504054 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MCDONALDS CORP CENTRAL INDEX KEY: 0000063908 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 362361282 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05231 FILM NUMBER: 1780394 BUSINESS ADDRESS: STREET 1: ONE MCDONALD'S PLZ CITY: OAK BROOK STATE: IL ZIP: 60523 BUSINESS PHONE: 6306233000 10-Q 1 d10q.txt FORM 10-Q ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2001 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number 1-5231 McDONALD'S CORPORATION (Exact name of registrant as specified in its charter) Delaware 36-2361282 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) McDonald's Plaza Oak Brook, Illinois 60523 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (630) 623-3000 ------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _____ --- 1,285,442,236 ---------------------------- (Number of shares of common stock outstanding as of September 30, 2001) ================================================================================ McDONALD'S CORPORATION ---------------------- INDEX -----
Page Reference Part I Financial Information Item 1 - Financial Statements Condensed consolidated balance sheet, September 30, 2001 (unaudited) and December 31, 2000 3 Condensed consolidated statement of income (unaudited), quarters and nine months ended September 30, 2001 and 2000 4 Condensed consolidated statement of cash flows (unaudited), quarters and nine months ended September 30, 2001 and 2000 5 Financial comments (unaudited) 6 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 3 - Quantitative & Qualitative Disclosures About Market Risk 17 Part II Other Information Item 6 - Exhibits and Reports on Form 8-K 17 (a) Exhibits The exhibits listed in the accompanying Exhibit Index are filed as part of this report 17 (b) Reports on Form 8-K 19 Signature 20
2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements - -------------------------------------------------------------------------------- CONDENSED CONSOLIDATED BALANCE SHEET - --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------ (unaudited) In millions September 30, 2001 December 31, 2000 - ------------------------------------------------------------------------------------------------------------------------ ASSETS CURRENT ASSETS Cash and equivalents $ 475.6 $ 421.7 Accounts and notes receivable 790.2 796.5 Inventories, at cost, not in excess of market 98.1 99.3 Prepaid expenses and other current assets 406.0 344.9 - ------------------------------------------------------------------------------------------------------------------------ TOTAL CURRENT ASSETS 1,769.9 1,662.4 - ------------------------------------------------------------------------------------------------------------------------ OTHER ASSETS 3,531.5 2,973.5 PROPERTY AND EQUIPMENT Property and equipment, at cost 23,788.6 23,569.0 Accumulated depreciation and amortization (6,784.7) (6,521.4) - ------------------------------------------------------------------------------------------------------------------------ NET PROPERTY AND EQUIPMENT 17,003.9 17,047.6 - ------------------------------------------------------------------------------------------------------------------------ TOTAL ASSETS $ 22,305.3 $ 21,683.5 ======================================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Notes payable $ - $ 275.5 Accounts payable 520.7 684.9 Income taxes 128.8 92.2 Other taxes 182.0 195.5 Accrued interest 173.1 149.9 Other accrued liabilities 664.7 608.4 Current maturities of long-term debt 2.5 354.5 - ------------------------------------------------------------------------------------------------------------------------ TOTAL CURRENT LIABILITIES 1,671.8 2,360.9 - ------------------------------------------------------------------------------------------------------------------------ LONG-TERM DEBT 8,685.3 7,843.9 OTHER LONG-TERM LIABILITIES AND MINORITY INTERESTS 615.6 489.5 DEFERRED INCOME TAXES 1,104.9 1,084.9 COMMON EQUITY PUT OPTIONS 462.5 699.9 SHAREHOLDERS' EQUITY Preferred stock, no par value; authorized - 165.0 million shares; issued - none Common stock, $.01 par value; authorized - 3.5 billion shares; issued - 1,660.6 million 16.6 16.6 Additional paid-in capital 1,570.5 1,441.8 Unearned ESOP compensation (106.8) (115.0) Retained earnings 18,624.7 17,259.4 Accumulated other comprehensive income (1,630.9) (1,287.3) Common stock in treasury, at cost; 375.2 and 349.3 million shares (8,708.9) (8,111.1) - ------------------------------------------------------------------------------------------------------------------------ TOTAL SHAREHOLDERS' EQUITY 9,765.2 9,204.4 - ------------------------------------------------------------------------------------------------------------------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 22,305.3 $ 21,683.5 ========================================================================================================================
See accompanying Financial comments. 3 - -------------------------------------------------------------------------------- CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) - --------------------------------------------------------------------------------
Quarters ended Nine Months ended In millions, except September 30 September 30 per common share data 2001 2000 2001 2000 - -------------------------------------------------------------------------------------------------------------------------- REVENUES Sales by Company-operated restaurants $2,876.9 $2,768.5 $ 8,229.3 $ 7,790.4 Revenues from franchised and affiliated restaurants 1,002.4 980.5 2,869.2 2,863.0 - -------------------------------------------------------------------------------------------------------------------------- TOTAL REVENUES 3,879.3 3,749.0 11,098.5 10,653.4 - -------------------------------------------------------------------------------------------------------------------------- OPERATING COSTS AND EXPENSES Company-operated restaurants 2,440.8 2,297.6 7,025.8 6,477.7 Franchised restaurants - occupancy expenses 203.4 192.0 598.2 580.4 Selling, general, and administrative expenses 415.9 409.2 1,228.3 1,180.2 Other operating (income) expense, net 72.6 (60.6) 31.9 (140.6) - -------------------------------------------------------------------------------------------------------------------------- TOTAL OPERATING COSTS AND EXPENSES 3,132.7 2,838.2 8,884.2 8,097.7 - -------------------------------------------------------------------------------------------------------------------------- OPERATING INCOME 746.6 910.8 2,214.3 2,555.7 - -------------------------------------------------------------------------------------------------------------------------- Interest expense 110.6 111.4 348.6 318.0 Nonoperating (income) expense, net (114.5) 10.3 (94.5) 12.9 - -------------------------------------------------------------------------------------------------------------------------- INCOME BEFORE PROVISION FOR INCOME TAXES 750.5 789.1 1,960.2 2,224.8 - ------------------------------------------------------------------------------------------------------------------------- Provision for income taxes 205.0 240.6 595.5 699.5 - -------------------------------------------------------------------------------------------------------------------------- NET INCOME $ 545.5 $ 548.5 $ 1,364.7 $ 1,525.3 ========================================================================================================================== NET INCOME PER COMMON SHARE $ 0.42 $ 0.42 $ 1.06 $ 1.15 NET INCOME PER COMMON SHARE - DILUTED 0.42 0.41 1.04 1.12 - -------------------------------------------------------------------------------------------------------------------------- DIVIDENDS PER COMMON SHARE - $ .21500 - $ .21500 - -------------------------------------------------------------------------------------------------------------------------- WEIGHTED AVERAGE SHARES 1,286.1 1,315.6 1,292.1 1,328.7 WEIGHTED AVERAGE SHARES - DILUTED 1,305.8 1,346.0 1,313.4 1,364.2 - --------------------------------------------------------------------------------------------------------------------------
See accompanying Financial comments. 4 - -------------------------------------------------------------------------------- CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) - --------------------------------------------------------------------------------
Quarters ended Nine months ended September 30 September 30 In millions 2001 2000 2001 2000 - --------------------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $ 545.5 $ 548.5 $ 1,364.7 $ 1,525.3 Adjustments to reconcile to cash provided by operations Depreciation and amortization 270.9 250.2 809.6 779.5 Changes in operating working capital items 178.0 37.2 (80.1) (76.8) Other (6.3) (34.7) (22.7) (91.9) - --------------------------------------------------------------------------------------------------------------------------------- CASH PROVIDED BY OPERATIONS 988.1 801.2 2,071.5 2,136.1 - --------------------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Property and equipment expenditures (412.3) (446.7) (1,243.7) (1,301.0) Purchases and sales of restaurant businesses and sales of property 24.2 (18.0) (56.8) (59.4) Other (44.3) (30.6) (107.0) (98.1) - --------------------------------------------------------------------------------------------------------------------------------- CASH USED FOR INVESTING ACTIVITIES (432.4) (495.3) (1,407.5) (1,458.5) - --------------------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Notes payable and long-term financing issuances and repayments (389.8) 26.9 87.6 854.2 Treasury stock purchases (172.0) (424.5) (895.7) (1,718.5) Other 68.4 30.6 198.0 117.2 - --------------------------------------------------------------------------------------------------------------------------------- CASH USED FOR FINANCING ACTIVITIES (493.4) (367.0) (610.1) (747.1) - --------------------------------------------------------------------------------------------------------------------------------- CASH AND EQUIVALENTS INCREASE (DECREASE) 62.3 (61.1) 53.9 (69.5) - --------------------------------------------------------------------------------------------------------------------------------- Cash and equivalents at beginning of period 413.3 411.1 421.7 419.5 - --------------------------------------------------------------------------------------------------------------------------------- CASH AND EQUIVALENTS AT END OF PERIOD $ 475.6 $ 350.0 $ 475.6 $ 350.0 =================================================================================================================================
