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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, 1995
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
Preferred Share Purchase Rights New York Stock Exchange
9-3/4% Notes due 1999 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% Debentures due 2033 New York Stock Exchange
8.35% Subordinated Deferrable Interest
Debentures due 2025 New York Stock Exchange
6-5/8% Notes due 2005 New York Stock Exchange
7.05% Debentures due 2025 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. /X/
The aggregate market value of voting stock held by nonaffiliates
of the registrant is $35,081,751,496 and the number of shares of
common stock outstanding is 700,433,950 as of January 31, 1996.
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, 1995.
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 1995, 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, 1995,
1994 and 1993 is included in Part II, item 8, page 44 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 is designed to assure
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, taste
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, 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, 1995, 1994
and 1993 in Part II, item 7, pages 27 through 30, and Part II, item 8,
page 36 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 395,000 restaurants generate nearly $240
billion in annual sales. McDonald's accounts for about 2.9% of those
restaurants and approximately 6.6% 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 1995, there were no material capital expenditures
for environmental control facilities and no such material expenditures
are anticipated.
Number of employees
During 1995, the Company's average number of employees
worldwide, including company-operated restaurant employees, was
approximately 212,000.
(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 30 and Part II, item 8, page 44, 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,
standardization and by leveraging the Company's global sourcing
system. Additional information about the Company's properties is
included in Management's Discussion and Analysis and the related
financial statements with footnotes in Part II, item 7, pages 11
through 30 and Part II, item 8, pages 35, 36, 38, 39, 40, 43, 50 and
51, 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. The Company does
not believe that any such claims or lawsuits will have a material
adverse affect on its financial condition or results of operations.
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.
8
Item 4. Submission of Matters to a Vote of Shareholders
None.
Executive Officers of the Registrant
All of the executive officers of McDonald's Corporation as of
March 1, 1996 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 1996 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 32 2
James R. Cantalupo President and 11/14/43 21 4
Chief Executive
Officer-International
Winston B.
Christiansen Executive Vice President 07/31/47 25 0
Thomas S. Dentice Executive Vice President 01/12/39 30 11
Robert J. Doran Executive Vice President 07/17/46 29 0
USA
Patrick J. Flynn Executive Vice President 05/01/42 34 8
Thomas W. Glasgow, Jr. Executive Vice President, 02/17/47 27 4
Chief Operations Officer
Jack M. Greenberg Vice Chairman, Chief 09/28/42 14 4
Financial Officer
Michael R. Quinlan Chairman, Chief 12/09/44 32 6
Executive Officer
Edward H. Rensi President and Chief 08/15/44 30 4
Executive Officer-U.S.A.
Paul D. Schrage Senior Executive Vice 02/25/35 28 11
President, Chief
Marketing Officer
James A. Skinner Executive Vice President 10/25/44 25 0
International
Fred L. Turner Senior Chairman 01/06/33 39 6
Shelby Yastrow Executive Vice President 11/03/35 18 0
/TABLE
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 and Chicago.
The following table sets forth the common stock price range on
the New York Stock Exchange composite tape and dividends declared per
common share. Prices and dividends have been adjusted to reflect the
two-for-one common stock split effected in the form of a stock
dividend in June, 1994.
-------------------------------------------------------------------------
Quarter 1995 1994
-------------------------------------------------------------------------
Dividend Per Dividend Per
High Low Common Share High Low Common Share
-------------------------------------------------------------------------
First 35 3/4 28 5/8 .0600 31 1/4 27 1/4 .0538
Second 39 1/4 33 3/4 .0675 31 3/8 27 5/8 .0600
Third 41 1/2 35 7/8 .0675 29 3/4 25 5/8 .0600
Fourth 48 37 3/4 .0675 29 7/8 25 7/8 .0600
-------------------------------------------------------------------------
Year 48 28 5/8 .2625 31 3/8 25 5/8 .2338
-------------------------------------------------------------------------
The approximate number of shareholders of record and beneficial
owners of the Company's common stock as of January 31, 1996 was
estimated to be 798,500.
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 80 consecutive
quarterly dividends on common stock through March 29, 1996, has
increased the per share amount 21 times since the first dividend was
paid in 1976, and has increased the dividend amount every year.
Additional dividend increases will be considered after reviewing
returns to shareholders, profitability expectations and financing
needs.
10
Item 6. Selected Financial Data
11-YEAR SUMMARY
(Dollars rounded to millions, except per common share data and average restaurant sales)
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
- ------------------------------------------------------------------------------------------------------------------------------
Systemwide sales $29,914 25,987 23,587 21,885 19,928 18,759 17,333 16,064 14,330 12,432 11,001
U.S. $15,905 14,941 14,186 13,243 12,519 12,252 12,012 11,380 10,576 9,534 8,843
Outside of the U.S. $14,009 11,046 9,401 8,642 7,409 6,507 5,321 4,684 3,754 2,898 2,158
Systemwide sales by type
Operated by franchisees $19,123 17,146 15,756 14,474 12,959 12,017 11,219 10,424 9,452 8,422 7,612
Operated by the Company $ 6,863 5,793 5,157 5,103 4,908 5,019 4,601 4,196 3,667 3,106 2,770
Operated by affiliates $ 3,928 3,048 2,674 2,308 2,061 1,723 1,513 1,444 1,211 904 619
Average sales by
Systemwide restaurants
open at least one year,
in thousands $ 1,844 1,800 1,768 1,733 1,658 1,649 1,621 1,596 1,502 1,369 1,296
Revenues from franchised
restaurants $ 2,931 2,528 2,251 2,031 1,787 1,621 1,465 1,325 1,186 1,037 924
Total revenues $ 9,795 8,321 7,408 7,133 6,695 6,640 6,066 5,521 4,853 4,143 3,694
Operating income $ 2,601 2,241 1,984 1,862 1,679 1,596 1,438 1,288 1,160 983 905
Income before provision
for income taxes $ 2,169 1,887 1,676 1,448 1,299 1,246 1,157 1,046 959 848 782
Net income $ 1,427 1,224 1,083 959 860 802 727 646 549 * 480 433
Cash provided by
operations $ 2,296 1,926 1,680 1,426 1,423 1,301 1,246 1,177 1,051 852 813
Financial position at year end
Net property and
equipment $12,811 11,328 10,081 9,597 9,559 9,047 7,758 6,800 5,820 4,878 4,164
Total assets $15,415 13,592 12,035 11,681 11,349 10,668 9,175 8,159 6,982 5,969 5,043
Total debt $ 4,836 4,351 3,713 3,857 4,615 4,792 4,036 3,269 2,784 2,321 1,768
Total shareholders'
equity $ 7,861 6,885 6,274 5,892 4,835 4,182 3,550 3,413 2,917 2,506 2,245
Per common share
Net income $ 1.97 1.68 1.45 1.30 1.17 1.10 .97 .86 .72 * .62 .55
Dividends declared $ .26 .23 .21 .20 .18 .17 .15 .14 .12 .11 .10
Total shareholders'
equity at year end $ 10.72 9.20 8.12 7.39 6.73 5.82 4.90 4.55 3.86 3.22 2.84
Market price at
year end $45 1/8 29 1/4 28 1/2 24 3/8 19 14 1/2 17 1/4 12 11 10 1/8 9
Restaurants at year end
Systemwide Restaurants 18,380 15,950 14,163 13,093 12,418 11,803 11,162 10,513 9,911 9,410 8,901
U.S. 11,368 10,238 9,397 8,959 8,764 8,576 8,270 7,907 7,567 7,272 6,972
Outside of the U.S. 7,012 5,712 4,766 4,134 3,654 3,227 2,892 2,606 2,344 2,138 1,929
Traditional Restaurants 16,809 15,205 13,993 13,093 12,418 11,803 11,162 10,513 9,911 9,410 8,901
Operated by franchisees 11,240 10,458 9,832 9,237 8,735 8,131 7,573 7,110 6,760 6,406 6,150
Operated by the Company 3,513 3,083 2,699 2,551 2,547 2,643 2,691 2,600 2,399 2,301 2,165
Operated by affiliates 2,056 1,664 1,462 1,305 1,136 1,029 898 803 752 703 586
U.S. 10,341 9,744 9,283 8,959 8,764 8,576 8,270 7,907 7,567 7,272 6,972
Outside of the U.S. 6,468 5,461 4,710 4,134 3,654 3,227 2,892 2,606 2,344 2,138 1,929
Number of countries at
year end 89 79 70 65 59 53 51 50 47 46 42
* Before the cumulative prior years' benefit from the change in accounting for income taxes.
/TABLE
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, 1995 1994
except per common share data) Amount % Amount %
-----------------------------------------------------------------------
SYSTEMWIDE SALES $3,927 15 $2,401 10
-----------------------------------------------------------------------
REVENUES
Sales by company-operated
restaurants $1,071 18 $ 636 12
Revenues from franchised
restaurants 403 16 277 12
-----------------------------------------------------------------------
TOTAL REVENUES 1,474 18 913 12
-----------------------------------------------------------------------
OPERATING COSTS AND EXPENSES
Company-operated restaurants 903 19 481 12
Franchised restaurants 80 18 55 14
General, administrative
and selling expenses 153 14 142 15
Other operating (income)
expense--net (22) 26 (22) 35
-----------------------------------------------------------------------
TOTAL OPERATING COSTS
AND EXPENSES 1,114 18 656 12
-----------------------------------------------------------------------
OPERATING INCOME 360 16 257 13
-----------------------------------------------------------------------
Interest expense 34 11 (10) (3)
Nonoperating income
(expense)--net (43) 88 (56) NM
-----------------------------------------------------------------------
INCOME BEFORE PROVISION FOR
INCOME TAXES 283 15 211 13
-----------------------------------------------------------------------
Provision for income taxes 80 12 69 12
-----------------------------------------------------------------------
NET INCOME $ 203 17 $ 142 13
=======================================================================
NET INCOME PER COMMON SHARE $ .29 17 $ .23 16
-----------------------------------------------------------------------
NM - 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 1995 and
1994 sales increases were primarily due to expansion. Stronger foreign
currencies and higher sales at existing restaurants also contributed
to these increases. Sales by Company-operated restaurants grew at a
higher rate than Systemwide sales in 1995 and 1994. For both years,
the number of Company-operated restaurants grew at a higher rate than
Systemwide restaurants, and for 1995, Company-operated comparable
sales were also stronger than Systemwide comparable sales.
Average sales by Systemwide restaurants open at least one year were
$1,844,000 in 1995, $44,000 higher than in 1994. Average sales
improved due to stronger foreign currencies and higher sales at
existing restaurants, partially offset by lower average sales for
newer, smaller restaurants. The Company expects that average sales
will continue to be affected by an increasing proportion of lower-
volume sites. Profitable expansion into these sites, consistent with
our Convenience Strategy to gain market share, has been made possible
by a low-cost approach to restaurant development.
Expansion continued at an accelerated pace as 2,430 restaurants
were added Systemwide in 1995 (1,604 traditional and 826 satellites),
compared with 1,787 in 1994 (1,212 traditional and 575 satellites) and
1,070 in 1993 (900 traditional and 170 satellites). Generally,
satellite restaurants offer a simplified menu and are smaller in size
and sales volume compared to traditional restaurants. McDonald's plans
to add between 2,500 and 3,200 restaurants around the world annually
in 1996 and 1997. Between 1,800 and 2,200 of the additions will be
traditional restaurants, with approximately two thirds outside of the
U.S. The remainder will be satellite restaurants, about half of which
will be in the U.S. This higher level of openings is attributable to
our low-cost approach to restaurant development as well as the
potential of our alliances with major oil companies and retailers.
Based on our experience with oil alliance sites, we have determined
that the majority of future expansion for these venues will be
traditional restaurants rather than satellite restaurants as
originally planned.
The consolidated financial statements reflect the operating results
of satellite restaurants on the same basis as traditional restaurants.
The results of satellites operated by the Company are included in
sales by and costs of Company-operated restaurants, while those
operated by franchisees are included in revenues from and costs of
franchised restaurants. Traditional restaurants opened during the year
contributed $1,002 million to Systemwide sales in 1995, $799 million
in 1994 and $572 million in 1993. Satellite restaurants opened during
the year contributed $190 million to Systemwide sales in 1995 and $92
million in 1994.
13
TOTAL REVENUES
Total revenues consist of sales by Company-operated restaurants and
fees from restaurants operated by franchisees and affiliates based on
a percent of sales with specified minimum payments. The minimum fee
includes both a rent and service fee amount at a combined rate of
approximately 12.5% of sales for new U.S. franchise arrangements.
Prior to 1994, the minimum fee generally was 12.0% for rent and
service fees combined. Fees may vary depending on the type of site and
the investment required on the part of the Company. Fees paid by
franchisees outside of the U.S. vary according to local business
conditions. Together with occupancy and operating rights, these fees
are stipulated in franchise arrangements that generally have 20-year
terms. Accordingly, these fees provide a stable, predictable revenue
flow to the Company.
