-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, nbf5+2OAiyaVcsnGfZ47LlGJsgsNL9+Ni2Un8eVNNT586dIEuPY3WcMIDnAlztLO X90yE/YLKLQNn4aBwWkWTA== 0000063908-94-000013.txt : 19940330 0000063908-94-000013.hdr.sgml : 19940330 ACCESSION NUMBER: 0000063908-94-000013 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MCDONALDS CORP CENTRAL INDEX KEY: 0000063908 STANDARD INDUSTRIAL CLASSIFICATION: 5812 IRS NUMBER: 362361282 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-05231 FILM NUMBER: 94518536 BUSINESS ADDRESS: STREET 1: ONE MCDONALD'S PLZ CITY: OAK BROOK STATE: IL ZIP: 60521 BUSINESS PHONE: 7085753000 10-K 1 MCDONALD'S FORM 10-K YEAR ENDED DECEMBER 31, 1993 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (fee required) for the fiscal year ended December 31, 1993 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (no fee required) for the transition period from to Commission File Number 1-5231 McDONALD'S CORPORATION (Exact name of registrant as specified in its charter) Delaware 36-2361282 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) McDonald's Plaza Oak Brook, Illinois 60521 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (708) 575-3000 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered -------------------------- ----------------------- Common stock, no par value New York Stock Exchange Chicago Stock Exchange Pacific Stock Exchange Preferred Share Purchase Rights New York Stock Exchange 9-3/4% Notes due 1999 New York Stock Exchange 9-3/8% Notes due 1997 New York Stock Exchange 8-7/8% Debentures due 2011 New York Stock Exchange 7-3/8% Notes due 2002 New York Stock Exchange Depositary Shares representing 7.72% Cumulative Preferred Stock, Series E New York Stock Exchange 6-3/4% Notes due 2003 New York Stock Exchange 7-3/8% Notes due 2033 New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None ----- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- 2 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / / The aggregate market value of voting stock held by nonaffiliates of the registrant is $21,708,859,265 and the number of shares of common stock outstanding is 353,866,072 as of January 31, 1994. Documents incorporated by reference. Part III of this 10-K incorporates information by reference from the registrant's definitive proxy statement which will be filed no later than 120 days after December 31, 1993. 3 PART I Item 1. Business McDonald's Corporation, the registrant, together with its subsidiaries, is referred to herein as the "Company". (a) General development of business There have been no significant changes to the Company's corporate structure during 1993, nor material changes in the Company's method of conducting business. (b) Financial information about industry segments Industry segment data for the years ended December 31, 1993, 1992 and 1991 is included in Part II, item 8, pages 33 and 41 of this Form 10-K. (c) Narrative description of business General The Company develops, operates, franchises and services a worldwide system of restaurants which prepare, assemble, package and sell a limited menu of value-priced foods. These restaurants are operated by the Company or, under the terms of franchise arrangements, by franchisees who are independent third parties, or by affiliates operating under joint-venture agreements between the Company and local businesspeople. The Company's franchising program assures consistency and quality. The Company is selective in granting franchises and is not in the practice of franchising to investor groups or passive investors. Under the conventional franchise arrangement, franchisees supply capital - initially, by purchasing equipment, signs, seating, and decor, and over the long term, by reinvesting in the business. The Company shares the investment by owning or leasing the land and building; franchisees then contribute to the Company's revenues through payment of rent and service fees based upon a percent of sales, with specified minimum payments. Generally, the conventional franchise arrangement lasts 20 years and franchising practices are consistent throughout the world. Further discussion regarding site selection is included in Part 1, item 2, page 6 of this Form 10-K. Training begins at the restaurant with one-on-one instruction and videotapes. Aspiring restaurant managers progress through a development program of classes in basic and intermediate operations, management and equipment. Assistant managers are eligible to attend the advanced operations and management class at one of the five Hamburger University (H.U.) campuses in the U.S., Germany, England, Japan or Australia. The curriculum at H.U. concentrates on skills and practices essential to delivering customer satisfaction and running a restaurant business. 4 The Company's global brand is well-known. Marketing and promotional activities are designed to nurture this brand image and differentiate the Company from competitors by focusing on value and customer satisfaction. Funding for promotions is handled at the local restaurant level; funding for regional and national efforts is handled through advertising cooperatives. Franchised, Company-operated and affiliated restaurants throughout the world make voluntary contributions to cooperatives which purchase media. Production costs for certain advertising efforts are borne by the Company. Products McDonald's restaurants offer a substantially uniform menu consisting of hamburgers and cheeseburgers, including the Big Mac and Quarter Pounder with Cheese sandwiches, the Filet-O-Fish, McGrilled Chicken and McChicken sandwiches, french fries, Chicken McNuggets, salads, low fat shakes, sundaes and cones made with low fat frozen yogurt, pies, cookies and a limited number of soft drinks and other beverages. In addition, the restaurants sell a variety of products during limited promotional time periods. McDonald's restaurants operating in the United States are open during breakfast hours and offer a full breakfast menu including the Egg McMuffin and the Sausage McMuffin with Egg sandwiches, hotcakes and sausage; three varieties of biscuit sandwiches; Apple-Bran muffins; and cereals. McDonald's restaurants in many countries around the world offer many of these same products as well as other products and limited breakfast menus. The Company tests new products on an ongoing basis. The Company, its franchisees and affiliates purchase food products and packaging from numerous independent suppliers. Quality specifications for both raw and cooked food products are established and strictly enforced. Alternative sources of these items are generally available. Quality assurance labs in the U.S., Europe and the Pacific work to ensure that the Company's high standards are consistently met. The quality assurance process involves ongoing testing and on-site inspections of suppliers' facilities. Independently owned and operated distribution centers distribute products and supplies to most McDonald's restaurants. The restaurants then prepare, assemble and package these products using specially designed production techniques and equipment to obtain uniform standards of quality. Trademarks and patents The Company has registered trademarks and service marks, some of which, including "McDonald's", "Ronald McDonald" and other related marks, are of material importance to the Company's business. The Company also has certain patents on restaurant equipment which, while valuable, are not material to its business. Seasonal operations The Company does not consider its operations to be seasonal to any material degree. 5 Working capital practices Information about the Company's working capital practices is incorporated herein by reference to Management's Discussion and Analysis of the Company's financial position and the consolidated statement of cash flows for the years ended December 31, 1993, 1992 and 1991 in Part II, item 7, pages 26 through 28, and Part II, item 8 page 35 of this Form 10-K. Customers The Company's business is not dependent upon a single customer or small group of customers. Backlog Company-operated restaurants have no backlog orders. Government contracts No material portion of the business is subject to renegotiation of profits or termination of contracts or subcontracts at the election of the U.S. government. Competition McDonald's restaurants compete with international, national, regional, and local retailers of food products. The Company competes on the basis of price and service and by offering quality food products. The Company's competition in the broadest perspective includes restaurants, quick-service eating establishments, pizza parlors, coffee shops, street vendors, convenience food stores, delicatessens, and supermarket freezers. In the U.S., about 372,000 restaurants generate nearly $213 billion in annual sales. McDonald's accounts for about 2.5% of those restaurants and approximately 6.7% of those sales. No reasonable estimate can be made of the number of competitors outside of the U.S.; however, the Company's business in foreign markets continues to grow. Research and development The Company operates research and development facilities in Illinois. While research and development activities are important to the Company's business, these expenditures are not material. Independent suppliers also conduct research activities for the benefit of the McDonald's System, which includes franchisees and suppliers, as well as McDonald's, its subsidiaries and joint ventures. 