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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (fee required) for the fiscal year ended
December 31, 1993
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (no fee required) for the
transition period from to
Commission File Number 1-5231
McDONALD'S CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-2361282
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
McDonald's Plaza
Oak Brook, Illinois 60521
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (708) 575-3000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
-------------------------- -----------------------
Common stock, no par value New York Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
9-3/4% Notes due 1999 New York Stock Exchange
9-3/8% Notes due 1997 New York Stock Exchange
8-7/8% Debentures due 2011 New York Stock Exchange
7-3/8% Notes due 2002 New York Stock Exchange
Depositary Shares representing 7.72%
Cumulative Preferred Stock, Series E New York Stock Exchange
6-3/4% Notes due 2003 New York Stock Exchange
7-3/8% Notes due 2033 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
-----
(Title of Class)
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
--- ---
2
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (Section 229.405 of this
chapter) is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K. / /
The aggregate market value of voting stock held by nonaffiliates
of the registrant is $21,708,859,265 and the number of shares of
common stock outstanding is 353,866,072 as of January 31, 1994.
Documents incorporated by reference. Part III of this 10-K
incorporates information by reference from the registrant's definitive
proxy statement which will be filed no later than 120 days after
December 31, 1993.
3
PART I
Item 1. Business
McDonald's Corporation, the registrant, together with its
subsidiaries, is referred to herein as the "Company".
(a) General development of business
There have been no significant changes to the Company's
corporate structure during 1993, nor material changes in the Company's
method of conducting business.
(b) Financial information about industry segments
Industry segment data for the years ended December 31, 1993,
1992 and 1991 is included in Part II, item 8, pages 33 and 41 of this
Form 10-K.
(c) Narrative description of business
General
The Company develops, operates, franchises and services a
worldwide system of restaurants which prepare, assemble, package and
sell a limited menu of value-priced foods. These restaurants are
operated by the Company or, under the terms of franchise arrangements,
by franchisees who are independent third parties, or by affiliates
operating under joint-venture agreements between the Company and local
businesspeople.
The Company's franchising program assures consistency and
quality. The Company is selective in granting franchises and is not
in the practice of franchising to investor groups or passive
investors. Under the conventional franchise arrangement, franchisees
supply capital - initially, by purchasing equipment, signs, seating,
and decor, and over the long term, by reinvesting in the business.
The Company shares the investment by owning or leasing the land and
building; franchisees then contribute to the Company's revenues
through payment of rent and service fees based upon a percent of
sales, with specified minimum payments. Generally, the conventional
franchise arrangement lasts 20 years and franchising practices are
consistent throughout the world. Further discussion regarding site
selection is included in Part 1, item 2, page 6 of this Form 10-K.
Training begins at the restaurant with one-on-one instruction
and videotapes. Aspiring restaurant managers progress through a
development program of classes in basic and intermediate operations,
management and equipment. Assistant managers are eligible to attend
the advanced operations and management class at one of the five
Hamburger University (H.U.) campuses in the U.S., Germany, England,
Japan or Australia. The curriculum at H.U. concentrates on skills and
practices essential to delivering customer satisfaction and running a
restaurant business.
4
The Company's global brand is well-known. Marketing and
promotional activities are designed to nurture this brand image and
differentiate the Company from competitors by focusing on value and
customer satisfaction. Funding for promotions is handled at the local
restaurant level; funding for regional and national efforts is handled
through advertising cooperatives. Franchised, Company-operated and
affiliated restaurants throughout the world make voluntary
contributions to cooperatives which purchase media. Production costs
for certain advertising efforts are borne by the Company.
Products
McDonald's restaurants offer a substantially uniform menu
consisting of hamburgers and cheeseburgers, including the Big Mac and
Quarter Pounder with Cheese sandwiches, the Filet-O-Fish, McGrilled
Chicken and McChicken sandwiches, french fries, Chicken McNuggets,
salads, low fat shakes, sundaes and cones made with low fat frozen
yogurt, pies, cookies and a limited number of soft drinks and other
beverages. In addition, the restaurants sell a variety of products
during limited promotional time periods. McDonald's restaurants
operating in the United States are open during breakfast hours and
offer a full breakfast menu including the Egg McMuffin and the Sausage
McMuffin with Egg sandwiches, hotcakes and sausage; three varieties of
biscuit sandwiches; Apple-Bran muffins; and cereals. McDonald's
restaurants in many countries around the world offer many of these
same products as well as other products and limited breakfast menus.
The Company tests new products on an ongoing basis.
The Company, its franchisees and affiliates purchase food
products and packaging from numerous independent suppliers. Quality
specifications for both raw and cooked food products are established
and strictly enforced. Alternative sources of these items are
generally available. Quality assurance labs in the U.S., Europe and
the Pacific work to ensure that the Company's high standards are
consistently met. The quality assurance process involves ongoing
testing and on-site inspections of suppliers' facilities.
Independently owned and operated distribution centers distribute
products and supplies to most McDonald's restaurants. The restaurants
then prepare, assemble and package these products using specially
designed production techniques and equipment to obtain uniform
standards of quality.
Trademarks and patents
The Company has registered trademarks and service marks, some
of which, including "McDonald's", "Ronald McDonald" and other related
marks, are of material importance to the Company's business. The
Company also has certain patents on restaurant equipment which, while
valuable, are not material to its business.
Seasonal operations
The Company does not consider its operations to be seasonal to
any material degree.
5
Working capital practices
Information about the Company's working capital practices is
incorporated herein by reference to Management's Discussion and
Analysis of the Company's financial position and the consolidated
statement of cash flows for the years ended December 31, 1993, 1992
and 1991 in Part II, item 7, pages 26 through 28, and Part II, item 8
page 35 of this Form 10-K.
Customers
The Company's business is not dependent upon a single customer
or small group of customers.
Backlog
Company-operated restaurants have no backlog orders.
Government contracts
No material portion of the business is subject to renegotiation
of profits or termination of contracts or subcontracts at the election
of the U.S. government.
Competition
McDonald's restaurants compete with international, national,
regional, and local retailers of food products. The Company competes
on the basis of price and service and by offering quality food
products. The Company's competition in the broadest perspective
includes restaurants, quick-service eating establishments, pizza
parlors, coffee shops, street vendors, convenience food stores,
delicatessens, and supermarket freezers.
In the U.S., about 372,000 restaurants generate nearly $213
billion in annual sales. McDonald's accounts for about 2.5% of those
restaurants and approximately 6.7% of those sales. No reasonable
estimate can be made of the number of competitors outside of the U.S.;
however, the Company's business in foreign markets continues to grow.
Research and development
The Company operates research and development facilities in
Illinois. While research and development activities are important to
the Company's business, these expenditures are not material.
Independent suppliers also conduct research activities for the benefit
of the McDonald's System, which includes franchisees and suppliers, as
well as McDonald's, its subsidiaries and joint ventures.
6
Environmental matters
The Company is not aware of any federal, state or local
environmental laws or regulations which will materially affect its
earnings or competitive position, or result in material capital
expenditures; however, the Company cannot predict the effect on its
operations of possible future environmental legislation or
regulations. During 1993, there were no material capital expenditures
for environmental control facilities and no such material expenditures
are anticipated.
Number of employees
During 1993, the Company's average number of employees was
approximately 167,000.
(d) Financial information about foreign and domestic operations
Financial information about foreign and domestic markets is
incorporated herein by reference from selected Financial Data,
Management's Discussion and Analysis and Segment and Geographic
Information in Part II, item 6, page 10, Part II, item 7, pages 11
through 29 and Part II, item 8, page 41, respectively, of this Form
10-K.
Item 2. Properties
The Company identifies and develops sites that offer
convenience to customers and provide for long-term sales and profit
potential. To assess potential, the Company analyzes traffic and
walking patterns, census data, school enrollments and other relevant
data. The Company's experience and access to advanced technology aids
in evaluating this information. In order to control occupancy costs
and rights, the Company owns restaurant sites and buildings where
feasible and where it is not practical, secures long-term leases.
Restaurant profitability for both the Company and franchisees is
important; therefore, ongoing efforts are made to lower average
development costs through construction and design efficiencies and by
leveraging the Company's global sourcing system. Additional
information about the Company's properties is incorporated herein by
reference to Management's Discussion and Analysis and the related
financial statements with footnotes in Part II, item 7, pages 11
through 29 and Part II, item 8, pages 34, 35, 37, 38, 42, 46 and 47,
respectively, of this Form 10-K.
Item 3. Legal Proceedings
The Company has pending a number of lawsuits which have been
filed from time to time in various jurisdictions. These lawsuits cover
a broad variety of allegations spanning the Company's entire business.
The following is a brief description of the more significant of these
categories of lawsuits and government regulations.
7
Franchising
A substantial number of McDonald's restaurants are franchised
to independent businesspeople operating under arrangements with the
Company. In the course of the franchise relationship, occasional
disputes arise between the Company and its franchisees relating to a
broad range of subjects including, without limitation, quality,
service and cleanliness issues, contentions regarding grants or
terminations of franchises, franchisee claims for additional
franchises or rewrites of franchises, and delinquent payments.
Suppliers
The Company and its affiliates and subsidiaries do not supply,
with minor exceptions outside of the United States, food, paper, or
related items to any McDonald's restaurants. The Company relies upon
independent suppliers which are required to meet and maintain the
Company's standards and specifications. There are a number of such
suppliers worldwide and on occasion disputes arise between the Company
and its suppliers on a number of issues including, by way of example,
compliance with product specifications and McDonald's business
relationship with suppliers.
Employees
Thousands of persons are employed by the Company and in
restaurants owned and operated by subsidiaries of the Company. In
addition, thousands of persons, from time to time, seek employment in
such restaurants. In the ordinary course of business, disputes arise
regarding hiring, firing and promotion practices.
Customers
McDonald's restaurants serve a large cross-section of the
public and in the course of serving so many people, disputes arise as
to products, service, accidents and other matters typical of an
extensive restaurant business such as that of the Company.
Trademarks
McDonald's has registered trademarks and service marks, some of
which are of material importance to the Company's business. From time
to time, the Company may become involved in litigation to defend and
protect its use of such registered marks.
Government Regulations
Local, state and federal governments have adopted laws and
regulations involving various aspects of the restaurant business,
including, but not limited to, franchising, health, environment,
zoning and employment. The Company does not believe that it is in
violation of any existing statutory or administrative rules, but it
cannot predict the effect on its operations from promulgation of
additional requirements in the future.
Item 4. Submission of Matters to a Vote of Shareholders
None.
8
Executive Officers of the Registrant
All of the executive officers of McDonald's Corporation as of
March 1, 1994 are shown below. Each of the executive officers has been
continuously employed by the Company for at least five years and has a
term of office until the May 1994 Board of Directors' meeting.
Number
Number of
of years
years in
Date of with present
Name Office Birth Company position
--------------------- --------------------- -------- ------- --------
Robert M. Beavers, Jr. Senior Vice President 01/27/44 30 *
James R. Cantalupo President and 11/14/43 19 2
Chief Executive
Officer-International
Michael L. Conley Senior Vice President, 03/28/48 20 3
Controller
Thomas S. Dentice Executive Vice President 01/12/39 28 9
Patrick J. Flynn Executive Vice President 05/01/42 32 6
Thomas W. Glasgow, Jr. Executive Vice President, 02/17/47 25 2
Chief Operations Officer
Jack M. Greenberg Vice Chairman, Chief 09/28/42 12 2
Financial Officer
Michael R. Quinlan Chairman, Chief 12/09/44 30 4
Executive Officer
Edward H. Rensi President and Chief 08/15/44 28 2
Executive Officer-U.S.A.
Paul D. Schrage Senior Executive Vice 02/25/35 26 9
President, Chief
Marketing Officer
Fred L. Turner Senior Chairman 01/06/33 37 4
* Less than one year in current position.
9
PART II
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters
The Company's common stock trades under the symbol MCD and is
listed on the following stock exchanges in the United States: New
York, Chicago and Pacific.
The common stock price range on the New York Stock Exchange
composite tape has been as follows:
---------------------------------------------------------
Quarter 1993 1992
---------------------------------------------------------
First $54 1/4 - 46 3/4 $45 - 38 3/8
Second $53 1/2 - 45 1/2 $47 1/2 - 39 3/8
Third $55 5/8 - 48 1/4 $47 1/4 - 41 1/8
Fourth $59 1/8 - 51 1/4 $50 3/8 - 40 7/8
---------------------------------------------------------
Year $59 1/8 - 45 1/2 $50 3/8 - 38 3/8
---------------------------------------------------------
The approximate number of shareholders of record and beneficial
owners of the Company's common stock as of December 31, 1993 was
estimated to be 459,000.
Given the Company's returns on equity and assets, the Company's
management believes it is prudent to reinvest a significant portion of
earnings back into the business. The Company has paid 72 consecutive
quarterly dividends on common stock and has increased the per share
amount 19 times since the first dividend was paid in 1976. Additional
dividend increases will be considered after reviewing returns to
shareholders, profitability expectations and financing needs.
Dividends per common share for the years ended December 31,
1993 and 1992 are incorporated herein by reference from Part II,
item 8, page 33.