See accompanying Financial comments. 5 - -------------------------------------------------------------------------------- FINANCIAL COMMENTS (UNAUDITED) - -------------------------------------------------------------------------------- Basis of Presentation The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements contained in the Company's 2000 Annual Report to Shareholders. In the opinion of the Company, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation have been included. The results for the quarter and nine months ended September 30, 2001 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, foreign currency translation adjustments and net unrealized gains and losses on cash flow hedges and totaled $540.0 million and $309.7 million for the third quarter of 2001 and 2000, respectively, and $1,021.1 million and $1,066.4 million for the nine months ended September 30, 2001 and 2000, respectively. Common Equity Put Options At September 30, 2001, 15.5 million of common equity put options were outstanding, of which 3.5 million were sold in the third quarter 2001. The options expire at various dates through August 2002, at exercise prices between $27.50 and $31.41. The $462.5 million total exercise price of the options outstanding was classified in common equity put options at September 30, 2001 and the related offset was recorded in common stock in treasury, net of premiums received. Restaurant Closings During the third quarter, the Company closed 154 under performing restaurants in international markets and recorded a pre-tax charge of $84.1 million ($63.9 million after-tax) in other operating expense. Japan Initial Public Offering (IPO) Gain On July 26, 2001 McDonald's Japan, the Company's largest market in the Asia/Pacific segment, had an IPO. As a result of this transaction, the Company retains a 50% ownership in McDonald's Japan. The Company's partner, Den Fujita and his family own approximately 26% and continue to actively manage the business. During the third quarter, the Company recorded a $137.1 million gain (pre and after-tax) in non-operating income to reflect an increase in the carrying value of its investment as a result of the cash proceeds from the IPO received by McDonald's Japan. Per Common Share Information Diluted net income per common share is calculated using net income divided by diluted weighted-average shares. Diluted weighted-average shares include weighted average shares outstanding plus the dilutive effect of stock options, calculated using the treasury stock method, of 19.7 million shares and 30.4 million shares for the third quarter of 2001 and 2000, respectively, and 21.3 million shares and 35.5 million shares for the nine months ended September 30, 2001 and 2000, respectively. New Accounting Pronouncements In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, "Business Combinations", effective for acquisitions made after July 1, 2001 and No. 142, "Goodwill and Other Intangible Assets", effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill (and intangible assets deemed to have indefinite lives) will no longer be amortized but will be subject to annual impairment tests. Other intangible assets will continue to be amortized over their useful lives. 6 The Company will apply the new rules on accounting for goodwill and other intangible assets beginning January 1, 2002. Application of the nonamortization provisions of the Statement is expected to result in an increase in net income of approximately $30 million ($0.02 per share) per year. The Company will perform the first of required impairment tests of goodwill as of January 1, 2002, and management does not anticipate that the result of this test will have a material impact on the Company's financial statements. Segment Information The Company operates in the food service industry and primarily operates quick service restaurant businesses under the McDonald's brand. The Company also operates other restaurant concepts: Aroma Cafe, Boston Market, Chipotle and Donatos Pizza. In addition, McDonald's has a minority interest in U.K.-based Pret A Manger. The Other Segment includes McDonald's restaurant business operations in Canada, Africa and the Middle East as well as the other restaurant concepts. The following table presents the Company's revenues and operating income by geographic segment:
Quarters ended Nine months ended September 30 September 30 In millions 2001 2000 2001 2000 - -------------------------------------------------------------------------------------------------- REVENUES U.S. $ 1,390.8 $ 1,347.7 $ 4,060.8 $ 3,937.3 Europe 1,267.5 1,229.3 3,518.1 3,590.3 Asia/Pacific 552.0 520.4 1,559.4 1,523.5 Latin America 241.3 246.4 739.1 701.1 Other 427.7 405.2 1,221.1 901.2 - -------------------------------------------------------------------------------------------------- TOTAL REVENUES $ 3,879.3 $ 3,749.0 $ 11,098.5 $ 10,653.4 - -------------------------------------------------------------------------------------------------- OPERATING INCOME (LOSS)* U.S. $ 472.7 $ 466.8 $ 1,350.9 $ 1,337.4 Europe 288.0 330.4 775.0 903.9 Asia/Pacific 79.9 122.1 294.3 349.7 Latin America (22.3) 31.1 14.2 87.2 Other 20.2 26.0 27.6 74.8 Corporate (91.9) (65.6) (247.7) (197.3) - -------------------------------------------------------------------------------------------------- TOTAL OPERATING INCOME $ 746.6 $ 910.8 $ 2,214.3 $ 2,555.7 - --------------------------------------------------------------------------------------------------
*Segment operating income has been restated for 2000 to break out corporate expenses from other operating segments. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - -------------------------------------------------------------------------------- OPERATING RESULTS - --------------------------------------------------------------------------------
Dollars in millions, except Quarter ended Nine months ended per common share data September 30, 2001 September 30, 2001 - --------------------------------------------------------------------------------------------------------------------- % Increase/ % Increase/ Amount (Decrease) Amount (Decrease) - --------------------------------------------------------------------------------------------------------------------- SYSTEMWIDE SALES $ 10,629.2 1 % $ 30,517.7 1% - --------------------------------------------------------------------------------------------------------------------- REVENUES Sales by Company-operated restaurants 2,876.9 4 8,229.3 6 Revenues from franchised and affiliated restaurants 1,002.4 2 2,869.2 - - --------------------------------------------------------------------------------------------------------------------- TOTAL REVENUES 3,879.3 3 11,098.5 4 - --------------------------------------------------------------------------------------------------------------------- OPERATING COSTS AND EXPENSES Company-operated restaurants 2,440.8 6 7,025.8 8 Franchised restaurants - occupancy costs 203.4 6 598.2 3 Selling, general, and administrative expenses 415.9 2 1,228.3 4 Other operating expense, net 72.6 N/M 31.9 N/M - --------------------------------------------------------------------------------------------------------------------- TOTAL OPERATING COSTS AND EXPENSES 3,132.7 10 8,884.2 10 - --------------------------------------------------------------------------------------------------------------------- OPERATING INCOME 746.6 (18) 2,214.3 (13) - --------------------------------------------------------------------------------------------------------------------- Interest expense 110.6 (1) 348.6 10 Nonoperating (income), net (114.5) N/M (94.5) N/M - --------------------------------------------------------------------------------------------------------------------- INCOME BEFORE PROVISION FOR INCOME TAXES 750.5 (5) 1,960.2 (12) - --------------------------------------------------------------------------------------------------------------------- Provision for income taxes 205.0 (15) 595.5 (15) - --------------------------------------------------------------------------------------------------------------------- NET INCOME $ 545.5 (1)% $ 1,364.7 (11)% ===================================================================================================================== NET INCOME PER COMMON SHARE $ 0.42 - $ 1.06 (8)% NET INCOME PER COMMON SHARE-DILUTED 0.42 2 1.04 (7) - ---------------------------------------------------------------------------------------------------------------------