Revenues grow as restaurants are added and as sales build in
existing restaurants. Menu price adjustments affect revenues and
sales; however, different pricing structures, new products, promotions
and product mix variations among markets make quantifying the impact
of menu price adjustments for the System as a whole impractical.
Total revenues for 1995 and 1994 increased due to strong global
operating results, positive comparable sales and an increase in the
Company-operated restaurant base through expansion and changes in
ownership.
In 1995, 60% of sales by Company-operated restaurants and 40% of
revenues from franchised restaurants were outside of the U.S.,
compared with 56% and 37%, respectively, in 1994.
RESTAURANT MARGINS
Company-operated restaurant margins were 19.2% of sales in 1995,
compared with 19.8% in 1994 and 19.2% in 1993. As a percent of 1995
sales, food and paper as well as occupancy and other operating costs
increased, while payroll costs remained relatively flat. As a percent
of 1994 sales, food and paper as well as occupancy and other operating
costs declined, while payroll costs increased.
Franchised margin dollars comprised about two thirds of the
combined operating margins, the same as in the prior year. Franchised
restaurant margins were 82.4% of applicable 1995 revenues, compared
with 82.8% in 1994 and 83.1% in 1993. The decreases reflected a higher
proportion of leased sites, resulting from accelerated expansion and
satellite development, which have financing costs embedded in rent
expense; whereas, financing costs for owned sites are reflected in
interest expense.
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 the lower margins prior to exercise and are included
in other operating (income) expense--net. At year-end 1995, 491
restaurants were operating under such arrangements, compared with 484
and 544 at year-end 1994 and 1993, respectively. The majority of these
restaurants were operated outside of the U.S.
14
GENERAL, ADMINISTRATIVE AND SELLING EXPENSES
The 1995 and 1994 increases were primarily due to strategic global
investment spending to support the Convenience, Value and Execution
Strategies. The 1995 increase was also affected by stronger foreign
currencies while the 1994 increase included a one-time, noncash $15
million charge related to the implementation of a new accounting rule
regarding the timing of expensing advertising production costs. These
expenses as a percent of Systemwide sales have remained relatively
constant and were 4.1% in 1995, 4.2% in 1994 and 4.0% in 1993.
Corporate general, administrative and selling expenses which were
not allocated to the geographic segments of the business were $48.2
million in 1995, $47.6 million in 1994 and $37.7 million in 1993.
OTHER OPERATING (INCOME) EXPENSE--NET
This category is comprised of transactions that relate to franchising
and the foodservice business such as gains on sales of restaurant
businesses, equity in earnings of unconsolidated affiliates, and net
gains or losses from property dispositions. The 1995 income increase
occurred because of greater income from affiliates, principally Japan,
partially offset by higher losses on property dispositions. The 1994
income increase reflected higher gains on sales of restaurant
businesses and higher income from affiliates, offset in part by higher
losses on property dispositions.
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 resulting gains are integral to franchising,
and as such, are recorded in operating income.
Equity in earnings of unconsolidated affiliates is reported after
interest expense and income taxes, except for U.S. partnerships which
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
disposals of excess properties through closings, relocations and other
transactions.
OPERATING INCOME
The 1995 and 1994 increases reflected higher combined operating margin
dollars and stronger foreign currencies, partially offset by higher
general, administrative and selling expenses. In addition, 1994
benefited from higher other operating income.
INTEREST EXPENSE
The 1995 increase was due to higher average debt levels and stronger
foreign currencies, partially offset by lower average interest rates.
The 1994 decrease was primarily due to lower average interest rates,
partially offset by higher average debt levels and stronger foreign
currencies.
15
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 1995 amount included $60 million of unrealized losses
associated with the Company's investment in Discovery Zone common
stock. These losses were primarily responsible for the decline in 1995
U.S. and Corporate income before provision for income taxes shown on
page 41. Also contributing to the 1995 consolidated results were
higher charges associated with minority interests, partially offset by
higher interest income and lower translation losses. The 1994 decrease
in nonoperating income reflected higher translation losses,
principally from Mexico and Brazil, losses on investments and higher
minority interest charges.
PROVISION FOR INCOME TAXES
The effective income tax rate was 34.2% for 1995, compared with 35.1%
for 1994 and 35.4% for 1993. The 1995 decrease was primarily due to a
reduction in U.S. state income taxes and an increased proportion of
earnings from foreign operations. The Company expects its 1996
effective income tax rate to be in the range of 32.5% to 33.5%, due to
lower taxes related to foreign operations.
Consolidated net deferred tax liabilities included tax assets, net
of valuation allowance, of $308 million in 1995, and $233 million in
1994. Substantially all tax assets arose in the U.S. and other
profitable markets, the majority of which 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 17% each in 1995
and 13% and 16%, respectively, in 1994. The spread between the 1994
percent increase in net income and net income per common share
reflected the impact of share repurchase. In 1995, the impact of share
repurchase was offset by the conversion of 11 million shares of Series
B and C preferred stock into 8.7 million shares of common stock.
16
IMPACT OF CHANGING FOREIGN CURRENCIES
While changing foreign currencies affect reported results, McDonald's
lessens short-term cash exposures principally by purchasing goods and
services in local currencies, financing in local currencies and
hedging foreign currency-denominated cash flows. Strengthening foreign
currencies had a positive impact on 1995 Systemwide sales, revenues,
operating income and net income. Strengthening foreign currencies had
a positive impact on 1994 Systemwide sales and operating income;
however, the currency impact on interest expense and higher
translation losses in Latin America more than offset this benefit,
resulting in a reduction in net income. Further discussion of our
management of changing foreign currencies is on pages 28 and 29 in the
commentary on financings and total shareholders' equity.
-----------------------------------------------------------------------
(Dollars in millions) As reported As adjusted*
-----------------------------------------------------------------------
1995
-----------------------------------------------------------------------
Systemwide sales $29,914 15% $29,057 12%
Revenues 9,795 18 9,531 15
Operating income 2,601 16 2,513 12
Net income 1,427 17 1,389 13
-----------------------------------------------------------------------
1994
-----------------------------------------------------------------------
Systemwide sales $25,987 10% $25,715 9%
Revenues 8,321 12 8,268 12
Operating income 2,241 13 2,226 12
Net income 1,224 13 1,233 14
-----------------------------------------------------------------------
*If exchange rates remained constant year-over-year.
17
------------------------------------------------------------------------
U.S. OPERATIONS
------------------------------------------------------------------------
SALES
Restaurant expansion was primarily responsible for increasing sales in
1995. In addition, positive comparable sales were driven by the
Company's continued emphasis on value and customer satisfaction in the
form of Extra Value Meals, Happy Meals and the three-tier value
program in 1995 and 1994. Ongoing programs such as Operation Mac
Attack -- our advertising campaign -- and Fast, Accurate and
Friendly -- our initiative to improve customer satisfaction -- and
promotions such as Monopoly also aided 1995 sales, as did various
promotions in 1994.
------------------------------------------------------------------------
Five Ten
years years
(In millions of dollars) 1995 1994 1993 ago ago
------------------------------------------------------------------------
Operated by franchisees $12,474 $11,965 $11,435 $ 9,379 $6,781
Operated by the Company 2,725 2,550 2,420 2,655 2,000
Operated by affiliates 706 426 331 218 62
------------------------------------------------------------------------
U.S. sales $15,905 $14,941 $14,186 $12,252 $8,843
========================================================================
Average sales by total U.S. restaurants open at least one year were
$1,538,000 in 1995 and $1,577,000 in 1994.
RESTAURANTS
There were 1,130 restaurants added in the U.S. in 1995 (597
traditional and 533 satellites) compared with 841 in 1994 (461
traditional and 380 satellites) and 306 (all traditional) five years
ago. The U.S. accounted for just over one third of traditional
restaurants added globally in 1995 and 1994, compared with about half
five years ago. Of the worldwide satellite restaurant additions, about
two thirds were in the U.S. in 1995 and 1994.
------------------------------------------------------------------------
Five Ten
years years
1995 1994 1993 ago ago
------------------------------------------------------------------------
Operated by franchisees 8,180 7,849 7,628 6,780 5,390
Operated by the Company 1,634 1,546 1,433 1,632 1,534
Operated by affiliates 527 349 222 164 48
------------------------------------------------------------------------
Traditional restaurants 10,341 9,744 9,283 8,576 6,972
Satellite restaurants 1,027 494 114 - -
------------------------------------------------------------------------
Total U.S. restaurants 11,368 10,238 9,397 8,576 6,972
========================================================================
18
About 84% of traditional U.S. restaurants were operated by
franchisees and affiliates at year-end 1995 and 1994, compared with
81% five years ago. Approximately 80% of U.S. satellite restaurants
were operated by franchisees and affiliates at year-end 1995.
OPERATING RESULTS
------------------------------------------------------------------------
(In millions of dollars) 1995 1994 1993 1992 1991
------------------------------------------------------------------------
REVENUES
Sales by Company-
operated restaurants $2,725 $2,550 $2,420 $2,353 $2,410
Revenues from
franchised restaurants 1,749 1,606 1,511 1,396 1,300
------------------------------------------------------------------------
TOTAL REVENUES 4,474 4,156 3,931 3,749 3,710
------------------------------------------------------------------------
OPERATING COSTS AND
EXPENSES
Company-operated
restaurants 2,244 2,066 1,977 1,920 2,000
Franchised restaurants 304 270 247 235 217
General, administrative
and selling expenses* 682 628 569 507 499
Other operating (income)
expense--net (8) (25) (18) (13) (56)
------------------------------------------------------------------------
TOTAL OPERATING
COSTS AND EXPENSES* 3,222 2,939 2,775 2,649 2,660
------------------------------------------------------------------------
U.S. OPERATING INCOME* $1,252 $1,217 $1,156 $1,100 $1,050
========================================================================
*Operating income prior to 1995 has been restated to reflect a more
meaningful allocation of general, administrative and selling
expenses between the U.S. and international segments and includes an
additional corporate category which is not allocated.
U.S. revenues were positively impacted by expansion and positive
comparable sales in 1995, 1994 and 1993, and reduced by the
franchising of certain Company-operated restaurant businesses in 1992
and 1991.
U.S. Company-operated margins decreased $3 million in 1995, as
lower Company-operated comparable sales and higher costs more than
offset the positive impact of the growth in the number of Company-
operated restaurants. These margins were 17.7% of sales in 1995,
compared with 19.0% in 1994 and 18.3% in 1993. In 1995, the margin
decline was driven by higher payroll costs as a percent of sales
resulting from an increase in the average hourly wage rate and
increased staffing levels designed to improve customer satisfaction.
In 1995 and 1994, the margin benefited from cost reduction efforts and
lower commodity costs.
19
U.S. franchised margins rose $109 million or 8% in 1995, driven by
expansion and positive comparable sales. These margins were 82.6% of
applicable revenues in 1995, compared with 83.2% in 1994 and 83.6% in
1993. Franchised margins as a percent of revenues declined in 1995 and
1994 as the growth in rent expense, resulting from an increase in the
proportion of new leased sites, particularly satellite locations,
outpaced the growth in franchised revenues.
With the current intensely competitive U.S. operating environment,
we expect continuing pressure on Company-operated margins. However,
while it is difficult to assess the potential effects of legislation
and other factors that may affect the industry, the Company believes
it can maintain annual operating margins as a percent of sales within
the historical range of the past ten years by continuing to build
sales and reduce costs.
U.S. operating income rose $35 million or 3% in 1995 and $61
million or 5% in 1994, and was 48% and 54% of consolidated operating
income in 1995 and 1994, respectively. The 1995 and 1994 increases
resulted primarily from higher combined operating margins, partially
offset by higher general, administrative and selling expenses in the
form of higher employee costs, and other expenditures to support our
Convenience, Value and Execution Strategies. 1994 U.S. operating
income was also impacted by a one-time, $12 million charge related to
the implementation of a new accounting rule for advertising costs.
Operating income included depreciation and amortization of $398
million in 1995, $366 million in 1994 and $348 million in 1993.
While the U.S. market remains intensely competitive, McDonald's is
confident of continued growth in operating income over the long term
through expansion, by controlling costs at the developmental,
operational and administrative levels, and through a greater emphasis
on value and customer satisfaction.
ASSETS AND CAPITAL EXPENDITURES
U.S. assets increased $547 million or 8% in 1995 and $293 million or
5% in 1994. These increases were due to accelerated expansion and
increased reinvestment in existing restaurants during 1995. At year-
end 1995, 46% of consolidated assets were located in the U.S.,
compared with 48% at year-end 1994.
