UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2004 |
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 Incorporation or Organization) |
(I.R.S. Employer Identification No.) | |
| McDonald’s Plaza Oak Brook, Illinois |
60523 | |
| (Address of Principal Executive Offices) | (Zip Code) | |
(630) 623-3000
(Registrant’s Telephone Number, Including Area Code)
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 þ No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes þ No ¨
1,257,205,376
(Number of shares of common stock
outstanding as of September 30, 2004)
McDONALD’S CORPORATION
| Page Reference | ||||||
| Part I. |
Financial Information |
|||||
| Item 1 - |
Financial Statements | |||||
| Condensed consolidated balance sheet, September 30, 2004 (unaudited) and December 31, 2003 | 3 | |||||
| Condensed consolidated statement of income (unaudited), quarters and nine months ended September 30, 2004 and 2003 | 4 | |||||
| Condensed consolidated statement of cash flows (unaudited), quarters and nine months ended September 30, 2004 and 2003 | 5 | |||||
| Notes to condensed consolidated financial statements (unaudited) | 6 | |||||
| Item 2 - |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 8 | ||||
| Item 3 - |
Quantitative and Qualitative Disclosures About Market Risk | 18 | ||||
| Item 4 - |
Controls and Procedures | 19 | ||||
| Part II. |
Other Information |
|||||
| Item 5 - |
Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities | 19 | ||||
| Item 6 - |
Exhibits | 19 | ||||
| 22 | ||||||
| Exhibits |
23 | |||||
2
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEET
| In millions, except per share data | (unaudited) September 30, |
December 31, 2003 |
||||||
| Assets |
||||||||
| Current assets |
||||||||
| Cash and equivalents |
$ | 1,556.9 | $ | 492.8 | ||||
| Accounts and notes receivable |
648.7 | 734.5 | ||||||
| Inventories, at cost, not in excess of market |
140.4 | 129.4 | ||||||
| Prepaid expenses and other current assets |
561.8 | 528.7 | ||||||
| Total current assets |
2,907.8 | 1,885.4 | ||||||
| Other assets |
||||||||
| Investments in and advances to affiliates |
1,054.2 | 1,089.6 | ||||||
| Goodwill, net |
1,755.6 | 1,665.1 | ||||||
| Miscellaneous |
970.1 | 960.3 | ||||||
| Total other assets |
3,779.9 | 3,715.0 | ||||||
| Property and equipment |
||||||||
| Property and equipment, at cost |
29,071.7 | 28,740.2 | ||||||
| Accumulated depreciation and amortization |
(9,421.1 | ) | (8,815.5 | ) | ||||
| Net property and equipment |
19,650.6 | 19,924.7 | ||||||
| Total assets |
$ | 26,338.3 | $ | 25,525.1 | ||||
| Liabilities and shareholders’ equity |
||||||||
| Current liabilities |
||||||||
| Accounts payable |
$ | 529.4 | $ | 577.4 | ||||
| Dividend payable |
691.0 | — | ||||||
| Income taxes |
71.4 | 71.5 | ||||||
| Other taxes |
231.6 | 222.0 | ||||||
| Accrued interest |
171.1 | 193.1 | ||||||
| Accrued restructuring and restaurant closing costs |
79.7 | 115.7 | ||||||
| Accrued payroll and other liabilities |
1,007.2 | 918.1 | ||||||
| Current maturities of long-term debt |
170.6 | 388.0 | ||||||
| Total current liabilities |
2,952.0 | 2,485.8 | ||||||
| Long-term debt |
8,692.7 | 9,342.5 | ||||||
| Other long-term liabilities and minority interests |
707.2 | 699.8 | ||||||
| Deferred income taxes |
1,025.8 | 1,015.1 | ||||||
| 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 |
2,016.2 | 1,837.5 | ||||||
| Unearned ESOP compensation |
(85.8 | ) | (90.5 | ) | ||||
| Retained earnings |
21,362.8 | 20,172.3 | ||||||
| Accumulated other comprehensive income (loss) |
(644.0 | ) | (635.5 | ) | ||||
| Common stock in treasury, at cost; 403.4 and 398.7 million shares |
(9,705.2 | ) | (9,318.5 | ) | ||||
| Total shareholders’ equity |
12,960.6 | 11,981.9 | ||||||
| Total liabilities and shareholders’ equity |
$ | 26,338.3 | $ | 25,525.1 | ||||
See notes to condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
| In millions, except per common share data | Quarters Ended September 30 |