10
Item 6. Selected Financial Data
11-YEAR SUMMARY
(Dollars rounded to millions, except per common share data and average restaurant sales)
1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983
- ------------------------------------------------------------------------------------------------------------------------------
Systemwide sales $23,587 21,885 19,928 18,759 17,333 16,064 14,330 12,432 11,001 10,007 8,687
U.S. $14,186 13,243 12,519 12,252 12,012 11,380 10,576 9,534 8,843 8,071 7,069
Outside of the U.S. $ 9,401 8,642 7,409 6,507 5,321 4,684 3,754 2,898 2,158 1,936 1,618
Systemwide sales by type
Operated by franchisees $15,756 14,474 12,959 12,017 11,219 10,424 9,452 8,422 7,612 6,914 5,929
Operated by the Company $ 5,157 5,103 4,908 5,019 4,601 4,196 3,667 3,106 2,770 2,538 2,297
Operated by affiliates $ 2,674 2,308 2,061 1,723 1,513 1,444 1,211 904 619 555 461
Average sales by
restaurants open at least
one year, in thousands $ 1,768 1,733 1,658 1,649 1,621 1,596 1,502 1,369 1,296 1,264 1,169
Revenues from franchised
restaurants $ 2,251 2,031 1,787 1,621 1,465 1,325 1,186 1,037 924 828 704
Total revenues $ 7,408 7,133 6,695 6,640 6,066 5,521 4,853 4,143 3,694 3,366 3,001
Operating income $ 1,984 1,862 1,679 1,596 1,438 1,288 1,160 983 905 812 713
Income before provision
for income taxes $ 1,676 1,448 1,299 1,246 1,157 1,046 959 848 782 707 628
Net income $ 1,083 959 860 802 727 646 549 * 480 433 389 343
Cash provided by
operations $ 1,680 1,426 1,423 1,301 1,246 1,177 1,051 852 813 701 618
Financial position at year end
Net property and
equipment $10,081 9,597 9,559 9,047 7,758 6,800 5,820 4,878 4,164 3,521 3,183
Total assets $12,035 11,681 11,349 10,668 9,175 8,159 6,982 5,969 5,043 4,230 3,727
Long-term debt $ 3,489 3,176 4,267 4,429 3,902 3,111 2,685 2,131 1,638 1,268 1,171
Total shareholders'
equity $ 6,274 5,892 4,835 4,182 3,550 3,413 2,917 2,506 2,245 2,009 1,755
Per common share
Net income $ 2.91 2.60 2.35 2.20 1.95 1.71 1.45 * 1.24 1.11 .97 .85
Dividends declared $ .42 .39 .36 .33 .30 .27 .24 .21 .20 .17 .14
Total shareholders'
equity at year end $ 16.24 14.77 13.48 11.65 9.81 9.09 7.72 6.45 5.67 4.94 4.38
Market price at
year end $ 57 48 3/4 38 29 1/8 34 1/2 24 1/8 22 20 1/4 18 11 1/2 10 1/2
Systemwide restaurants
at year end 13,993 13,093 12,418 11,803 11,162 10,513 9,911 9,410 8,901 8,304 7,778
Operated by franchisees 9,832 9,237 8,735 8,131 7,573 7,110 6,760 6,406 6,150 5,724 5,371
Operated by the Company 2,699 2,551 2,547 2,643 2,691 2,600 2,399 2,301 2,165 2,053 1,949
Operated by affiliates 1,462 1,305 1,136 1,029 898 803 752 703 586 527 458
U.S. 9,283 8,959 8,764 8,576 8,270 7,907 7,567 7,272 6,972 6,595 6,251
Outside of the U.S. 4,710 4,134 3,654 3,227 2,892 2,606 2,344 2,138 1,929 1,709 1,527
Number of countries at
year end 70 65 59 53 51 50 47 46 42 36 32
*Before the cumulative prior years' benefit from the change in accounting for income taxes.
11
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
-----------------------------------------------------------------------
CONSOLIDATED OPERATING RESULTS
-----------------------------------------------------------------------
INCREASES (DECREASES) IN OPERATING RESULTS OVER PRIOR YEAR
-----------------------------------------------------------------------
(Dollars rounded to millions, 1993 1992
except per common share data) Amount % Amount %
-----------------------------------------------------------------------
SYSTEMWIDE SALES $1,702 8 $1,957 10
-----------------------------------------------------------------------
REVENUES
Sales by Company-operated
restaurants $ 55 1 $ 194 4
Revenues from franchised
restaurants 220 11 244 14
-----------------------------------------------------------------------
TOTAL REVENUES 275 4 438 7
-----------------------------------------------------------------------
OPERATING COSTS AND EXPENSES
Company-operated restaurants 38 1 97 2
Franchised restaurants 32 9 42 14
General, administrative
and selling expenses 81 9 66 8
Other operating (income)
expense--net 2 (3) 50 (44)
-----------------------------------------------------------------------
TOTAL OPERATING COSTS
AND EXPENSES 153 3 255 5
-----------------------------------------------------------------------
OPERATING INCOME 122 7 183 11
-----------------------------------------------------------------------
Interest expense (58) (15) (18) (5)
Nonoperating income
(expense)--net 48 N/M (52) N/M
-----------------------------------------------------------------------
INCOME BEFORE PROVISION FOR
INCOME TAXES 228 16 149 11
-----------------------------------------------------------------------
Provision for income taxes 104 21 50 11
-----------------------------------------------------------------------
NET INCOME $ 124 13 $ 99 12
=======================================================================
NET INCOME PER COMMON SHARE $ .31 12 $ .25 11
-----------------------------------------------------------------------
N/M - Not Meaningful
12
SYSTEMWIDE SALES AND RESTAURANTS
Systemwide sales are comprised of sales by restaurants operated by the
Company, franchisees and affiliates operating under joint-venture
agreements between McDonald's and local businesspeople. The 1993
increase was due to new restaurant expansion and higher sales at
existing restaurants worldwide, offset in part by weaker foreign
currencies and one less day in 1993 since 1992 was a leap year. The
1992 increase was due to new restaurant expansion, higher sales at
existing restaurants and stronger foreign currencies. Sales by
Company-operated restaurants grew at a slower rate than Systemwide
sales in 1993 and 1992. The slower rate of growth in 1993 occurred
primarily because weaker foreign currencies had a greater impact on
sales by Company-operated restaurants than on Systemwide sales,
combined with an increasing global base of franchised restaurants from
expansion. The slower rate of growth in 1992 reflected the
franchising of certain Company-operated businesses.
Average sales by restaurants open at least one year were $1,768,000
in 1993, which was $35,000 higher than in 1992. Average sales both in
the U.S. and outside of the U.S. improved due to the value program and
various promotional efforts.
Expansion has continued at an accelerated pace as 900 restaurants
were added in 1993, compared with 675 in 1992 and 615 in 1991.
Restaurants opened during the year (excluding satellite locations)
contributed $572 million to Systemwide sales in 1993, $478 million in
1992 and $460 million in 1991. McDonald's plans to add between 900
and 1,200 restaurants (excluding satellite locations) around the world
in 1994 and in each of the next several years. The mix of net
additions will remain the same -- approximately one-third in the U.S.
and two-thirds in markets outside of the U.S. Our global expansion
plan also includes satellites -- sites that leverage the
infrastructure of existing restaurants, either by using their storage
capability or by drawing on their management talent and labor pool.
At year-end 1993, 170 satellites were operating around the world. In
addition, we expect to add several hundred satellite locations around
the world each year.
TOTAL REVENUES
Total revenues consist of sales by Company-operated restaurants and
fees from restaurants operated by franchisees and affiliates, based
upon a percent of sales with specified minimum payments. The minimum
franchise fee generally has been 12% of sales for new U.S. franchise
arrangements since 1987. Higher fees are charged for sites that
require a higher investment on the part of the Company. Fees paid by
franchisees outside of the U.S. vary according to local business
conditions. These fees, together with occupancy and operating rights,
are stipulated in franchise arrangements that generally have 20-year
terms.
Revenues grow as restaurants are added and as existing restaurants
build sales. Menu price adjustments affect revenues as well as sales;
however, different pricing structures, new products, promotions, and
product mix variations make it impractical to quantify the impact for
the System.
13
The rates of increases in total revenues for 1993 and 1992 were
less than the rates of increases in Systemwide sales. In 1993, this
reflected weaker foreign currencies which had a greater impact on
revenues than on Systemwide sales and the increasing global base of
franchised restaurants, occurring primarily from expansion. In 1992,
the franchising of certain Company-operated restaurant businesses
primarily in the U.S. and Canada affected the rate of increase.
Growth rates in sales by Company-operated restaurants and revenues
from franchised restaurants varied because of expansion and changes in
ownership and because sales by Company-operated restaurants were
impacted to a greater degree by changing foreign currencies than were
revenues. In 1993, about 53% of sales by Company-operated restaurants
were outside of the U.S., compared with 33% of revenues from
franchised restaurants.
RESTAURANT MARGINS
Company-operated restaurant margins were 19.2% of sales in 1993,
compared with 19.1% in 1992 and 17.9% in 1991. As a percent of sales,
food and paper costs increased, while occupancy, other operating and
payroll costs declined in 1993. All costs as a percent of sales
declined in 1992.
Franchised restaurant margins were 83.1% of applicable revenues for
1993, compared with 82.8% in 1992 and 1991. Franchised margins
include revenues and expenses associated with restaurants operating
under business facilities lease arrangements. Under these
arrangements, the Company leases the businesses -- including
equipment -- to franchisees who have options to purchase the
businesses. While higher fees are charged under these arrangements,
margins are generally lower because of equipment depreciation. When
these purchase options are exercised, the resulting gains compensate
the Company for lower margins prior to exercise and are included in
other operating (income) expense--net. At year-end 1993, 544
restaurants were operating under such arrangements, compared with 583
and 584 at year-end 1992 and 1991, respectively.
GENERAL, ADMINISTRATIVE AND SELLING EXPENSES
The 1993 increase was due primarily to higher employee costs
associated with expansion and key priorities, partially offset by
weaker foreign currencies. The 1992 increase was due to higher
employee costs associated with expansion, partially offset by a
reduction in U.S. marketing costs associated with the value program.
These expenses as a percent of Systemwide sales have remained
relatively constant over the past five years, and were 4.0% in 1993
and 3.9% in 1992.
14
OTHER OPERATING (INCOME) EXPENSE--NET
This category is comprised primarily of gains on sales of restaurant
businesses, equity in earnings of unconsolidated affiliates, and net
gains or losses from property dispositions. The 1993 and 1992 amounts
were relatively constant, reflecting greater income from affiliates
and gains on sales of restaurant businesses in 1993, offset by the
favorable settlement of a sales tax case in Brazil in 1992. Major
factors contributing to the 1992 decrease included lower affiliate
results due to 1991 gains from property dispositions and lower
operating results in Japan, lower gains on sales of restaurant
businesses, and greater losses on property dispositions, partially
offset by the favorable settlement of a sales tax case in Brazil in
1992.
Gains on sales of restaurant businesses include gains from
exercises of purchase options by franchisees operating under business
facilities lease arrangements and from sales of Company-operated
restaurants. As a franchisor, McDonald's purchases and sells
businesses in transactions with franchisees and affiliates in an
ongoing effort to achieve the optimal ownership mix in each market.
These transactions and the resulting gains are integral to
franchising, and are appropriately recorded in operating income.
Equity in earnings of unconsolidated affiliates is reported after
interest expense and income taxes, except for U.S. partnerships that
are reported before income taxes. The Company actively participates
in, but does not control, these businesses.
Net gains or losses from property dispositions result from disposal
of excess properties that occur because of closings, relocations and
other transactions.
OPERATING INCOME
The 1993 and 1992 increases reflected better results from combined
restaurant margins, partially offset by higher general, administrative
and selling expenses. Additionally, 1993 was impacted by weaker
foreign currencies, while 1992 was impacted by lower income from other
operating transactions and stronger foreign currencies.
INTEREST EXPENSE
The 1993 and 1992 decreases were primarily due to lower average debt
balances and lower average interest rates; 1993 also was impacted by
weaker foreign currencies. The trends have been positively affected
by the fact that cash provided by operations exceeded capital
expenditures in each of the last three years.
NONOPERATING INCOME (EXPENSE)--NET
This category includes interest income, gains and losses related to
investments and financings, as well as miscellaneous income and
expense. The 1993 increase reflected $9 million in gains related to
debt extinguishments and $29 million in charges related to various
early redemptions of high-coupon, U.S. Dollar debt in 1992.
15
PROVISION FOR INCOME TAXES
The effective tax rate increased to 35.4% for 1993, compared with
33.8% for 1992 and 1991, primarily as a result of new U.S. tax
legislation enacted in the third quarter of 1993 and lower foreign tax
benefits. The full-year impact of the U.S. tax law changes on the
1993 income tax provision was approximately $20 million. Of this
amount, the retroactive impact was $15 million, comprised of nearly
$14 million attributable to a one-time, noncash revaluation of
deferred tax liabilities, and $1 million related to periods prior to
the third quarter. The Company expects its 1994 effective income tax
rate to be in the 35.5% to 36.0% range.
Consolidated net deferred tax liabilities included tax assets of
$148 million, net of valuation allowance, in 1993 and 1992.
Substantially all of the tax assets arose from profitable markets and
the majority is expected to be realized in future U.S. income tax
returns.
NET INCOME AND NET INCOME PER COMMON SHARE
Net income and net income per common share increased 13 and 12
percent, respectively, in 1993. These increases were negatively
affected by weaker foreign currencies and the new U.S. tax
legislation.
----------------------------------------------------------------
NET INCOME
(Dollars in NET INCOME PER
millions) COMMON SHARE
----------------------------------------------------------------
AMOUNT % AMOUNT %
----------------------------------------------------------------
1993 AS REPORTED $1,083 13 $2.91 12
Impact of changing foreign
currencies 32 .09
Retroactive impact of U.S.
tax law changes 15 .04
----------------------------------------------------------------
1993 AS ADJUSTED $1,130 18 $3.04 17
================================================================
16
IMPACT OF CHANGING FOREIGN CURRENCIES
Changing foreign currencies do impact reported results from time to
time, but McDonald's manages foreign currencies to mitigate business
risk and the reporting impact. As previously noted, weaker foreign
currencies had a significant negative impact on 1993 results, while
stronger foreign currencies had a positive impact in 1992. Further
discussion of our approach to managing changing foreign currencies can
be found on pages 26 through 28 in Financings and Total Shareholders'
Equity.
-----------------------------------------------------------------------
Impact of changing foreign currencies 1993
-----------------------------------------------------------------------
Reported Adjusted
-----------------------------------------------------------------------
(Dollars in millions) Amount % Amount %
-----------------------------------------------------------------------
Systemwide sales $23,587 8 $23,993 10
Revenues 7,408 4 7,721 8
Operating income 1,984 7 2,051 10
Net income 1,083 13 1,114 16
-----------------------------------------------------------------------
1992
-----------------------------------------------------------------------
Systemwide sales $21,885 10 $21,717 9
Revenues 7,133 7 7,116 6
Operating income 1,862 11 1,846 10
Net income 959 12 953 11
-----------------------------------------------------------------------
17
------------------------------------------------------------------------
U.S. OPERATIONS
------------------------------------------------------------------------
SALES
The 1993 and 1992 increases were due to higher sales and transaction
counts at existing restaurants and expansion. Sales and transaction
counts in 1993 were positively driven by the emphasis on value and
customer satisfaction in the form of Extra-Value Meals, Happy Meals,
"2 for $2" offers and the Burger of the Month program; as well as the
NBA Fantasy Pack Trading Card, Happy Birthday Big Mac, Jurassic Park,
Double Plays and Holiday Video promotions.