-------------------------------------------------------------------------
(In millions of dollars) 1995 1994 1993 1992 1991
-------------------------------------------------------------------------
U.S. assets $7,040 $6,493 $6,200 $5,995 $5,921
-------------------------------------------------------------------------
New restaurants $ 602 $ 472 $ 332 $ 196 $ 214
Existing restaurants 213 125 122 125 151
Other properties 104 113 130 76 45
-------------------------------------------------------------------------
U.S. capital expenditures $ 919 $ 710 $ 584 $ 397 $ 410
=========================================================================
20
U.S. capital expenditures increased $209 million or 30% in 1995,
and represented 44% of consolidated capital expenditures, compared
with 47% five years ago. These amounts excluded initial investments
made by franchisees in equipment, signs, seating and decor, as well as
their ongoing reinvestment expenditures. New restaurant expenditures
increased $130 million or 28%, primarily because of accelerated
expansion.
Expenditures for existing restaurants were made to achieve higher
levels of customer satisfaction and implement technology to improve
service and food quality. In 1995, strategic reinvestment to build
sales included $57 million for indoor Ronald's Playplaces and $37
million for rebuilding and relocating restaurants to adjust to
changing demographics, traffic patterns and market opportunities. Over
the past five years, $188 million has been invested to replace older
buildings with new lower-cost, more efficient restaurants.
Other properties primarily included expenditures for office
buildings and related furnishings.
Traditional restaurants
-------------------------------------------------------------------------
(In thousands of dollars) 1995 1994 1993 1992 1991
-------------------------------------------------------------------------
Land $ 348 $ 317 $ 328 $ 361 $ 433
Building 503 483 482 515 608
Equipment 300 295 317 361 362
-------------------------------------------------------------------------
U.S. average
development costs $1,151 $1,095 $1,127 $1,237 $1,403
=========================================================================
U.S. average development costs increased in 1995 primarily due to
higher site development and preparation costs combined with
investments for indoor Ronald's Playplaces in more than 25% of new
traditional restaurants. Construction efficiencies and a further shift
toward smaller, lower-cost building designs partially offset these
increases.
Average development costs have decreased 26% from 1990 levels.
Initiatives such as the Company's new joint venture to develop modular
restaurant buildings serve as an example of our commitment to further
reduce development costs through standardization, global sourcing and
greater economies of scale. Our objective is to profitably expand into
more locations, consistent with McDonald's goal of increasing market
share with greater marketwide presence throughout the world.
Because real estate ownership yields long-term benefits, including
the ability to fix occupancy costs, the Company purchases new
properties and acquires previously leased properties to the extent
practical. The Company owned 68% of traditional U.S. sites at year-end
1995, compared with 69% five years ago. Most satellite restaurants are
leased locations.
21
----------------------------------------------------------------------
OPERATIONS OUTSIDE OF THE U.S.
----------------------------------------------------------------------
SALES
Sales outside of the U.S. rose 27% in 1995 and 18% in 1994 due to
aggressive expansion, stronger foreign currencies and higher local
currency sales at existing restaurants in all geographic segments
except Canada. This strong sales growth in 1995 was achieved despite
weak economies in several markets. In 1995, 47% of Systemwide sales
were from markets located outside of the U.S. compared with 43% in
1994 and 35% five years ago.
----------------------------------------------------------------------
Five Ten
years years
(In millions of dollars) 1995 1994 1993 ago ago
----------------------------------------------------------------------
Operated by franchisees $ 6,648 $ 5,182 $4,321 $2,638 $ 831
Operated by the Company 4,139 3,242 2,737 2,364 770
Operated by affiliates 3,222 2,622 2,343 1,505 557
----------------------------------------------------------------------
Sales outside of the U.S. $14,009 $11,046 $9,401 $6,507 $2,158
======================================================================
In Asia/Pacific, Australia, Japan, New Zealand, Singapore and
Taiwan reported strong 1995 sales increases driven by Extra Value Meal
marketing campaigns and rapid store expansion.
In Europe, restaurant expansion continued to drive 1995 sales
growth in Austria, England, France, Germany, the Netherlands and
Spain.
In Latin America, due to the mid-1994 economic reforms, Brazil's
tremendous sales growth continued into 1995. Results in Mexico
continued to be impacted by the weak economy and further peso
devaluation. We currently anticipate this trend to continue through at
least 1996; however, we believe this market offers long-term
potential.
Canada's 1995 sales growth was impacted by a slow economy and
decreased consumer retail spending.
Average sales by total restaurants outside of the U.S. open at
least one year were $2,422,000 in 1995 and $2,254,000 in 1994. This
increase reflected stronger foreign currencies and higher local
currency sales.
RESTAURANTS
During the past five years, 56% of Systemwide and 64% of traditional
restaurant additions have been outside of the U.S. Of the 1,007
traditional restaurants added outside of the U.S. in 1995, 42% were in
the six largest markets -- Australia, Canada, England, France, Germany
and Japan -- compared with 51% in 1994. Of the 293 satellite
restaurants added in 1995, 86% were in the six largest markets
compared with 74% in 1994.
22
In 1995, Japan added 313 total restaurants (109 traditional and 204
satellites), representing 24% of the total restaurants added outside
of the U.S. Japan's profitable expansion was supported by significant
reductions in average restaurant development costs achieved through
standardization of building designs and utilization of smaller
buildings.
In 1996 and 1997, more than half of total restaurant additions
outside of the U.S. are anticipated to be in the six largest markets
while new and emerging markets, such as the Middle East, China and
Central Europe are expected to represent a growing proportion of
expansion.
----------------------------------------------------------------------
Five Ten
years years
1995 1994 1993 ago ago
----------------------------------------------------------------------
Operated by franchisees 3,060 2,609 2,204 1,351 760
Operated by the Company 1,879 1,537 1,266 1,011 631
Operated by affiliates 1,529 1,315 1,240 865 538
----------------------------------------------------------------------
Traditional restaurants 6,468 5,461 4,710 3,227 1,929
Satellite restaurants 544 251 56
----------------------------------------------------------------------
Total restaurants
outside of the U.S. 7,012 5,712 4,766 3,227 1,929
======================================================================
At year-end 1995, 38% of Systemwide restaurants were outside of the
U.S. compared with 36% in 1994 and 27% five years ago. Restaurants
outside of the U.S. comprised 53% of traditional Company-operated
restaurants and 27% of traditional franchised restaurants. About 29%
of the traditional restaurants outside of the U.S. were Company-
operated, 47% were franchised and 24% were operated by affiliates.
Approximately 69% of traditional Company-operated restaurants were in
England, Canada, Germany, Australia, Taiwan and Brazil. About 66% of
traditional franchised restaurants were in Canada, Germany, Australia,
France, England and the Netherlands. Restaurants operated by
affiliates were principally located in Japan and other Asia/Pacific
countries.
Approximately 81% of satellite restaurants outside of the U.S. were
operated by franchisees and affiliates at year-end 1995. The vast
majority were located in Japan, Canada and Brazil.
23
OPERATING RESULTS
-----------------------------------------------------------------------
(In millions of dollars) 1995 1994 1993 1992 1991
-----------------------------------------------------------------------
REVENUES
Sales by Company-
operated restaurants $4,139 $3,242 $2,737 $2,750 $2,499
Revenues from
franchised restaurants 1,182 923 740 634 486
-----------------------------------------------------------------------
TOTAL REVENUES 5,321 4,165 3,477 3,384 2,985
-----------------------------------------------------------------------
OPERATING COSTS AND
EXPENSES
Company-operated
restaurants 3,304 2,579 2,188 2,206 2,029
Franchised restaurants 211 165 133 114 90
General, administrative
and selling expenses* 507 408 335 320 269
Other operating (income)
expense--net (98) (59) (44) (51) (58)
-----------------------------------------------------------------------
TOTAL OPERATING
COSTS AND EXPENSES* 3,924 3,093 2,612 2,589 2,330
-----------------------------------------------------------------------
OPERATING INCOME
OUTSIDE OF THE U.S.* $1,397 $1,072 $ 865 $ 795 $ 655
=======================================================================
*Operating income prior to 1995 has been restated to reflect a more
meaningful allocation of general, administrative and selling expenses
between the U.S. and international segments and includes an additional
corporate category which is not allocated.
The growth in 1995 and 1994 revenue and operating income was driven
by higher combined operating margin dollars resulting from expansion,
positive comparable sales and stronger foreign currencies. The six
largest markets accounted for about 75% of total operating income
outside of the U.S. in 1995 and contributed 70% to operating income
growth outside of the U.S. in 1995 compared with 53% in 1994.
24
Operations outside of the U.S. continued to contribute greater
amounts to consolidated results as shown below:
---------------------------------------------------------------------
(As a percent of consolidated) 1995 1994 1993 1992 1991
---------------------------------------------------------------------
Systemwide sales 47% 43% 40% 39% 37%
Total revenues 54 50 47 47 45
Operating income* 54 48 44 43 39
Operating margins
Company-operated 63 58 55 56 53
Franchised 40 36 32 31 27
Systemwide restaurants 38 36 34 32 29
Assets 53 51 47 45 46
---------------------------------------------------------------------
*Operating income prior to 1995 has been restated to reflect a more
meaningful allocation of general, administrative and selling
expenses between the U.S. and international segments and includes an
additional corporate category which is not allocated.
Company-operated margins increased $172 million or 26% in 1995.
Company-operated margins accounted for 53% of the total operating
income increase outside of the U.S. in 1995 and 55% of this increase
in 1994. The six largest markets contributed about 68% to total
Company-operated margin dollars outside of the U.S. in 1995 and
accounted for 46% of the increase over 1994.
Company-operated margins declined as a percent of sales in 1995 to
20.2% compared with 20.5% in 1994 and 20.1% in 1993. The 1995 decline
resulted from a strategic decision to invest incremental margin
dollars into our Value Strategy, designed to increase market share and
customer satisfaction, coupled with a comparison to extremely strong
results in the second half of 1994, primarily due to Brazil. The
Company believes it can maintain these annual operating margins as a
percent of sales within the historical range of the past ten years by
continuing to build sales and reduce costs.
Franchised margins grew $213 million or 28% in 1995. These margins
were 82.1% of applicable revenues in 1995 and 1994 compared with 82.0%
in 1993. Franchised margin dollar growth was driven by expansion and
positive comparable sales.
The 1995 and 1994 increases in general, administrative and selling
expenses were caused principally by additional employee costs
associated with rapid expansion in new and emerging markets,
government-mandated payroll and social cost increases and stronger
foreign currencies.
Other operating income increased in 1995 primarily due to higher
income from affiliates, principally Japan. Japan's increased income
resulted from expansion as well as an aggressive value strategy
emphasizing Extra Value Meals which resulted in strong comparable
sales.
25
The Europe/Africa/Middle East segment accounted for 61% of revenues
and 60% of operating income outside of the U.S. in 1995, growing $650
and $195 million, respectively in 1995 and $369 and $113 million,
respectively, in 1994. Germany, England and France accounted for 83%
of this segment's operating income in 1995, compared with 82% in 1994.
Stronger currencies contributed about one third of this segment's
operating income increase over 1994. This benefit diminished as the
U.S. Dollar strengthened later in 1995.
Asia/Pacific revenues grew $280 and $236 million and operating
income increased $76 and $53 million in 1995 and 1994, respectively.
Australia, Japan, Hong Kong and Taiwan contributed 86% of this
segment's operating income in 1995. Japan's profits increased
significantly compared to 1994 due to an aggressive value campaign and
accelerated expansion. Australia experienced strong sales increases in
1995 from significant restaurant expansion and higher sales at
existing restaurants through a continued emphasis on value. The
Company's share of Taiwan's 1995 and 1994 revenues increased as a
result of a change in ownership from a joint venture to a wholly-owned
subsidiary in May 1994. The 1994 increases in revenues and operating
income were also attributable to expansion and developing economies in
many markets, with the exception of Japan, which suffered from a weak
economy. Strong currencies contributed to this segment's 1995
operating income increase. As the U.S. Dollar strengthened against the
Yen in the later part of the year, the currency benefit significantly
decreased.
Latin American revenues grew $223 and $95 million and operating
income increased $57 and $35 million in 1995 and 1994, respectively.
Brazil continued to be primarily responsible for the Latin American
operating income increase due to expansion as well as significant
sales increases from existing restaurants which began in mid-1994 due
to economic reforms. Brazil's restaurant base grew by 25% in 1995 and
27% in 1994. Mexico continued to be negatively impacted by the economy
and currency devaluation.
Canadian revenues increased $2 million in 1995 and decreased $12
million in 1994, while operating income decreased $2 million in 1995
and increased $6 million in 1994. The 1995 results reflect lower sales
at existing restaurants, caused by the slow economy, partially offset
by new restaurant growth.