6 Environmental matters The Company is not aware of any federal, state or local environmental laws or regulations which will materially affect its earnings or competitive position, or result in material capital expenditures; however, the Company cannot predict the effect on its operations of possible future environmental legislation or regulations. During 1993, there were no material capital expenditures for environmental control facilities and no such material expenditures are anticipated. Number of employees During 1993, the Company's average number of employees was approximately 167,000. (d) Financial information about foreign and domestic operations Financial information about foreign and domestic markets is incorporated herein by reference from selected Financial Data, Management's Discussion and Analysis and Segment and Geographic Information in Part II, item 6, page 10, Part II, item 7, pages 11 through 29 and Part II, item 8, page 41, respectively, of this Form 10-K. Item 2. Properties The Company identifies and develops sites that offer convenience to customers and provide for long-term sales and profit potential. To assess potential, the Company analyzes traffic and walking patterns, census data, school enrollments and other relevant data. The Company's experience and access to advanced technology aids in evaluating this information. In order to control occupancy costs and rights, the Company owns restaurant sites and buildings where feasible and where it is not practical, secures long-term leases. Restaurant profitability for both the Company and franchisees is important; therefore, ongoing efforts are made to lower average development costs through construction and design efficiencies and by leveraging the Company's global sourcing system. Additional information about the Company's properties is incorporated herein by reference to Management's Discussion and Analysis and the related financial statements with footnotes in Part II, item 7, pages 11 through 29 and Part II, item 8, pages 34, 35, 37, 38, 42, 46 and 47, respectively, of this Form 10-K. Item 3. Legal Proceedings The Company has pending a number of lawsuits which have been filed from time to time in various jurisdictions. These lawsuits cover a broad variety of allegations spanning the Company's entire business. The following is a brief description of the more significant of these categories of lawsuits and government regulations. 7 Franchising A substantial number of McDonald's restaurants are franchised to independent businesspeople operating under arrangements with the Company. In the course of the franchise relationship, occasional disputes arise between the Company and its franchisees relating to a broad range of subjects including, without limitation, quality, service and cleanliness issues, contentions regarding grants or terminations of franchises, franchisee claims for additional franchises or rewrites of franchises, and delinquent payments. Suppliers The Company and its affiliates and subsidiaries do not supply, with minor exceptions outside of the United States, food, paper, or related items to any McDonald's restaurants. The Company relies upon independent suppliers which are required to meet and maintain the Company's standards and specifications. There are a number of such suppliers worldwide and on occasion disputes arise between the Company and its suppliers on a number of issues including, by way of example, compliance with product specifications and McDonald's business relationship with suppliers. Employees Thousands of persons are employed by the Company and in restaurants owned and operated by subsidiaries of the Company. In addition, thousands of persons, from time to time, seek employment in such restaurants. In the ordinary course of business, disputes arise regarding hiring, firing and promotion practices. Customers McDonald's restaurants serve a large cross-section of the public and in the course of serving so many people, disputes arise as to products, service, accidents and other matters typical of an extensive restaurant business such as that of the Company. Trademarks McDonald's has registered trademarks and service marks, some of which are of material importance to the Company's business. From time to time, the Company may become involved in litigation to defend and protect its use of such registered marks. Government Regulations Local, state and federal governments have adopted laws and regulations involving various aspects of the restaurant business, including, but not limited to, franchising, health, environment, zoning and employment. The Company does not believe that it is in violation of any existing statutory or administrative rules, but it cannot predict the effect on its operations from promulgation of additional requirements in the future. Item 4. Submission of Matters to a Vote of Shareholders None. 8 Executive Officers of the Registrant All of the executive officers of McDonald's Corporation as of March 1, 1994 are shown below. Each of the executive officers has been continuously employed by the Company for at least five years and has a term of office until the May 1994 Board of Directors' meeting.
Number Number of of years years in Date of with present Name Office Birth Company position --------------------- --------------------- -------- ------- -------- Robert M. Beavers, Jr. Senior Vice President 01/27/44 30 * James R. Cantalupo President and 11/14/43 19 2 Chief Executive Officer-International Michael L. Conley Senior Vice President, 03/28/48 20 3 Controller Thomas S. Dentice Executive Vice President 01/12/39 28 9 Patrick J. Flynn Executive Vice President 05/01/42 32 6 Thomas W. Glasgow, Jr. Executive Vice President, 02/17/47 25 2 Chief Operations Officer Jack M. Greenberg Vice Chairman, Chief 09/28/42 12 2 Financial Officer Michael R. Quinlan Chairman, Chief 12/09/44 30 4 Executive Officer Edward H. Rensi President and Chief 08/15/44 28 2 Executive Officer-U.S.A. Paul D. Schrage Senior Executive Vice 02/25/35 26 9 President, Chief Marketing Officer Fred L. Turner Senior Chairman 01/06/33 37 4 * Less than one year in current position.
9 PART II Item 5. Market for Registrant's Common Equity and Related Shareholder Matters The Company's common stock trades under the symbol MCD and is listed on the following stock exchanges in the United States: New York, Chicago and Pacific. The common stock price range on the New York Stock Exchange composite tape has been as follows: --------------------------------------------------------- Quarter 1993 1992 --------------------------------------------------------- First $54 1/4 - 46 3/4 $45 - 38 3/8 Second $53 1/2 - 45 1/2 $47 1/2 - 39 3/8 Third $55 5/8 - 48 1/4 $47 1/4 - 41 1/8 Fourth $59 1/8 - 51 1/4 $50 3/8 - 40 7/8 --------------------------------------------------------- Year $59 1/8 - 45 1/2 $50 3/8 - 38 3/8 --------------------------------------------------------- The approximate number of shareholders of record and beneficial owners of the Company's common stock as of December 31, 1993 was estimated to be 459,000. Given the Company's returns on equity and assets, the Company's management believes it is prudent to reinvest a significant portion of earnings back into the business. The Company has paid 72 consecutive quarterly dividends on common stock and has increased the per share amount 19 times since the first dividend was paid in 1976. Additional dividend increases will be considered after reviewing returns to shareholders, profitability expectations and financing needs. Dividends per common share for the years ended December 31, 1993 and 1992 are incorporated herein by reference from Part II, item 8, page 33. 10 Item 6. Selected Financial Data 11-YEAR SUMMARY
(Dollars rounded to millions, except per common share data and average restaurant sales) 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983 - ------------------------------------------------------------------------------------------------------------------------------ Systemwide sales $23,587 21,885 19,928 18,759 17,333 16,064 14,330 12,432 11,001 10,007 8,687 U.S. $14,186 13,243 12,519 12,252 12,012 11,380 10,576 9,534 8,843 8,071 7,069 Outside of the U.S. $ 9,401 8,642 7,409 6,507 5,321 4,684 3,754 2,898 2,158 1,936 1,618 Systemwide sales by type Operated by franchisees $15,756 14,474 12,959 12,017 11,219 10,424 9,452 8,422 7,612 6,914 5,929 Operated by the Company $ 5,157 5,103 4,908 5,019 4,601 4,196 3,667 3,106 2,770 2,538 2,297 Operated by affiliates $ 2,674 2,308 2,061 1,723 1,513 1,444 1,211 904 619 555 461 Average sales by restaurants open at least one year, in thousands $ 1,768 1,733 1,658 1,649 1,621 1,596 1,502 1,369 1,296 1,264 1,169 Revenues from franchised restaurants $ 2,251 2,031 1,787 1,621 1,465 1,325 1,186 1,037 924 828 704 Total revenues $ 7,408 7,133 6,695 6,640 6,066 5,521 4,853 4,143 3,694 3,366 3,001 Operating income $ 1,984 1,862 1,679 1,596 1,438 1,288 1,160 983 905 812 713 Income before provision for income taxes $ 1,676 1,448 1,299 1,246 1,157 1,046 959 848 782 707 628 Net income $ 1,083 959 860 802 727 646 549 * 480 433 389 343 Cash provided by operations $ 1,680 1,426 1,423 1,301 1,246 1,177 1,051 852 813 701 618 Financial position at year end Net property and equipment $10,081 9,597 9,559 9,047 7,758 6,800 5,820 4,878 4,164 3,521 3,183 Total assets $12,035 11,681 11,349 10,668 9,175 8,159 6,982 5,969 5,043 4,230 3,727 Long-term debt $ 3,489 3,176 4,267 4,429 3,902 3,111 2,685 2,131 1,638 1,268 1,171 Total shareholders' equity $ 6,274 5,892 4,835 4,182 3,550 3,413 2,917 2,506 2,245 2,009 1,755 Per common share Net income $ 2.91 2.60 2.35 2.20 1.95 1.71 1.45 * 1.24 1.11 .97 .85 Dividends declared $ .42 .39 .36 .33 .30 .27 .24 .21 .20 .17 .14 Total shareholders' equity at year end $ 16.24 14.77 13.48 11.65 9.81 9.09 7.72 6.45 5.67 4.94 4.38 Market price at year end $ 57 48 3/4 38 29 1/8 34 1/2 24 1/8 22 20 1/4 18 11 1/2 10 1/2 Systemwide restaurants at year end 13,993 13,093 12,418 11,803 11,162 10,513 9,911 9,410 8,901 8,304 7,778 Operated by franchisees 9,832 9,237 8,735 8,131 7,573 7,110 6,760 6,406 6,150 5,724 5,371 Operated by the Company 2,699 2,551 2,547 2,643 2,691 2,600 2,399 2,301 2,165 2,053 1,949 Operated by affiliates 1,462 1,305 1,136 1,029 898 803 752 703 586 527 458 U.S. 9,283 8,959 8,764 8,576 8,270 7,907 7,567 7,272 6,972 6,595 6,251 Outside of the U.S. 4,710 4,134 3,654 3,227 2,892 2,606 2,344 2,138 1,929 1,709 1,527 Number of countries at year end 70 65 59 53 51 50 47 46 42 36 32 *Before the cumulative prior years' benefit from the change in accounting for income taxes.