------------------------------------------------------------------------
Five Ten
years years
(In millions of dollars) 1993 1992 1991 ago ago
------------------------------------------------------------------------
Operated by franchisees $11,435 $10,615 $ 9,873 $ 8,574 $5,322
Operated by the Company 2,420 2,353 2,410 2,629 1,716
Operated by affiliates 331 275 236 177 31
------------------------------------------------------------------------
U.S. sales $14,186 $13,243 $12,519 $11,380 $7,069
========================================================================
RESTAURANTS
There were 324 restaurants added in the U.S. in 1993, representing 36%
of Systemwide additions, compared with 195 additions and 29% in 1992,
and 340 additions and 56% five years ago. McDonald's expects to boost
U.S. expansion in 1994 and in each of the next several years by adding
between 300 and 400 restaurants, exclusive of satellites.
------------------------------------------------------------------------
Five Ten
years years
1993 1992 1991 ago ago
------------------------------------------------------------------------
Operated by franchisees 7,628 7,375 7,149 6,017 4,791
Operated by the Company 1,433 1,395 1,446 1,758 1,430
Operated by affiliates 222 189 169 132 30
------------------------------------------------------------------------
U.S. restaurants 9,283 8,959 8,764 7,907 6,251
========================================================================
Restaurants operated by franchisees and affiliates represented 85%
of U.S. restaurants at year-end 1993, compared with 78% five years
ago. During the period 1989 through 1991, the Company franchised
certain restaurants it previously operated, while continuing to own or
control the land and buildings. The restaurants that had been
franchised either were generating weak operating results, not building
sales as expected, or located in outlying markets. The franchising of
these businesses accomplished several objectives. On-site,
entrepreneurial owners with an equity stake in the business improved
operations, sales and profits; and franchising of these restaurants
also improved consolidated profits.
18
OPERATING RESULTS
------------------------------------------------------------------------
(In millions of dollars) 1993 1992 1991 1990 1989
------------------------------------------------------------------------
REVENUES
Sales by Company-
operated restaurants $2,420 $2,353 $2,410 $2,655 $2,728
Revenues from
franchised restaurants 1,511 1,396 1,300 1,216 1,159
------------------------------------------------------------------------
TOTAL REVENUES 3,931 3,749 3,710 3,871 3,887
------------------------------------------------------------------------
OPERATING COSTS AND
EXPENSES
Company-operated
restaurants 1,977 1,920 2,000 2,221 2,250
Franchised restaurants 247 235 217 202 180
General, administrative
and selling expenses 638 566 549 511 490
Other operating (income)
expense--net (18) (13) (56) (49) (22)
------------------------------------------------------------------------
TOTAL OPERATING
COSTS AND EXPENSES 2,844 2,708 2,710 2,885 2,898
------------------------------------------------------------------------
U.S. OPERATING INCOME $1,087 $1,041 $1,000 $ 986 $ 989
========================================================================
U.S. revenues were positively impacted by strong sales and expansion
in 1993 and 1992, and negatively affected by the franchising of
certain Company-operated restaurant businesses in 1992, 1991 and 1990.
U.S. Company-operated margins increased $11 million or 3% in 1993.
These margins were 18.3% of sales in 1993, compared with 18.4% in 1992
and 17.0% in 1991. U.S. franchised margins rose $102 million or 9% in
1993, reflecting sales improvement and expansion. These margins were
83.6% of applicable revenues in 1993, compared with 83.2% in 1992 and
83.3% in 1991. While it is difficult to assess the potential effects
of federal and state legislation in the U.S. that may impact the
industry, the Company believes it can maintain operating margins
within the same range of the past ten years by continuing to build
sales and reduce costs.
U.S. operating income rose $46 million or 4% in 1993 and was 55% of
consolidated operating income, compared with 56% in 1992. This
increase resulted primarily from higher combined restaurant margins,
partially offset by higher general, administrative and selling
expenses in the form of higher employee costs and other expenditures
to support our global strategies and strengthen our competencies. The
1992 increase was driven by strong sales and combined restaurant
margins, partially offset by lower gains on sales of restaurant
businesses in 1992 and a gain on the sale of real estate by a U.S.
affiliate in 1991. Operating income included $348 million of
depreciation and amortization in 1993, compared with $330 million in
1992 and $325 million in 1991.
19
ASSETS AND CAPITAL EXPENDITURES
-------------------------------------------------------------------------
(In millions of dollars) 1993 1992 1991 1990 1989
-------------------------------------------------------------------------
New restaurants $ 332 $ 196 $ 214 $ 446 $ 490
Existing restaurants 122 125 151 249 283
Other properties 130 76 45 51 74
-------------------------------------------------------------------------
U.S. capital expenditures $ 584 $ 397 $ 410 $ 746 $ 847
=========================================================================
U.S. assets $6,385 $6,410 $6,154 $6,060 $5,646
-------------------------------------------------------------------------
U.S. assets decreased $25 million or .4% in 1993, due to the
utilization of year-end 1992 cash balances. At year-end 1993, 53% of
consolidated assets were located in the U.S., compared with 55% at
year-end 1992. Capital expenditures increased $187 million or 47% in
1993, and represented 44% of consolidated capital expenditures,
compared with 60% five years ago. The amounts excluded expenditures
made by franchisees such as their initial investments in equipment,
signs, seating and decor and over the long term, ongoing reinvestment
in their businesses. New restaurant expenditures increased $136
million or 69% because of accelerated expansion, tempered by lower
average development costs.
Expenditures for existing restaurants included modifications to
achieve higher levels of customer satisfaction and implementation of
technology to improve service and food quality. The decline over time
highlighted aggressive reinvestment in prior years.
Rebuilding and relocating restaurants has generated additional
sales, reflecting our ability to adjust to changing demographics,
traffic patterns and market opportunities. More than $35 million was
spent for these investments in 1993 and $291 million over the past
five years. The rise in other property expenditures was attributable
to the further testing of Leaps & Bounds, a family play center
concept.
-------------------------------------------------------------------------
(In thousands of dollars) 1993 1992 1991 1990 1989
-------------------------------------------------------------------------
Land $ 328 $ 361 $ 433 $ 433 $ 472
Building 482 515 608 720 682
Equipment 317 361 362 403 416
-------------------------------------------------------------------------
U.S. average costs $1,127 $1,237 $1,403 $1,556 $1,570
=========================================================================
Average land costs declined as a result of the implementation of
low-cost building designs, which require smaller parcels, and a softer
real estate market. Average building costs decreased due to low-cost
building designs and construction efficiencies. Low-cost building
designs comprised nearly 80% of 1993 openings, compared with 60% in
1992. Average equipment costs decreased due to standardization and
global sourcing. McDonald's intends to pursue ongoing development
cost reductions by taking further advantage of standardization, global
sourcing and economies of scale.
20
The Company continues to emphasize restaurant property ownership.
Real estate ownership yields long-term benefits, including the ability
to fix occupancy costs. In addition to purchasing new properties,
previously leased properties are acquired. The Company owned 68% of
U.S. sites at year-end 1993, the same as five years ago.
21
----------------------------------------------------------------------
OPERATIONS OUTSIDE OF THE U.S.
----------------------------------------------------------------------
SALES
The 1993 and 1992 increases were due to expansion and higher sales at
existing restaurants; however, 1993 was impacted by weaker foreign
currencies, most notably the European currencies along with the
Canadian and Australian Dollars. On the other hand, 1992 benefited
from stronger foreign currencies in the form of the Japanese Yen,
Deutsche Mark and French Franc. Strong operating results have been
achieved in the past several years despite weak economies in several
countries, particularly Canada, England and Japan.
----------------------------------------------------------------------
Five Ten
years years
(In millions of dollars) 1993 1992 1991 ago ago
----------------------------------------------------------------------
Operated by franchisees $4,321 $3,859 $3,085 $1,850 $ 607
Operated by the Company 2,737 2,750 2,499 1,567 581
Operated by affiliates 2,343 2,033 1,825 1,267 430
----------------------------------------------------------------------
Sales outside of the U.S. $9,401 $8,642 $7,409 $4,684 $1,618
======================================================================
European sales rose because of accelerated expansion and higher
sales at existing restaurants, partially offset by weaker foreign
currencies. Asia/Pacific sales grew because of expansion coupled with
the favorable impact of a stronger Japanese Yen. Latin American sales
increased because of expansion and higher sales at existing
restaurants. Canadian sales were negatively impacted by the weaker
currency, partially offset by higher sales at existing restaurants and
expansion.
In 1993, four of the six largest markets outside of the U.S. --
France, Germany, Australia and England -- reported double digit sales
increases on a local currency basis. Other markets -- including
Argentina, Austria, Belgium, Brazil, Canada, Denmark, Hong Kong,
Hungary, Italy, Malaysia, Netherlands, New Zealand, Norway, Panama,
Puerto Rico, Scotland, Singapore, Spain, Sweden, Switzerland, Taiwan,
Thailand, Turkey and Wales -- delivered excellent results on a local
currency basis.
RESTAURANTS
During the past five years, 60% of Systemwide additions have been
outside of the U.S. Of the 576 restaurants added in 1993, 54% were in
the six largest markets, compared with 57% in 1992 and 63% in 1991.
This continued relative decline was indicative of the growing
importance of emerging markets. McDonald's expects to boost expansion
outside of the U.S. in 1994 and in each of the next several years by
adding between 600 and 800 restaurants, exclusive of satellites.
22
-----------------------------------------------------------------------
Five Ten
years years
1993 1992 1991 ago ago
-----------------------------------------------------------------------
Operated by franchisees 2,204 1,862 1,586 1,093 580
Operated by the Company 1,266 1,156 1,101 842 519
Operated by affiliates 1,240 1,116 967 671 428
-----------------------------------------------------------------------
Restaurants outside of
the U.S. 4,710 4,134 3,654 2,606 1,527
=======================================================================
About 82% of Company-operated restaurants outside of the U.S. were
in England, Canada, Germany, Australia, Hong Kong and France. About
71% of franchised restaurants outside of the U.S. were in Canada,
Germany, Australia, France, Japan and the Netherlands. Restaurants
operated by affiliates were principally located in Japan and other
Asia/Pacific countries.
OPERATING RESULTS
-----------------------------------------------------------------------
(In millions of dollars) 1993 1992 1991 1990 1989
-----------------------------------------------------------------------
REVENUES
Sales by Company-
operated restaurants $2,737 $2,750 $2,499 $2,364 $1,873
Revenues from
franchised restaurants 740 634 486 405 306
-----------------------------------------------------------------------
TOTAL REVENUES 3,477 3,384 2,985 2,769 2,179
-----------------------------------------------------------------------
OPERATING COSTS AND
EXPENSES
Company-operated
restaurants 2,188 2,206 2,029 1,915 1,528
Franchised restaurants 133 114 90 77 61
General, administrative
and selling expenses 303 295 246 213 166
Other operating (income)
expense--net (44) (51) (58) (46) (25)
-----------------------------------------------------------------------
TOTAL OPERATING
COSTS AND EXPENSES 2,580 2,564 2,307 2,159 1,730
-----------------------------------------------------------------------
OPERATING INCOME
OUTSIDE OF THE U.S. $ 897 $ 820 $ 678 $ 610 $ 449
=======================================================================
The 1993 and 1992 revenue and operating income increases reflected
accelerated expansion and better performance despite weak economies in
several major markets. Changing foreign currencies had a negative
effect in 1993 and a positive one in 1992 on these increases.
23
Company-operated and franchised dollar margins were negatively
impacted by weaker foreign currencies. Company-operated margins
increased $6 million or 1% in 1993. These margins improved to 20.1%
of sales in 1993, compared with 19.8% in 1992 and 18.8% in 1991.
Franchised margins grew $86 million or 17% in 1993. These margins
were 82.0% of applicable revenues in 1993, compared with 82.1% in 1992
and 81.5% in 1991.
The 1993 and 1992 increases in general, administrative and selling
expenses were due primarily to higher employee costs associated with
expansion, partially offset by weaker foreign currencies in 1993.
Other operating income decreased in 1993 due to the favorable
settlement of a sales tax case in Brazil in 1992, offset somewhat by
1993 increases in gains on sales of restaurant businesses and greater
affiliate earnings. Other operating income decreased in 1992 due to
lower affiliate results and lower gains on sales of restaurant
businesses, offset somewhat by the favorable settlement of a sales tax
case in Brazil.
Operations outside of the U.S. continued to contribute greater
amounts to consolidated results as shown below:
---------------------------------------------------------------------
(As a percent of consolidated) 1993 1992 1991 1990 1989
---------------------------------------------------------------------
Systemwide sales 40 39 37 35 31
Total revenues 47 47 45 42 36
Operating income 45 44 40 38 31
Restaurant margins
Company-operated 55 56 53 51 42
Franchised 32 31 27 24 20
Systemwide restaurants 34 32 29 27 26
Assets 47 45 46 43 38
---------------------------------------------------------------------
The Europe/Africa/Middle East segment accounted for 64% of revenues
and 61% of operating income outside of the U.S. in 1993, growing $49
and $64 million, respectively. Germany, England and France accounted
for 85% of this segment's operating income, compared with 90% in 1992.
The 1993 increases were primarily due to strong operating results in
Germany and France, as well as many emerging markets, offset by weaker
foreign currencies. England's operating income decrease was due to
the significant impact of the weaker currency. The majority of the
1992 revenue and operating income increases were generated by Germany,
France and England.
Asia/Pacific revenues grew $60 million and operating income
increased $27 million in 1993; 82% of the operating income was
contributed by Australia, Japan and Hong Kong. The 1993 increases
were attributable to expansion and developing economies in many
Asia/Pacific markets, with the exception of Japan which continues to
suffer from a weak economy. In 1992, stronger operations in
Australia, and better results in Hong Kong and Singapore improved
operating income, while earnings from Japan were affected by the
economy.
Latin American revenues grew $22 million, while operating income
decreased $12 million in 1993. The 1993 increase in revenues was
primarily a function of expansion, while the decrease in operating
income reflected the favorable settlement of a sales tax case in
Brazil in 1992, partially offset by better results in Argentina.
Brazil was affected by a weak economy in 1993 and 1992.