26
ASSETS AND CAPITAL EXPENDITURES
Assets outside of the U.S. rose $1.3 billion or 19% in 1995 due to
expansion and stronger foreign currencies. At year-end 1995, about 53%
of consolidated assets were located outside of the U.S.; 57% of these
assets were located in England, Germany, France, Australia and Canada.
-----------------------------------------------------------------------
(In millions of dollars) 1995 1994 1993 1992 1991
-----------------------------------------------------------------------
Assets outside of the
U.S. $8,206 $6,909 $5,650 $5,271 $5,195
-----------------------------------------------------------------------
New restaurants $ 941 $ 723 $ 609 $ 603 $ 612
Existing restaurants 142 87 94 91 94
Other properties 55 34 55 47 39
-----------------------------------------------------------------------
Capital expenditures
outside of the U.S. $1,138 $ 844 $ 758 $ 741 $ 745
=======================================================================
In the past five years, $4.2 billion has been invested by the
Company outside of the U.S. Capital expenditures outside of the U.S.
rose $294 million or 35% in 1995 reflecting growth in all geographic
segments. Approximately 66% of 1995 capital expenditures outside of
the U.S. were invested in Europe -- primarily in Germany, France and
England.
Overall 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. These investments
accommodate higher sales volumes and transaction counts. Since 1990,
average development costs have decreased due to construction and
design efficiencies, standardization, global sourcing and changes in
the mix of openings.
Expenditures for existing restaurants included dining room remodels
to achieve increased levels of customer satisfaction and technology
upgrades to improve service and food quality. The majority of these
expenditures were in Europe. Expenditures for other properties were
principally for office facilities.
As in the U.S., the Company emphasizes restaurant property
ownership outside of the U.S.; however, various laws and regulations
make property acquisition and ownership much more difficult. Property
is purchased when legally and economically feasible; 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 owned 34% of traditional sites outside of the
U.S. at year-end 1995, compared with 36% in 1994 and 35% five years
ago.
Capital expenditures made by affiliates -- which were not included
in consolidated amounts -- were $258 million in 1995, compared with
$203 million in 1994. The majority of the 1995 expenditures were for
development in Japan, Sweden, Argentina, Russia and Singapore.
27
-----------------------------------------------------------------------
FINANCIAL POSITION
-----------------------------------------------------------------------
TOTAL ASSETS AND CAPITAL EXPENDITURES
Total assets grew approximately $1.8 billion or 13% in 1995; net
property and equipment represented 83% of total assets and rose $1.5
billion. Capital expenditures increased $503 million or 32%,
reflecting increased expansion, reinvestment in existing restaurants
and stronger foreign currencies.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
In the first quarter of 1996, the Company will adopt Statement of
Financial Accounting Standard No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of. This
statement requires impairment losses be recognized for long-lived
assets, whether these assets are held for disposal or continue to be
used in operations, when indicators of impairment are present and the
fair value of assets are estimated to be less than carrying amounts.
After reviewing its assets for impairment, the Company anticipates a
pre-tax charge to operating income of approximately $16 million
related to restaurant sites in Mexico on adoption of this new
accounting standard.
CASH PROVIDED BY OPERATIONS
Cash provided by operations increased $370 million or 19% in 1995, and
$246 million or 15% in 1994. Together with other sources of cash such
as borrowings, cash provided by operations was used principally for
capital expenditures, debt repayments, share repurchase and dividends.
For the fifth consecutive 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 any short-term needs through
commercial paper borrowings and line of credit agreements.
Accordingly, a relatively low current ratio has been purposefully
maintained; it was .53 at year-end 1995.
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. Cash provided by
operations is expected to cover capital expenditures over the next
several years, even as expansion continues to accelerate.
-----------------------------------------------------------------------
(Dollars in millions) 1995 1994 1993 1992 1991
-----------------------------------------------------------------------
Cash provided by
operations $2,296 $1,926 $1,680 $1,426 $1,423
Cash provided by operations
less capital expenditures $ 233 $ 388 $ 363 $ 339 $ 294
Cash provided by operations
as a percent of capital
expenditures 111 125 128 131 126
Cash provided by operations
as a percent of average
total debt 49 48 44 33 31
-----------------------------------------------------------------------
28
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.
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 have been used to effectively
convert fixed-rate to floating-rate debt, or vice versa. Foreign
currency-denominated debt has been used to lessen the impact of
changing foreign currencies on net income and shareholders' equity by
designating these borrowings as hedges of intercompany financings or
the Company's long-term investments in its foreign subsidiaries and
affiliates. Total foreign currency-denominated debt, including the
effects of currency exchange agreements, was $4.3 and $4.0 billion at
year-end 1995 and 1994, respectively.
-----------------------------------------------------------------------
1995 1994 1993 1992 1991
-----------------------------------------------------------------------
Fixed-rate debt as a percent
of total debt 67% 64% 77% 75% 78%
Weighted average annual
interest rate 7.9 8.4 9.1 9.3 9.4
Foreign currency-denominated
debt as a percent of total
debt 89 92 86 72 61
Total debt as a percent of
total capitalization (total
debt and total shareholders'
equity) 38 39 37 40 49
-----------------------------------------------------------------------
The Company manages its debt portfolio to respond to changes in
interest rates and foreign currencies and accordingly, periodically
retires, redeems, and repurchases debt; terminates exchange
agreements; and uses derivatives. The Company does not use derivatives
with a level of complexity or with a risk higher than the exposures to
be hedged and does not hold or issue financial instruments for trading
purposes; all exchange agreements are over-the-counter instruments.
29
While changing foreign currencies affect reported results, the
Company actively hedges selected foreign currencies, primarily to
minimize the cash exposure of royalty and other payments received in
the U.S. in local currencies. McDonald's restaurants also primarily
purchase goods and services in local currencies resulting in natural
hedges and McDonald's typically finances in local currencies creating
economic hedges. The Company's exposure is diversified within a broad
basket of currencies. At year-end 1995, assets in hyperinflationary
markets and in Mexico were principally financed in U.S. Dollars. The
Company's largest net asset exposures (defined as foreign currency
assets less foreign currency liabilities) by foreign currency were as
follows:
----------------------------------------------------------------------
(In millions of dollars) December 31, 1995 1994
----------------------------------------------------------------------
Canadian Dollars $361 $311
British Pounds Sterling 356 330
Australian Dollars 240 212
French Francs 198 99
Hong Kong Dollars 115 52
Netherland Guilders 107 15
Austrian Schillings 106 84
----------------------------------------------------------------------
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+. At the present time, these strong
ratings are important to McDonald's in the context of our global
development plans. The Company has not experienced, nor does it expect
to experience, difficulty in obtaining financing or in refinancing
existing debt. At year-end 1995, the Company and its subsidiaries had
$1.3 billion available under line of credit agreements and $785
million under previously filed shelf registrations available 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, the Company and its affiliates have
leased properties related to 40% of U.S. traditional restaurant
openings and 66% of traditional restaurant openings outside of the
U.S.
Since 1990, the Company has improved its balance sheet by reducing
leverage while simultaneously increasing expansion and repurchasing
shares.
30
TOTAL SHAREHOLDERS' EQUITY
Total shareholders' equity rose $976 million or 14% in 1995,
representing 51% of total assets at year-end. Stronger foreign
currencies increased shareholders' equity by $28 million in 1995.
One technique used to enhance common shareholder value is share
repurchase using excess cash flow or debt capacity, while maintaining
a strong equity base for future expansion. McDonald's has repurchased
$2.8 billion of its common stock, representing 148 million shares,
over the past 10 years. At year-end 1995, the market value of shares
recorded as common stock in treasury was $6.3 billion, compared to the
cost of $2.5 billion.
In January 1996, the Company announced plans to repurchase $2.2
billion of its common stock within the next three years, including
$200 million remaining under the three-year, $1 billion program
announced in January 1994. In 1993, the Company completed a $700
million common share repurchase program begun in 1992.
RETURNS
Return on average assets is computed using operating income. Net
income less preferred stock dividends (net of tax in 1995, 1994, 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.
----------------------------------------------------------------------
1995 1994 1993 1992 1991
----------------------------------------------------------------------
Return on average assets 17.9% 17.6% 17.0% 16.4% 15.7%
Return on average common
equity 19.9 19.4 19.0 18.2 19.1
----------------------------------------------------------------------
The improvements in return on average assets since 1991 reflected
better global operating results and a slower rate of asset growth. The
1995, 1994 and 1993 improvements in return on average common equity
reflected higher levels of share repurchase, whereas the decline in
1992 resulted from a lower level of share repurchase as excess cash
flow was used to reduce debt.
EFFECTS OF CHANGING PRICES--INFLATION
McDonald's has demonstrated an ability to manage inflationary cost
increases effectively. Rapid inventory turnover, ability to adjust
prices, cost controls and substantial property holdings -- many of
which are at fixed costs and partially financed by debt made cheaper
by inflation -- have enabled McDonald's to mitigate the effects of
inflation. In hyperinflationary markets, menu board prices typically
are adjusted to keep pace, thereby mitigating the effect on reported
results.
31
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Reference
---------
Management's report 32
Report of independent auditors 33
Consolidated statement of income
for each of the three years in the
period ended December 31, 1995 34
Consolidated balance sheet
at December 31, 1995 and 1994 35
Consolidated statement of cash flows
for each of the three years in the
period ended December 31, 1995 36
Consolidated statement of shareholders'
equity for each of the three years in
the period ended December 31, 1995 37
Notes to consolidated financial statements
(Financial comments) 38 - 56
Quarterly results (unaudited) 57
32
MANAGEMENT'S REPORT
Management is responsible for the preparation, integrity and fair
presentation 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 judgment
and best estimates. Other financial information presented in the
annual report is consistent with the financial statements.
The Company maintains a system of internal control over financial
reporting including safeguarding of assets against unauthorized
acquisition, use or disposition, which is designed to provide
reasonable assurance to the Company's management and Board of
Directors regarding the preparation of reliable published financial
statements and such asset safeguarding. The system includes a
documented organizational structure and appropriate division of
responsibilities; established policies and procedures which are
communicated throughout the Company; careful selection, training, and
development of our people; 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.
There are inherent limitations in the effectiveness of any system
of internal control, including the possibility of human error and the
circumvention or overriding of controls. Accordingly, even an
effective internal control system can provide only reasonable
assurance with respect to financial statement preparation and
safeguarding of assets. Furthermore, the effectiveness of an internal
control system can change with circumstances. The Company believes
that at December 31, 1995, it maintained an effective system of
internal control over financial reporting and safeguarding of assets
against unauthorized acquisition, use or disposition.
The consolidated financial statements have been audited by
independent auditors, Ernst & Young LLP, who were given unrestricted
access to all financial records and related data. The audit report of
Ernst & Young LLP is presented below.
The Board of Directors, operating through its Audit Committee
composed entirely of independent Directors, provides oversight to the
financial reporting process. Ernst & Young LLP has independent 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 25, 1996
33
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, 1995 and 1994, and the
related consolidated statements of income, shareholders' equity and
cash flows for each of the three years in the period ended December
31, 1995. 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, 1995 and 1994, and the
consolidated results of its operations and its cash flows for each of
the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
January 25, 1996
34
McDONALD'S CORPORATION
CONSOLIDATED STATEMENT OF INCOME
--------------------------------------------------------------------------
(In millions of dollars, except per common share data)
Years ended December 31, 1995 1994 1993
--------------------------------------------------------------------------
REVENUES
Sales by Company-operated restaurants $6,863.5 $5,792.6 $5,157.2
Revenues from franchised restaurants 2,931.0 2,528.2 2,250.9
--------------------------------------------------------------------------
TOTAL REVENUES 9,794.5 8,320.8 7,408.1
--------------------------------------------------------------------------
OPERATING COSTS AND EXPENSES
Company-operated restaurants
Food and packaging 2,319.4 1,934.2 1,735.1
Payroll and other employee benefits 1,730.9 1,459.1 1,291.2
Occupancy and other operating expenses 1,497.4 1,251.7 1,138.3
--------------------------------------------------------------------------
5,547.7 4,645.0 4,164.6
--------------------------------------------------------------------------
Franchised restaurants--occupancy expenses 514.9 435.5 380.4
General, administrative and selling expenses 1,236.3 1,083.0 941.1
Other operating (income) expense--net (105.7) (83.9) (62.0)
--------------------------------------------------------------------------
TOTAL OPERATING COSTS AND EXPENSES 7,193.2 6,079.6 5,424.1
--------------------------------------------------------------------------
OPERATING INCOME 2,601.3 2,241.2 1,984.0
--------------------------------------------------------------------------
Interest expense--net of capitalized interest
of $22.5, $20.6 and $20.0 340.2 305.7 316.1
Nonoperating income (expense)--net (92.0) (48.9) 7.8
--------------------------------------------------------------------------
INCOME BEFORE PROVISION FOR INCOME TAXES 2,169.1 1,886.6 1,675.7
--------------------------------------------------------------------------
Provision for income taxes 741.8 662.2 593.2
--------------------------------------------------------------------------
NET INCOME $1,427.3 $1,224.4 $1,082.5
==========================================================================
NET INCOME PER COMMON SHARE $ 1.97 $ 1.68 $ 1.45
--------------------------------------------------------------------------
DIVIDENDS PER COMMON SHARE $ .26 $ .23 $ .21
--------------------------------------------------------------------------
The accompanying Financial Comments are an integral part of the
consolidated financial statements.