11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ----------------------------------------------------------------------- CONSOLIDATED OPERATING RESULTS ----------------------------------------------------------------------- INCREASES (DECREASES) IN OPERATING RESULTS OVER PRIOR YEAR ----------------------------------------------------------------------- (Dollars rounded to millions, 1993 1992 except per common share data) Amount % Amount % ----------------------------------------------------------------------- SYSTEMWIDE SALES $1,702 8 $1,957 10 ----------------------------------------------------------------------- REVENUES Sales by Company-operated restaurants $ 55 1 $ 194 4 Revenues from franchised restaurants 220 11 244 14 ----------------------------------------------------------------------- TOTAL REVENUES 275 4 438 7 ----------------------------------------------------------------------- OPERATING COSTS AND EXPENSES Company-operated restaurants 38 1 97 2 Franchised restaurants 32 9 42 14 General, administrative and selling expenses 81 9 66 8 Other operating (income) expense--net 2 (3) 50 (44) ----------------------------------------------------------------------- TOTAL OPERATING COSTS AND EXPENSES 153 3 255 5 ----------------------------------------------------------------------- OPERATING INCOME 122 7 183 11 ----------------------------------------------------------------------- Interest expense (58) (15) (18) (5) Nonoperating income (expense)--net 48 N/M (52) N/M ----------------------------------------------------------------------- INCOME BEFORE PROVISION FOR INCOME TAXES 228 16 149 11 ----------------------------------------------------------------------- Provision for income taxes 104 21 50 11 ----------------------------------------------------------------------- NET INCOME $ 124 13 $ 99 12 ======================================================================= NET INCOME PER COMMON SHARE $ .31 12 $ .25 11 ----------------------------------------------------------------------- N/M - Not Meaningful 12 SYSTEMWIDE SALES AND RESTAURANTS Systemwide sales are comprised of sales by restaurants operated by the Company, franchisees and affiliates operating under joint-venture agreements between McDonald's and local businesspeople. The 1993 increase was due to new restaurant expansion and higher sales at existing restaurants worldwide, offset in part by weaker foreign currencies and one less day in 1993 since 1992 was a leap year. The 1992 increase was due to new restaurant expansion, higher sales at existing restaurants and stronger foreign currencies. Sales by Company-operated restaurants grew at a slower rate than Systemwide sales in 1993 and 1992. The slower rate of growth in 1993 occurred primarily because weaker foreign currencies had a greater impact on sales by Company-operated restaurants than on Systemwide sales, combined with an increasing global base of franchised restaurants from expansion. The slower rate of growth in 1992 reflected the franchising of certain Company-operated businesses. Average sales by restaurants open at least one year were $1,768,000 in 1993, which was $35,000 higher than in 1992. Average sales both in the U.S. and outside of the U.S. improved due to the value program and various promotional efforts. Expansion has continued at an accelerated pace as 900 restaurants were added in 1993, compared with 675 in 1992 and 615 in 1991. Restaurants opened during the year (excluding satellite locations) contributed $572 million to Systemwide sales in 1993, $478 million in 1992 and $460 million in 1991. McDonald's plans to add between 900 and 1,200 restaurants (excluding satellite locations) around the world in 1994 and in each of the next several years. The mix of net additions will remain the same -- approximately one-third in the U.S. and two-thirds in markets outside of the U.S. Our global expansion plan also includes satellites -- sites that leverage the infrastructure of existing restaurants, either by using their storage capability or by drawing on their management talent and labor pool. At year-end 1993, 170 satellites were operating around the world. In addition, we expect to add several hundred satellite locations around the world each year. TOTAL REVENUES Total revenues consist of sales by Company-operated restaurants and fees from restaurants operated by franchisees and affiliates, based upon a percent of sales with specified minimum payments. The minimum franchise fee generally has been 12% of sales for new U.S. franchise arrangements since 1987. Higher fees are charged for sites that require a higher investment on the part of the Company. Fees paid by franchisees outside of the U.S. vary according to local business conditions. These fees, together with occupancy and operating rights, are stipulated in franchise arrangements that generally have 20-year terms. Revenues grow as restaurants are added and as existing restaurants build sales. Menu price adjustments affect revenues as well as sales; however, different pricing structures, new products, promotions, and product mix variations make it impractical to quantify the impact for the System. 13 The rates of increases in total revenues for 1993 and 1992 were less than the rates of increases in Systemwide sales. In 1993, this reflected weaker foreign currencies which had a greater impact on revenues than on Systemwide sales and the increasing global base of franchised restaurants, occurring primarily from expansion. In 1992, the franchising of certain Company-operated restaurant businesses primarily in the U.S. and Canada affected the rate of increase. Growth rates in sales by Company-operated restaurants and revenues from franchised restaurants varied because of expansion and changes in ownership and because sales by Company-operated restaurants were impacted to a greater degree by changing foreign currencies than were revenues. In 1993, about 53% of sales by Company-operated restaurants were outside of the U.S., compared with 33% of revenues from franchised restaurants. RESTAURANT MARGINS Company-operated restaurant margins were 19.2% of sales in 1993, compared with 19.1% in 1992 and 17.9% in 1991. As a percent of sales, food and paper costs increased, while occupancy, other operating and payroll costs declined in 1993. All costs as a percent of sales declined in 1992. Franchised restaurant margins were 83.1% of applicable revenues for 1993, compared with 82.8% in 1992 and 1991. Franchised margins include revenues and expenses associated with restaurants operating under business facilities lease arrangements. Under these arrangements, the Company leases the businesses -- including equipment -- to franchisees who have options to purchase the businesses. While higher fees are charged under these arrangements, margins are generally lower because of equipment depreciation. When these purchase options are exercised, the resulting gains compensate the Company for lower margins prior to exercise and are included in other operating (income) expense--net. At year-end 1993, 544 restaurants were operating under such arrangements, compared with 583 and 584 at year-end 1992 and 1991, respectively. GENERAL, ADMINISTRATIVE AND SELLING EXPENSES The 1993 increase was due primarily to higher employee costs associated with expansion and key priorities, partially offset by weaker foreign currencies. The 1992 increase was due to higher employee costs associated with expansion, partially offset by a reduction in U.S. marketing costs associated with the value program. These expenses as a percent of Systemwide sales have remained relatively constant over the past five years, and were 4.0% in 1993 and 3.9% in 1992. 