24
Canadian revenues decreased $37 million due to a weaker Canadian
Dollar in 1993. Operating income decreased $2 million, reflecting the
weaker currency and a decrease in other operating income, partially
offset by better Company-operated margins. Revenues decreased in 1992
due to the franchising of certain restaurant businesses and the weaker
currency, while operating income declined due to lower gains on sales
of restaurant businesses and the weaker currency.
ASSETS AND CAPITAL EXPENDITURES
Assets outside of the U.S. rose $379 million or 7% in 1993; the
effects of expansion were partially offset by weaker foreign
currencies. At year-end 1993, about 47% of consolidated assets were
located outside of the U.S.; 64% of these assets were located in
England, France, Germany, Canada and Australia.
-----------------------------------------------------------------------
(In millions of dollars) 1993 1992 1991 1990 1989
-----------------------------------------------------------------------
New restaurants $ 609 $ 603 $ 612 $ 639 $ 486
Existing restaurants 94 91 94 126 148
Other properties 55 47 39 74 64
-----------------------------------------------------------------------
Capital expenditures
outside of the U.S. $ 758 $ 741 $ 745 $ 839 $ 698
=======================================================================
Assets outside of
the U.S. $5,650 $5,271 $5,195 $4,608 $3,529
-----------------------------------------------------------------------
In the past five years, nearly $3.8 billion has been invested
outside of the U.S.; in 1993, capital expenditures rose in all
geographic segments except Canada. Weaker foreign currencies
negatively impacted Europe, Asia/Pacific and Canada. Approximately
72% of capital expenditures outside of the U.S. were invested in
Europe -- primarily in Germany, France and England.
In general, average development costs for new restaurants for the
five largest, majority-owned markets -- Australia, Canada, England,
France and Germany -- were nearly double the U.S. average; such costs
accommodate higher sales volumes and transaction counts. Even so,
1993 average development costs have decreased approximately one-third
since 1991 in these markets. Over the past two years, average
development costs have decreased due to construction and design
efficiencies, standardization, global sourcing and changes in the mix
of openings, and because of weaker foreign currencies in 1993.
Expenditures for existing restaurants included seating and decor
upgrades, and equipment required for new products and operating
efficiencies. The majority of these expenditures were in Europe.
Expenditures for other properties were principally for office
facilities.
25
As in the U.S., business outside of the U.S. emphasizes restaurant
property ownership. However, various laws and regulations make
property acquisition and ownership much more difficult than in the
U.S. Ownership is obtained when practical; otherwise, long-term
leases are an alternative. In addition, certain markets have laws and
customs that offer stronger tenancy rights than are available in the
U.S. The Company and affiliates owned 36% of sites outside of the
U.S. at year-end 1993, compared with 35% five years ago.
Capital expenditures made by affiliates -- which were not included
in consolidated amounts -- were $207 million in 1993, compared with
$206 million in 1992. The majority of the 1993 expenditures were for
development in Japan, Argentina and Russia. Included in the amounts
for Russia were costs for constructing an office building which is
leased primarily to third parties.
26
-----------------------------------------------------------------------
FINANCIAL POSITION
-----------------------------------------------------------------------
TOTAL ASSETS AND CAPITAL EXPENDITURES
Total assets grew $354 million or 3% in 1993; net property and
equipment represented 84% of total assets and rose $484 million.
Capital expenditures increased $204 million or 18%, reflecting higher
expansion, partially offset by lower average development costs and
weaker foreign currencies.
CASH PROVIDED BY OPERATIONS
Cash provided by operations increased $254 million or 18% in 1993, and
was relatively flat in 1992 mainly due to $159 million in payments
related to various prior years' tax matters. Together with other
sources of cash such as borrowings, cash provided by operations was
used primarily for capital expenditures, debt repayments, share
repurchase and dividends. For the third straight year, cash provided
by operations exceeded capital expenditures.
While cash generated is significant relative to cash required, the
Company also has the ability to meet short-term needs through
commercial paper borrowings and line of credit agreements.
Accordingly, a relatively low current ratio has been purposefully
maintained; it was .60 at year-end 1993.
The Company believes that cash flow measures are meaningful
indicators of growth and financial strength, when evaluated in the
context of absolute dollars, uses and consistency. Over the past five
years, cash flow coverage has improved significantly. Cash provided
by operations is expected to cover capital expenditures over the next
several years, even as expansion continues to accelerate.
-----------------------------------------------------------------------
(Dollars in millions) 1993 1992 1991 1990 1989
-----------------------------------------------------------------------
Cash provided by
operations $1,680 $1,426 $1,423 $1,301 $1,246
Cash provided by operations
minus capital expenditures $ 363 $ 339 $ 294 $ (270) $ (309)
Cash provided by operations
as a percent of capital
expenditures 128 131 126 83 80
Cash provided by operations
as a percent of total debt 45 37 31 27 31
-----------------------------------------------------------------------
FINANCINGS
The Company strives to minimize interest expense and the impact of
changing foreign currencies, while maintaining the capacity to meet
increasing growth requirements. To accomplish these objectives,
McDonald's generally finances long-term assets with long-term debt in
the currencies in which the assets are denominated, while remaining
flexible to take advantage of changing foreign currencies and interest
rates.
27
Over the years, major capital markets and various techniques have
been utilized to meet financing requirements and reduce interest
expense. Currency exchange agreements have been employed in
conjunction with borrowings to obtain desired currencies at attractive
rates. Interest-rate exchange agreements and interest-rate caps have
been used to effectively convert fixed-rate to floating-rate debt, or
vice versa, and to limit interest expense. Foreign-denominated debt
has been used to lessen the impact of changing foreign currencies on
net income and shareholders' equity. Total foreign-denominated debt,
including the effects of currency exchange agreements, was $3.1 and
$2.7 billion at year-end 1993 and 1992, respectively.
The Company manages its debt portfolio, including the use of
derivatives, in order to respond to changes in interest rates and
foreign currencies. Accordingly, the Company periodically retires,
redeems, and repurchases debt, and terminates exchange agreements.
While changing foreign currencies affect reported results, the Company
actively hedges the seven currencies that have significant potential
impact in order to minimize the cash exposure of royalty and other
payments received in the U.S. in foreign currencies. In addition,
McDonald's restaurants primarily purchase goods and services in local
currencies resulting in natural hedges; McDonald's typically finances
in local currencies creating economic hedges; and the Company's
foreign currency exposure is diversified within a basket of
currencies, as opposed to one or several.
-----------------------------------------------------------------------
(Includes the net asset
positions of currency
exchange agreements) 1993 1992 1991 1990 1989
-----------------------------------------------------------------------
Fixed-rate debt as a percent
of total debt at year end 77 75 78 78 76
Weighted average annual
interest rate 9.1 9.3 9.4 9.4 9.4
Foreign-denominated debt
as a percent of total debt
at year end 86 72 61 60 59
-----------------------------------------------------------------------
Moody's and Standard & Poor's have rated McDonald's debt Aa2 and
AA, respectively, since 1982. Duff & Phelps began rating the debt in
1990, and currently rates it AA+. The Company has not experienced,
nor does it expect to experience, difficulty in obtaining financing or
in refinancing existing debt. The Company had $1.7 billion under line
of credit agreements and $685 million under previously filed shelf
registrations available at year-end 1993 for future debt issuance.
Although McDonald's prefers to own real estate, leases are an
alternative financing method. As in the past, some new properties
will be leased. Such leases frequently include renewal and/or
purchase options. In the past five years, McDonald's has leased
properties related to 41% of U.S. openings and 67% of openings outside
of the U.S.
28
During the past three years, the Company has improved its balance
sheet by reducing leverage while simultaneously increasing expansion
and repurchasing shares. Total debt as a percent of total
capitalization -- defined as total debt and total shareholders'
equity -- was 37% at year-end 1993, compared with 40% and 49% at year-
end 1992 and 1991, respectively.
TOTAL SHAREHOLDERS' EQUITY
Total shareholders' equity rose $382 million and represented 52% of
total assets at year-end 1993. One technique used to enhance common
shareholder value is share repurchase through excess cash flow or debt
capacity, while maintaining a strong equity base for future expansion.
At year-end 1993, the market value of shares repurchased by the
Company and recorded as common stock in treasury was $3.5 billion.
In conjunction with efforts to enhance common shareholder value,
the Company recently announced its intention to purchase up to $1
billion of its common stock within the next three years, primarily
from excess cash flow. In 1993, the Company completed a $700 million
common share repurchase program begun in 1992. In order to lower the
cost of equity capital, the Company issued $500 million of Series E
7.72% Cumulative Preferred Stock in 1992; at the same time, the Board
of Directors authorized a $500 million common share repurchase program
and the use of derivatives. Subsequently, the Board authorized an
additional $200 million expenditure for share repurchase in 1993.
Weaker foreign currencies reduced shareholders' equity by $65
million in 1993; however, financing foreign-denominated assets with
foreign-denominated debt tempered the effect. At year-end 1993,
foreign-denominated assets not entirely financed with the related
foreign-denominated debt were primarily located in England, Canada,
Australia, France and Germany.
RETURNS
Return on average assets is computed using income before provision for
income taxes, preferred dividends and interest expense. Net income,
less preferred stock dividends (net of tax in 1993 and 1992), is used
to calculate return on average common equity. Month-end balances are
used to compute both average assets and average common equity.
----------------------------------------------------------------------
1993 1992 1991 1990 1989
----------------------------------------------------------------------
Return on average assets 17.1 16.1 15.8 16.7 17.3
Return on average common
equity 19.0 18.2 19.1 20.7 20.5
----------------------------------------------------------------------
The 1993 and 1992 improvements in return on average assets
reflected better global operating results and a slower rate of asset
growth. The 1993 improvement in return on average common equity
reflected higher levels of share repurchase, whereas declines in 1992
and 1991 resulted from lower levels of share repurchase as excess cash
flow was used to reduce debt. In recent years, returns were affected
by soft economies in the U.S. and certain markets outside of the U.S.
Also influencing these returns were expansion outside of the U.S. and,
prior to 1991, escalating development costs and higher reinvestment.
29
EFFECTS OF CHANGING PRICES--INFLATION
McDonald's has demonstrated an ability to manage inflationary cost
increases effectively. Rapid inventory turnover, the ability to
adjust prices, substantial property holdings--many of which are at
fixed costs and partially financed by debt made cheaper by inflation--
and cost controls have enabled McDonald's to mitigate the effects of
inflation.
30
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Reference
---------
Management's Report 31
Report of independent auditors 32
Consolidated statement of income
for each of the three years in the
period ended December 31, 1993 33
Consolidated balance sheet
at December 31, 1993 and 1992 34
Consolidated statement of cash flows
for each of the three years in the
period ended December 31, 1993 35
Consolidated statement of shareholders'
equity for each of the three years in
the period ended December 31, 1993 36
Notes to consolidated financial statements
(Financial comments) 37-50
Quarterly Results (unaudited) 51
31
MANAGEMENT'S REPORT
Management is responsible for the preparation and integrity of the
consolidated financial statements and Financial Comments appearing in
this annual report. The financial statements were prepared in
accordance with generally accepted accounting principles and include
certain amounts based on management's best estimates and judgments.
Other financial information presented in the annual report is
consistent with the financial statements.
The Company maintains a system of internal accounting controls
designed to provide reasonable assurance that assets are safeguarded,
and that transactions are executed as authorized and are recorded and
reported properly. This system of controls is based upon written
policies and procedures, appropriate divisions of responsibility and
authority, careful selection and training of personnel and utilization
of an internal audit program. Policies and procedures prescribe that
the Company and all employees are to maintain the highest ethical
standards and that business practices throughout the world are to be
conducted in a manner which is above reproach.
Ernst & Young, independent auditors, has audited the Company's
financial statements and their report is presented herein.
The Board of Directors has an Audit Committee composed entirely of
outside Directors. Ernst & Young has direct access to the Audit
Committee and periodically meets with the Committee to discuss
accounting, auditing and financial reporting matters.
McDONALD'S CORPORATION
Oak Brook, Illinois
January 27, 1994
32
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
McDonald's Corporation
Oak Brook, Illinois
We have audited the accompanying consolidated balance sheet of
McDonald's Corporation as of December 31, 1993 and 1992, and the
related consolidated statements of income, shareholders' equity and
cash flows for each of the three years in the period ended December
31, 1993. These financial statements are the responsibility of
McDonald's Corporation management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position
of McDonald's Corporation at December 31, 1993 and 1992, and the
consolidated results of its operations and its cash flows for each of
the three years in the period ended December 31, 1993, in conformity
with generally accepted accounting principles.
ERNST & YOUNG
Chicago, Illinois
January 27, 1994
33
McDONALD'S CORPORATION CONSOLIDATED STATEMENT OF INCOME
--------------------------------------------------------------------------
(In millions of dollars, except per common share data)
Years ended December 31, 1993 1992 1991
--------------------------------------------------------------------------
REVENUES
Sales by Company-operated restaurants $5,157.2 $5,102.5 $4,908.5
Revenues from franchised restaurants 2,250.9 2,030.8 1,786.5
--------------------------------------------------------------------------
TOTAL REVENUES 7,408.1 7,133.3 6,695.0
--------------------------------------------------------------------------
OPERATING COSTS AND EXPENSES
Company-operated restaurants
Food and packaging 1,735.1 1,688.8 1,627.5
Payroll and other employee benefits 1,291.2 1,281.4 1,259.2
Occupancy and other operating expenses 1,138.3 1,156.3 1,142.4
--------------------------------------------------------------------------
4,164.6 4,126.5 4,029.1
--------------------------------------------------------------------------
Franchised restaurants--occupancy expenses 380.4 348.6 306.5
General, administrative and selling expenses 941.1 860.6 794.7
Other operating (income) expense--net (62.0) (64.0) (113.8)
--------------------------------------------------------------------------
TOTAL OPERATING COSTS AND EXPENSES 5,424.1 5,271.7 5,016.5
--------------------------------------------------------------------------
OPERATING INCOME 1,984.0 1,861.6 1,678.5
--------------------------------------------------------------------------
Interest expense--net of capitalized interest
of $20.0, $19.5 and $26.2 316.1 373.6 391.4
Nonoperating income (expense)--net 7.8 (39.9) 12.3
--------------------------------------------------------------------------
INCOME BEFORE PROVISION FOR INCOME TAXES 1,675.7 1,448.1 1,299.4
--------------------------------------------------------------------------
Provision for income taxes 593.2 489.5 439.8
--------------------------------------------------------------------------
NET INCOME $1,082.5 $ 958.6 $ 859.6
==========================================================================
NET INCOME PER COMMON SHARE $ 2.91 $ 2.60 $ 2.35
--------------------------------------------------------------------------
DIVIDENDS PER COMMON SHARE $ .42 $ .39 $ .36
--------------------------------------------------------------------------
The accompanying Financial Comments are an integral part of the
consolidated financial statements.