N/M Not meaningful 8 CONSOLIDATED OPERATING RESULTS The Company operates in the food service industry and primarily operates quick-service restaurant businesses under the McDonald's brand. To capture additional meal occasions, the Company also operates other restaurant concepts: Aroma Cafe, Boston Market, Chipotle and Donatos Pizza. Collectively these four businesses are referred to as "Partner Brands." In addition, McDonald's has a minority ownership in Pret A Manger. The following table presents the growth rates for reported results and the results on a constant currency basis for the nine months and quarter ended September 30, 2001. Information on a constant currency basis 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 - Consolidated Percent Dollars in millions, except per common share data Increase/(Decrease) -------------------------------------------------------------------------------------------------------------------------- As Constant Quarters ended September 30 2001 2000 Reported Currency* -------------------------------------------------------------------------------------------------------------------------- Systemwide sales $ 10,629.2 $ 10,512.4 1 4 -------------------------------------------------------------------------------------------------------------------------- Total revenues 3,879.3 3,749.0 3 6 -------------------------------------------------------------------------------------------------------------------------- Operating income 746.6 910.8 (18) (16) -------------------------------------------------------------------------------------------------------------------------- Net income 545.5 548.5 (1) 3 -------------------------------------------------------------------------------------------------------------------------- Net income per common share - diluted .42 .41 2 5 -------------------------------------------------------------------------------------------------------------------------- Nine months ended September 30 -------------------------------------------------------------------------------------------------------------------------- Systemwide sales $ 30,517.7 $ 30,256.7 1 5 -------------------------------------------------------------------------------------------------------------------------- Total revenues 11,098.5 10,653.4 4 8 -------------------------------------------------------------------------------------------------------------------------- Operating income 2,214.3 2,555.7 (13) (10) -------------------------------------------------------------------------------------------------------------------------- Net income 1,364.7 1,525.3 (11) (7) -------------------------------------------------------------------------------------------------------------------------- Net income per common share - diluted 1.04 1.12 (7) (4) --------------------------------------------------------------------------------------------------------------------------
* 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. 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. Reported results for the quarter and nine months were negatively affected by foreign currency translation primarily due to the weaker Euro, British Pound, Japanese Yen and the Australian Dollar. If foreign currency exchange rates remain constant for the remainder of the year, the Company expects translation will reduce full-year reported net income per common share by 4 to 5 cents. Net Income and Net Income Per Common Share-Diluted Net income for the quarter was $545.5 million, a decrease of 1% while diluted net income per common share increased 2% for the quarter to 42 cents. For the nine months, net income decreased 11% to $1,364.7 million and diluted net income per common share decreased 7% to $1.04. In constant currencies, net income and diluted net income per common share increased 3% and 5%, respectively, for the quarter, and decreased 7% and 4%, respectively, for the nine months. For the quarter, the Company recorded a $137.1 million after-tax gain related to the IPO of McDonald's Japan. The Company also recorded $84.1 million in after-tax charges primarily related to the closing of 154 under performing restaurants in international markets and the write-off of certain technology costs. In addition, the nine months included a $24.0 million after-tax asset impairment charge in Turkey. While the Company continues to target relatively flat constant currency earnings per share for the year, in light of continued economic weakness and its negative effect on consumer spending around the world, the Company expects fourth quarter earnings per share of 34 to 36 cents in constant currencies, excluding the anticipated fourth quarter 2001 special charge (as described on page 14 of this Form 10-Q). The Company's goal in 2002 is to increase sales and improve profitability and returns. As a result, the Company 9 expects 2002 net income per common share to increase by 5% to 10%, excluding foreign currency translation and the impact of the fourth quarter 2001 special charge. Weighted average shares outstanding for the quarter and nine months were lower compared with the prior year due to shares repurchased. In addition, outstanding stock options had a less dilutive effect than in the prior year. During the first nine months of 2001, the Company repurchased 30.2 million shares of its common stock for approximately $914 million. 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.
-------------------------------------------------------------------------------------------------------------------- Systemwide sales Percent Dollars in millions Increase/(Decrease) -------------------------------------------------------------------------------------------------------------------- As Constant Quarters ended September 30 2001 2000 Reported Currency* -------------------------------------------------------------------------------------------------------------------- U.S. $ 5,206.5 $ 5,051.4 3 n/a ------------------------------------------------------------------------------------------------------------------- Europe 2,520.2 2,449.9 3 5 ------------------------------------------------------------------------------------------------------------------- Asia/Pacific 1,721.2 1,820.2 (5) 5 -------------------------------------------------------------- ---------------------------------------------------- Latin America 431.4 456.2 (5) 7 ------------------------------------------------------------------------------------------------------------------- Other** 749.9 734.7 2 5 ------------------------------------------------------------------------------------------------------------------- Total Systemwide sales $10,629.2 $10,512.4 1 4 ------------------------------------------------------------------------------------------------------------------- Nine months ended September 30 ------------------------------------------------------------------------------------------------------------------- U.S. $15,071.6 $14,748.9 2 n/a ----------------------------------------------------------------------------- ------------------------------------- Europe 6,969.6 7,082.4 (2) 4 ------------------------------------------------------------------------------------------------------------------- Asia/Pacific 5,043.9 5,302.1 (5) 6 ------------------------------------------------------------------------------------------------------------------- Latin America 1,318.4 1,319.8 - 9 ------------------------------------------------------------------------------------------------------------------- Other** 2,114.2 1,803.5 17 21 ------------------------------------------------------------------------------------------------------------------- Total Systemwide sales $30,517.7 $30,256.7 1 5 -------------------------------------------------------------------------------------------------------------------
* Excluding the effect of foreign currency translation on reported results. ** Includes Systemwide sales for Partner Brands in 2001 of $251.0 million for the quarter and $718.7 million for the nine months. In 2000, Systemwide sales for Partner Brands were $219.0 million for the quarter and $378.2 million for the nine months. n/a Not applicable On a global basis, the increases in sales and revenues for the quarter and nine months were primarily due to restaurant expansion, partly offset by negative comparable sales. The acquisition of Boston Market in the second quarter 2000 also contributed to the increases for the nine months. Foreign currency translation had a negative effect on the growth rates for both Systemwide sales and revenues for both periods. On a constant currency basis, revenues increased at a higher rate than sales for both the quarter and the nine months partly due to a restructure of our ownership in the Philippines, effective July 1, 2001. As a result of the restructuring, most of our restaurants in the Philippines are now Company-operated rather than franchised. The higher revenue increase for the nine months was also partly due to the acquisition of Boston Market restaurants, which are all Company-operated. In addition, revenues in both periods benefited from an increase in the royalty percent received from our Japanese affiliate, effective January 1, 2001. U.S. sales increased 3% for the quarter and 2% for the nine months primarily due to expansion. Comparable sales were slightly positive for the quarter and relatively flat for the nine months. In Europe, Asia/Pacific and Latin America, constant currency sales increased for the quarter and nine months due to expansion, partly offset by negative comparable sales. In Europe, France and the U.K. were primary contributors to the sales growth for the quarter and nine months. Also, the Netherlands and Russia delivered strong performances in both periods. Comparable sales continued to be affected by consumer confidence issues regarding the European beef supply in certain markets. We expect the impact from these issues to lessen as the fourth quarter progresses. In addition, comparisons become easier since the initial concerns arose last year in the fourth quarter. 10 Sales trends are improving in several markets, most notably France, which had positive comparable sales in each month from March through September. In Asia/Pacific, the quarter and nine months benefited from expansion in Japan and strong performance in China. A weak economic environment in Taiwan and weak consumer spending in Australia and Japan negatively impacted sales growth. Although we are encouraged by improvement in Australia's comparable sales, Japan continues to experience negative sales trends. In Latin America, expansion and positive comparable sales in Mexico and Venezuela were the primary contributors to the sales increases for the quarter and nine months. In addition, expansion in Brazil contributed to the increases for both periods. Weak consumer spending continued to negatively affect most markets in this segment. In the Other segment, the increases for the quarter and nine months were driven by Canada and the Partner Brands. Combined Operating Margins The following combined operating margin information represents margins for McDonald's restaurant business only.