/TABLE
35
McDONALD'S CORPORATION
CONSOLIDATED BALANCE SHEET
--------------------------------------------------------------------
(In millions of dollars) December 31, 1995 1994
--------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and equivalents $ 334.8 $ 179.9
Accounts receivable 377.3 348.1
Notes receivable 36.3 31.2
Inventories, at cost, not in excess of market 58.0 50.5
Prepaid expenses and other current assets 149.4 131.0
--------------------------------------------------------------------
TOTAL CURRENT ASSETS 955.8 740.7
--------------------------------------------------------------------
OTHER ASSETS AND DEFERRED CHARGES
Notes receivable due after one year 98.5 80.0
Investments in and advances to affiliates 656.9 579.3
Miscellaneous 357.3 380.4
--------------------------------------------------------------------
TOTAL OTHER ASSETS AND DEFERRED CHARGES 1,112.7 1,039.7
--------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Property and equipment, at cost 17,137.6 15,184.6
Accumulated depreciation and amortization (4,326.3) (3,856.2)
--------------------------------------------------------------------
NET PROPERTY AND EQUIPMENT 12,811.3 11,328.4
--------------------------------------------------------------------
INTANGIBLE ASSETS--NET 534.8 483.1
--------------------------------------------------------------------
TOTAL ASSETS $15,414.6 $13,591.9
====================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 413.0 $ 1,046.9
Accounts payable 564.3 509.4
Income taxes 55.4 25.0
Other taxes 127.1 102.1
Accrued interest 117.4 107.7
Other accrued liabilities 352.5 291.9
Current maturities of long-term debt 165.2 368.3
--------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,794.9 2,451.3
--------------------------------------------------------------------
LONG-TERM DEBT 4,257.8 2,935.4
OTHER LONG-TERM LIABILITIES AND
MINORITY INTERESTS 664.7 422.8
DEFERRED INCOME TAXES 835.9 840.8
COMMON EQUITY PUT OPTIONS 56.2
SHAREHOLDERS' EQUITY
Preferred stock, no par value;
authorized--165.0 million shares;
issued--7.2 thousand and 11.2 million 358.0 674.2
Common stock, no par value;
authorized--1.25 billion shares;
issued--830.3 million 92.3 92.3
Additional paid-in capital 387.4 286.0
Guarantee of ESOP Notes (214.2) (234.4)
Retained earnings 9,831.3 8,625.9
Foreign currency translation adjustment (87.1) (114.9)
--------------------------------------------------------------------
10,367.7 9,329.1
--------------------------------------------------------------------
Common stock in treasury, at cost;
130.6 and 136.6 million shares (2,506.4) (2,443.7)
--------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 7,861.3 6,885.4
--------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $15,414.6 $13,591.9
====================================================================
The accompanying Financial Comments are an integral part of the
consolidated financial statements.
/TABLE
36
McDONALD'S CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
--------------------------------------------------------------------------
(In millions of dollars)
Years ended December 31, 1995 1994 1993
--------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $1,427.3 $1,224.4 $1,082.5
Adjustments to reconcile to cash
provided by operations
Depreciation and amortization 709.0 628.6 568.4
Deferred income taxes (4.2) (5.6) 52.4
Changes in operating working capital items
Accounts receivable increase (49.5) (51.6) (48.3)
Inventories, prepaid expenses and other
current assets increase (20.4) (15.0) (9.6)
Accounts payable increase 52.6 105.4 45.4
Accrued interest increase (decrease) 13.0 (25.5) (5.1)
Taxes and other liabilities increase 158.3 95.2 26.5
Other--net 10.1 (29.7) (32.4)
--------------------------------------------------------------------------
CASH PROVIDED BY OPERATIONS 2,296.2 1,926.2 1,679.8
--------------------------------------------------------------------------
INVESTING ACTIVITIES
Property and equipment expenditures (2,063.7) (1,538.6) (1,316.9)
Purchases of restaurant businesses (110.1) (133.8) (64.2)
Sales of restaurant businesses 151.6 151.5 114.2
Property sales 66.2 66.0 61.6
Notes receivable additions (33.4) (15.1) (33.1)
Notes receivable reductions 31.5 56.7 75.7
Other (151.1) (92.6) (55.3)
--------------------------------------------------------------------------
CASH USED FOR INVESTING ACTIVITIES (2,109.0) (1,505.9) (1,218.0)
--------------------------------------------------------------------------
FINANCING ACTIVITIES
Net short-term borrowings (repayments) (272.9) 521.7 (8.9)
Long-term financing issuances 1,250.2 260.9 1,241.0
Long-term financing repayments (532.2) (536.9) (1,185.9)
Treasury stock purchases (314.5) (495.6) (620.1)
Common and preferred stock dividends (226.5) (215.7) (201.2)
Other 63.6 39.4 62.6
--------------------------------------------------------------------------
CASH USED FOR FINANCING ACTIVITIES (32.3) (426.2) (712.5)
--------------------------------------------------------------------------
CASH AND EQUIVALENTS INCREASE (DECREASE) 154.9 (5.9) (250.7)
--------------------------------------------------------------------------
Cash and equivalents at beginning of year 179.9 185.8 436.5
--------------------------------------------------------------------------
CASH AND EQUIVALENTS AT END OF YEAR $ 334.8 $ 179.9 $ 185.8
==========================================================================
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid $ 331.0 $ 323.9 $ 312.2
Income taxes paid $ 667.6 $ 621.8 $ 521.7
--------------------------------------------------------------------------
The accompanying Financial Comments are an integral part of the
consolidated financial statements.
/TABLE
37
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, 1992 11.6 $680.2 830.3 $92.3 $214.1 $(271.3) $6,727.3 $(127.4) (103.3) $(1,422.8)
- ----------------------------------------------------------------------------------------------------------------------------------
Net income 1,082.5
Common stock cash dividends
($.21 per share) (150.3)
Preferred stock cash dividends
(per share: $1.01 for Series B, $1.16 for
Series C and $1.93 for Series
E depositary share), (net of
tax benefits of $4.1) (46.9)
Preferred stock conversion (.2) (2.9) .5 .2 2.4
ESOP Notes payment 15.5
Treasury stock acquisitions (25.0) (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 $23.0) 42.1 2.2 5.1 35.1
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 11.4 677.3 830.3 92.3 256.7 (253.6) 7,612.6 (192.2) (123.0) (1,919.0)
- ----------------------------------------------------------------------------------------------------------------------------------
Net income 1,224.4
Common stock cash dividends
($.23 per share) (163.9)
Preferred stock cash dividends
(per share: $1.01 for Series B, $1.16 for
Series C and $1.93 for Series
E depositary share), (net of
tax benefits of $3.7) (47.2)
Preferred stock conversion (.2) (3.1) .5 .2 2.6
ESOP Notes payment 17.5
Treasury stock acquisitions (17.6) (499.8)
Translation adjustments
(including taxes of $50.8) 77.3
Common equity put options
issuance (54.6)
Stock option exercises and other
(including tax benefits of
$20.3) 28.8 1.7 3.8 27.1
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 11.2 674.2 830.3 92.3 286.0 (234.4) 8,625.9 (114.9) (136.6) (2,443.7)
- ----------------------------------------------------------------------------------------------------------------------------------
Net income 1,427.3
Common stock cash dividends
($.26 per share) (181.4)
Preferred stock cash dividends
(per share: $1.01 for Series B, $1.16 for
Series C and $1.93 for Series
E depositary share), (net of
tax benefits of $1.6) (40.5)
Preferred stock conversion (11.2) (316.2) 25.3 8.8 144.6
ESOP Notes payment 19.0
Treasury stock acquisitions (8.8) (321.0)
Translation adjustments
(including taxes of $9.0) 27.8
Common equity put options
expiration 56.2
Stock option exercises and other
(including tax benefits of
$42.2) 76.1 1.2 6.0 57.5
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 0.0* $358.0 830.3 $92.3 $387.4 $(214.2) $9,831.3 $ (87.1) (130.6) $(2,506.4)
==================================================================================================================================
* At December 31, 1995, 7.2 thousand shares were outstanding.
The accompanying Financial Comments are an integral part of the consolidated financial statements.
/TABLE
38
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 affiliates, in which the
Company owns 50% or less, are carried at equity in the companies' net
assets.
ESTIMATES IN FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
FOREIGN CURRENCY TRANSLATION
The functional currency of substantially all operations outside of the
U.S. is the respective local currency, except for hyperinflationary
countries where it is the U.S. Dollar.
ADVERTISING COSTS
Production costs for radio and television advertising are expensed as
of the date the commercials are initially aired. Advertising expenses
included in costs of Company-operated restaurants and general,
administrative and selling expenses were (in millions): 1995--$431.0;
1994--$385.6; 1993--$353.8.
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued
Statement No. 123, Accounting for Stock-Based Compensation, which is
effective in 1996. As permitted by the new standard, the Company will
continue applying accounting prescribed by APB Opinion No. 25 and
include additional footnote disclosures.
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, consisting primarily of franchise rights reacquired
from franchisees and affiliates, are amortized on the straight-line
method over an average life of 30 years.
39
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
In the first quarter of 1996, the Company will adopt Statement of
Financial Accounting Standard No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of. This
statement requires impairment losses be recognized for long-lived
assets, whether these assets are held for disposal or continue to be
used in operations, when indicators of impairment are present and the
fair value of assets are estimated to be less than carrying amounts.
After reviewing its assets, the Company anticipates a pre-tax charge
to operating income of approximately $16 million related to restaurant
sites in Mexico on adoption of this new accounting standard.
FINANCIAL INSTRUMENTS
The Company utilizes derivatives in managing risk, but not for trading
purposes. Non-U.S. Dollar financing transactions generally are
effective as hedges of either long-term investments in or intercompany
loans to foreign subsidiaries and affiliates. Foreign currency gains
and losses on the hedges of long-term investments are recorded as
foreign currency translation adjustment included in shareholders'
equity. Gains and losses related to hedges of intercompany loans
offset the gains and losses on intercompany loans and are recorded in
nonoperating income (expense).
Interest-rate exchange agreements are designated and effective to
modify the Company's interest-rate exposures. Net interest is accrued
as either interest receivable or payable with the offset recorded in
interest expense. Gains or losses from the early termination of
interest rate swaps are amortized as an adjustment to interest expense
over the shorter of the remaining life of the swap or the underlying
debt being hedged.
The Company also purchases foreign currency options (with little or
no intrinsic value) to hedge future foreign currency-denominated
royalty and other payments received in the U.S. The premiums paid for
these options are amortized over the option life and are recorded in
nonoperating expense. Any realized gains on exercised options are
deferred and amortized over the period being hedged.
Short-term forward foreign exchange contracts are also used to
mitigate exposure on foreign currency-denominated cash flows received
from affiliates and subsidiaries. These contracts are marked to market
with the resulting gains or losses recorded in nonoperating income
(expense). Gains and losses associated with these forward contracts
have not been material.
If a hedged item matures or is extinguished, the associated
derivative is marked to market with the resulting gain or loss
recognized immediately. The derivative then is redesignated as a hedge
of some other item or terminated.
The carrying amounts for cash and equivalents and notes receivable
approximated fair value. No fair value was provided for noninterest-
bearing security deposits by franchisees as these deposits are an
integral part of the overall franchise arrangements.
STATEMENT OF CASH FLOWS
The Company considers short-term, highly liquid investments to be cash
equivalents. The impact of changing foreign currencies on cash and
equivalents was not material.
40
----------------------------------------------------------------------
NUMBER OF RESTAURANTS IN OPERATION
----------------------------------------------------------------------
The Company, its franchisees and affiliates operate traditional and
satellite restaurants. Satellite restaurants generally offer a
simplified menu and are smaller in size and sales volume compared to
traditional restaurants.
----------------------------------------------------------------------
December 31, 1995 1994 1993
----------------------------------------------------------------------
Operated by franchisees 10,776 9,982 9,288
Operated under business
facilities lease arrangements 464 476 544
Operated by the Company 3,513 3,083 2,699
Operated by 50% or less
owned affiliates 2,056 1,664 1,462
----------------------------------------------------------------------
Total traditional restaurants 16,809 15,205 13,993
======================================================================
U.S. 1,027 494 114
Outside of the U.S. 544 251 56
----------------------------------------------------------------------
Total satellite restaurants 1,571 745 170
======================================================================
Franchisees operating under business facilities lease arrangements
have options to purchase the businesses.