34
McDONALD'S CORPORATION CONSOLIDATED BALANCE SHEET
--------------------------------------------------------------------
(In millions of dollars) December 31, 1993 1992
--------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and equivalents $185.8 $436.5
Accounts receivable 287.0 245.9
Notes receivable 27.6 33.7
Inventories, at cost, not in excess of market 43.5 43.5
Prepaid expenses and other current assets 118.9 105.1
--------------------------------------------------------------------
TOTAL CURRENT ASSETS 662.8 864.7
--------------------------------------------------------------------
OTHER ASSETS AND DEFERRED CHARGES
Notes receivable due after one year 90.0 99.0
Investments in and advances to affiliates 446.7 399.7
Miscellaneous 338.6 330.7
--------------------------------------------------------------------
TOTAL OTHER ASSETS AND DEFERRED CHARGES 875.3 829.4
--------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Property and equipment, at cost 13,459.0 12,658.0
Accumulated depreciation and amortization (3,377.6) (3,060.6)
--------------------------------------------------------------------
NET PROPERTY AND EQUIPMENT 10,081.4 9,597.4
--------------------------------------------------------------------
INTANGIBLE ASSETS--NET 415.7 389.7
--------------------------------------------------------------------
TOTAL ASSETS $12,035.2 $11,681.2
====================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $193.3 $411.0
Accounts payable 395.7 343.3
Income taxes 56.0 109.7
Other taxes 90.2 74.8
Accrued interest 132.9 133.3
Other accrued liabilities 203.9 203.1
Current maturities of long-term debt 30.0 269.4
--------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,102.0 1,544.6
--------------------------------------------------------------------
LONG-TERM DEBT 3,489.4 3,176.4
OTHER LONG-TERM LIABILITIES AND
MINORITY INTERESTS 334.4 225.2
DEFERRED INCOME TAXES 835.3 748.6
COMMON EQUITY PUT OPTIONS 94.0
SHAREHOLDERS' EQUITY
Preferred stock, no par value;
authorized--165.0 million shares;
issued--5.7 and 5.8 million 677.3 680.2
Common stock, no par value;
authorized--1.25 billion shares;
issued--415.2 million 46.2 46.2
Additional paid-in capital 302.8 260.2
Guarantee of ESOP Notes (253.6) (271.3)
Retained earnings 7,612.6 6,727.3
Foreign currency translation adjustment (192.2) (127.4)
--------------------------------------------------------------------
8,193.1 7,315.2
--------------------------------------------------------------------
Common stock in treasury, at cost;
61.5 and 51.6 million shares (1,919.0) (1,422.8)
--------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 6,274.1 5,892.4
--------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $12,035.2 $11,681.2
====================================================================
The accompanying Financial Comments are an integral part of the
consolidated financial statements.
35
McDONALD'S CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS
--------------------------------------------------------------------------
(In millions of dollars)
Years ended December 31, 1993 1992 1991
--------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $1,082.5 $958.6 $859.6
Adjustments to reconcile to cash
provided by operations
Depreciation and amortization 568.4 554.9 514.2
Deferred income taxes 52.4 22.4 64.7
Changes in operating working capital items
Accounts receivable increase (48.3) (29.1) (40.9)
Inventories, prepaid expenses and other
current assets (increase) decrease (9.6) 2.2 .4
Accounts payable increase (decrease) 45.4 .8 (22.7)
Accrued interest increase (decrease) (5.1) (27.4) 27.5
Taxes and other liabilities increase
(decrease) 26.5 (68.2) 85.2
Other--net (32.4) 11.7 (64.8)
--------------------------------------------------------------------------
CASH PROVIDED BY OPERATIONS 1,679.8 1,425.9 1,423.2
--------------------------------------------------------------------------
INVESTING ACTIVITIES
Property and equipment expenditures (1,316.9) (1,086.9) (1,128.8)
Sales of restaurant businesses 114.2 124.5 159.8
Purchases of restaurant businesses (64.2) (64.1) (30.1)
Notes receivable additions (33.1) (31.8) (38.8)
Property sales 61.6 52.2 58.6
Notes receivable reductions 75.7 78.5 53.1
Other (55.3) (71.1) (13.5)
--------------------------------------------------------------------------
CASH USED FOR INVESTING ACTIVITIES (1,218.0) (998.7) (939.7)
--------------------------------------------------------------------------
FINANCING ACTIVITIES
Notes payable and commercial paper net
borrowings supported by line of
credit agreements (8.9) 17.0 (676.7)
Other long-term financing issuances 1,241.0 509.5 1,004.1
Other long-term financing repayments (1,185.9) (1,041.5) (606.9)
Treasury stock purchases (620.1) (79.7) (109.2)
Preferred stock issuances 484.9 100.0
Common and preferred stock dividends (201.2) (160.5) (148.3)
Other 62.6 59.4 30.9
--------------------------------------------------------------------------
CASH USED FOR FINANCING ACTIVITIES (712.5) (210.9) (406.1)
--------------------------------------------------------------------------
CASH AND EQUIVALENTS INCREASE (DECREASE) (250.7) 216.3 77.4
--------------------------------------------------------------------------
Cash and equivalents at beginning of year 436.5 220.2 142.8
--------------------------------------------------------------------------
CASH AND EQUIVALENTS AT END OF YEAR $185.8 $436.5 $220.2
==========================================================================
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid $312.2 $395.7 $368.1
Income taxes paid $521.7 $531.6 $313.5
--------------------------------------------------------------------------
The accompanying Financial Comments are an integral part of the
consolidated financial statements.
36
McDONALD'S CORPORATION CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Dollars and shares in millions, except per share data)
Foreign
Preferred Common Additional Guarantee currency Common stock
stock issued stock issued paid-in of Retained translation in treasury
Shares Amount Shares Amount capital ESOP Notes earnings adjustment Shares Amount
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1990 6.9 $199.7 415.2 $46.2 $173.7 $(196.5) $5,214.5 $46.7 (56.1) $(1,302.0)
- ----------------------------------------------------------------------------------------------------------------------------------
Net income 859.6
Common stock cash dividends
($.36 per share) (129.7)
Preferred stock cash dividends
($2.01 for Series B and
$1.74 for Series C) (19.2)
Preferred stock issuance 3.0 100.0 (.2) (100.0)
ESOP Notes payment 8.1
Treasury stock acquisitions (3.4) (116.7)
Translation adjustments
(including taxes of $1.0) (14.4)
Stock option exercises and other
(including tax benefits of
$15.9) (1.5) 28.4 1.7 3.0 36.7
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1991 9.9 298.2 415.2 46.2 201.9 (286.7) 5,925.2 32.3 (56.5) (1,382.0)
- ----------------------------------------------------------------------------------------------------------------------------------
Net income 958.6
Common stock cash dividends
($.39 per share) (141.8)
Preferred stock cash dividends
($2.01 for Series B, $2.32 for
Series C and $.16 for Series E
depositary share), (net of tax
benefits of $6.4) (14.7)
Preferred stock issuance 500.0 (15.1)
Preferred stock conversion (4.1) (118.0) 22.9 3.2 95.1
ESOP Notes payment 12.6
Treasury stock acquisitions (1.9) (92.3)
Translation adjustments
(including taxes of $21.2) (159.7)
Common equity put options
issuance (91.5)
Stock option exercises and other
(including tax benefits of
$29.7) 50.5 2.8 3.6 47.9
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1992 5.8 680.2 415.2 46.2 260.2 (271.3) 6,727.3 (127.4) (51.6) (1,422.8)
- ----------------------------------------------------------------------------------------------------------------------------------
Net income 1,082.5
Common stock cash dividends
($.42 per share) (150.3)
Preferred stock cash dividends
($2.01 for Series B, $2.32 for
Series C and $1.93 for Series E
depositary share), (net of tax
benefits of $4.1) (46.9)
Preferred stock conversion (.1) (2.9) .5 .1 2.4
ESOP Notes payment 15.5
Treasury stock acquisitions (12.5) (627.7)
Translation adjustments
(including taxes of $1.6) (64.8)
Common equity put options
expiration 94.0
Stock option exercises and other
(including tax benefits of
$23.0) 42.1 2.2 2.5 35.1
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1993 5.7 $677.3 415.2 $46.2 $302.8 $(253.6) $7,612.6 $(192.2) (61.5) $(1,919.0)
==================================================================================================================================
The accompanying Financial Comments are an integral part of the consolidated financial statements.
37
MCDONALD'S CORPORATION FINANCIAL COMMENTS
--------------------------------------------------------------------
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------------------
CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its subsidiaries. Investments in 50% or less owned
affiliates are carried at equity in the companies' net assets.
FOREIGN CURRENCY TRANSLATION
The functional currency of each operation outside of the U.S., except
for those located in hyperinflationary countries, is the respective
local currency.
INCOME TAXES
In 1992, the Company adopted Financial Accounting Standards Board
Statement No. 109, Accounting for Income Taxes. The effects were not
material, as the Company had previously adopted Statement No. 96.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost with depreciation and
amortization provided on the straight-line method over the following
estimated useful lives: buildings--up to 40 years; leasehold
improvements--lesser of useful lives of assets or lease terms
including option periods; and equipment--3 to 12 years.
INTANGIBLE ASSETS
Intangible assets consist primarily of franchise rights reacquired
from franchisees and affiliates, and are amortized on the straight-
line method over an average life of 29 years.
FINANCIAL INSTRUMENTS
Non-U.S. Dollar financing transactions generally are effective as
hedges of long-term investments in the corresponding currency.
Interest-rate exchange agreements are designated and generally are
effective as hedges of the Company's interest-rate exposures. The
carrying amounts for cash and equivalents and notes receivable
approximated fair value. For noninterest-bearing security deposits by
franchisees, no fair value was provided as these deposits are an
integral part of the overall franchise arrangements.
STATEMENT OF CASH FLOWS
The Company considers all highly liquid investments with short-term
maturity dates to be cash equivalents. The impact of changing foreign
currencies on cash and equivalents was not material.
38
----------------------------------------------------------------------
NUMBER OF RESTAURANTS IN OPERATION
----------------------------------------------------------------------
1993 1992 1991 1990
----------------------------------------------------------------------
Operated by franchisees 9,288 8,654 8,151 7,578
Operated under business
facilities lease arrangements 544 583 584 553
Operated by the Company 2,699 2,551 2,547 2,643
Operated by 50% or less
owned affiliates 1,462 1,305 1,136 1,029
----------------------------------------------------------------------
Systemwide restaurants 13,993 13,093 12,418 11,803
======================================================================
Franchisees operating under business facilities lease arrangements
have options to purchase the businesses. The results of operations of
restaurant businesses purchased and sold in transactions with
franchisees and affiliates were not material to the consolidated
financial statements for periods prior to purchase and sale.
----------------------------------------------------------------------
OTHER OPERATING (INCOME) EXPENSE--NET
----------------------------------------------------------------------
(In millions of dollars) 1993 1992 1991
----------------------------------------------------------------------
Gains on sales of restaurant businesses $(48.2) $(43.1) $ (64.0)
Equity in earnings of unconsolidated
affiliates (34.6) (29.5) (57.5)
Net losses from property dispositions 15.5 18.1 9.9
Other--net 5.3 (9.5) (2.2)
----------------------------------------------------------------------
Other operating (income) expense--net $(62.0) $(64.0) $(113.8)
======================================================================
Gains on sales of restaurant businesses are recognized as income when
the sales are consummated and other stipulated conditions are met.
Proceeds from certain sales of restaurant businesses and property
include notes receivable.
---------------------------------------------------------------------
INCOME TAXES
---------------------------------------------------------------------
Income before provision for income taxes and the provision for income
taxes, classified by source of income, were as follows:
---------------------------------------------------------------------
(In millions of dollars) 1993 1992 1991
---------------------------------------------------------------------
U.S. $ 986.0 $ 873.3 $ 847.3
Outside of the U.S. 689.7 574.8 452.1
---------------------------------------------------------------------
Income before provision for
income taxes $1,675.7 $1,448.1 $1,299.4
=====================================================================
U.S. $ 391.9 $ 316.8 $ 312.6
Outside of the U.S. 201.3 172.7 127.2
---------------------------------------------------------------------
Provision for income taxes $ 593.2 $ 489.5 $ 439.8
=====================================================================
39
Income before provision for income taxes outside of the U.S. and the
related provision for income taxes reflect fees received in the U.S.
from operations outside of the U.S. Income before provision for income
taxes in the U.S. and the related provision for income taxes reflect
interest received in the U.S. from operations outside of the U.S.
The provision for income taxes, classified by the timing and location
of payment, consisted of:
-------------------------------------------------------------------------
(In millions of dollars) 1993 1992 1991
-------------------------------------------------------------------------
Current
U.S. federal $331.6 $256.8 $230.8
U.S. state 62.0 56.3 45.3
Outside of the U.S. 147.2 154.0 99.0
-------------------------------------------------------------------------
540.8 467.1 375.1
-------------------------------------------------------------------------
Deferred
U.S. federal 21.9 (10.3) 46.9
U.S. state 3.4 4.0 8.2
Outside of the U.S. 27.1 28.7 9.6
-------------------------------------------------------------------------
52.4 22.4 64.7
-------------------------------------------------------------------------
Provision for income taxes $593.2 $489.5 $439.8
=========================================================================
Included in the 1993 deferred tax provision were $14.0 million
attributable to a one-time, noncash revaluation of deferred tax
liabilities resulting from the increase in the statutory U.S. federal
income tax rate.
Net deferred tax liabilities were comprised of:
-------------------------------------------------------------------------
(In millions of dollars) December 31, 1993 1992
-------------------------------------------------------------------------
Property and equipment basis differences $786.1 $738.2
Other 175.4 154.8
-------------------------------------------------------------------------
Total deferred tax liabilities 961.5 893.0
-------------------------------------------------------------------------
Deferred tax assets before valuation allowance (1) (192.8) (183.8)
Valuation allowance 44.5 35.7
-------------------------------------------------------------------------
Net deferred tax liabilities (2) $813.2 $744.9
=========================================================================
(1) Includes loss carryforwards: 1993--$46.7 million; 1992--$44.4
million.