------------------------------------------------------------------------------------------------------------ Combined operating margins Quarters ended Nine months ended September 30 September 30 -------------------------------------------------- 2001 2000 2001 2000 ------------------------------------------------------------------------------------------------------------ Dollars in millions ------------------------------------------------------------------------------------------------------------ Company-operated $ 419.2 $ 453.1 $1,164.5 $1,284.6 ------------------------------------------------------------------------------------------------------------ Franchised 798.6 788.0 2,269.8 2,281.3 ------------------------------------------------------------------------------------------------------------ Combined operating margins $1,217.8 $1,241.1 $3,434.3 $3,565.9 ------------------------------------------------------------------------------------------------------------ Percent of sales/revenues ------------------------------------------------------------------------------------------------------------ Company-operated 15.9% 17.7% 15.4% 17.3% ------------------------------------------------------------------------------------------------------------ Franchised 79.7 80.4 79.1 79.7 ------------------------------------------------------------------------------------------------------------
In constant currencies, combined operating margin dollars were relatively flat, increasing $3.5 million for the quarter while decreasing $21.9 million, or 1%, for the nine months. The U.S. and Europe segments accounted for over 80% of the combined margin dollars in both periods. As a percent of sales, consolidated Company-operated margins decreased for the quarter and nine months. Food & paper costs, payroll costs and occupancy & other operating expenses all increased as a percent of sales for both periods. In the U.S., Company-operated margins decreased as a percent of sales for the quarter and nine months. As a percent of sales, food & paper costs decreased while payroll costs and occupancy & other operating expenses increased for both periods. In each of the remaining segments, Company-operated margins decreased as a percent of sales for the quarter and nine months, primarily due to negative comparable sales. Higher food costs also contributed to the decline in Latin America and Asia/Pacific for both periods and in Europe for the nine months. Higher labor costs impacted Europe for both periods and Asia/Pacific for the nine months. In Asia/Pacific, the change in restaurant classification in the Philippines contributed to the declines for both periods because its Company-operated margins are lower than the average for the Asia/Pacific segment. Franchised margins as a percent of applicable revenues increased in Asia/Pacific and decreased in the U.S., Europe and Latin America for the quarter and nine months. Franchised margins as a percent of revenues in all segments were negatively impacted by weak comparable sales and by higher occupancy costs as a result of our strategy to lease more sites. By leasing a higher proportion of new sites, we have reduced initial capital requirements. However, as anticipated, this practice reduces franchised margins because the financing costs implicit in the lease are included in occupancy expense, whereas for owned sites, financing costs are reflected in interest expense. The decreases in franchised margins as a percent of revenues in Europe for the nine months and in Latin America for both periods were also partly due to rent assistance provided to franchisees. The franchised margin percent in Asia/Pacific increased for both periods primarily due to an increase in the royalty percent received from our Japanese affiliate and the restructuring of the Philippines' operations, which resulted in the reclassification of franchised margins that were lower than the average for the segment. 11 Selling, General & Administrative Expenses Selling, general & administrative expenses increased 2% for the quarter and 4% for the nine months. The increases were partly due to increased spending on future restaurant technology improvements. Both periods benefited from weaker foreign currencies. Other Operating Income (Expense), net Equity in earnings of unconsolidated affiliates decreased for both periods, primarily due to weaker results in Japan, the increase in Japan's royalty expense and a weaker Japanese Yen. Although the increase in royalty expense reduced McDonald's equity in earnings for Japan, it was more than offset by the royalty benefit McDonald's received in franchised revenues. Other income (expense) for the quarter and nine months included $101.5 million of charges primarily related to the closing of 154 under performing restaurants and the write-off of certain technology costs. The Company expects to close about 10 additional under performing restaurants in the fourth quarter. Other income (expense) for the nine months also included a $24.0 million asset impairment charge in Turkey.
---------------------------------------------------------------------------------------------------------------------------- Other operating income (expense), net Quarters ended Nine months ended Dollars in millions September 30 September 30 ---------------------------------------------------------------------------------------------------------------------------- 2001 2000 2001 2000 ---------------------------------------------------------------------------------------------------------------------------- Gains on sales of restaurant businesses $ 21.0 $20.5 $ 67.3 $ 58.4 ---------------------------------------------------------------------------------------------------------------------------- Equity in earnings of unconsolidated affiliates 12.4 32.9 49.5 92.8 ---------------------------------------------------------------------------------------------------------------------------- Other expense (expense) (106.0) 7.2 (148.7) (10.6) ---------------------------------------------------------------------------------------------------------------------------- Total $ (72.6) $60.6 $(31.9) $140.6 ----------------------------------------------------------------------------------------------------------------------------
12 Operating Income Consolidated operating income decreased $150.2 million, or 16% for the quarter and $263.6 million, or 10%, for the nine months, in constant currencies. Excluding the charge related to restaurant closings, the technology cost write-off and the Turkey asset impairment, adjusted consolidated operating income decreased 5% for both periods. The adjusted operating income decreases for both periods were due to lower combined operating margin dollars, lower other operating income and higher selling, general & administrative expenses.
- ----------------------------------------------------------------------------------------------------------------------------- Operating income*** Dollars in millions Percent Increase/(Decrease) - ----------------------------------------------------------------------------------------------------------------------------- Adjusted As Constant Constant Quarters ended September 30 2001 2000 Reported Currency* Currency** - ----------------------------------------------------------------------------------------------------------------------------- U.S. $ 472.7 $ 466.8 1 n/a n/a - ----------------------------------------------------------------------------------------------------------------------------- Europe 288.0 330.4 (13) (10) - - ----------------------------------------------------------------------------------------------------------------------------- Asia/Pacific 79.9 122.1 (35) (28) (18) - ----------------------------------------------------------------------------------------------------------------------------- Latin America (22.3) 31.1 n/m n/m (53) - ----------------------------------------------------------------------------------------------------------------------------- Other**** 20.2 26.0 (22) (18) 2 - ----------------------------------------------------------------------------------------------------------------------------- Corporate (91.9) (65.6) (40) n/a (18) - ----------------------------------------------------------------------------------------------------------------------------- Total operating income $ 746.6 $ 910.8 (18) (16) (5) - ----------------------------------------------------------------------------------------------------------------------------- Nine months ended September 30 - ----------------------------------------------------------------------------------------------------------------------------- U.S. $1,350.9 $1,337.4 1 n/a n/a - ----------------------------------------------------------------------------------------------------------------------------- Europe 775.0 903.9 (14) (9) (6) - ----------------------------------------------------------------------------------------------------------------------------- Asia/Pacific 294.3 349.7 (16) (6) (3) - ----------------------------------------------------------------------------------------------------------------------------- Latin America 14.2 87.2 n/m n/m (39) - ----------------------------------------------------------------------------------------------------------------------------- Other**** 27.6 74.8 (63) (59) (20) - ----------------------------------------------------------------------------------------------------------------------------- Corporate (247.7) (197.3) (26) n/a (18) - ----------------------------------------------------------------------------------------------------------------------------- Total operating income $2,214.3 $2,555.7 (13) (10) (5) - -----------------------------------------------------------------------------------------------------------------------------