14 OTHER OPERATING (INCOME) EXPENSE--NET This category is comprised primarily of gains on sales of restaurant businesses, equity in earnings of unconsolidated affiliates, and net gains or losses from property dispositions. The 1993 and 1992 amounts were relatively constant, reflecting greater income from affiliates and gains on sales of restaurant businesses in 1993, offset by the favorable settlement of a sales tax case in Brazil in 1992. Major factors contributing to the 1992 decrease included lower affiliate results due to 1991 gains from property dispositions and lower operating results in Japan, lower gains on sales of restaurant businesses, and greater losses on property dispositions, partially offset by the favorable settlement of a sales tax case in Brazil in 1992. Gains on sales of restaurant businesses include gains from exercises of purchase options by franchisees operating under business facilities lease arrangements and from sales of Company-operated restaurants. As a franchisor, McDonald's purchases and sells businesses in transactions with franchisees and affiliates in an ongoing effort to achieve the optimal ownership mix in each market. These transactions and the resulting gains are integral to franchising, and are appropriately recorded in operating income. Equity in earnings of unconsolidated affiliates is reported after interest expense and income taxes, except for U.S. partnerships that are reported before income taxes. The Company actively participates in, but does not control, these businesses. Net gains or losses from property dispositions result from disposal of excess properties that occur because of closings, relocations and other transactions. OPERATING INCOME The 1993 and 1992 increases reflected better results from combined restaurant margins, partially offset by higher general, administrative and selling expenses. Additionally, 1993 was impacted by weaker foreign currencies, while 1992 was impacted by lower income from other operating transactions and stronger foreign currencies. INTEREST EXPENSE The 1993 and 1992 decreases were primarily due to lower average debt balances and lower average interest rates; 1993 also was impacted by weaker foreign currencies. The trends have been positively affected by the fact that cash provided by operations exceeded capital expenditures in each of the last three years. NONOPERATING INCOME (EXPENSE)--NET This category includes interest income, gains and losses related to investments and financings, as well as miscellaneous income and expense. The 1993 increase reflected $9 million in gains related to debt extinguishments and $29 million in charges related to various early redemptions of high-coupon, U.S. Dollar debt in 1992. 15 PROVISION FOR INCOME TAXES The effective tax rate increased to 35.4% for 1993, compared with 33.8% for 1992 and 1991, primarily as a result of new U.S. tax legislation enacted in the third quarter of 1993 and lower foreign tax benefits. The full-year impact of the U.S. tax law changes on the 1993 income tax provision was approximately $20 million. Of this amount, the retroactive impact was $15 million, comprised of nearly $14 million attributable to a one-time, noncash revaluation of deferred tax liabilities, and $1 million related to periods prior to the third quarter. The Company expects its 1994 effective income tax rate to be in the 35.5% to 36.0% range. Consolidated net deferred tax liabilities included tax assets of $148 million, net of valuation allowance, in 1993 and 1992. Substantially all of the tax assets arose from profitable markets and the majority is expected to be realized in future U.S. income tax returns. NET INCOME AND NET INCOME PER COMMON SHARE Net income and net income per common share increased 13 and 12 percent, respectively, in 1993. These increases were negatively affected by weaker foreign currencies and the new U.S. tax legislation. ---------------------------------------------------------------- NET INCOME (Dollars in NET INCOME PER millions) COMMON SHARE ---------------------------------------------------------------- AMOUNT % AMOUNT % ---------------------------------------------------------------- 1993 AS REPORTED $1,083 13 $2.91 12 Impact of changing foreign currencies 32 .09 Retroactive impact of U.S. tax law changes 15 .04 ---------------------------------------------------------------- 1993 AS ADJUSTED $1,130 18 $3.04 17 ================================================================ 16 IMPACT OF CHANGING FOREIGN CURRENCIES Changing foreign currencies do impact reported results from time to time, but McDonald's manages foreign currencies to mitigate business risk and the reporting impact. As previously noted, weaker foreign currencies had a significant negative impact on 1993 results, while stronger foreign currencies had a positive impact in 1992. Further discussion of our approach to managing changing foreign currencies can be found on pages 26 through 28 in Financings and Total Shareholders' Equity. ----------------------------------------------------------------------- Impact of changing foreign currencies 1993 ----------------------------------------------------------------------- Reported Adjusted ----------------------------------------------------------------------- (Dollars in millions) Amount % Amount % ----------------------------------------------------------------------- Systemwide sales $23,587 8 $23,993 10 Revenues 7,408 4 7,721 8 Operating income 1,984 7 2,051 10 Net income 1,083 13 1,114 16 ----------------------------------------------------------------------- 1992 ----------------------------------------------------------------------- Systemwide sales $21,885 10 $21,717 9 Revenues 7,133 7 7,116 6 Operating income 1,862 11 1,846 10 Net income 959 12 953 11 ----------------------------------------------------------------------- 17 ------------------------------------------------------------------------ U.S. OPERATIONS ------------------------------------------------------------------------ SALES The 1993 and 1992 increases were due to higher sales and transaction counts at existing restaurants and expansion. Sales and transaction counts in 1993 were positively driven by the emphasis on value and customer satisfaction in the form of Extra-Value Meals, Happy Meals, "2 for $2" offers and the Burger of the Month program; as well as the NBA Fantasy Pack Trading Card, Happy Birthday Big Mac, Jurassic Park, Double Plays and Holiday Video promotions. ------------------------------------------------------------------------ Five Ten years years (In millions of dollars) 1993 1992 1991 ago ago ------------------------------------------------------------------------ Operated by franchisees $11,435 $10,615 $ 9,873 $ 8,574 $5,322 Operated by the Company 2,420 2,353 2,410 2,629 1,716 Operated by affiliates 331 275 236 177 31 ------------------------------------------------------------------------ U.S. sales $14,186 $13,243 $12,519 $11,380 $7,069 ======================================================================== RESTAURANTS There were 324 restaurants added in the U.S. in 1993, representing 36% of Systemwide additions, compared with 195 additions and 29% in 1992, and 340 additions and 56% five years ago. McDonald's expects to boost U.S. expansion in 1994 and in each of the next several years by adding between 300 and 400 restaurants, exclusive of satellites. ------------------------------------------------------------------------ Five Ten years years 1993 1992 1991 ago ago ------------------------------------------------------------------------ Operated by franchisees 7,628 7,375 7,149 6,017 4,791 Operated by the Company 1,433 1,395 1,446 1,758 1,430 Operated by affiliates 222 189 169 132 30 ------------------------------------------------------------------------ U.S. restaurants 9,283 8,959 8,764 7,907 6,251 ======================================================================== Restaurants operated by franchisees and affiliates represented 85% of U.S. restaurants at year-end 1993, compared with 78% five years ago. During the period 1989 through 1991, the Company franchised certain restaurants it previously operated, while continuing to own or control the land and buildings. The restaurants that had been franchised either were generating weak operating results, not building sales as expected, or located in outlying markets. The franchising of these businesses accomplished several objectives. On-site, entrepreneurial owners with an equity stake in the business improved operations, sales and profits; and franchising of these restaurants also improved consolidated profits. 18 OPERATING RESULTS ------------------------------------------------------------------------ (In millions of dollars) 1993 1992 1991 1990 1989 ------------------------------------------------------------------------ REVENUES Sales by Company- operated restaurants $2,420 $2,353 $2,410 $2,655 $2,728 Revenues from franchised restaurants 1,511 1,396 1,300 1,216 1,159 ------------------------------------------------------------------------ TOTAL REVENUES 3,931 3,749 3,710 3,871 3,887 ------------------------------------------------------------------------ OPERATING COSTS AND EXPENSES Company-operated restaurants 1,977 1,920 2,000 2,221 2,250 Franchised restaurants 247 235 217 202 180 General, administrative and selling expenses 638 566 549 511 490 Other operating (income) expense--net (18) (13) (56) (49) (22) ------------------------------------------------------------------------ TOTAL OPERATING COSTS AND EXPENSES 2,844 2,708 2,710 2,885 2,898 ------------------------------------------------------------------------ U.S. OPERATING INCOME $1,087 $1,041 $1,000 $ 986 $ 989 ======================================================================== U.S. revenues were positively impacted by strong sales and expansion in 1993 and 1992, and negatively affected by the franchising of certain Company-operated restaurant businesses in 1992, 1991 and 1990. U.S. Company-operated margins increased $11 million or 3% in 1993. These margins were 18.3% of sales in 1993, compared with 18.4% in 1992 and 17.0% in 1991. U.S. franchised margins rose $102 million or 9% in 1993, reflecting sales improvement and expansion. These margins were 83.6% of applicable revenues in 1993, compared with 83.2% in 1992 and 83.3% in 1991. While it is difficult to assess the potential effects of federal and state legislation in the U.S. that may impact the industry, the Company believes it can maintain operating margins within the same range of the past ten years by continuing to build sales and reduce costs. U.S. operating income rose $46 million or 4% in 1993 and was 55% of consolidated operating income, compared with 56% in 1992. This increase resulted primarily from higher combined restaurant margins, partially offset by higher general, administrative and selling expenses in the form of higher employee costs and other expenditures to support our global strategies and strengthen our competencies. The 1992 increase was driven by strong sales and combined restaurant margins, partially offset by lower gains on sales of restaurant businesses in 1992 and a gain on the sale of real estate by a U.S. affiliate in 1991. Operating income included $348 million of depreciation and amortization in 1993, compared with $330 million in 1992 and $325 million in 1991. 