In 1995, the Company purchased the remaining minority interest in
its Hong Kong subsidiary. 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) 1995 1994 1993
----------------------------------------------------------------------
Gains on sales of restaurant businesses $ (63.9) $(67.1) $(48.2)
Equity in earnings of unconsolidated
affiliates (96.5) (47.0) (34.6)
Net losses from property dispositions 49.2 20.0 15.5
Other--net 5.5 10.2 5.3
----------------------------------------------------------------------
Other operating (income) expense--net $(105.7) $(83.9) $(62.0)
======================================================================
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. The 1995 increase in equity in earnings of
unconsolidated affiliates occurred because of greater income from
affiliates, principally Japan.
41
---------------------------------------------------------------------
INCOME TAXES
---------------------------------------------------------------------
Income before provision for income taxes, classified by source of
income in the following table, was restated to reflect a more
meaningful allocation of general, administrative and selling expenses
between the U.S. and outside of the U.S. segments.
---------------------------------------------------------------------
(In millions of dollars) 1995 1994 1993
---------------------------------------------------------------------
U.S. and Corporate $1,026.2 $1,084.9 $1,017.6
Outside of the U.S. 1,142.9 801.7 658.1
---------------------------------------------------------------------
Income before provision for
income taxes $2,169.1 $1,886.6 $1,675.7
=====================================================================
The provision for income taxes, classified by the timing and
location of payment, was as follows:
---------------------------------------------------------------------
(In millions of dollars) 1995 1994 1993
---------------------------------------------------------------------
U.S. federal $363.7 $379.3 $331.6
U.S. state 60.5 71.1 62.0
Outside of the U.S. 321.8 217.4 147.2
---------------------------------------------------------------------
Current tax provision 746.0 667.8 540.8
---------------------------------------------------------------------
U.S. federal (17.6) (21.2) 21.9
U.S. state (3.9) (3.0) 3.4
Outside of the U.S. 17.3 18.6 27.1
---------------------------------------------------------------------
Deferred tax provision (4.2) (5.6) 52.4
---------------------------------------------------------------------
Provision for income taxes $741.8 $662.2 $593.2
=====================================================================
42
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 consisted of:
-------------------------------------------------------------------------
(In millions of dollars) December 31, 1995 1994
-------------------------------------------------------------------------
Property and equipment basis differences $ 898.6 $ 852.8
Other 197.8 178.3
-------------------------------------------------------------------------
Total deferred tax liabilities 1,096.4 1,031.1
-------------------------------------------------------------------------
Deferred tax assets before
valuation allowance (1) (360.5) (274.7)
Valuation allowance 52.7 41.4
-------------------------------------------------------------------------
Net deferred tax liabilities (2) $ 788.6 $ 797.8
=========================================================================
(1) Includes tax effects of loss carryforwards (in millions): 1995--
$56.1; 1994--$45.1.
(2) Net of assets recorded in current income taxes (in millions):
1995--$47.3; 1994--$43.0.
Reconciliations of the statutory U.S. federal income tax rates to
the effective income tax rates were as follows:
-------------------------------------------------------------------------
1995 1994 1993
-------------------------------------------------------------------------
Statutory U.S. federal income tax rates 35.0% 35.0% 35.0%
State income taxes, net of related
federal income tax benefit 1.7 2.3 2.5
Benefits and taxes related to
foreign operations (2.9) (2.7) (2.6)
Other .4 .5 .5
-------------------------------------------------------------------------
Effective income tax rates 34.2% 35.1% 35.4%
=========================================================================
Deferred U.S. income taxes have not been provided on basis
differences related to investments in certain foreign subsidiaries and
affiliates. These basis differences were approximately $915 million at
December 31, 1995, and consisted primarily of undistributed earnings
which are considered to be permanently invested in the businesses. If
these earnings were not considered permanently invested, any
incremental taxes that may need to be provided would not be material.
43
------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
------------------------------------------------------------------------
(In millions of dollars) December 31, 1995 1994
------------------------------------------------------------------------
Land $ 3,251.5 $ 2,950.1
Buildings and improvements on owned land 6,419.7 5,814.7
Buildings and improvements on leased land 4,986.3 4,211.2
Equipment, signs and seating 1,942.3 1,727.8
Other 537.8 480.8
------------------------------------------------------------------------
17,137.6 15,184.6
------------------------------------------------------------------------
Accumulated depreciation and amortization (4,326.3) (3,856.2)
------------------------------------------------------------------------
Net property and equipment $12,811.3 $11,328.4
========================================================================
Depreciation and amortization were (in millions): 1995--$619.9; 1994--
$550.5; 1993--$492.8. Contractual obligations for the acquisition and
construction of property amounted to $268.2 million at December 31,
1995.
44
----------------------------------------------------------------------
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 from
subsidiaries outside of the U.S. were (in millions): 1995--$358.4;
1994--$268.9; 1993--$202.8.
Segment operating income has been restated to reflect a more
meaningful allocation of general, administrative and selling expenses
between the U.S. and international segments and includes an additional
corporate category. In addition, segment assets have been restated to
reflect an additional corporate category, primarily comprised of
corporate cash, investments, asset portions of financing instruments
and certain intangibles.
----------------------------------------------------------------------
(In millions of dollars) 1995 1994 1993
----------------------------------------------------------------------
U.S. $ 4,473.9 $ 4,155.5 $ 3,931.2
Europe/Africa/Middle East 3,255.1 2,604.7 2,235.9
Asia/Pacific 1,010.8 730.7 494.4
Canada 547.8 546.1 557.8
Latin America 506.9 283.8 188.8
----------------------------------------------------------------------
Total revenues $ 9,794.5 $ 8,320.8 $ 7,408.1
======================================================================
U.S. $ 1,252.4 $ 1,216.7 $ 1,156.4
Europe/Africa/Middle East 840.3 645.8 532.7
Asia/Pacific 309.6 233.5 180.1
Canada 114.5 116.8 111.2
Latin America 132.7 76.0 41.3
Corporate (48.2) (47.6) (37.7)
----------------------------------------------------------------------
Total Operating income $ 2,601.3 $ 2,241.2 $ 1,984.0
======================================================================
U.S. $ 7,040.2 $ 6,492.7 $ 6,200.1
Europe/Africa/Middle East 5,069.2 4,257.5 3,473.2
Asia/Pacific 1,813.6 1,547.7 1,103.2
Canada 510.5 487.6 562.5
Latin America 812.5 616.4 510.9
Corporate 168.6 190.0 185.3
----------------------------------------------------------------------
Total assets $15,414.6 $13,591.9 $12,035.2
======================================================================
45
------------------------------------------------------------------------
DEBT FINANCING
------------------------------------------------------------------------
LINE OF CREDIT AGREEMENTS
Effective April 19, 1995, the Company canceled its existing $700.0
million line of credit agreement and entered into a new $675.0 million
five-year revolving credit agreement with various banks. Accordingly,
$675.0 million of notes maturing within one year have been
reclassified as long-term debt. In June 1995, the Company entered into
an additional $25.0 million revolving credit agreement with various
banks for a renewable term of 364 days. Both agreements, which
remained unused at December 31, 1995, provide for fees of .07% per
annum on the total commitment. Each borrowing under the agreements
bears interest at one of several specified floating rates selected by
the Company at the time of borrowing. In addition, certain
subsidiaries outside of the U.S. had unused lines of credit totaling
$550.5 million at December 31, 1995; these were principally short-term
and denominated in various currencies at local market rates of
interest. The weighted average interest rates of short-term
borrowings, comprised of commercial paper and foreign-denominated bank
line borrowings, were 6.4% and 6.8% at December 31, 1995, and 1994,
respectively.
46
EXCHANGE AGREEMENTS
The Company has entered into agreements for the exchange of various
currencies, certain of which also provide for the periodic exchange of
interest payments. These agreements, as well as additional interest-
rate exchange agreements, expire through 2003. The interest-rate
exchange agreements had a notional amount with a U.S. Dollar
equivalent of $1.6 billion at December 31, 1995, and were denominated
primarily in U.S. Dollars, Japanese Yen, Deutsche Marks and British
Pounds Sterling. The net value of each exchange agreement was
classified as an asset or liability based on its carrying amount, and
any related interest income was netted against interest expense.
The counterparties to these 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 does not have a significant
exposure to any individual counterparty, and has entered into master
agreements that contain netting arrangements.
The Company purchased foreign currency options which were
outstanding at December 31, 1995, with a notional amount equivalent to
U.S. $187.7 million in various currencies, primarily Deutsche Marks,
British Pounds Sterling and French Francs. At December 31, 1995, the
unamortized premium related to these currency options was $4.9
million. There were no deferred gains related to these options at year
end. Short-term forward foreign exchange contracts outstanding at
December 31, 1995, had a U.S. Dollar equivalent of $27.6 million in
various currencies, primarily Deutsche Marks, Japanese Yen and Swiss
Francs.
GUARANTEES
The Company has guaranteed and included in total debt at December 31,
1995, $146.7 million of 7.4% ESOP Notes Series A and $77.1 million of
7.1% ESOP Notes Series B issued by the Leveraged Employee Stock
Ownership Plan with payments through 2004 and 2006, respectively.
Interest rates on the notes were adjusted in 1995 due to refinancing
of certain sinking fund payments. The Company has agreed to repurchase
the notes upon the occurrence of certain events. The Company also has
guaranteed certain foreign affiliate loans totaling $60.6 million at
December 31, 1995.
The Company was a general partner in 92 domestic partnerships with
total assets of $407.9 million and total liabilities of $232.5 million
at December 31, 1995.
47
FAIR VALUES
----------------------------------------------------------------------
December 31, 1995
(In millions of dollars) Carrying amount Fair value
----------------------------------------------------------------------
Liabilities
Debt $4,204.9 $4,399.9
Notes payable 413.0 413.0
Foreign currency exchange agreements 218.1 287.2
Interest-rate exchange agreements (1.1)
----------------------------------------------------------------------
Total liabilities 4,836.0 5,099.0
----------------------------------------------------------------------
Assets
Foreign currency exchange agreements 40.6 28.8
----------------------------------------------------------------------
Net debt $4,795.4 $5,070.2
======================================================================
Purchased foreign currency options $ 4.9 $ 5.3
----------------------------------------------------------------------
Short-term forward foreign exchange contracts were recorded at their
fair value of $27.6 million at December 31, 1995. The fair value of
the debt and notes payable obligations (excluding capital leases), the
currency and interest-rate exchange agreements, and the foreign
currency options was estimated using quoted market prices, various
pricing models or discounted cash flow analyses. The Company has no
current plans to retire a significant amount of its debt prior to
maturity. Given the market value of its common stock and its
significant real estate holdings, the Company believes that the fair
value of total assets was higher than their carrying value at December
31, 1995.
DEBT OBLIGATIONS
The Company has incurred debt obligations principally through 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. Under certain agreements,
the Company has the option to retire debt prior to maturity, either at
par or at a premium over par. The following table summarizes these
debt obligations, including the gross effects of currency and
interest-rate exchange agreements.