* Excluding the effect of foreign currency translation on reported results. ** Excluding the effect of foreign currency translation on reported results where applicable and excluding the unusual items noted above. *** Segment operating income has been restated for 2000 to break out corporate expenses from the other operating segments. **** Includes operating losses for Partner Brands in 2001 of $10.4 million for the quarter and $37.8 million for the nine months. In 2000, operating losses for Partner Brands were $15.5 million for the quarter and $33.4 million for the nine months. n/a Not applicable n/m Not meaningful U.S. operating income increased 1% for the quarter and nine months. The increases were due to higher combined operating margin dollars. The quarter included lower selling, general & administrative expenses and lower other operating income, while the nine months included higher selling, general & administrative expenses and higher other operating income. Europe's adjusted operating income was flat for the quarter and decreased 6% for the nine months in constant currencies. Strong results in France and Russia drove this segment's improved performance in the quarter. However, operating income continued to be negatively affected by the decline in consumer confidence regarding the safety of the European beef supply in certain markets. The adjusted operating income in Asia/Pacific decreased 18% for the quarter and 3% for the nine months in constant currencies. In both periods, strong performance in China and the increase in the royalty percent received from Japan was more than offset by weak operating results in Australia, Japan and Taiwan. In addition, a gain on the sale of real estate in Singapore contributed to the results for the nine months. Latin America's adjusted operating income decreased 53% for the quarter and 39% for the nine months in constant currencies. Both periods were negatively impacted by the continuing difficult economic conditions experienced by most markets in the region. In the Other segment, Canada's continued strong performance was offset by weak results in several markets in the Middle East & Africa for both periods. 13 INTEREST, NONOPERATING EXPENSE AND INCOME TAXES Interest expense decreased slightly for the quarter and increased for the nine months. Lower average interest rates were partly offset for the quarter and more than offset for the nine months by higher average debt levels. The higher average debt levels were a result of the Company using its available credit capacity to repurchase shares of its common stock. Both periods benefited from weaker foreign currencies. Nonoperating (income) expense for the quarter and nine months included a $137.1 million gain on the IPO of McDonald's Japan. The gain was due to the increase in the carrying value of our investment as a result of the cash proceeds from the IPO received by McDonald's Japan. Also contributing to the nonoperating income for both periods were higher foreign currency translation gains. Partly offsetting the income for the quarter was the write-off of a domestic investment. The nine months included nonoperating expenses associated with the write-off of a financing receivable from a Latin American supplier and minority interest expense related to the sale of real estate in Singapore. The third quarter effective income tax rate was 27.3% compared with 30.5% in 2000. The effective tax rate for the nine months was 30.4% compared with 31.4% in 2000. The decrease in the income tax rate in 2001 was the result of the Japan IPO gain, partly offset by certain restaurant closing charges and the Turkey asset impairment charge, none of which were tax-effected for financial reporting purposes. For the full year, we expect the tax rate to be about 30.0%. SPECIAL CHARGE In the fourth quarter 2001, the Company expects to record a $175 million to $200 million pre-tax special charge to prepare the Company for future growth by implementing a number of change initiatives around the world. As a result of these initiatives, the Company anticipates 500 to 700 field and home office positions will be eliminated. The $175 million to $200 million charge will primarily be for employee severance and outplacement, consolidation of facilities and related costs. The Company expects to use cash provided by operations to fund the severance payments and other cash costs related to the change initiatives. After redeploying more than $50 million, the Company expects ongoing annual selling, general and administrative savings of about $100 million beginning in 2002, compared with what otherwise would be spent. CASH FLOWS AND FINANCIAL POSITION Free cash flow - cash provided by operations less capital expenditures - for the nine months ended September 30, 2001 totaled $827.8 million compared with $835.1 million for the nine months ended September 30, 2000. Free cash flow together with other sources of cash such as borrowings, was and is expected to continue to be used primarily for share repurchases and debt repayments. Capital expenditures decreased 4.4% as expenditures related to McDonald's restaurant business declined 10.2%, partly offset by an increase in expenditures related to the Partner Brands. The Company added 658 McDonald's restaurants and 52 Partner Brands restaurants for the nine months ended September 30, 2001. For the full year, the Company expects to add about 1,400 McDonald's restaurants and 60 restaurants under its Partner Brands, after including the impact of the closing of 154 under performing restaurants. Given the weak global economic environment, the Company expects to open approximately 200 fewer McDonald's restaurants in 2002 than in 2001. Net of restaurant closings, this reflects plans to add 1,300 to 1,400 McDonald's restaurants in 2002, in addition to 100 to 150 restaurants under its Partner Brands. The Company believes that buying back its stock enhances shareholder value. Therefore, the Company purchased approximately $914 million, or 30.2 million shares of its common stock in the first nine months of 2001. This brought cumulative purchases to $4.2 billion, or 121.3 million shares under the Company's three-year, $4.5 billion share repurchase program. In October 2001, the Company announced a new $5 billion share repurchase program, which is expected to be completed during the next several years. In October 2001, the Board of Directors declared an annual dividend of 22.5 cents per share, payable on December 3, 2001 to shareholders of record at the close of business on November 15, 2001. 14 NEW ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, "Business Combinations", effective for acquisitions made after July 1, 2001 and No. 142, "Goodwill and Other Intangible Assets", effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill (and intangible assets deemed to have indefinite lives) will no longer be amortized but will be subject to annual impairment tests. Other intangible assets will continue to be amortized over their useful lives. The Company will apply the new rules on accounting for goodwill and other intangible assets beginning January 1, 2002. Application of the nonamortization provisions of the Statement is expected to result in an increase in net income of approximately $30 million ($0.02 per share) per year. The Company will perform the first of required impairment tests of goodwill as of January 1, 2002, and management does not anticipate that the result of this test will have a material impact on the Company's financial statements. EURO CONVERSION Twelve member countries of the European Union have established fixed conversion rates between their existing currencies ("legacy currencies") and one common currency, the Euro. The Euro is traded on currency exchanges and may be used in certain transactions, such as electronic payments. Beginning in January 2002, new Euro-denominated notes and coins will be issued, and legacy currencies will be withdrawn from circulation. The Company uses foreign-denominated debt and derivatives to meet its financing requirements and to reduce its foreign currency risks and certain of these financial instruments are denominated in Euro. The conversion to the Euro has eliminated currency exchange rate risk for transactions between the member countries, which for the Company, primarily consist of payments to suppliers. The Company has restaurants located in all member countries and has been preparing for the introduction of the Euro for the past several years. The Company is currently addressing the issues involved with the new currency, which include converting information technology systems, adapting operational procedures in the restaurants and revising processes for preparing accounting and taxation records. Based on the work to date, the Company does not believe the Euro conversion will have a significant impact on its 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 regarding future events and operating performance and speak only as of the date of this report. These forward-looking statements involve a number of risks and uncertainties. The following are some of the factors that could cause actual results to differ materially from those expressed in or underlying our forward-looking statements: the effectiveness of operating initiatives and advertising and promotional efforts, the effects of the Euro conversion, 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; legislation and governmental regulation; and accounting policies and practices. The foregoing list of important factors is not exclusive. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. 15 - -------------------------------------------------------------------------------- THIRD QUARTER AND NINE MONTHS HIGHLIGHTS - -------------------------------------------------------------------------------- FINANCIAL INFORMATION
Quarters ended Nine months ended September 30 September 30 Dollars in Millions 2001 2000 2001 2000 - ----------------------------------------------------------------------------------------------------------------------- Systemwide sales by type Operated by franchisees $ 6,485.3 $ 6,391.8 $18,606.1 $18,521.7 Operated by the Company 2,876.9 2,768.5 8,229.3 7,790.4 Operated by affiliates 1,267.0 1,352.1 3,682.3 3,944.6 - ----------------------------------------------------------------------------------------------------------------------- Systemwide sales $10,629.2 $10,512.4 $30,517.7 $30,256.7 - ----------------------------------------------------------------------------------------------------------------------- Restaurant margins* Company-operated ---------------- U.S. 15.9% 17.1% 16.2% 17.1% Europe 18.9 19.9 16.8 18.7 Asia/Pacific 12.9 16.8 13.9 17.0 Latin America 10.1 12.8 11.1 12.8 Other 13.8 16.3 13.6 15.1 Total 15.9% 17.7% 15.4% 17.3% Franchised ---------- U.S. 79.9% 80.9% 79.9% 80.5% Europe 78.4 80.1 77.1 78.6 Asia/Pacific 88.9 83.1 86.9 82.6 Latin America 68.4 73.4 68.6 74.1 Other 81.9 81.0 79.9 79.0 Total 79.7% 80.4% 79.1% 79.7%
* Restaurant margin information represents margins for the McDonald's restaurant business only.
RESTAURANTS - ----------------------------------------------------------------------------------------------------------------------- At September 30, 2001 2000* - ----------------------------------------------------------------------------------------------------------------------- By type Operated by franchisees 17,015 16,453 Operated by the Company 8,137 7,306 Operated by affiliates 4,265 4,134 - ----------------------------------------------------------------------------------------------------------------------- Systemwide restaurants 29,417 27,893 - -----------------------------------------------------------------------------------------------------------------------
Quarters ended Nine months ended September 30 September 30 2001* 2000** 2001* 2000** - ----------------------------------------------------------------------------------------------------------------------- Additions U.S. 74 45 149 74 Europe 27 110 162 299 Asia/Pacific 63 158 263 334 Latin America (28) 45 36 132 Other - McDonald's 18 21 48 39 Partner Brands 13 12 52 706*** - ----------------------------------------------------------------------------------------------------------------------- Systemwide additions 167 391 710 1,584 - -----------------------------------------------------------------------------------------------------------------------