19 ASSETS AND CAPITAL EXPENDITURES ------------------------------------------------------------------------- (In millions of dollars) 1993 1992 1991 1990 1989 ------------------------------------------------------------------------- New restaurants $ 332 $ 196 $ 214 $ 446 $ 490 Existing restaurants 122 125 151 249 283 Other properties 130 76 45 51 74 ------------------------------------------------------------------------- U.S. capital expenditures $ 584 $ 397 $ 410 $ 746 $ 847 ========================================================================= U.S. assets $6,385 $6,410 $6,154 $6,060 $5,646 ------------------------------------------------------------------------- U.S. assets decreased $25 million or .4% in 1993, due to the utilization of year-end 1992 cash balances. At year-end 1993, 53% of consolidated assets were located in the U.S., compared with 55% at year-end 1992. Capital expenditures increased $187 million or 47% in 1993, and represented 44% of consolidated capital expenditures, compared with 60% five years ago. The amounts excluded expenditures made by franchisees such as their initial investments in equipment, signs, seating and decor and over the long term, ongoing reinvestment in their businesses. New restaurant expenditures increased $136 million or 69% because of accelerated expansion, tempered by lower average development costs. Expenditures for existing restaurants included modifications to achieve higher levels of customer satisfaction and implementation of technology to improve service and food quality. The decline over time highlighted aggressive reinvestment in prior years. Rebuilding and relocating restaurants has generated additional sales, reflecting our ability to adjust to changing demographics, traffic patterns and market opportunities. More than $35 million was spent for these investments in 1993 and $291 million over the past five years. The rise in other property expenditures was attributable to the further testing of Leaps & Bounds, a family play center concept. ------------------------------------------------------------------------- (In thousands of dollars) 1993 1992 1991 1990 1989 ------------------------------------------------------------------------- Land $ 328 $ 361 $ 433 $ 433 $ 472 Building 482 515 608 720 682 Equipment 317 361 362 403 416 ------------------------------------------------------------------------- U.S. average costs $1,127 $1,237 $1,403 $1,556 $1,570 ========================================================================= Average land costs declined as a result of the implementation of low-cost building designs, which require smaller parcels, and a softer real estate market. Average building costs decreased due to low-cost building designs and construction efficiencies. Low-cost building designs comprised nearly 80% of 1993 openings, compared with 60% in 1992. Average equipment costs decreased due to standardization and global sourcing. McDonald's intends to pursue ongoing development cost reductions by taking further advantage of standardization, global sourcing and economies of scale. 20 The Company continues to emphasize restaurant property ownership. Real estate ownership yields long-term benefits, including the ability to fix occupancy costs. In addition to purchasing new properties, previously leased properties are acquired. The Company owned 68% of U.S. sites at year-end 1993, the same as five years ago. 21 ---------------------------------------------------------------------- OPERATIONS OUTSIDE OF THE U.S. ---------------------------------------------------------------------- SALES The 1993 and 1992 increases were due to expansion and higher sales at existing restaurants; however, 1993 was impacted by weaker foreign currencies, most notably the European currencies along with the Canadian and Australian Dollars. On the other hand, 1992 benefited from stronger foreign currencies in the form of the Japanese Yen, Deutsche Mark and French Franc. Strong operating results have been achieved in the past several years despite weak economies in several countries, particularly Canada, England and Japan. ---------------------------------------------------------------------- Five Ten years years (In millions of dollars) 1993 1992 1991 ago ago ---------------------------------------------------------------------- Operated by franchisees $4,321 $3,859 $3,085 $1,850 $ 607 Operated by the Company 2,737 2,750 2,499 1,567 581 Operated by affiliates 2,343 2,033 1,825 1,267 430 ---------------------------------------------------------------------- Sales outside of the U.S. $9,401 $8,642 $7,409 $4,684 $1,618 ====================================================================== European sales rose because of accelerated expansion and higher sales at existing restaurants, partially offset by weaker foreign currencies. Asia/Pacific sales grew because of expansion coupled with the favorable impact of a stronger Japanese Yen. Latin American sales increased because of expansion and higher sales at existing restaurants. Canadian sales were negatively impacted by the weaker currency, partially offset by higher sales at existing restaurants and expansion. In 1993, four of the six largest markets outside of the U.S. -- France, Germany, Australia and England -- reported double digit sales increases on a local currency basis. Other markets -- including Argentina, Austria, Belgium, Brazil, Canada, Denmark, Hong Kong, Hungary, Italy, Malaysia, Netherlands, New Zealand, Norway, Panama, Puerto Rico, Scotland, Singapore, Spain, Sweden, Switzerland, Taiwan, Thailand, Turkey and Wales -- delivered excellent results on a local currency basis. RESTAURANTS During the past five years, 60% of Systemwide additions have been outside of the U.S. Of the 576 restaurants added in 1993, 54% were in the six largest markets, compared with 57% in 1992 and 63% in 1991. This continued relative decline was indicative of the growing importance of emerging markets. McDonald's expects to boost expansion outside of the U.S. in 1994 and in each of the next several years by adding between 600 and 800 restaurants, exclusive of satellites. 22 ----------------------------------------------------------------------- Five Ten years years 1993 1992 1991 ago ago ----------------------------------------------------------------------- Operated by franchisees 2,204 1,862 1,586 1,093 580 Operated by the Company 1,266 1,156 1,101 842 519 Operated by affiliates 1,240 1,116 967 671 428 ----------------------------------------------------------------------- Restaurants outside of the U.S. 4,710 4,134 3,654 2,606 1,527 ======================================================================= About 82% of Company-operated restaurants outside of the U.S. were in England, Canada, Germany, Australia, Hong Kong and France. About 71% of franchised restaurants outside of the U.S. were in Canada, Germany, Australia, France, Japan and the Netherlands. Restaurants operated by affiliates were principally located in Japan and other Asia/Pacific countries. OPERATING RESULTS ----------------------------------------------------------------------- (In millions of dollars) 1993 1992 1991 1990 1989 ----------------------------------------------------------------------- REVENUES Sales by Company- operated restaurants $2,737 $2,750 $2,499 $2,364 $1,873 Revenues from franchised restaurants 740 634 486 405 306 ----------------------------------------------------------------------- TOTAL REVENUES 3,477 3,384 2,985 2,769 2,179 ----------------------------------------------------------------------- OPERATING COSTS AND EXPENSES Company-operated restaurants 2,188 2,206 2,029 1,915 1,528 Franchised restaurants 133 114 90 77 61 General, administrative and selling expenses 303 295 246 213 166 Other operating (income) expense--net (44) (51) (58) (46) (25) ----------------------------------------------------------------------- TOTAL OPERATING COSTS AND EXPENSES 2,580 2,564 2,307 2,159 1,730 ----------------------------------------------------------------------- OPERATING INCOME OUTSIDE OF THE U.S. $ 897 $ 820 $ 678 $ 610 $ 449 ======================================================================= The 1993 and 1992 revenue and operating income increases reflected accelerated expansion and better performance despite weak economies in several major markets. Changing foreign currencies had a negative effect in 1993 and a positive one in 1992 on these increases. 