48
DEBT OBLIGATIONS
Interest rates (1) Amounts outstanding
Maturity December 31 December 31 Aggregate maturities by currency for 1995 balances
dates 1995 1994 1995 1994 1996 1997 1998 1999 2000 Thereafter
(In millions of U.S. Dollars)
- ---------------------------------------------------------------------------------------------------------------------------------
Fixed--original issue 7.5% 8.2% $2,172.6 $1,647.0
Fixed--converted via
exchange agreements (2) 5.9 5.7 (1,844.2) (1,483.6)
Floating 5.5 4.5 216.5 167.3
- ---------------------------------------------------------------------------------------------------------------------------------
Total U.S. Dollars 1996-2033 544.9 330.7 $120.7 $(60.2) $(230.2) $(211.1) (46.6) $972.3
- ---------------------------------------------------------------------------------------------------------------------------------
Fixed 6.0 6.4 552.7 440.7
Floating 4.4 5.4 376.6 339.5
- ---------------------------------------------------------------------------------------------------------------------------------
Total Deutsche Marks 1996-2007 929.3 780.2 231.7 130.7 280.0 139.3 147.3 0.3
- ---------------------------------------------------------------------------------------------------------------------------------
Fixed 7.8 8.3 727.3 527.2
Floating 5.8 6.0 177.4 292.3
- ---------------------------------------------------------------------------------------------------------------------------------
Total French Francs 1996-2003 904.7 819.5 75.9 126.0 163.2 190.7 0.1 348.8
- ---------------------------------------------------------------------------------------------------------------------------------
Fixed 4.4 4.3 409.5 375.8
Floating 0.6 2.0 130.5 135.5
- ---------------------------------------------------------------------------------------------------------------------------------
Total Japanese Yen 1996-2023 540.0 511.3 154.7 96.7 288.6
- ---------------------------------------------------------------------------------------------------------------------------------
Fixed 9.3 10.4 382.3 464.9
Floating 6.2 6.1 121.1 197.2
- ---------------------------------------------------------------------------------------------------------------------------------
Total British Pounds
Sterling 1996-2003 503.4 662.1 149.8 21.1 85.4 247.1
- ---------------------------------------------------------------------------------------------------------------------------------
Fixed 11.0 11.1 113.8 113.3
Floating 7.6 7.4 100.5 106.3
- ---------------------------------------------------------------------------------------------------------------------------------
Total Australian Dollars 1996-2001 214.3 219.6 141.6 1.6 65.2 1.7 1.7 2.5
- ---------------------------------------------------------------------------------------------------------------------------------
Fixed 6.2 6.4 136.9 149.9
Floating 4.2 5.7 32.2 26.6
- ---------------------------------------------------------------------------------------------------------------------------------
Total Netherland Guilders 1996-1999 169.1 176.5 7.3 108.8 53.0
- ---------------------------------------------------------------------------------------------------------------------------------
Fixed 9.0 11.8 130.3 114.5
Floating 6.0 6.0 22.0 39.3
- ---------------------------------------------------------------------------------------------------------------------------------
Total Canadian Dollars 1996-2021 152.3 153.8 95.5 55.2 0.2 0.2 0.2 1.0
- ---------------------------------------------------------------------------------------------------------------------------------
Fixed 8.7 8.1 77.6 97.0
Floating 6.6 6.4 40.1 37.6
- ---------------------------------------------------------------------------------------------------------------------------------
Total Hong Kong Dollars 1996-2008 117.7 134.6 38.4 30.6 17.6 11.1 11.2 8.8
- ---------------------------------------------------------------------------------------------------------------------------------
Fixed 4.7 4.4 81.1 97.6
Floating 2.3 30.4
- ---------------------------------------------------------------------------------------------------------------------------------
Total Swiss Francs 1996-2000 111.5 97.6 16.1 34.7 60.7
- ---------------------------------------------------------------------------------------------------------------------------------
Fixed 8.5 8.0 43.9 41.0
Floating 7.9 8.2 65.3 69.6
- ---------------------------------------------------------------------------------------------------------------------------------
Total New Taiwan Dollars 1996-2001 109.2 110.6 31.7 16.3 12.7 8.2 40.3
- ---------------------------------------------------------------------------------------------------------------------------------
Fixed 9.5 9.5 63.5 58.7
Floating 11.3 8.2 39.1 7.1
- ---------------------------------------------------------------------------------------------------------------------------------
Total Spanish Pesetas 1997-1998 102.6 65.8 39.1 63.5
- ---------------------------------------------------------------------------------------------------------------------------------
Fixed 8.4 9.0 161.7 133.2
Floating 10.9 12.3 234.7 117.6
- ---------------------------------------------------------------------------------------------------------------------------------
Total other currencies 1996-2016 396.4 250.8 163.7 116.8 19.8 51.1 11.8 33.2
- ---------------------------------------------------------------------------------------------------------------------------------
Debt obligations
including the net effects
of currency and interest-
rate exchange agreements 4,795.4 4,313.1 1,227.1 552.8 556.6 244.2 271.8 1,942.9
- ---------------------------------------------------------------------------------------------------------------------------------
Obligations supported by
long-term line of credit
agreement (675.0) 675.0
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset positions of
currency exchange
agreements (included in
miscellaneous other
assets) 40.6 37.5 26.1 0.5 2.2 11.8
- ---------------------------------------------------------------------------------------------------------------------------------
Total debt obligations $4,836.0 $4,350.6 $578.2 $552.8 $557.1 $246.4 $946.8 $1,954.7
=================================================================================================================================
(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 reflect the fixed rate on the receivable portion of
the exchange agreements. All other obligations in this table reflect the gross
effects of these and other exchange agreements.
/TABLE
49
-------------------------------------------------------------------
OTHER LONG-TERM LIABILITIES AND MINORITY INTERESTS
-------------------------------------------------------------------
(In millions of dollars) December 31, 1995 1994
-------------------------------------------------------------------
Security deposits by franchisees $155.0 $141.2
Preferred interests in consolidated
subsidiaries 400.6 162.4
Minority interests in consolidated
subsidiaries 33.2 50.3
Other
75.9 68.9
-------------------------------------------------------------------
Other long-term liabilities and minority
interests $664.7 $422.8
===================================================================
Preferred interests in consolidated subsidiaries reflects preferred
stock issued by Company subsidiaries. One subsidiary issued preferred
stock denominated in British Pounds Sterling as follows: British
Pounds 150 million of Series C, D and E at an average rate of 7.04% in
1995; British Pounds 25 million of 5.42% Series B in 1994; and British
Pounds 50 million of 5.91% Series A in 1993. Unless redeemed at the
Company's option, each series of preferred stock must be redeemed five
years from the date of issuance. These combined preferred interests
were valued at U.S. $349.4 million at December 31, 1995. Another
subsidiary issued additional preferred stock in 1994 and 1993. At
December 31, 1995, the preferred stock of this subsidiary had a
dividend rate of 14.6% (adjusted annually) and was redeemable at the
option of the holder at a redemption price totaling $51.2 million.
Included in other was the $100.00 per share redemption value of
181,868 shares of 5% Series D Preferred Stock. This stock, which
carries one vote per share, must be redeemed on the occurrence of
specified events.
50
---------------------------------------------------------------------
LEASING ARRANGEMENTS
---------------------------------------------------------------------
At December 31, 1995, the Company was lessee at 2,976 locations under
ground leases (the Company leases land and constructs and owns
buildings) and at 4,204 locations under improved leases (lessor owns
land and buildings). Land and building lease terms for most
traditional restaurants 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. Most satellite
restaurants operate under improved leases which generally include
percentage rent payments only and are of a shorter term. For most
locations, the Company is obligated for the related occupancy costs
which 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 are:
---------------------------------------------------------------------
(In millions of dollars) Restaurant Other Total
---------------------------------------------------------------------
1996 $ 400.3 $ 45.0 $ 445.3
1997 392.7 41.9 434.6
1998 377.3 36.9 414.2
1999 359.0 28.0 387.0
2000 341.0 23.5 364.5
Thereafter 3,379.8 117.4 3,497.2
---------------------------------------------------------------------
Total minimum payments $5,250.1 $292.7 $5,542.8
=====================================================================
Rent expense was (in millions): 1995--$497.6; 1994--$394.4; 1993--
$339.0. Included in these amounts were percentage rents based on sales
by the related restaurants in excess of minimum rents stipulated in
certain lease agreements (in millions): 1995--$73.5; 1994--$40.3;
1993--$29.0.
51
----------------------------------------------------------------------
FRANCHISE ARRANGEMENTS
----------------------------------------------------------------------
Franchise arrangements include a lease and a license and generally
provide for initial fees as well as continuing rent and service fee
payments to the Company, based upon a percentage of sales with minimum
rent payments. Franchisees are granted the right to operate a
McDonald's restaurant using the McDonald's system. Additionally,
franchisees are provided the use of a restaurant facility generally
for a period of 20 years. They are required to pay related occupancy
costs which include property taxes, insurance, maintenance and a
refundable, noninterest-bearing security deposit. On a limited basis
the Company accepts notes from franchisees which generally are secured
by interests in restaurant equipment and franchises.
----------------------------------------------------------------------
(In millions of dollars) 1995 1994 1993
----------------------------------------------------------------------
Owned sites $ 708.6 $ 633.4 $ 573.6
Leased sites 521.4 446.0 381.7
----------------------------------------------------------------------
Minimum rents 1,230.0 1,079.4 955.3
----------------------------------------------------------------------
Percentage rent and service fees 1,638.4 1,411.8 1,272.1
Initial fees 62.6 37.0 23.5
----------------------------------------------------------------------
Revenues from franchised restaurants $2,931.0 $2,528.2 $2,250.9
======================================================================
Future minimum rent payments due to the Company under franchise
arrangements are:
----------------------------------------------------------------------
Owned Leased
(In millions of dollars) sites sites Total
----------------------------------------------------------------------
1996 $ 787.9 $ 547.1 $ 1,335.0
1997 776.1 541.7 1,317.8
1998 780.7 542.3 1,323.0
1999 763.1 528.9 1,292.0
2000 745.7 512.5 1,258.2
Thereafter 6,937.0 4,825.4 11,762.4
----------------------------------------------------------------------
Total minimum payments $10,790.5 $7,497.9 $18,288.4
======================================================================
At December 31, 1995, net property and equipment under franchise
arrangements totaled $7.3 billion (including land of $2.2 billion)
after deducting accumulated depreciation and amortization of $2.2
billion.
52
-------------------------------------------------------------------------
PROFIT SHARING PROGRAM
-------------------------------------------------------------------------
The Company has a program for U.S. employees which includes profit
sharing, 401(k) (McDESOP), and leveraged employee stock ownership
(LESOP) features. McDESOP allows participants to make contributions
which are partially matched by the Company. Profit sharing assets and
contributions made by McDESOP participants can be invested in
McDonald's common stock or among several other investment
alternatives. Company contributions to McDESOP are invested in
McDonald's common stock. Due to the conversion of all remaining
preferred shares in 1995, the LESOP is now invested only in McDonald's
common stock.
Staff, executives and restaurant managers participate in profit
sharing contributions and shares released under the LESOP based on
participant's compensation. The profit sharing contribution is
discretionary, and the amount is determined by the Company each year.
The LESOP contribution is based on the loan payments necessary to
amortize the debt initially incurred to acquire the stock. Shares held
by the LESOP are allocated to participants as the loan is repaid.
Dividends on shares held by the LESOP are used to service the debt,
and shares are released to participants to replace the dividends on
shares that have been allocated to them. LESOP costs shown in the
following table were based upon the cash paid for loan payments less
these dividends.
-------------------------------------------------------------------------
(In millions of dollars) 1995 1994 1993
-------------------------------------------------------------------------
Profit sharing $14.2 $15.2 $13.5
LESOP 29.9 25.4 25.5
McDESOP 11.7 9.5 8.1
-------------------------------------------------------------------------
U.S. program costs $55.8 $50.1 $47.1
=========================================================================
Certain subsidiaries outside of the U.S. also offer profit sharing,
stock purchase or other similar benefit plans. Total plan costs
outside of the U.S. were (in millions): 1995 $26.6 1994--$18.1;
1993--$13.0.
Profit sharing costs were restated to reflect a more meaningful
allocation of program costs between the U.S. and outside of the U.S.
segments. The Company does not provide any other postretirement
benefits, and postemployment benefits were immaterial.
53
-------------------------------------------------------------------------
STOCK OPTIONS
-------------------------------------------------------------------------
At December 31, 1995, the Company had three stock-based compensation
plans which were accounted for under APB Opinion No. 25. Accordingly,
no compensation cost has been recognized in the consolidated financial
statements for these plans because options to purchase common stock
are granted at prices not less than the fair market value of the stock
on date of grant.
Substantially all of the options under these plans 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, 1995, 105.1 and 37.0 million shares of common stock were
reserved for issuance and for future grants, respectively, under these
plans.
-------------------------------------------------------------------------
Number of options Weighted average
(in millions) exercise price
-------------------------------------------------------------------------
1995 1994 1993 1995 1994 1993
-------------------------------------------------------------------------
Options outstanding
at January 1 62.3 55.1 50.3 $21.02 $18.16 $15.54
Options granted 13.7 13.6 12.0 33.24 29.90 26.25
Options exercised (6.0) (4.1) (5.3) 15.76 12.14 11.01
Options forfeited (1.9) (2.3) (1.9) 24.55 18.72 17.28
-------------------------------------------------------------------------
Options outstanding
at December 31 68.1 62.3 55.1 $23.86 $21.02 $18.16
=========================================================================
Options exercisable
at December 31 24.4 21.4 17.6
-------------------------------------------------------------------------
Options granted during each year were 1.96%, 1.94% and 1.69% of
average common shares outstanding for 1995, 1994 and 1993,
respectively. Stock options were granted to approximately 8,500, 7,700
and 6,800 employees in 1995, 1994 and 1993, respectively. Shares are
issued from treasury stock to employees upon exercise of stock
options.
The potential dilution of common shares outstanding upon exercise
of stock options shown in the following table represents the number of
common shares issuable upon exercise less the number of common shares
that could be repurchased with proceeds from the exercise, based upon
the respective December 31 prices of the Company's common stock. As
such, this potential dilution was 2.9%, 1.6% and 1.8% of shares
outstanding at year-end 1995, 1994 and 1993, respectively.