(2) Net of assets recorded in current income taxes: 1993--$22.1
million; 1992--$3.7 million.
40
Reconciliations of the statutory U.S. federal income tax rates to the
effective income tax rates are shown in the following table.
--------------------------------------------------------------------
1993 1992 1991
--------------------------------------------------------------------
Statutory federal income tax rates 35.0% 34.0% 34.0%
State income taxes, net of related
federal income tax benefit 2.5 2.7 2.7
Other (2.1) (2.9) (2.9)
--------------------------------------------------------------------
Effective income tax rates 35.4% 33.8% 33.8%
====================================================================
U.S. income and foreign withholding taxes have not been provided on
$760.8 million of undistributed earnings of certain subsidiaries and
affiliates outside of the U.S. at December 31, 1993. These earnings are
considered to be permanently invested in the businesses and, under the
tax laws, are not subject to taxes until distributed as dividends. If
these earnings were not considered permanently invested, no additional
taxes would be provided due to the overall higher tax rates in markets
outside of the U.S. and the ability to recover withholding taxes as
foreign tax credits in the U.S.
41
----------------------------------------------------------------------
SEGMENT AND GEOGRAPHIC INFORMATION
----------------------------------------------------------------------
The Company operates exclusively in the foodservice industry.
Substantially all revenues result from the sale of menu products at
restaurants operated by the Company, franchisees or affiliates.
Operating income includes the Company's share of operating results of
affiliates. All intercompany revenues and expenses are eliminated in
computing revenues and operating income. Fees received in the U.S.
from subsidiaries outside of the U.S. were: 1993--$202.8 million;
1992--$187.8 million; 1991--$153.1 million.
----------------------------------------------------------------------
(In millions of dollars) 1993 1992 1991
----------------------------------------------------------------------
U.S. $3,931.2 $3,749.4 $3,710.2
Europe/Africa/Middle East 2,235.9 2,187.0 1,806.0
Canada 557.8 595.1 629.5
Asia/Pacific 494.4 434.6 392.5
Latin America 188.8 167.2 156.8
----------------------------------------------------------------------
Total revenues $7,408.1 $7,133.3 $6,695.0
======================================================================
U.S. $1,087.1 $1,041.6 $1,000.4
Europe/Africa/Middle East 547.5 484.0 361.3
Canada 111.2 113.5 120.7
Asia/Pacific 190.6 163.2 157.2
Latin America 47.6 59.3 38.9
----------------------------------------------------------------------
Operating income $1,984.0 1,861.6 1,678.5
======================================================================
U.S. $6,385.4 $6,410.6 $6,154.3
Europe/Africa/Middle East 3,473.2 3,290.9 3,316.1
Canada 562.5 587.4 618.2
Asia/Pacific 1,103.2 980.3 925.0
Latin America 510.9 412.0 335.5
----------------------------------------------------------------------
Total assets $12,035.2 $11,681.2 $11,349.1
======================================================================
42
------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
------------------------------------------------------------------------
(In millions of dollars) December 31, 1993 1992
------------------------------------------------------------------------
Land $2,587.2 $2,440.0
Buildings and improvements on owned land 5,209.4 4,906.0
Buildings and improvements on leased land 3,673.0 3,423.7
Equipment, signs and seating 1,545.4 1,467.2
Other 444.0 421.1
------------------------------------------------------------------------
13,459.0 12,658.0
------------------------------------------------------------------------
Accumulated depreciation and amortization (3,377.6) (3,060.6)
------------------------------------------------------------------------
Net property and equipment $10,081.4 $9,597.4
========================================================================
Depreciation and amortization were: 1993--$492.8 million; 1992--$492.9
million; 1991--$456.9 million. Contractual obligations for the
acquisition and construction of property amounted to $193.1 million at
December 31, 1993.
------------------------------------------------------------------------
DEBT FINANCING
------------------------------------------------------------------------
LINE OF CREDIT AGREEMENTS
The Company has a long-term line of credit agreement for $700.0
million, which remained unused at December 31, 1993, and which
continues indefinitely unless terminated by the participating banks
upon advance notice of at least 18 months. Each borrowing under the
agreement bears interest at one of several specified floating rates,
to be selected by the Company at the time of borrowing. The agreement
provides for fees of .15 of 1% per annum on the unused portion of the
commitment. In addition, certain subsidiaries outside of the U.S. had
unused lines of credit totaling $1.0 billion at December 31, 1993;
these were principally short-term and denominated in various
currencies at local market rates of interest.
43
EXCHANGE AGREEMENTS
The Company uses derivatives and has entered into agreements for the
exchange of various currencies. Certain of these agreements also
provide for the periodic exchange of interest payments. These
agreements, as well as additional interest-rate exchange agreements,
expire through 2003 and provide for an effective right of offset;
therefore, the related receivable and liability are offset in the
financial statements. The counterparties to these exchange agreements
consist of a diverse group of financial institutions. The Company
continually monitors its positions and the credit ratings of its
counterparties, and adjusts positions as appropriate.
The Company also had short-term forward foreign exchange contracts
outstanding at December 31, 1993, with a U.S. Dollar equivalent of
$83.4 million in various currencies, primarily the Japanese Yen,
Deutsche Mark and British Pound Sterling.
AGGREGATE MATURITIES
Included in the 1995 maturities are $700.0 million of notes maturing
within one year, as 1995 is the earliest time at which the banks can
terminate the line of credit agreement, which supports the
classification in long-term debt. Under certain agreements, the
Company has the option to retire debt prior to maturity, either at par
or at a premium over par. During 1993, $264.5 million was retired
prior to maturity.
GUARANTEES
Included in total debt at December 31, 1993, were $171.3 million of
7.60% ESOP Notes Series A and $89.0 million of 7.23% ESOP Notes Series
B issued by the Leveraged Employee Stock Ownership Plan (LESOP), with
payments through 2004 and 2006, respectively, which are guaranteed by
the Company. Interest rates on the notes were adjusted due to U.S. tax
law changes in 1993. The Company has agreed to repurchase the notes
upon the occurrence of certain events.
The Company also has guaranteed certain foreign affiliate loans of
$154.7 million at December 31, 1993. The Company also was a general
partner in 48 domestic partnerships with total assets of
$174.3 million and total liabilities of $95.8 million at December 31,
1993.
FAIR VALUES
The carrying amounts for notes payable and short-term forward foreign
exchange contracts approximated fair value at December 31, 1993. The
fair value of the remaining debt obligations (excluding capital
leases), including the net effects of currency and interest-rate
exchange agreements, was estimated using quoted market prices, various
pricing models or discounted cash flow analyses. At December 31, 1993,
the fair value of these obligations, which were primarily used to
finance property and equipment, was $3.7 billion, compared to a
carrying value of $3.4 billion. The Company currently has no plans to
retire any of these obligations prior to maturity.
The Company believes that the fair value of total assets is higher
than their carrying value.
44
DEBT OBLIGATIONS
The Company has incurred debt obligations principally through various public and private offerings and bank loans. The terms of
most debt obligations contain restrictions on Company and subsidiary mortgages and long-term debt of certain subsidiaries. The
following table summarizes these debt obligations:
Interest rates (1) Amounts outstanding
Maturity December 31 December 31 Aggregate maturities by currency for 1993 balances
dates 1993 1992 1993 1992 1994 1995 1996 1997 1998 Thereafter
(In millions of U.S. Dollars)
- ---------------------------------------------------------------------------------------------------------------------------------
Fixed-original issue 8.5% 8.9% $1,790.6 $2,002.8
Fixed-converted via
exchange agreements(2) 5.6 6.9 (1,449.0) (1,174.7)
Floating 3.0 4.0 163.2 214.6
- ---------------------------------------------------------------------------------------------------------------------------------
Total U.S. Dollars 1994-2033 504.8 1,042.7 $419.2 $39.7 $(143.8) $(73.7) $(299.4) $562.8
- ---------------------------------------------------------------------------------------------------------------------------------
Fixed 9.8 10.8 498.6 489.6
Floating 5.4 7.8 178.0 275.3
- ---------------------------------------------------------------------------------------------------------------------------------
Total British Pounds
Sterling 1994-2003 676.6 764.9 61.5 29.6 151.2 14.8 73.4 346.1
- ---------------------------------------------------------------------------------------------------------------------------------
Fixed 8.9 9.9 447.1 293.2
Floating 6.7 10.1 168.6 165.6
- ---------------------------------------------------------------------------------------------------------------------------------
Total French Francs 1994-2003 615.7 458.8 102.7 50.3 53.7 50.8 88.3 269.9
- ---------------------------------------------------------------------------------------------------------------------------------
Fixed 6.3 7.4 423.1 366.9
Floating 6.9 11.5 116.7 19.3
- ---------------------------------------------------------------------------------------------------------------------------------
Total Deutsche Marks 1994-2007 539.8 386.2 71.1 85.4 17.6 104.0 203.6 58.1
- ---------------------------------------------------------------------------------------------------------------------------------
Fixed Japanese Yen 1996-2023 4.3 5.8 357.7 120.2 89.6 89.6 178.5
- ---------------------------------------------------------------------------------------------------------------------------------
Fixed 11.6 11.4 166.9 175.7
Floating 4.5 7.4 50.3 56.7
- ---------------------------------------------------------------------------------------------------------------------------------
Total Canadian Dollars 1994-2021 217.2 232.4 75.8 64.0 75.7 .2 .2 1.3
- ---------------------------------------------------------------------------------------------------------------------------------
Fixed 12.0 12.9 117.3 155.7
Floating 5.0 6.2 61.0 64.3
- ---------------------------------------------------------------------------------------------------------------------------------
Total Australian
Dollars 1994-2000 178.3 220.0 58.1 2.0 57.4 .9 58.7 1.2
- ---------------------------------------------------------------------------------------------------------------------------------
Fixed 8.6 8.9 118.4 115.4
Floating 4.1 4.2 21.0 34.5
- ---------------------------------------------------------------------------------------------------------------------------------
Total Hong Kong
Dollars 1994-2008 139.4 149.9 42.2 19.4 11.2 17.7 17.7 31.2
- ---------------------------------------------------------------------------------------------------------------------------------
Fixed 8.0 8.5 303.3 246.1
Floating 11.2 14.6 71.1 119.8
- ---------------------------------------------------------------------------------------------------------------------------------
Total other currencies 1994-2003 374.4 365.9 76.2 56.5 14.6 2.1 81.2 143.8
- ---------------------------------------------------------------------------------------------------------------------------------
Debt obligations
including the net effects
of currency and interest-
rate exchange agreements 3,603.9 3,741.0 906.8 346.9 327.2 206.4 223.7 1,592.9
- ---------------------------------------------------------------------------------------------------------------------------------
Obligations supported by
long-term line of credit
agreement (700.0) 700.0
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset positions of
currency exchange
agreements (included in
miscellaneous other
assets) 108.8 115.8 16.5 10.1 15.6 8.4 19.0 39.2
- ---------------------------------------------------------------------------------------------------------------------------------
Total debt obligations $3,712.7 $3,856.8 $223.3 $1,057.0 $342.8 $214.8 $242.7 $1,632.1
=================================================================================================================================
(1) Weighted average effective rate, computed on a semi-annual basis.
(2) A portion of U.S. Dollar fixed-rate debt effectively has been converted into other currencies and/or into floating-rate debt
through the use of exchange agreements. The rates shown reflected the fixed rate on the receivable portion of the exchange
agreements. All other obligations in this table reflected the gross effects of these and other exchange agreements.
45
-------------------------------------------------------------------
OTHER LONG-TERM LIABILITIES AND MINORITY INTERESTS
-------------------------------------------------------------------
(In millions of dollars) December 31, 1993 1992
-------------------------------------------------------------------
Security deposits by franchisees $121.4 $116.6
Preferred interests in consolidated
subsidiaries 106.7 12.8
Minority interests in consolidated
subsidiaries 38.2 32.1
Other 68.1 63.7
-------------------------------------------------------------------
Other long-term liabilities and minority
interests $334.4 $225.2
===================================================================
In 1993, a Company subsidiary issued 50 million British Pounds
Sterling (U.S. $74.0 million at December 31, 1993) of 5.91% Series A
Preferred Stock which, unless redeemed earlier at the Company's
option, must be redeemed on February 19, 1998. Also, another
subsidiary issued additional preferred stock. All of the preferred
stock of this subsidiary has a dividend rate adjusted annually (8.2%
at December 31, 1993) and is redeemable at the option of the holder at
a current redemption price of $32.7 million. Both of these issues were
reflected in preferred interests in consolidated subsidiaries.
Included in other was the $100.00 per share redemption value of
181,868 shares of 5% Series D Preferred Stock issued in connection
with the Company's 1991 increase in ownership of its Hawaii affiliate.
This stock, which carries one vote per share, must be redeemed on the
occurrence of specified events.
46
---------------------------------------------------------------------
LEASING ARRANGEMENTS
---------------------------------------------------------------------
At December 31, 1993, the Company was lessee at 2,294 restaurant
locations under ground leases (the Company leases land and constructs
and owns buildings) and at 2,305 locations under improved leases
(lessor owns land and buildings). Land and building lease terms are
generally for 20 to 25 years and, in many cases, provide for rent
escalations and one or more five-year renewal options with certain
leases providing purchase options. The Company is generally obligated
for the related occupancy costs that include property taxes, insurance
and maintenance. In addition, the Company is lessee under
noncancelable leases covering offices and vehicles.
Future minimum payments required under operating leases with
initial terms of one year or more after December 31, 1993, are:
------------------------------------------------------------
(In millions of dollars) Restaurant Other Total
------------------------------------------------------------
1994 $ 277.0 $ 34.7 $ 311.7
1995 266.7 33.3 300.0
1996 255.7 31.5 287.2
1997 242.4 28.4 270.8
1998 227.2 25.8 253.0
Thereafter 2,334.1 165.0 2,499.1
------------------------------------------------------------
Total minimum payments $3,603.1 $318.7 $3,921.8
============================================================
Rent expense was: 1993--$339.0 million; 1992--$320.2 million;
1991-$283.6 million. Included in these amounts were percentage rents
based on sales by the related restaurants in excess of minimum rents
stipulated in certain lease agreements: 1993--$29.0 million;
1992--$26.1 million; 1991--$26.3 million.