23 Company-operated and franchised dollar margins were negatively impacted by weaker foreign currencies. Company-operated margins increased $6 million or 1% in 1993. These margins improved to 20.1% of sales in 1993, compared with 19.8% in 1992 and 18.8% in 1991. Franchised margins grew $86 million or 17% in 1993. These margins were 82.0% of applicable revenues in 1993, compared with 82.1% in 1992 and 81.5% in 1991. The 1993 and 1992 increases in general, administrative and selling expenses were due primarily to higher employee costs associated with expansion, partially offset by weaker foreign currencies in 1993. Other operating income decreased in 1993 due to the favorable settlement of a sales tax case in Brazil in 1992, offset somewhat by 1993 increases in gains on sales of restaurant businesses and greater affiliate earnings. Other operating income decreased in 1992 due to lower affiliate results and lower gains on sales of restaurant businesses, offset somewhat by the favorable settlement of a sales tax case in Brazil. Operations outside of the U.S. continued to contribute greater amounts to consolidated results as shown below: --------------------------------------------------------------------- (As a percent of consolidated) 1993 1992 1991 1990 1989 --------------------------------------------------------------------- Systemwide sales 40 39 37 35 31 Total revenues 47 47 45 42 36 Operating income 45 44 40 38 31 Restaurant margins Company-operated 55 56 53 51 42 Franchised 32 31 27 24 20 Systemwide restaurants 34 32 29 27 26 Assets 47 45 46 43 38 --------------------------------------------------------------------- The Europe/Africa/Middle East segment accounted for 64% of revenues and 61% of operating income outside of the U.S. in 1993, growing $49 and $64 million, respectively. Germany, England and France accounted for 85% of this segment's operating income, compared with 90% in 1992. The 1993 increases were primarily due to strong operating results in Germany and France, as well as many emerging markets, offset by weaker foreign currencies. England's operating income decrease was due to the significant impact of the weaker currency. The majority of the 1992 revenue and operating income increases were generated by Germany, France and England. Asia/Pacific revenues grew $60 million and operating income increased $27 million in 1993; 82% of the operating income was contributed by Australia, Japan and Hong Kong. The 1993 increases were attributable to expansion and developing economies in many Asia/Pacific markets, with the exception of Japan which continues to suffer from a weak economy. In 1992, stronger operations in Australia, and better results in Hong Kong and Singapore improved operating income, while earnings from Japan were affected by the economy. Latin American revenues grew $22 million, while operating income decreased $12 million in 1993. The 1993 increase in revenues was primarily a function of expansion, while the decrease in operating income reflected the favorable settlement of a sales tax case in Brazil in 1992, partially offset by better results in Argentina. Brazil was affected by a weak economy in 1993 and 1992. 24 Canadian revenues decreased $37 million due to a weaker Canadian Dollar in 1993. Operating income decreased $2 million, reflecting the weaker currency and a decrease in other operating income, partially offset by better Company-operated margins. Revenues decreased in 1992 due to the franchising of certain restaurant businesses and the weaker currency, while operating income declined due to lower gains on sales of restaurant businesses and the weaker currency. ASSETS AND CAPITAL EXPENDITURES Assets outside of the U.S. rose $379 million or 7% in 1993; the effects of expansion were partially offset by weaker foreign currencies. At year-end 1993, about 47% of consolidated assets were located outside of the U.S.; 64% of these assets were located in England, France, Germany, Canada and Australia. ----------------------------------------------------------------------- (In millions of dollars) 1993 1992 1991 1990 1989 ----------------------------------------------------------------------- New restaurants $ 609 $ 603 $ 612 $ 639 $ 486 Existing restaurants 94 91 94 126 148 Other properties 55 47 39 74 64 ----------------------------------------------------------------------- Capital expenditures outside of the U.S. $ 758 $ 741 $ 745 $ 839 $ 698 ======================================================================= Assets outside of the U.S. $5,650 $5,271 $5,195 $4,608 $3,529 ----------------------------------------------------------------------- In the past five years, nearly $3.8 billion has been invested outside of the U.S.; in 1993, capital expenditures rose in all geographic segments except Canada. Weaker foreign currencies negatively impacted Europe, Asia/Pacific and Canada. Approximately 72% of capital expenditures outside of the U.S. were invested in Europe -- primarily in Germany, France and England. In general, average development costs for new restaurants for the five largest, majority-owned markets -- Australia, Canada, England, France and Germany -- were nearly double the U.S. average; such costs accommodate higher sales volumes and transaction counts. Even so, 1993 average development costs have decreased approximately one-third since 1991 in these markets. Over the past two years, average development costs have decreased due to construction and design efficiencies, standardization, global sourcing and changes in the mix of openings, and because of weaker foreign currencies in 1993. Expenditures for existing restaurants included seating and decor upgrades, and equipment required for new products and operating efficiencies. The majority of these expenditures were in Europe. Expenditures for other properties were principally for office facilities. 25 As in the U.S., business outside of the U.S. emphasizes restaurant property ownership. However, various laws and regulations make property acquisition and ownership much more difficult than in the U.S. Ownership is obtained when practical; otherwise, long-term leases are an alternative. In addition, certain markets have laws and customs that offer stronger tenancy rights than are available in the U.S. The Company and affiliates owned 36% of sites outside of the U.S. at year-end 1993, compared with 35% five years ago. Capital expenditures made by affiliates -- which were not included in consolidated amounts -- were $207 million in 1993, compared with $206 million in 1992. The majority of the 1993 expenditures were for development in Japan, Argentina and Russia. Included in the amounts for Russia were costs for constructing an office building which is leased primarily to third parties. 26 ----------------------------------------------------------------------- FINANCIAL POSITION ----------------------------------------------------------------------- TOTAL ASSETS AND CAPITAL EXPENDITURES Total assets grew $354 million or 3% in 1993; net property and equipment represented 84% of total assets and rose $484 million. Capital expenditures increased $204 million or 18%, reflecting higher expansion, partially offset by lower average development costs and weaker foreign currencies. CASH PROVIDED BY OPERATIONS Cash provided by operations increased $254 million or 18% in 1993, and was relatively flat in 1992 mainly due to $159 million in payments related to various prior years' tax matters. Together with other sources of cash such as borrowings, cash provided by operations was used primarily for capital expenditures, debt repayments, share repurchase and dividends. For the third straight year, cash provided by operations exceeded capital expenditures. While cash generated is significant relative to cash required, the Company also has the ability to meet short-term needs through commercial paper borrowings and line of credit agreements. Accordingly, a relatively low current ratio has been purposefully maintained; it was .60 at year-end 1993. The Company believes that cash flow measures are meaningful indicators of growth and financial strength, when evaluated in the context of absolute dollars, uses and consistency. Over the past five years, cash flow coverage has improved significantly. Cash provided by operations is expected to cover capital expenditures over the next several years, even as expansion continues to accelerate. ----------------------------------------------------------------------- (Dollars in millions) 1993 1992 1991 1990 1989 ----------------------------------------------------------------------- Cash provided by operations $1,680 $1,426 $1,423 $1,301 $1,246 Cash provided by operations minus capital expenditures $ 363 $ 339 $ 294 $ (270) $ (309) Cash provided by operations as a percent of capital expenditures 128 131 126 83 80 Cash provided by operations as a percent of total debt 45 37 31 27 31 ----------------------------------------------------------------------- FINANCINGS The Company strives to minimize interest expense and the impact of changing foreign currencies, while maintaining the capacity to meet increasing growth requirements. To accomplish these objectives, McDonald's generally finances long-term assets with long-term debt in the currencies in which the assets are denominated, while remaining flexible to take advantage of changing foreign currencies and interest rates. 