54
-------------------------------------------------------------------------
(Shares in millions) 1995 1994 1993
-------------------------------------------------------------------------
Common shares outstanding
at year end 699.8 693.7 707.3
Potential dilution of common shares
outstanding from option exercises 20.4 11.4 12.6
Average option exercise price $15.76 $12.14 $11.01
Average cost of treasury stock issued
for option exercises $ 7.16 $ 7.05 $ 6.65
-------------------------------------------------------------------------
As shown above, the average option exercise price has
consistently exceeded the average cost of treasury stock issued for
option exercises because of the Company's practice of prefunding the
program through share repurchase. As a result, stock option exercises
have generated additional capital, as cash received from employees has
exceeded the Company's average acquisition cost of treasury stock.
----------------------------------------------------------------------
December 31, 1995
----------------------------------------------------------------------
Options outstanding Options exercisable
----------------------------------------------------------------------
Weighted
average Weighted Weighted
Range of Number remaining average Number average
exercise of options contractual exercise of options exercise
prices in millions life (Years) price in millions price
----------------------------------------------------------------------
$ 9 to 12 5.5 2.0 $11.05 5.5 $11.05
14 to 18 17.0 5.0 15.42 9.2 15.30
21 to 30 32.1 7.4 26.58 9.6 25.71
33 to 42 13.5 9.3 33.27 .1 33.19
----------------------------------------------------------------------
$ 9 to 42 68.1 6.7 $23.86 24.4 $18.50
======================================================================
55
----------------------------------------------------------------------
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
1995, it was also reduced by $3.9 million for the one-time effect of
the Company's offer to exchange its Series E 7.72% Cumulative
Preferred Stock for subordinated debt securities completed on June 30,
1995, and by an additional $.4 million for the effect of the Company's
repurchase of additional Series E preferred stock in the third
quarter. Adjusted net income was divided by the weighted average
shares of common stock outstanding during each year (in millions):
1995--701.5; 1994--701.8; 1993--711.8. Including the effect of
potentially dilutive securities, fully diluted earnings per common
share amounts and increases were: 1995--$1.92, 18%; 1994--$1.63, 16%;
1993--$1.41, 12%.
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. On June 30, 1995, the
Company completed an exchange of approximately 5.2 million depositary
shares, representing 2,600 shares of Series E 7.72% Cumulative
Preferred Stock, for subordinated debt securities. In the third
quarter of 1995, the Company repurchased approximately .5 million
depositary shares equivalent to 250 shares of Series E 7.72%
Cumulative Preferred Stock.
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 to the LESOP. The LESOP financed the purchase by issuing notes
which are guaranteed by the Company and are included in long-term
debt, with an offsetting reduction in shareholders' equity. Each
preferred share had a liquidation preference of $14.375 and $16.5625,
respectively, and was convertible to a minimum of .7692 and .8 common
share (conversion rate), respectively. Upon termination of employment,
employees were 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 was
entitled to one vote and was redeemable at the option of the Company.
In 1992, 8.2 million Series B shares were converted into 6.4 million
common shares. During 1995, the remaining 5.2 million Series B shares
and 5.8 million Series C shares were converted into 8.7 million common
shares.
56
COMMON EQUITY PUT OPTIONS
During May and June 1995, the Company sold 1.5 million common equity
put options which expired unexercised in August and September. In
August 1995, the Company sold .5 million common equity put options of
which .4 million were exercised and .1 million expired unexercised in
October 1995.
In June 1994, the Company sold 2.0 million common equity put
options which were exercised in November 1994. During November and
December 1994, the Company sold an additional 2.0 million common
equity put options which expired unexercised in February 1995. At
December 31, 1994, the $56.2 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, 2.0 million common equity put options issued by the
Company in December 1992, having an exercise price of $94.0 million,
expired unexercised. In April 1993, the Company also sold 1.0 million
common equity put options which expired unexercised in July 1993.
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 four-hundredth of a share of Series A Junior
Participating Preferred Stock (the economic equivalent of one common
share) at an exercise price of $62.50 (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 (which threshold may be reduced by the Board of
Directors to as low as 10%), 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
exceeding the threshold.
Once the threshold has been exceeded, 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 $.0025, at any time prior to
the public announcement that a person or group has exceeded the
threshold. At December 31, 1995, 2.1 million shares of the Series A
Junior Participating Preferred Stock were reserved for issuance under
this plan.
57
QUARTERLY RESULTS (UNAUDITED)
(In millions of dollars, except per common share data)
- ---------------------------------------------------------------------------------------------------------------------------------
Quarters ended December 31 September 30 June 30 March 31
1995 1994 1995 1994 1995 1994 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
SYSTEMWIDE SALES $7,734.4 $6,964.0 $7,866.6 $6,944.0 $7,641.3 $6,370.2 $6,671.6 $5,709.2
REVENUES
Sales by Company-operated
restaurants $1,812.2 $1,586.8 $1,811.9 $1,551.8 $1,727.8 $1,409.3 $1,511.6 $1,244.7
Revenues from franchised
restaurants 773.3 683.3 768.2 673.6 739.8 620.0 649.7 551.3
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 2,585.5 2,270.1 2,580.1 2,225.4 2,467.6 2,029.3 2,161.3 1,796.0
- ---------------------------------------------------------------------------------------------------------------------------------
OPERATING COSTS AND EXPENSES
Company-operated restaurants 1,476.8 1,267.7 1,448.0 1,231.3 1,389.7 1,128.6 1,233.2 1,017.4
Franchised restaurants 137.2 117.8 131.7 111.7 127.8 105.6 118.2 100.4
General, administrative
and selling expenses 341.4 309.4 314.1 277.1 305.4 257.0 275.4 239.5
Other operating (income)
expense--net (16.0) (0.6) (35.8) (32.6) (41.7) (30.3) (12.2) (20.4)
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING COSTS
AND EXPENSES 1,939.4 1,694.3 1,858.0 1,587.5 1,781.2 1,460.9 1,614.6 1,336.9
- ---------------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 646.1 575.8 722.1 637.9 686.4 568.4 546.7 459.1
- ---------------------------------------------------------------------------------------------------------------------------------
Interest expense 87.7 80.1 86.1 80.2 85.4 73.6 81.0 71.8
Nonoperating income
(expense)--net (18.8) (24.1) (26.5) (16.6) (16.1) 1.7 (30.6) (9.9)
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE PROVISION FOR
INCOME TAXES 539.6 471.6 609.5 541.1 584.9 496.5 435.1 377.4
- ---------------------------------------------------------------------------------------------------------------------------------
Provision for income taxes 172.8 162.7 209.4 191.3 205.2 174.2 154.4 134.0
- ---------------------------------------------------------------------------------------------------------------------------------
Net income $ 366.8 $ 308.9 $ 400.1 $ 349.8 $ 379.7 $ 322.3 $ 280.7 $ 243.4
=================================================================================================================================
NET INCOME PER COMMON SHARE $ .51 $ .43 $ .56 $ .48 $ .52 $ .44 $ .39 $ .33
- ---------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS PER COMMON SHARE $.06 3/4 $ .06 $.06 3/4 $ .06 $.06 3/4 $ .06 $ .06 $.05 3/8
- ---------------------------------------------------------------------------------------------------------------------------------
/TABLE
58
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, 1995.
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, 1995.
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, 1995.
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, 1995.
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:
No additional schedules are required because either 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.
3. Exhibits:
The exhibits listed in the accompanying index are filed
as part of this report.
59
McDonald's Corporation
Exhibit Index
(Item 14)
Exhibit Number Description
-------------- -----------
(3) Restated Certificate of Incorporation and By-Laws, dated as
of November 15, 1994, incorporated herein by reference from
Exhibit 3 of Form 10-K for the year ended December 31, 1994.
(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) 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.
(iii) 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.
(iv) Medium-Term Notes, Series C, due from nine
months (U.S. Issue)/184 days (Euro Issue) to 30
years from Date of Issue. Amended and restated
Supplemental Indenture No. 16 incorporated
herein by reference from Exhibit (4) of Form
10-Q for the period ended March 31, 1991.
(v) 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.
60
Exhibit Number Description
-------------- -----------
(vi) Medium-Term Notes, Series D, due from nine
months (U.S. Issue)/184 days (Euro Issue) to 60
years from Date of Issue. Supplemental
Indenture No. 18 incorporated herein by
reference from Exhibit 4(b) of Form S-3
Registration Statement, SEC file no. 33-42642
dated September 10, 1991.
(vii) 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.
(viii)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.
(ix) 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.
(x) Medium-Term Notes, Series E, due from nine
months to 60 years from date of issue. Form of
Supplemental Indenture No. 22, incorporated
herein by reference from Exhibit (4) of Form
10-Q for the period ended June 30, 1995.
(xi) 6-5/8% Notes due September 1, 2005. Form of
Supplemental Indenture No. 23 incorporated
herein by reference from Exhibit 4(a) of Form
8-K dated September 5, 1995.
(xii) 7.05% Debentures due 2025. Form of Supplemental
Indenture No. 24 incorporated herein by
reference from Exhibit (4)(a) of Form 8-K dated
November 13, 1995.
(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.
61
Exhibit Number Description
-------------- -----------
(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.
(f) 8.35% Subordinated Deferrable Interest Debentures due
2025. Indenture incorporated herein by reference from
Exhibit 99.1 of Schedule 13E-4/A Amendment No. 2 dated
July 14, 1995.
(10) Material Contracts
(a) Directors' Stock Plan, as amended and restated,
incorporated herein by reference from Form 10-K for the
year ended December 31, 1994.*
(b) Profit Sharing Program, as amended and restated, attached
hereto as an Exhibit.*
(c) McDonald's Supplemental Employee Benefit Equalization
Plan, McDonald's Profit Sharing Program Equalization Plan
and McDonald's 1989 Equalization Plan, as amended and
restated, 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) 1992 Stock Ownership Incentive Plan, incorporated
herein by reference from Exhibit B on pages 29-41 of
McDonald's 1995 Proxy Statement and Notice of 1995
Annual Meeting of Shareholders dated April 12, 1995*.
62
Exhibit Number Description
-------------- -----------
(f) McDonald's Corporation Deferred Incentive Plan, as
amended and restated, incorporated herein by reference
from Form 10-K for the year ended December 31, 1994.*
(g) Non-Employee Director Stock Option Plan, incorporated
by reference from Exhibit A on pages 25-28 of
McDonald's 1995 Proxy Statement and Notice of 1995
Annual Meeting of Shareholders dated April 12, 1995.*
(11) Statement re: Computation of per share earnings.
(12) Statement re: Computation of ratios.
(21) Subsidiaries of the registrant.
(23) Consent of independent auditors.
(27) Financial Data Schedule
--------------------
* 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, 1996.
Financial Statements
Date of Report Item Number Required to be Filed
-------------- ----------- --------------------
11/13/95 Item 5 No
10/19/95 Item 7 No
01/25/96 Item 7 No
63
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/s/ Jack M. Greenberg
----------------------
Jack M. Greenberg
Vice Chairman,
Chief Financial Officer
Date March 29, 1996
----------------------
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 on the 29th day of
March, 1996:
Signature Title
--------- -----
/s/ Hall Adams, Jr.
------------------------- Director
Hall Adams, Jr.
/s/ Robert M. Beavers, Jr.
------------------------- Senior Vice President
Robert M. Beavers, Jr. and Director
/s/ James R. Cantalupo
------------------------- President and Chief Executive
James R. Cantalupo Officer-International and
Director
/s/ Gordon C. Gray
------------------------- Director
Gordon C. Gray
/s/ Jack M. Greenberg
------------------------- Vice Chairman,
Jack M. Greenberg Chief Financial Officer
and Director
64
Signature Title
--------- -----
------------------------- Director
Donald R. Keough
/s/ Donald G. Lubin
------------------------- Director
Donald G. Lubin
------------------------- Director
Andrew J. McKenna
/s/ Michael R. Quinlan
------------------------- Chairman, Chief Executive
Michael R. Quinlan Officer and Director
/s/ Edward H. Rensi
------------------------- President and Chief Executive
Edward H. Rensi Officer-U.S.A. and Director
/s/ Terry L. Savage
------------------------- Director
Terry L. Savage
------------------------- Senior Executive Vice
Paul D. Schrage President, Chief Marketing
Officer and Director
------------------------- Director
Ballard F. Smith
------------------------- Director
Roger W. Stone
/s/ Robert N. Thurston
------------------------- Director
Robert N. Thurston
------------------------- Senior Chairman and Director
Fred L. Turner
/s/ B. Blair Vedder, Jr.
------------------------- Director
B. Blair Vedder, Jr.
/s/ Michael L. Conley
------------------------- Senior Vice President,
Michael L. Conley Controller