47
----------------------------------------------------------------------
FRANCHISE ARRANGEMENTS
----------------------------------------------------------------------
Franchise arrangements, with franchisees who operate in various
geographic locations, generally provide for initial fees and
continuing payments to the Company based upon a percentage of sales,
with minimum rent payments. Among other things, franchisees are
provided the use of restaurant facilities, generally for a period of
20 years. They are required to pay related occupancy costs that
include property taxes, insurance, maintenance and a refundable,
noninterest-bearing security deposit. On a limited basis, the Company
receives notes from franchisees. Generally the notes are secured by
interests in restaurant equipment and franchises.
----------------------------------------------------------------------
(In millions of dollars) 1993 1992 1991
----------------------------------------------------------------------
Minimum rents
Owned sites $ 573.6 $ 538.7 $ 494.5
Leased sites 381.7 353.3 303.7
----------------------------------------------------------------------
955.3 892.0 798.2
----------------------------------------------------------------------
Percentage fees 1,272.1 1,120.6 970.4
Initial fees 23.5 18.2 17.9
----------------------------------------------------------------------
Revenues from franchised restaurants $2,250.9 $2,030.8 $1,786.5
======================================================================
Future minimum payments based on minimum rents specified under
franchise arrangements after December 31, 1993, are:
----------------------------------------------------------------------
Owned Leased
(In millions of dollars) sites sites Total
----------------------------------------------------------------------
1994 $ 618.4 $ 404.7 $ 1,023.1
1995 607.4 390.3 997.7
1996 593.2 375.9 969.1
1997 579.5 365.2 944.7
1998 567.3 353.2 920.5
Thereafter 5,309.1 3,406.6 8,715.7
----------------------------------------------------------------------
Total minimum payments $8,274.9 $5,295.9 $13,570.8
======================================================================
At December 31, 1993, net property and equipment under franchise
arrangements totaled $5.9 billion (including land of $1.8 billion),
after deducting accumulated depreciation and amortization of $1.7
billion.
48
----------------------------------------------------------------------
PROFIT SHARING PROGRAM
----------------------------------------------------------------------
The Company has a program for U.S. employees which includes profit
sharing, 401(k) (McDESOP), and leveraged employee stock ownership
features. McDESOP allows employees to invest in McDonald's common
stock by making contributions that are partially matched by the
Company. Assets of the profit sharing plan can be invested in
McDonald's common stock, or among several other alternatives. Certain
subsidiaries outside of the U.S. also offer profit sharing, stock
purchase or other similar benefit plans. Total U.S. program costs
were: 1993--$47.1 million; 1992--$38.8 million; 1991--$46.4 million.
Total plan costs outside of the U.S. were: 1993--$13.0 million; 1992--
$14.0 million; 1991--$9.8 million. The Company does not provide any
other postretirement benefits, and postemployment benefits were
immaterial.
----------------------------------------------------------------------
STOCK OPTIONS
----------------------------------------------------------------------
Under the 1992 Stock Ownership Incentive and the 1975 Stock Ownership
Option Plans, options to purchase common stock are granted at prices
not less than fair market value of the stock on date of grant.
Substantially all of these options become exercisable in four equal
biennial installments, commencing one year from date of grant, and
expire ten years from date of grant. At December 31, 1993, 41.5
million shares of common stock were reserved for issuance under both
plans.
-----------------------------------------------------------------------
(In millions, except per common share data) 1993 1992 1991
-----------------------------------------------------------------------
Options outstanding at January 1 25.1 23.7 21.6
Options granted 6.0 5.8 5.5
Options exercised (2.7) (3.8) (2.6)
Options forfeited (.9) (.6) (.8)
-----------------------------------------------------------------------
Options outstanding at December 31 27.5 25.1 23.7
=======================================================================
Options exercisable at December 31 8.8 7.7 7.8
Common shares reserved for future
grants at December 31 14.0 19.1 6.3
Option prices per common share
Exercised during the year $ 9 to $48 $9 to $45 $6 to $34
Outstanding at year end $10 to $56 $9 to $48 $9 to $34
-----------------------------------------------------------------------
49
----------------------------------------------------------------------
CAPITAL STOCK
----------------------------------------------------------------------
PER COMMON SHARE INFORMATION
Income used in the computation of per common share information was
reduced by preferred stock cash dividends (net of tax benefits in 1993
and 1992) and divided by the weighted average shares of common stock
outstanding during each year: 1993--355.9 million; 1992--363.2
million; 1991--358.1 million. The effect of potentially dilutive
securities was not material.
PREFERRED STOCK
In December 1992, the Company issued $500.0 million of Series E 7.72%
Cumulative Preferred Stock; 10,000 preferred shares are equivalent to
20.0 million depositary shares having a liquidation preference of
$25.00 per depositary share. Each preferred share is entitled to one
vote under certain circumstances, and is redeemable at the option of
the Company beginning on December 3, 1997, at its liquidation
preference plus accrued and unpaid dividends.
In September 1989 and April 1991, the Company sold $200.0 million
of Series B and $100.0 million of Series C ESOP Convertible Preferred
Stock, respectively, to the LESOP. The LESOP financed the purchase by
issuing notes that are guaranteed by the Company and are included in
long-term debt, with an offsetting reduction in shareholders' equity.
Each preferred share has a liquidation preference of $28.75 and
$33.125, respectively, and is convertible into a minimum of .7692 and
.8 common share (conversion rate), respectively. Upon termination,
employees are guaranteed a minimum value payable in common shares
equal to the greater of the conversion rate; the fair market value of
their preferred shares; or the liquidation preference plus accrued
dividends, not to exceed one common share. Each preferred share is
entitled to one vote and is redeemable at the option of the Company
three years after issuance and, under certain circumstances, is
redeemable prior to that date. In 1992, 4.1 million Series B shares
were converted into 3.2 million common shares.
COMMON EQUITY PUT OPTIONS
In December 1992, the Company sold 2.0 million common equity put
options. At December 31, 1992, the $94.0 million exercise price of
these options was classified in common equity put options and the
related offset was recorded in common stock in treasury, net of
premiums received. In April 1993, these options expired unexercised.
In April 1993, the Company also sold 1.0 million common equity put
options which expired unexercised in July 1993.
50
SHAREHOLDER RIGHTS PLAN
In December 1988, the Company declared a dividend of one Preferred
Share Purchase Right (Right) on each outstanding share of common
stock. Under certain conditions, each Right may be exercised to
purchase one two-hundredth of a share of Series A Junior Participating
Preferred Stock (the economic equivalent of one common share) at an
exercise price of $125.00 (which may be adjusted under certain
circumstances), and is transferable apart from the common stock ten
days following a public announcement that a person or group has
acquired beneficial ownership of 20% or more of the outstanding common
shares, or ten business days following the commencement or
announcement of an intention to make a tender or exchange offer,
resulting in beneficial ownership by a person or group of 20% or more
of the outstanding common shares.
If a person or group acquires 20% or more of the outstanding common
shares, or if the Company is acquired in a merger or other business
combination transaction, each Right will entitle the holder, other
than such person or group, to purchase at the then current exercise
price, stock of the Company or the acquiring company having a market
value of twice the exercise price.
Each Right is nonvoting and expires on December 28, 1998, unless
redeemed by the Company, at a price of $.005, at any time prior to the
public announcement that a person or group has acquired beneficial
ownership of 20% or more of the outstanding common shares. At December
31, 1993, 2.1 million shares of the Series A Junior Participating
Preferred Stock were reserved for issuance under this plan.
51
QUARTERLY RESULTS (UNAUDITED)
(In millions of dollars, except per common share data)
- ---------------------------------------------------------------------------------------------------------------------------------
Quarters ended December 31 September 30 June 30 March 31
1993 1992 1993 1992 1993 1992 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------------
REVENUES
Sales by Company-operated
restaurants $1,345.2 $1,294.9 $1,351.1 $1,366.9 $1,307.6 $1,273.6 $1,153.3 $1,167.1
Revenues from franchised
restaurants 586.7 533.5 593.2 545.6 570.2 500.5 500.8 451.2
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 1,931.9 1,828.4 1,944.3 1,912.5 1,877.8 1,774.1 1,654.1 1,618.3
- ---------------------------------------------------------------------------------------------------------------------------------
OPERATING COSTS AND EXPENSES
Company-operated restaurants 1,085.3 1,044.4 1,076.9 1,092.0 1,049.5 1,031.6 952.9 958.5
Franchised restaurants 100.3 90.1 95.7 90.4 93.6 85.1 90.8 83.0
General, administrative
and selling expenses 256.2 239.6 234.6 217.1 232.5 209.4 217.8 194.5
Other operating (income)
expense--net 3.5 (1.4) (31.1) (21.7) (15.6) (30.0) (18.8) (10.9)
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING COSTS
AND EXPENSES 1,445.3 1,372.7 1,376.1 1,377.8 1,360.0 1,296.1 1,242.7 1,225.1
- ---------------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 486.6 455.7 568.2 534.7 517.8 478.0 411.4 393.2
- ---------------------------------------------------------------------------------------------------------------------------------
Interest expense 78.7 86.4 75.7 97.0 82.4 93.0 79.3 97.2
Nonoperating income
(expense)--net (4.9) (25.0) 7.2 (.8) 4.3 (1.2) 1.2 (12.9)
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE PROVISION FOR
INCOME TAXES 403.0 344.3 499.7 436.9 439.7 383.8 333.3 283.1
- ---------------------------------------------------------------------------------------------------------------------------------
Provision for income taxes 138.5 116.4 188.8 147.7 150.9 129.7 115.0 95.7
- ---------------------------------------------------------------------------------------------------------------------------------
NET INCOME $264.5 $227.9 $310.9 $289.2 $288.8 $254.1 $218.3 $187.4
=================================================================================================================================
NET INCOME PER COMMON SHARE $ .72 $ .61 $ .85 $ .79 $ .78 $ .69 $ .57 $ .51
- ---------------------------------------------------------------------------------------------------------------------------------
52
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information regarding directors is incorporated herein by
reference from the Company's definitive proxy statement which will be
filed no later than 120 days after December 31, 1993.
On December 1, 1993, Donald R. Keough, Chairman of Allen &
Company, Inc., was appointed to the Company's Board of Directors.
Information regarding all of the Company's executive officers
is included in Part I.
Item 11. Executive Compensation
Incorporated herein by reference from the Company's definitive
proxy statement which will be filed no later than 120 days after
December 31, 1993.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Incorporated herein by reference from the Company's definitive
proxy statement which will be filed no later than 120 days after
December 31, 1993.
Item 13. Certain Relationships and Related Transactions
Incorporated herein by reference from the Company's definitive
proxy statement which will be filed no later than 120 days after
December 31, 1993.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a) 1. Financial statements
Consolidated financial statements filed as part of this
report are listed under Part II, Item 8 of this Form
10-K.
2. Financial statement schedules
The financial schedules listed in the accompanying
index to consolidated financial statement schedules are
filed as part of this report.
3. Exhibits
53
(3) Restated Certificate of Incorporation, dated as of February
2, 1993, incorporated herein by reference from Exhibit (3)
of Form 10-K dated December 31, 1992. By-laws incorporated
herein by reference from Exhibit 3 of Form 10-K dated
December 31, 1991.
(4) Instruments defining the rights of security holders,
including indentures (A):
(a) Debt Securities. Indenture dated as of March 1, 1987
incorporated herein by reference from Exhibit 4(a) of
Form S-3 Registration Statement, SEC file no. 33-12364.
(i) Supplemental Indenture No. 5 incorporated herein
by reference from Exhibit (4) of Form 8-K dated
January 23, 1989.
(ii) 9-3/4% Notes due 1999. Supplemental Indenture
No. 6 incorporated herein by reference from
Exhibit (4) of Form 8-K dated January 23, 1989.
(iii) 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.
(iv) 9-3/8% Notes due 1997. Form of Supplemental
Indenture No. 14 incorporated herein by
reference from Exhibit (4) of Form 10-K for the
year ended December 31, 1989.
(v) Medium-Term Notes, Series C, due from nine
months to 30 years from Date of Issue. Form of
Supplemental Indenture No. 15 incorporated
herein by reference from Exhibit 4(b) of
Form S-3 Registration Statement, SEC file
no. 33-34762 dated May 14, 1990.
(vi) Medium-Term Notes, Series C, due from nine
months/184 days 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.
(vii) 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.
54
(viii)Medium-Term Notes, Series D, due from nine
months/184 days to 60 years from Date of Issue.
Supplemental Indenture No. 18 incorporated
herein by reference from Exhibit 4(b) of
Form S-3 Registration Statement, SEC file
no. 33-42642 dated September 10, 1991.
(ix) 7-3/8% Notes due July 15, 2002. Form of
Supplemental Indenture No. 19 incorporated
herein by reference from Exhibit (4) of Form 8-K
dated July 10, 1992.
(x) 6-3/4% Notes due February 15, 2003. Form of
Supplemental Indenture No. 20 incorporated
herein by reference from Exhibit (4) of Form 8-K
dated March 1, 1993.
(xi) 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.
(b) Form of Deposit Agreement dated as of November 25, 1992
by and between McDonald's Corporation, First Chicago
Trust Company of New York, as Depositary, and the
Holders from time to time of the Depositary Receipts.
(c) Rights Agreement dated as of December 13, 1988 between
McDonald's Corporation and The First National Bank of
Chicago, incorporated herein by reference from Exhibit
1 of Form 8-K dated December 23, 1988.
55
(i) Amendment No. 1 to Rights Agreement incorporated
herein by reference from Exhibit 1 of Form 8-K
dated May 25, 1989.
(ii) Amendment No. 2 to Rights Agreement incorporated
herein by reference from Exhibit 1 of Form 8-K
dated July 25, 1990.
(d) Indenture and Supplemental Indenture No. 1 dated as of
September 8, 1989, between McDonald's Matching and
Deferred Stock Ownership Trust, McDonald's Corporation
and Pittsburgh National Bank in connection with SEC
Registration Statement Nos. 33-28684 and 33-28684-01,
incorporated herein by reference from Exhibit (4)(a) of
Form 8-K dated September 14, 1989.
(e) Form of Supplemental Indenture No. 2 dated as of April
1, 1991, supplemental to the Indenture between
McDonald's Matching and Deferred Stock Ownership Trust,
McDonald's Corporation and Pittsburgh National Bank in
connection with SEC Registration Statement Nos.