27 Over the years, major capital markets and various techniques have been utilized to meet financing requirements and reduce interest expense. Currency exchange agreements have been employed in conjunction with borrowings to obtain desired currencies at attractive rates. Interest-rate exchange agreements and interest-rate caps have been used to effectively convert fixed-rate to floating-rate debt, or vice versa, and to limit interest expense. Foreign-denominated debt has been used to lessen the impact of changing foreign currencies on net income and shareholders' equity. Total foreign-denominated debt, including the effects of currency exchange agreements, was $3.1 and $2.7 billion at year-end 1993 and 1992, respectively. The Company manages its debt portfolio, including the use of derivatives, in order to respond to changes in interest rates and foreign currencies. Accordingly, the Company periodically retires, redeems, and repurchases debt, and terminates exchange agreements. While changing foreign currencies affect reported results, the Company actively hedges the seven currencies that have significant potential impact in order to minimize the cash exposure of royalty and other payments received in the U.S. in foreign currencies. In addition, McDonald's restaurants primarily purchase goods and services in local currencies resulting in natural hedges; McDonald's typically finances in local currencies creating economic hedges; and the Company's foreign currency exposure is diversified within a basket of currencies, as opposed to one or several. ----------------------------------------------------------------------- (Includes the net asset positions of currency exchange agreements) 1993 1992 1991 1990 1989 ----------------------------------------------------------------------- Fixed-rate debt as a percent of total debt at year end 77 75 78 78 76 Weighted average annual interest rate 9.1 9.3 9.4 9.4 9.4 Foreign-denominated debt as a percent of total debt at year end 86 72 61 60 59 ----------------------------------------------------------------------- Moody's and Standard & Poor's have rated McDonald's debt Aa2 and AA, respectively, since 1982. Duff & Phelps began rating the debt in 1990, and currently rates it AA+. The Company has not experienced, nor does it expect to experience, difficulty in obtaining financing or in refinancing existing debt. The Company had $1.7 billion under line of credit agreements and $685 million under previously filed shelf registrations available at year-end 1993 for future debt issuance. Although McDonald's prefers to own real estate, leases are an alternative financing method. As in the past, some new properties will be leased. Such leases frequently include renewal and/or purchase options. In the past five years, McDonald's has leased properties related to 41% of U.S. openings and 67% of openings outside of the U.S. 28 During the past three years, the Company has improved its balance sheet by reducing leverage while simultaneously increasing expansion and repurchasing shares. Total debt as a percent of total capitalization -- defined as total debt and total shareholders' equity -- was 37% at year-end 1993, compared with 40% and 49% at year- end 1992 and 1991, respectively. TOTAL SHAREHOLDERS' EQUITY Total shareholders' equity rose $382 million and represented 52% of total assets at year-end 1993. One technique used to enhance common shareholder value is share repurchase through excess cash flow or debt capacity, while maintaining a strong equity base for future expansion. At year-end 1993, the market value of shares repurchased by the Company and recorded as common stock in treasury was $3.5 billion. In conjunction with efforts to enhance common shareholder value, the Company recently announced its intention to purchase up to $1 billion of its common stock within the next three years, primarily from excess cash flow. In 1993, the Company completed a $700 million common share repurchase program begun in 1992. In order to lower the cost of equity capital, the Company issued $500 million of Series E 7.72% Cumulative Preferred Stock in 1992; at the same time, the Board of Directors authorized a $500 million common share repurchase program and the use of derivatives. Subsequently, the Board authorized an additional $200 million expenditure for share repurchase in 1993. Weaker foreign currencies reduced shareholders' equity by $65 million in 1993; however, financing foreign-denominated assets with foreign-denominated debt tempered the effect. At year-end 1993, foreign-denominated assets not entirely financed with the related foreign-denominated debt were primarily located in England, Canada, Australia, France and Germany. RETURNS Return on average assets is computed using income before provision for income taxes, preferred dividends and interest expense. Net income, less preferred stock dividends (net of tax in 1993 and 1992), is used to calculate return on average common equity. Month-end balances are used to compute both average assets and average common equity. ---------------------------------------------------------------------- 1993 1992 1991 1990 1989 ---------------------------------------------------------------------- Return on average assets 17.1 16.1 15.8 16.7 17.3 Return on average common equity 19.0 18.2 19.1 20.7 20.5 ---------------------------------------------------------------------- The 1993 and 1992 improvements in return on average assets reflected better global operating results and a slower rate of asset growth. The 1993 improvement in return on average common equity reflected higher levels of share repurchase, whereas declines in 1992 and 1991 resulted from lower levels of share repurchase as excess cash flow was used to reduce debt. In recent years, returns were affected by soft economies in the U.S. and certain markets outside of the U.S. Also influencing these returns were expansion outside of the U.S. and, prior to 1991, escalating development costs and higher reinvestment. 29 EFFECTS OF CHANGING PRICES--INFLATION McDonald's has demonstrated an ability to manage inflationary cost increases effectively. Rapid inventory turnover, the ability to adjust prices, substantial property holdings--many of which are at fixed costs and partially financed by debt made cheaper by inflation-- and cost controls have enabled McDonald's to mitigate the effects of inflation. 30 Item 8. Financial Statements and Supplementary Data INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Reference --------- Management's Report 31 Report of independent auditors 32 Consolidated statement of income for each of the three years in the period ended December 31, 1993 33 Consolidated balance sheet at December 31, 1993 and 1992 34 Consolidated statement of cash flows for each of the three years in the period ended December 31, 1993 35 Consolidated statement of shareholders' equity for each of the three years in the period ended December 31, 1993 36 Notes to consolidated financial statements (Financial comments) 37-50 Quarterly Results (unaudited) 51 31 MANAGEMENT'S REPORT Management is responsible for the preparation and integrity of the consolidated financial statements and Financial Comments appearing in this annual report. The financial statements were prepared in accordance with generally accepted accounting principles and include certain amounts based on management's best estimates and judgments. Other financial information presented in the annual report is consistent with the financial statements. The Company maintains a system of internal accounting controls designed to provide reasonable assurance that assets are safeguarded, and that transactions are executed as authorized and are recorded and reported properly. This system of controls is based upon written policies and procedures, appropriate divisions of responsibility and authority, careful selection and training of personnel and utilization of an internal audit program. Policies and procedures prescribe that the Company and all employees are to maintain the highest ethical standards and that business practices throughout the world are to be conducted in a manner which is above reproach. Ernst & Young, independent auditors, has audited the Company's financial statements and their report is presented herein. The Board of Directors has an Audit Committee composed entirely of outside Directors. Ernst & Young has direct access to the Audit Committee and periodically meets with the Committee to discuss accounting, auditing and financial reporting matters. McDONALD'S CORPORATION Oak Brook, Illinois January 27, 1994 32 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Shareholders McDonald's Corporation Oak Brook, Illinois We have audited the accompanying consolidated balance sheet of McDonald's Corporation as of December 31, 1993 and 1992, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1993. These financial statements are the responsibility of McDonald's Corporation management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of McDonald's Corporation at December 31, 1993 and 1992, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. ERNST & YOUNG Chicago, Illinois January 27, 1994 33 McDONALD'S CORPORATION CONSOLIDATED STATEMENT OF INCOME --------------------------------------------------------------------------