* Under performing restaurant closings by segment: Europe 47; Asia/Pacific 37; Latin America 56; Other McDonald's 14. ** Adjusted to exclude dessert-only kiosks. *** Primarily relates to the acquisition of Boston Market in second quarter 2000. 16 Item 3. Quantitative and Qualitative Disclosures About Market Risk There were no material changes to the disclosure made in the Annual Report on Form 10-K for the year ended December 31, 2000 regarding this matter. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit Number Description - -------------- ----------- (3) (i) Restated Certificate of Incorporation, effective as of March 24, 1998, incorporated herein by reference from Form 8-K dated April 17, 1998. (ii) By-Laws, effective as of June 1, 2000, incorporated herein by reference from Form 10-Q for the quarter ended June 30, 2000. (4) Instruments defining the rights of security holders, including Indentures: ** (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) 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. (iii) 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. (iv) Medium-Term Notes, Series G, due from 1 Year to 60 Years from Date of Issue. Supplemental Indenture, No 6 incorporated herein by reference from Exhibit 4(c) of Form S-3 Registration Statement (File No. 333-60170), dated May 3, 2001. (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). 17 (i) Medium-Term Notes, Series B, due from nine months to 30 years from Date of Issue. Supplemental Indenture No. 12 incorporated herein by reference from Exhibit (4) of Form 8-K dated August 18, 1989 and Forms of Medium-Term Notes, Series B, incorporated herein by reference from Exhibit (4)(b) of Form 8-K dated September 14, 1989. (ii) Medium-Term Notes, Series C, due from nine months to 30 years from Date of Issue. Form of Supplemental Indenture No. 15 incorporated herein by reference from Exhibit 4(b) of Form S-3 Registration Statement (File No. 33-34762), dated May 14, 1990. (iii) Medium-Term Notes, Series C, due from nine months (U.S. Issue)/184 days (Euro Issue) to 30 years from Date of Issue. Amended and restated Supplemental Indenture No. 16 incorporated herein by reference from Exhibit (4) of Form 10-Q for the period ended March 31, 1991. (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% 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. (vii) 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. (viii) 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. (ix) 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. (10) Material Contracts (a) Directors' Stock Plan, as amended and restated, incorporated herein by reference from Form 10-Q for the quarter ended June 30, 2001.* (b) Profit Sharing Program, as amended and restated, incorporated herein by reference from Form 10-K for the year ended December 31, 1999.* (i) First Amendment to the McDonald's Profit Sharing Program, incorporated herein by reference from Form 10-Q for the quarter ended September 30, 2000.* (ii) Second Amendment to the McDonald's Profit Sharing Program, incorporated herein by reference from Form 10-Q for the quarter ended March 31, 2001.* (iii) Third Amendment to the McDonald's Profit Sharing Program, incorporated herein by reference from Form 10-Q for the quarter ended March 31, 2001.* (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.* 18 (d) 1975 Stock Ownership Option Plan, as amended and restated, filed herewith.* (e) 1992 Stock Ownership Incentive Plan, as amended and restated, incorporated herein by reference from Form 10-Q for the quarter ended March 31, 2001.* (f) McDonald's Corporation Deferred Income Plan, as amended and restated, incorporated herein by reference from Form 10-K for the year ended December 31, 2000. * (g) 1999 Non-Employee Director Stock Option Plan, as amended and restated, incorporated herein by reference from Form 10-Q for the quarter ended September 30, 2000. * (h) Executive Retention Plan, as amended March 20, 2001, incorporated herein by reference from Form 10-Q for the quarter ended March 31, 2001.* (i) Senior Director Letter Agreement between Gordon C. Gray and the Company, incorporated herein by reference from Form 10-Q for the quarter ended June 30, 2001.* (j) Senior Director Letter Agreement between Donald R. Keough and the Company, incorporated herein by reference from Form 10-Q for the quarter ended June 30, 2001.* (k) McDonald's Corporation 2001 Omnibus Stock Ownership Plan, incorporated herein by reference from Form 10-Q for the quarter ended June 30, 2001.* (12) Statement re: Computation of Ratios __________________________ *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 9, 2001. Financial Statements Date of Report Item Number Required to be Filed -------------- ----------- -------------------- 9/19/01 Item 5 and Item 7 No 10/17/01 Item 5 and Item 7 No 10/29/01 Item 5 and Item 7 No 19 SIGNATURE ----------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. McDONALD'S CORPORATION (Registrant) By Matthew H. Paull --------------------- (Signature) Matthew H. Paull Executive Vice President, Chief Financial Officer November 9, 2001 ---------------- 20 EX-10.(D) 3 dex10d.txt 1975 STOCK OWNERSHIP PLAN AS AMENDED AND RESTATED EXHIBIT 10(d) McDONALD'S CORPORATION 1975 STOCK OWNERSHIP OPTION PLAN AS AMENDED AND RESTATED ----------------------- THE PLAN - -------- McDonald's Corporation (the "Company") hereby amends and restates the McDonald's Corporation 1975 Stock Ownership Option Plan, effective July 30, 2001. As so amended and restated, the McDonald's Corporation 1975 Stock Ownership Option Plan is hereinafter called the "Plan". The terms of options granted prior to the effective date of this amendment shall not be adversely affected in any way by this amendment. 1. Purpose. The purpose of this Plan is to advance the interest of the ------- Company by encouraging and enabling the acquisition of a larger personal financial interest in the Company by those employees upon whose judgment and efforts the Company is largely dependent for the successful conduct of its operations. It is anticipated that the acquisition of such financial interest will stimulate the efforts of such employees on behalf of the Company, strengthen their desire to continue in the service of the Company and encourage shareholder and entrepreneurial perspectives through employee stock ownership. It is also anticipated that the opportunity to obtain such financial interest will prove attractive to promising new managerial and executive talent and will assist the Company in attracting such employees. The options granted hereunder shall not constitute incentive stock options as such term is defined in Section 422A of the Internal Revenue Code. 2. Scope of the Plan. An aggregate of 121,780,788 of the Company's ----------------- authorized but unissued shares of common stock, $.01 par value per share or shares acquired by purchase as described in the paragraph below or any combination of shares from both sources are hereby made available, and shall be reserved for issuance, under the Plan. Effective January 1, 2001, an additional one million (1,000,000) shares were made available and were reserved for delivery on account of the exercise of awards under this Plan and payment of benefits in connection with such awards. The aggregate number of shares available under this Plan shall be subject to adjustment on the occurrence of any of the events and in the manner set forth in Section 11 hereof. If an option shall expire or terminate for any reason, without having been exercised in full, the unpurchased shares subject thereto shall (unless the Plan shall have terminated or unless all or a part of such shares were issued under the Company's 1978 Incentive Plan) become available for other options under the Plan. The Board of Directors (called the "Board") or such person or persons that the Board shall specifically authorize or direct to act on its behalf shall also have the authority to purchase from time to time, in such amounts and at such prices as it, in its discretion, shall deem advisable or appropriate, shares of the common stock of the Company, to be held as treasury shares and reserved and used solely for issuance at the discretion of the Option Committee, as set forth in Section 3 hereof, upon exercise of options granted under this Plan and in accordance with the provisions of the preceding paragraph. 3. Administration. Except as herein expressly reserved by the Board and -------------- not delegated by the Board to the Committee, the Plan shall be administered by a Committee, to be known as the Option Committee (called the "Committee"), which will include not less than three Directors of the Company, who shall be appointed, from time to time, by the Board. Except as herein expressly reserved by the Board and not delegated by the Board to the Committee, the Committee shall have full and final authority, in its discretion, but subject to the express provisions of the Plan: (a) to determine the purchase price of the common stock covered by each option, and the individuals to whom, and the time or times at which, options shall be granted and the number of shares to be covered by each option; (b) to interpret the Plan; (c) to prescribe, amend and rescind rules and regulations relating to the Plan; (d) to determine the terms, provisions, and any restrictions or conditions (including but not limited to restrictions with respect to stock acquired upon exercise of the option which may continue beyond the date of the optionee's termination of employment) of the respective option agreements (which need not be identical) by which options shall be evidenced and, with the consent of the optionee, to modify the terms, provisions, restrictions or conditions of any option agreement; (e) to cancel, with the consent of the optionee, outstanding options and to grant new options in substitution therefor; (f) to authorize foreign subsidiaries to adopt plans as provided in Section 17; (g) to delegate its duties and responsibilities under the Plan with respect to such foreign subsidiary plans, except its duties and responsibilities with respect to grants of options to persons who, under Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Act"), are treated (in the opinion of counsel for the Company) as officers or directors of the Company, to such individuals or committees as the Committee in its sole discretion may approve and (i) the acts thereunder by such individuals or committees shall be treated hereunder as acts of the Committee and (ii) such individuals or committees shall report to the Committee regarding the delegated duties and responsibilities; and (h) to make all other determinations deemed necessary or advisable for the administration of the Plan. 4. Eligibility. With the exception of clerical employees and with the ----------- further exception of persons (other than managers) employed in Company-owned restaurants, options may be granted to (a) any employees of the Company or its domestic subsidiaries, or (b) any employees, officers and directors of the Company's foreign subsidiaries. Any entity in which the Company directly or through intervening subsidiaries owns twenty-five percent (25%) or more of the total combined voting power or value of all classes of stock or, in the case of an unincorporated entity, a twenty-five percent (25%) or more interest in the capital and profits, shall be treated as a subsidiary. In selecting the individuals to whom options shall be granted, as well as in determining the number of shares subject to each option, the Committee shall take into consideration such factors as it deems relevant in connection with accomplishing the purpose of the Plan. Subject to the provisions of Section 2 hereof, an individual who has been granted an option may, if he is otherwise eligible, be granted additional options if the Committee shall so determine. -2- 5. Option price. The purchase price of the stock covered by each option ------------ shall not be less than the fair market value of such stock on the date the option is granted (herein called the "Option Date"). For the purposes hereof the fair market value shall be deemed to be the closing price of said stock on the New York Stock Exchange Composite Tape on the Option Date or, if no sales of said stock appear on such Tape on that date, on the next preceding date on which there were such sales. Such price shall be subject to adjustment as provided in Section 11 hereof. 