33-28684 and 33-28684-01, incorporated herein by
reference from Exhibit (4)(c) of Form 8-K dated
March 22, 1991.
(10) Material Contracts
(a) Material contract between McDonald's Corporation and
Joan B. Kroc, incorporated herein by reference from
Exhibit (10) of Form 10-K for the year ended
December 31, 1984.
(b) Director's Deferred Compensation Plan, incorporated
herein by reference from Exhibit (10)(b)of Form 10-K
for the year ended December 31, 1992*.
(c) Profit Sharing Program, as amended, McDonald's
Supplemental Employee Benefit Equalization Plan,
McDonald's Profit Sharing Program Equalization Plan and
McDonald's 1989 Equalization Plan, incorporated by
reference from Form 10-K/A dated May 4, 1993, Amendment
No. 1 to Form 10-K for the year ended December 31, 1992*.
(i) Amendment No. 1 to McDonald's 1989 Equalization
Plan, incorporated herein by reference from Form
10-Q for the period ended June 30, 1993.
(ii) Amendment No. 2 to McDonald's 1989 Equalization
Plan, attached hereto as an Exhibit.
(iii)Amendment No. 1 to McDonald's Supplemental
Employee Benefit Equalization Plan, attached
hereto as an Exhibit.
(iv) Amendment No. 2 to McDonald's Supplemental
Employee Equalization Plan, attached hereto as an
Exhibit.
56
(v) Amendment No. 5 to the Profit Sharing Program, as
amended, attached hereto as an Exhibit.
Amendment No. 6 to the Profit Sharing Program, as
(vi)
amended, attached hereto as an Exhibit.
(d) 1975 Stock Ownership Option Plan, incorporated herein
by reference from Exhibit (10)(d) of Form 10-K for the
year ended December 31, 1992*.
(e) Stock Sharing Plan, incorporated herein by reference
from Exhibit (10)(e) of Form 10-K for the year ended
December 31, 1992*.
(f) 1992 Stock Ownership Incentive Plan, incorporated
herein by reference from exhibit pages 20-34 of
McDonald's 1992 Proxy Statement and Notice of 1992
Annual Meeting of Shareholders dated April 10, 1992*.
(g) McDonald's Corporation Deferred Incentive Plan,
incorporated herein by reference from Exhibit(10) of
Form 10-Q for the period ended September 30, 1993*.
(11) Statement re: Computation of per share earnings.
(12) Statement re: Computation of ratios.
(21) Subsidiaries of the registrant.
(23) Consent of independent auditors.
--------------------
* Denotes compensatory plan.
(A) Other instruments defining the rights of holders of long-term
debt of the registrant and all of its subsidiaries for which
consolidated financial statements are required to be filed and
which are not required to be registered with the Securities and
Exchange Commission, are not included herein as the securities
authorized under these instruments, individually, do not exceed
10% of the total assets of the registrant and its subsidiaries on
a consolidated basis. An agreement to furnish a copy of any such
instruments to the Securities and Exchange Commission upon
request has been filed with the Commission.
(b) Reports on Form 8-K
The following reports on Form 8-K were filed for the last quarter
covered by this report, and subsequently up to March 29, 1994.
Financial Statements
Date of Report Item Number required to be filed
-------------- ----------- --------------------
November 22, 1993 Item 7 No
January 18, 1994 Item 7 No
57
McDONALD'S CORPORATION
INDEX TO CONSOLIDATED
FINANCIAL STATEMENT SCHEDULES
(Item 14)
(a) The following documents are filed as part of this report:
Page
1. Financial Statement Schedules Reference
Report of Independent Auditors 58
Consolidated schedules for the years ended
December 31, 1993, 1992 and 1991:
V - Property and equipment 59
VI - Accumulated depreciation and
amortization of property and equipment 60
IX - Short-term borrowings 62
X - Supplementary income statement information 63
Consolidated schedule at December 31, 1993:
VII - Guarantees of securities of other issuers 61
All other schedules have been omitted as the required
information is not present or is not present in amounts sufficient to
require submission of the schedule, or because the information
required is included in the consolidated financial statements or the
notes thereto.
58
REPORT OF INDEPENDENT AUDITORS
We have audited the consolidated financial statements of McDonald's
Corporation as of December 31, 1993 and 1992, and for each of the
three years in the period ended December 31, 1993, and have issued our
report thereon dated January 27, 1994 (included elsewhere in this
Annual Report on Form 10-K). Our audits also included the
consolidated financial statement schedules of McDonald's Corporation
listed in Item 14(a). These schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion
based on our audits.
In our opinion, the consolidated financial statement schedules
referred to above, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in
all material respects the information set forth therein.
Ernst & Young
Chicago, Illinois
January 27, 1994
59
McDONALD'S CORPORATION Schedule V
SCHEDULE V - PROPERTY AND EQUIPMENT
(In millions of dollars)
Years Ended December 31, 1993, 1992 and 1991
Balance at Other changes Balance
beginning Additions add (deduct) at end
Classification of period at cost (A) Retirements (B) of period
-------------- --------- ----------- ----------- ------------- ---------
1993:
Land $ 2,440.0 $ 206.1 $ 31.4 $ (27.5) $ 2,587.2
Buildings and improvements on owned land 4,906.0 383.5 33.0 (47.1) 5,209.4
Buildings and improvements on leased land 3,423.7 433.1 50.0 (133.8) 3,673.0
Equipment, signs and seating 1,467.2 247.8 164.8 (4.8) 1,545.4
Other 421.1 83.6 43.8 (16.9) 444.0
--------- --------- --------- --------- ---------
$12,658.0 $1,354.1 $323.0 $(230.1) $13,459.0
========= ========= ========= ========= =========
1992:
Land $ 2,375.8 $ 170.1 $ 5.4 $(100.5) $ 2,440.0
Buildings and improvements on owned land 4,774.3 335.0 17.4 (185.9) 4,906.0
Buildings and improvements on leased land 3,293.2 357.6 39.7 (187.4) 3,423.7
Equipment, signs and seating 1,516.4 225.9 180.3 (94.8) 1,467.2
Other 408.3 82.3 51.6 (17.9) 421.1
--------- --------- --------- --------- ---------
$12,368.0 $1,170.9 $294.4 $(586.5) $12,658.0
========= ========= ========= ========= =========
1991:
Land $ 2,227.4 $ 179.3 $ 24.7 $ (6.2) $ 2,375.8
Buildings and improvements on owned land 4,529.2 306.6 54.6 (6.9) 4,774.3
Buildings and improvements on leased land 2,895.5 456.5 40.6 (18.2) 3,293.2
Equipment, signs and seating 1,490.0 233.0 200.8 (5.8) 1,516.4
Other 393.4 57.2 41.3 (1.0) 408.3
--------- --------- --------- --------- ---------
$11,535.5 $1,232.6 $362.0 $ (38.1) $12,368.0
========= ========= ========= ========= =========
(A) Includes $13.1 in 1993, $33.4 in 1992, and $77.5 in 1991, as a result of purchases of restaurant businesses.
Additionally, 1992 includes the consolidation of the Company's affiliates in Hungary, South Korea and Chile.
In 1991, affiliates in Hawaii and Venezuela were consolidated.
(B) Primarily foreign currency translation effects and certain reclassification between accounts.
60
McDONALD'S CORPORATION Schedule VI
SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION
OF PROPERTY AND EQUIPMENT
(In millions of dollars)
Years Ended December 31, 1993, 1992 and 1991
Balance at Other changes Balance
beginning Additions add (deduct) at end
Classification of period at cost Retirements (A) of period
-------------- --------- ----------- ----------- ------------- ---------
1993:
Buildings and improvements on owned land $1,390.3 $175.1 $ 11.7 $ (9.4) $1,544.3
Buildings and improvements on leased land 813.8 123.4 14.2 (22.3) 900.7
Equipment, signs and seating 653.3 143.3 80.2 .3 716.7
Other 203.2 51.0 24.7 (13.6) 215.9
--------- --------- --------- --------- ---------
$3,060.6 $492.8 $130.8 $ (45.0) $3,377.6
========= ========= ========= ========= =========
1992:
Buildings and improvements on owned land $1,262.4 $165.9 $ 7.9 $ (30.1) $1,390.3
Buildings and improvements on leased land 726.7 129.4 10.6 (31.7) 813.8
Equipment, signs and seating 626.1 150.5 85.2 (38.1) 653.3
Other 194.3 47.1 28.6 (9.6) 203.2
--------- --------- --------- --------- ---------
$2,809.5 $492.9 $132.3 $(109.5) $3,060.6
========= ========= ========= ========= =========
1991:
Buildings and improvements on owned land $1,114.7 $160.4 $ 12.5 $ (0.2) $1,262.4
Buildings and improvements on leased land 632.0 105.0 9.5 (0.8) 726.7
Equipment, signs and seating 564.3 149.7 87.7 (0.2) 626.1
Other 177.4 41.8 24.8 (0.1) 194.3
--------- --------- --------- --------- ---------
$2,488.4 $456.9 $134.5 $ (1.3) $2,809.5
========= ========= ========= ========= =========
(A) Primarily foreign currency translation effects and certain reclassifications between accounts.
61
Schedule VII
McDONALD'S CORPORATION
SCHEDULE VII - GUARANTEES OF SECURITIES OF OTHER ISSUERS
December 31, 1993
Total Amount
Name of Issuer of Title of Issue Guaranteed and
Securities Guaranteed of Each Class of Outstanding Nature of
by Registrant Securities Guaranteed (In millions of dollars) Guarantee
--------------------- --------------------- ------------------------ ---------
Quanta Foods, Ltd. (Taiwan) Unsecured Notes $99.9 Principal and Interest
De Alba, S. de R.L. de C.V.
(Mexico) Unsecured Notes 10.1 Principal and Interest
Golden Arches Restaurants Sdn. Bhd.
(Malaysia) Unsecured Notes 10.0 Principal and Interest
Sistemas de Alimentos Rapido
S. de R.L. de C.V. (Mexico) Unsecured Notes 9.4 Principal and Interest
McThai Company, Ltd. (Thailand) Unsecured Notes 9.2 Principal and Interest
Arcos Dorados S.A. (Argentina) Unsecured Notes 6.5 Principal and Interest
Okil S. de R.L. de C.V. (Mexico) Unsecured Notes 4.2 Principal and Interest
Alimentos Rapidos de Occidente
S. de R.L. de C.V. (Mexico) Unsecured Notes 3.4 Principal and Interest
To Go, S.A. (Chile) Unsecured Notes 1.4 Principal and Interest
McKey Food Svcs., Ltd. (China) Unsecured Notes .6 Principal and Interest
62
Schedule IX
McDONALD'S CORPORATION
SCHEDULE IX - SHORT-TERM BORROWINGS
(In millions of dollars)
Years Ended December 31, 1993, 1992 and 1991
Maximum amount Average amount
Balance Weighted average outstanding at outstanding Weighted average
at end of interest rate at any month end during the interest rate
period end of period during the period period during the period
------ ------------- ----------------- ------ -----------------
Notes payable:
1993 $193.3 8.1% $561.1 $297.9 7.4%
====== ====== ====== ====== ======
1992 $411.0 9.5% $668.3 $410.4 8.4%
====== ====== ====== ====== ======
1991 $278.3 10.0% $517.4 $254.0 11.1%
====== ====== ====== ====== ======
_________________________
Notes payable generally represent obligations of the Company under line of credit agreements with various banks.
Borrowings are denominated in various currencies, generally at local market rates of interest.
The average amount outstanding each period was computed by averaging the month-end balances during the year.
The weighted average interest rate during the period was computed on a semi-annual basis by dividing interest
expense by the average amount outstanding.
63
Schedule X
McDONALD'S CORPORATION
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
(In millions of dollars)
Years Ended December 31, 1993, 1992 and 1991
Charged to operating costs
and expenses
------------------------------------
1993 1992 1991
------ ------ ------
Maintenance and repairs $84.7 $85.2 $83.2
====== ====== ======
Advertising costs $332.8 $334.1 $344.4
====== ====== ======
64
McDonald's Corporation
Exhibit Index
(Item 14)
Amendment No. 2 to McDonald's 1989 Equalization Plan
Amendment No. 1 to McDonald's Supplemental Employee Benefit
Equalization Plan
Amendment No. 2 to McDonald's Supplemental Employee Benefit
Equalization Plan
Amendment No. 5 to the Profit Sharing Program
Amendment No. 6 to the Profit Sharing Program
Statement re: Computation of per share earnings
Statement re: Computation of ratios
Subsidiaries of the registrant
Consent of independent auditors
65
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 Jack M. Greenberg
----------------------
Jack M. Greenberg
Vice Chairman,
Chief Financial Officer
March 29, 1994
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated:
Signature Title Date
--------- ----- ----
------------------------- Director
Hall Adams, Jr.
Robert M. Beavers, Jr.
------------------------- Senior Vice President March 29, 1994
Robert M. Beavers, Jr. and Director
James R. Cantalupo
------------------------- President and Chief Executive March 29, 1994
James R. Cantalupo Officer-International and
Director
Michael L. Conley
------------------------- Senior Vice President, March 29, 1994
Michael L. Conley Controller
Gordon C. Gray
------------------------- Director March 29, 1994
Gordon C. Gray
Jack M. Greenberg
------------------------- Vice Chairman, March 29, 1994
Jack M. Greenberg Chief Financial Officer
and Director
------------------------- Director
Donald R. Keough
66
Signature Title Date
--------- ----- ----
Donald G. Lubin
------------------------- Director March 29, 1994
Donald G. Lubin
------------------------- Director
Andrew J. McKenna
Michael R. Quinlan
------------------------- Chairman, Chief Executive March 29, 1994
Michael R. Quinlan Officer and Director
Edward H. Rensi
------------------------- President and Chief Executive March 29, 1994
Edward H. Rensi Officer-U.S.A. and Director
------------------------- Director
Terry Savage
Paul D. Schrage
------------------------- Senior Executive Vice March 29, 1994
Paul D. Schrage President, Chief Marketing
Officer and Director
------------------------- Director
Ballard F. Smith
------------------------- Director
Roger W. Stone
Robert N. Thurston
------------------------- Director March 29, 1994
Robert N. Thurston
Fred L. Turner
------------------------- Senior Chairman and Director March 29, 1994
Fred L. Turner
B. Blair Vedder, Jr.
------------------------- Director March 29, 1994
B. Blair Vedder, Jr.