Nine Months Ended September 30 |
|||||||||||
| 2004 | 2003 | 2004 | 2003 | ||||||||||
| Revenues |
|||||||||||||
| Sales by Company-operated restaurants |
$ | 3,664.8 | $ | 3,351.2 | $ | 10,459.7 | $ | 9,397.0 | |||||
| Revenues from franchised and affiliated restaurants |
1,260.9 | 1,153.4 | 3,594.7 | 3,188.1 | |||||||||
| Total revenues |
4,925.7 | 4,504.6 | 14,054.4 | 12,585.1 | |||||||||
| Operating costs and expenses |
|||||||||||||
| Company-operated restaurant expenses |
3,086.3 | 2,840.6 | 8,899.2 | 8,094.0 | |||||||||
| Franchised restaurants – occupancy expenses |
252.9 | 236.0 | 745.0 | 690.3 | |||||||||
| Selling, general, and administrative expenses |
474.6 | 456.3 | 1,428.6 | 1,319.1 | |||||||||
| Other operating expense, net |
13.0 | 7.8 | 58.4 | 17.0 | |||||||||
| Total operating costs and expenses |
3,826.8 | 3,540.7 | 11,131.2 | 10,120.4 | |||||||||
| Operating income |
1,098.9 | 963.9 | 2,923.2 | 2,464.7 | |||||||||
| Interest expense |
88.1 | 93.8 | 267.9 | 297.3 | |||||||||
| Nonoperating expense, net |
5.3 | 47.0 | 26.1 | 88.5 | |||||||||
| Income before provision for income taxes and cumulative effect of accounting change |
1,005.5 | 823.1 | 2,629.2 | 2,078.9 | |||||||||
| Provision for income taxes |
227.1 | 275.7 | 748.6 | 696.4 | |||||||||
| Income before cumulative effect of accounting change |
778.4 | 547.4 | 1,880.6 | 1,382.5 | |||||||||
| Cumulative effect of accounting change, net of tax benefit of $9.4 |
(36.8 | ) | |||||||||||
| Net income |
$ | 778.4 | $ | 547.4 | $ | 1,880.6 | $ | 1,345.7 | |||||
| Per common share: |
|||||||||||||
| Income before cumulative effect of accounting change |
$ | 0.62 | $ | 0.43 | $ | 1.49 | $ | 1.09 | |||||
| Cumulative effect of accounting change |
(0.03 | ) | |||||||||||
| Net income |
$ | 0.62 | $ | 0.43 | $ | 1.49 | $ | 1.06 | |||||
| Per common share–diluted: |
|||||||||||||
| Income before cumulative effect of accounting change |
$ | 0.61 | $ | 0.43 | $ | 1.48 | $ | 1.08 | |||||
| Cumulative effect of accounting change |
(0.03 | ) | |||||||||||
| Net income |
$ | 0.61 | $ | 0.43 | $ | 1.48 | $ | 1.05 | |||||
| Dividends declared per common share |
$ | 0.55 | $ | 0.40 | $ | 0.55 | $ | 0.40 | |||||
| Weighted average shares |
1,256.7 | 1,271.5 | 1,258.1 | 1,271.2 | |||||||||
| Weighted average shares–diluted |
1,268.4 | 1,281.0 | 1,270.6 | 1,276.2 | |||||||||
See notes to condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
| Quarters Ended September 30 |
Nine Months Ended September 30 |
|||||||||||||||
| In millions | 2004 | 2003 | 2004 | 2003 | ||||||||||||
| Operating activities |
||||||||||||||||
| Net income |
$ | 778.4 | $ | 547.4 | $ | 1,880.6 | $ | 1,345.7 | ||||||||
| Adjustments to reconcile to cash provided by operations |
||||||||||||||||
| Cumulative effect of accounting change |
36.8 | |||||||||||||||
| Depreciation and amortization |
293.2 | 274.9 | 882.6 | 832.6 | ||||||||||||
| Deferred income taxes |
(48.1 | ) | 131.8 | (48.7 | ) | 219.1 | ||||||||||
| Changes in working capital items |
217.1 | 49.7 | 151.8 | (215.1 | ) | |||||||||||
| Other |
30.2 | 26.4 | 89.9 | 49.1 | ||||||||||||
| Cash provided by operations |
1,270.8 | 1,030.2 | 2,956.2 | 2,268.2 | ||||||||||||
| Investing activities |
||||||||||||||||
| Property and equipment expenditures |
(311.7 | ) | (257.5 | ) | (795.5 | ) | (878.0 | ) | ||||||||
| Purchases and sales of restaurant businesses and sales of property |
14.3 | 9.9 | 94.8 | 18.9 | ||||||||||||
| Other |
(13.7 | ) | (16.9 | ) | (44.0 | ) | (46.0 | ) | ||||||||
| Cash used for investing activities |
(311.1 | ) | (264.5 | ) | (744.7 | ) | (905.1 | ) | ||||||||
| Financing activities |
||||||||||||||||
| Notes payable and long-term financing issuances and repayments |
(342.3 | ) | (530.8 | ) | (779.7 | ) | (921.7 | ) | ||||||||
| Treasury stock purchases |
(77.2 | ) | (139.5 | ) | (611.0 | ) | (165.5 | ) | ||||||||
| Stock option exercises |
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