6. Terms of employment. No obligation of the Company as to the length of ------------------- employment shall be implied by the terms of this Plan or any option granted hereunder. The Company reserves the same rights to terminate employment of any employee as existed prior to the date hereof. 7. Non-transferability of options. An option granted hereunder shall, by ------------------------------ its terms, not be transferable other than by will or the laws of descent and distribution and may be exercised, during his lifetime, only by the optionee; provided, however, that an optionee may, in a manner specified by the Committee, designate in writing an individual beneficiary or beneficiaries to exercise an option granted hereunder after the optionee's death. 8. Restricted stock. Upon granting an option or a substituted option or ---------------- upon accelerating the exercise date of an option pursuant to Section 16 or, with respect to previously granted outstanding options, upon consent of the optionee, the Committee may provide that shares granted upon exercise of the option shall be subject to such restrictions as it may from time to time deem appropriate. Specifically, but without limitation, the Committee may provide that shares granted upon exercise of the option shall be restricted for such period after the date of exercise as the Committee may determine, and shall be non-transferable during such period, provided that with respect to options which are accelerated, the restriction period shall not extend beyond the earliest date on which the option or portion thereof could have been exercised prior to acceleration. The restriction shall provide that if the optionee's employment is terminated for reasons other than death, permanent disability or any other reason specified by the Committee during the restriction period, the optionee shall resell the restricted stock to the Company at the lesser of the option exercise price paid or the fair market value on the date of termination of employment. Any such shares shall bear an appropriate legend specifying that such shares are subject to such restrictions. The Committee shall have authority, in its discretion, to accelerate the time at which any or all of the restrictions may lapse prior to the expiration of the restrictions or to remove any or all of the restrictions. After the expiration of the restrictions, the Committee shall cause shares free of the restrictions to be reissued without a legend. Notwithstanding the foregoing, such restrictions shall not apply to shares issued upon exercise after termination of employment by reason of death or permanent disability pursuant to Subsection 9(a) and 9(b) hereof and, with respect to shares issued subject to such restrictions, such restrictions shall be cancelled by the Committee upon submission to the Committee of proof that the termination of the optionee's employment occurred by reason of the optionee's death, permanent disability (as defined in Section 9) or other reasons specified by the Committee. 9. Termination of employment. An unexercised option, or any unexercised ------------------------- installment thereof, shall terminate if the employment of the optionee by the Company or any of -3- its subsidiaries shall be terminated for any reason; except that (a) if such employment is so terminated by death of the optionee, any unexercised portion of the option (whether or not currently exercisable) at the date of death may be exercised, in whole or in part, at any time within three years after the date of death, by the optionee's personal representative or by the person to whom the option is transferred by will or the applicable laws of descent and distribution, and any such option which by its terms would otherwise expire after the optionee's death but prior to the end of such three-year period following the optionee's death, shall be extended so as to permit any unexercised portion thereof to be exercised at any time within such three-year period, provided that in no event shall any option be exercised after 13 years from the Option Date; or (b) if such employment is terminated as a result of the permanent disability of the optionee, the unexercised portion of the option (whether or not currently exercisable) at the date of such termination of employment may be exercised, in whole or in part, at any time within three years after the date of such termination, and any such option which by its terms would otherwise expire after the optionee's termination of employment by reason of permanent disability but prior to the end of the three-year period following the optionee's termination of employment, shall be extended so as to permit any unexercised portion thereof to be exercised at any time within such three-year period, provided that in no event shall any option be exercised after 13 years from the Option Date; (c) if such employment is terminated on account of retirement after attaining age 60 with at least 20 years of Company service, any unexercised portion of an option or an installment which is then exercisable or which becomes exercisable within three years following the date of retirement may be exercised at any time within three years after such retirement, provided that in no event shall any option be exercised after 10 years from the Option Date; (d) if such employment is terminated on account of retirement after attaining age 60 with less than 20 years of Company service, any unexercised portion of an option or an installment which is then exercisable may be exercised at any time within one year after such retirement, provided that in no event shall any option be exercised after 10 years from the Option Date; (e) if such employment is terminated on account of retirement with combined age and years of Company service equal to or greater than 70, any unexercised option, which was granted on or after May 1, 1999 and that is then exercisable or which would become exercisable within three years of such retirement if the optionee remained employed by the Company or a Subsidiary throughout such three-year period, may be exercised, in whole or in part, by the optionee, at any time within three years after the optionee's retirement provided that in no event shall any option by exercised after 10 years from the Option Date; and further provided that the optionee executes and delivers to the Company a two-year non-competition agreement (in a form reasonably satisfactory to the Company); and further provided that the optionee provides one-year's prior written notice of the optionee's intention to retire to the officer in charge of the Benefits and Compensation Department in Oak Brook Illinois; (f) if an optionee terminates employment to become an owner-operator of a McDonald's restaurant or if an optionee terminates after January 15, 2000 as a result of a job elimination, the optionee will receive an extension of time to exercise any unexercised options granted on or after May 1, 1999 and accelerated vesting of these options based on the following rules that incorporate age and years of Company service: -4- Age & Years of Additional Vesting and Time to Exercise Company Service Options Granted On or After May 1, 1999 --------------- --------------------------------------- 70 plus years 3 Years 60 to 69 years 2 Years 50 to 59 years 1 Year; provided that in no event shall any option be exercised after 10 years from the Option Date or; (g) if such employment is terminated for any other reason excluding termination for cause, the unexercised portion of the option (to the extent exercisable on the date such employment is terminated) shall be exercisable at any time within 30 days after the date of such termination, provided that in no event shall any option be exercised after 10 years from the Option Date. Permanent disability shall mean a mental or physical condition which renders an optionee unable or incompetent to carry out the job responsibilities he held or tasks to which he was assigned at the time the disability was incurred. Job elimination shall include, without limitation, terminations of employment by the Company due to corporate restructuring or reorganization, job restructuring, reductions in force, outsourcing or replacement of jobs by technology. If the optionee violates the provisions of the non-competition agreement described in Section 9(e) during the two-year period following retirement, all unexercised options granted on or after May 1, 1999 will immediately terminate and will not be exercisable. 10. Time of granting options. The Option Date under the Plan shall be the ------------------------ date on which such option shall be duly granted by or on behalf of the Company. 11. Adjustments. Notwithstanding any other provision or the Plan, option ----------- agreements entered into hereunder shall contain such provisions as the Committee shall determine for adjustment of the number and class of shares covered thereby, or of the option prices, or both, to reflect a stock dividend, stock split-up, share combination, recapitalization, merger, consolidation, acquisition of property or shares, separation, reorganization, liquidation or the like, of or by the Company. In any such event, the aggregate number of class of shares available under the Plan, shall be appropriately adjusted. 12. Termination and amendment of the Plan. This Plan shall terminate on ------------------------------------- May 4, 2010. The Plan may be terminated at such earlier time, or be further extended until such time, as the Board may determine. A termination shall not affect any options then outstanding under the Plan. The Board may make modifications of the Plan as it shall deem advisable, without further approval of the stockholders of the Company, except as such stockholder approval may be required under (i) Rule 16b-3 (or any successor provision) under the Act or (ii) the listing requirements of any securities exchange registered under the Act on which are listed any of the Company's equity securities. -5- 13. Change in Control. All unexercised options granted on or after May 1, ----------------- 1999, which are held by an optionee shall become exercisable upon the occurrence of a Change in Control. A Change in Control shall be deemed to have occurred at such time as: (i) any "person" (as that term is used in Sections 13(d) and 14(d)(2) of the Exchange Act) (other than any subsidiary of the Company, any employee benefit plan of the Company or any of its subsidiaries, or any related trust) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities representing 20% or more of the combined voting power for election of directors of the then outstanding securities of the Company or any successor of the Company; (ii) during any period of two consecutive years or less, individuals who at the beginning of such period constituted the Board of Directors of the Company cease, for any reason, to constitute at least a majority of the Board of Directors, unless the election or nomination for election of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period or whose election or nomination for election was so approved; or (iii) the stockholders of the Company approve any a merger, reorganization, consolidation, or similar transaction, a plan or agreement for the sale or other disposition of assets which, as of the date of the Company's most recent annual or quarterly consolidated financial statements, accounted for 50% or more of the net book value of the Company's consolidated assets or 50% or more of the Company's consolidated revenues, or a plan of liquidation of the Company (any of the foregoing, a "Reorganization Transaction") that, based on information included in the proxy and other materials distributed by the Company to its stockholders in connection with the solicitation of such stockholder approval, is not expected to qualify as an Exempt Reorganization Transaction. "Exempt Reorganization Transaction" means a Reorganization Transaction that results in the persons who were the direct or indirect owners of the outstanding voting securities of the Company immediately before such Reorganization Transaction becoming, immediately after the consummation of such Reorganization Transaction, the direct or indirect beneficial owners of voting securities representing more than 70% of the combined voting power of the then-outstanding voting securities of the surviving corporation, in substantially the same respective proportions as such persons' ownership of the voting securities of the Company immediately before such Reorganization Transaction. 14. Stock purchased for investment. Shares purchased under the options ------------------------------ shall be purchased for investment and without present intention of resale, unless, in the opinion of counsel for the Company, the shares may be purchased without investment representation. Where an investment representation or other restrictive representation or agreement is deemed necessary, the Committee may require a written representation or agreement to that effect by the optionee at the time the option is granted or exercised. 15. Term of options. Except as provided in Subsections 9(a) and 9(b), the --------------- term of each option granted hereunder shall be for a period of no more than 10 years from the Option Date, and shall be subject to earlier termination as hereinbefore provided; however, the -6- Committee may in its discretion extend the term of each option beyond ten years from the Option Date, but in no event beyond 15 years from the Option Date. 16. Exercise of options. ------------------- (a) Subject to the provisions of Section 9 and Subsections 16(b) and 16(c), each option granted hereunder shall be exercisable in four equal biennial installments, commencing on the first anniversary of the date of grant. (b) The Board (or if delegated by the Board to the Committee, the Committee) may specify a different exercise schedule or schedules for all or any group or groups of employees to whom grants are made hereunder. (c) The Committee, in its sole discretion, shall have the authority to accelerate on an individual by individual basis, the time at which options or any part thereof become exercisable to such earlier date or dates as determined by the Committee. The Board (or if delegated by the Board to the Committee, the Committee) shall have the authority to accelerate the time or times at which all or any part of the options of all or any group of employees may be exercised. (d) The Committee, in its sole discretion, shall have the authority to extend on an individual by individual basis the period of time during which options or installments or any part thereof which have not been exercised may be exercised. The Board (or if delegated by the Board to the Committee, the Committee) shall have the authority to extend the period of time during which all or any part of the options or installments of all or any group of employees may be exercised. (e) An optionee may exercise the option (or a part thereof) in whole or in part at any time commencing on the date the option (or such part) becomes exercisable. An option shall be exercised by delivery of notice of intent to exercise the option with respect to a specific number of option shares. Such notice shall be in a manner specified by the Company. Except as provided in Section 18 hereof, the purchase of any shares as to which an option shall be exercised shall be paid in full at the time of the purchase. Payment of the option exercise price shall be made in cash or, in whole or in part, in common stock of the Company valued at fair market value. An optionee shall not, by reason of any option granted hereunder, have any right of a stockholder of the Company with respect to the shares covered by his option until such shares have been issued to him. Any of the provisions of this Section 16 to the contrary notwithstanding, except as provided in Subsections 9(a), 9(b) or Section 15, in no event shall any option be exercised after 10 years from the Option Date. 17. Stock option plans of foreign subsidiaries. The Committee may, in its ------------------------------------------ sole discretion, authorize any foreign subsidiary to adopt a plan for granting options to purchase shares of common stock of the Company ("Foreign Option Plan"). All grants of options under -7- such Foreign Option Plans shall be treated as grants under the Plan. Such Foreign Option Plans shall have such terms and provisions as the Committee permits not inconsistent with the provisions of the Plan and which may be more restrictive than those contained in the Plan. Options granted under such Foreign Option Plans shall be governed by the terms of the Plan except to the extent that the provisions of the Foreign Option Plans are more restrictive than the terms of the Plan in which cash such terms of the Foreign Option Plans shall control. 18. Loans and guarantees. The Board (or, if delegated by the Board to the -------------------- Committee, the Committee) may, in its discretion, allow an optionee to defer all or any portion of the option exercise price or may cause the Company to guarantee a loan from a third party to the optionee, in an amount equal to all or any portion of the option exercise price. Any such payment deferral by the Company pursuant to this Section 18 shall be for such periods, at such interest rates and on such other terms and conditions as the Board (or, if delegated to the Committee, the Committee) may determine. Notwithstanding the foregoing, an optionee shall not be entitled to defer the payment of the option exercise price unless the optionee (a) has a binding obligation to pay the portion of the option exercise price which is deferred and (b) pays at the time of exercise a minimum amount, with respect to the shares to be granted upon exercise, equal to the amount determined pursuant to resolution of the Board to be capital within the meaning of Section 154 of the Delaware General Corporation Law. 19. Substituted options. In the event the Committee cancels with the ------------------- consent of an optionees any option granted under this Plan or any other Stock Option Plan, and a new option is substituted therefor, the Option Date of the cancelled option shall be the date used to determine the exercisability of the new substituted option under Section 16 hereof so that the optionee may exercise the substituted option in the same percentages and at the same times as if the optionee has held the substituted option since the Option Date of the cancelled option. This Section 19 shall be effective with respect to all options granted on or after October 25, 1976, in substitution of cancelled options. 20. Elective Share Withholding. -------------------------- (a) Subject to Section 20(b), an optionee may elect the withholding ("Share Withholding") by the Company of a portion of the shares otherwise deliverable to such optionee upon the exercise of an option (each a "Taxable Event") having a fair market value equal to the minimum amount necessary to satisfy required federal, state, or local withholding tax liability attributable to the Taxable Event. (b) Each Share Withholding election by an optionee shall be subject to the following restrictions: (i) any optionee's election shall be subject to the Committee's right to revoke such election of Share Withholding by such optionee at any time before the optionee's election if the Committee has reserved the right to do so in the option agreement; and (ii) the optionee's election shall be irrevocable. -8- Executed this 31st day of October 2001. McDONALD'S CORPORATION Stanley R. Stein ---------------------------------- By: Stanley R. Stein Executive Vice President -9- EX-12 4 dex12.txt STATEMENT REGARDING COMPUTATION OF RATIOS Exhibit 12 McDONALD'S CORPORATION STATEMENT RE: COMPUTATION OF RATIOS Dollars In Millions
Nine months ended September 30, Years ended December 31, 2001 2000 2000 1999 1998 1997 1996 ------------------------- ------------------------------------------------------ EARNINGS AVAILABLE FOR FIXED CHARGES - - Income before provision for income taxes $1,960.2 $2,224.8 $2,882.3 $2,884.1 $2,307.4/(1)/ $2,407.3 $2,251.0 - - 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 (3.6) 4.8 16.2 21.9 23.7 28.3 39.6 - - Provision for income taxes of 50% owned affiliates included in consolidated income before provision for income taxes 38.7 72.1 93.7 72.8 99.9 69.0 73.2 - - Portion of rent charges (after reduction for rental income from subleased properties) considered to be representative of interest factors* 188.4 149.0 207.0 178.5 161.3 145.9 130.9 - - Interest expense, amortization of debt discount and issuance costs, and depreciation of capitalized interest* 385.8 347.0 470.3 440.1 461.9 424.8 392.2 ------------------------- ------------------------------------------------------ $2,569.5 $2,797.7 $3,669.5 $3,597.4 $3,054.2 $3,075.3 $2,886.9 ========================= ====================================================== FIXED CHARGES - - Portion of rent charges (after reduction for rental income from subleased properties) considered to be representative of interest factors* $ 188.4 $ 149.0 $ 207.0 $ 178.5 $ 161.3 $ 145.9 $ 130.9 - - Interest expense, amortization of debt discount and issuance costs, and fixed charges related to redeemable preferred stock* 372.8 339.5 457.9 431.3 453.4 426.1 410.4 - - Capitalized interest* 11.2 11.5 16.5 14.7 18.3 23.7 23.5 ------------------------- ------------------------------------------------------ $ 572.4 $ 500.0 $ 681.4 $ 624.5 $ 633.0 $ 595.7 $ 564.8 ========================= ====================================================== RATIO OF EARNINGS TO FIXED CHARGES 4.49 5.60 5.39 5.76 4.82/(2)/ 5.16 5.11 ========================= ======================================================
* Includes amounts of the Registrant and its majority-owned subsidiaries, and one-half of the amounts of 50%-owned affiliates. (1) Includes $160.0 million pre-tax special charge and $161.6 million of Made For You costs for a pre-tax total of $321.6 million. (2) Excluding the special charge and Made For You costs, the ratio of earnings to fixed charges for the year ended December 31, 1998 was 5.33. -----END PRIVACY-ENHANCED MESSAGE-----