(In millions of dollars, except per common share data) Years ended December 31, 1993 1992 1991 -------------------------------------------------------------------------- REVENUES Sales by Company-operated restaurants $5,157.2 $5,102.5 $4,908.5 Revenues from franchised restaurants 2,250.9 2,030.8 1,786.5 -------------------------------------------------------------------------- TOTAL REVENUES 7,408.1 7,133.3 6,695.0 -------------------------------------------------------------------------- OPERATING COSTS AND EXPENSES Company-operated restaurants Food and packaging 1,735.1 1,688.8 1,627.5 Payroll and other employee benefits 1,291.2 1,281.4 1,259.2 Occupancy and other operating expenses 1,138.3 1,156.3 1,142.4 -------------------------------------------------------------------------- 4,164.6 4,126.5 4,029.1 -------------------------------------------------------------------------- Franchised restaurants--occupancy expenses 380.4 348.6 306.5 General, administrative and selling expenses 941.1 860.6 794.7 Other operating (income) expense--net (62.0) (64.0) (113.8) -------------------------------------------------------------------------- TOTAL OPERATING COSTS AND EXPENSES 5,424.1 5,271.7 5,016.5 -------------------------------------------------------------------------- OPERATING INCOME 1,984.0 1,861.6 1,678.5 -------------------------------------------------------------------------- Interest expense--net of capitalized interest of $20.0, $19.5 and $26.2 316.1 373.6 391.4 Nonoperating income (expense)--net 7.8 (39.9) 12.3 -------------------------------------------------------------------------- INCOME BEFORE PROVISION FOR INCOME TAXES 1,675.7 1,448.1 1,299.4 -------------------------------------------------------------------------- Provision for income taxes 593.2 489.5 439.8 -------------------------------------------------------------------------- NET INCOME $1,082.5 $ 958.6 $ 859.6 ========================================================================== NET INCOME PER COMMON SHARE $ 2.91 $ 2.60 $ 2.35 -------------------------------------------------------------------------- DIVIDENDS PER COMMON SHARE $ .42 $ .39 $ .36 -------------------------------------------------------------------------- The accompanying Financial Comments are an integral part of the consolidated financial statements.
34 McDONALD'S CORPORATION CONSOLIDATED BALANCE SHEET
-------------------------------------------------------------------- (In millions of dollars) December 31, 1993 1992 -------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash and equivalents $185.8 $436.5 Accounts receivable 287.0 245.9 Notes receivable 27.6 33.7 Inventories, at cost, not in excess of market 43.5 43.5 Prepaid expenses and other current assets 118.9 105.1 -------------------------------------------------------------------- TOTAL CURRENT ASSETS 662.8 864.7 -------------------------------------------------------------------- OTHER ASSETS AND DEFERRED CHARGES Notes receivable due after one year 90.0 99.0 Investments in and advances to affiliates 446.7 399.7 Miscellaneous 338.6 330.7 -------------------------------------------------------------------- TOTAL OTHER ASSETS AND DEFERRED CHARGES 875.3 829.4 -------------------------------------------------------------------- PROPERTY AND EQUIPMENT Property and equipment, at cost 13,459.0 12,658.0 Accumulated depreciation and amortization (3,377.6) (3,060.6) -------------------------------------------------------------------- NET PROPERTY AND EQUIPMENT 10,081.4 9,597.4 -------------------------------------------------------------------- INTANGIBLE ASSETS--NET 415.7 389.7 -------------------------------------------------------------------- TOTAL ASSETS $12,035.2 $11,681.2 ==================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Notes payable $193.3 $411.0 Accounts payable 395.7 343.3 Income taxes 56.0 109.7 Other taxes 90.2 74.8 Accrued interest 132.9 133.3 Other accrued liabilities 203.9 203.1 Current maturities of long-term debt 30.0 269.4 -------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 1,102.0 1,544.6 -------------------------------------------------------------------- LONG-TERM DEBT 3,489.4 3,176.4 OTHER LONG-TERM LIABILITIES AND MINORITY INTERESTS 334.4 225.2 DEFERRED INCOME TAXES 835.3 748.6 COMMON EQUITY PUT OPTIONS 94.0 SHAREHOLDERS' EQUITY Preferred stock, no par value; authorized--165.0 million shares; issued--5.7 and 5.8 million 677.3 680.2 Common stock, no par value; authorized--1.25 billion shares; issued--415.2 million 46.2 46.2 Additional paid-in capital 302.8 260.2 Guarantee of ESOP Notes (253.6) (271.3) Retained earnings 7,612.6 6,727.3 Foreign currency translation adjustment (192.2) (127.4) -------------------------------------------------------------------- 8,193.1 7,315.2 -------------------------------------------------------------------- Common stock in treasury, at cost; 61.5 and 51.6 million shares (1,919.0) (1,422.8) -------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 6,274.1 5,892.4 -------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $12,035.2 $11,681.2 ==================================================================== The accompanying Financial Comments are an integral part of the consolidated financial statements.
35 McDONALD'S CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS
-------------------------------------------------------------------------- (In millions of dollars) Years ended December 31, 1993 1992 1991 -------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $1,082.5 $958.6 $859.6 Adjustments to reconcile to cash provided by operations Depreciation and amortization 568.4 554.9 514.2 Deferred income taxes 52.4 22.4 64.7 Changes in operating working capital items Accounts receivable increase (48.3) (29.1) (40.9) Inventories, prepaid expenses and other current assets (increase) decrease (9.6) 2.2 .4 Accounts payable increase (decrease) 45.4 .8 (22.7) Accrued interest increase (decrease) (5.1) (27.4) 27.5 Taxes and other liabilities increase (decrease) 26.5 (68.2) 85.2 Other--net (32.4) 11.7 (64.8) -------------------------------------------------------------------------- CASH PROVIDED BY OPERATIONS 1,679.8 1,425.9 1,423.2 -------------------------------------------------------------------------- INVESTING ACTIVITIES Property and equipment expenditures (1,316.9) (1,086.9) (1,128.8) Sales of restaurant businesses 114.2 124.5 159.8 Purchases of restaurant businesses (64.2) (64.1) (30.1) Notes receivable additions (33.1) (31.8) (38.8) Property sales 61.6 52.2 58.6 Notes receivable reductions 75.7 78.5 53.1 Other (55.3) (71.1) (13.5) -------------------------------------------------------------------------- CASH USED FOR INVESTING ACTIVITIES (1,218.0) (998.7) (939.7) -------------------------------------------------------------------------- FINANCING ACTIVITIES Notes payable and commercial paper net borrowings supported by line of credit agreements (8.9) 17.0 (676.7) Other long-term financing issuances 1,241.0 509.5 1,004.1 Other long-term financing repayments (1,185.9) (1,041.5) (606.9) Treasury stock purchases (620.1) (79.7) (109.2) Preferred stock issuances 484.9 100.0 Common and preferred stock dividends (201.2) (160.5) (148.3) Other 62.6 59.4 30.9 -------------------------------------------------------------------------- CASH USED FOR FINANCING ACTIVITIES (712.5) (210.9) (406.1) -------------------------------------------------------------------------- CASH AND EQUIVALENTS INCREASE (DECREASE) (250.7) 216.3 77.4 -------------------------------------------------------------------------- Cash and equivalents at beginning of year 436.5 220.2 142.8 -------------------------------------------------------------------------- CASH AND EQUIVALENTS AT END OF YEAR $185.8 $436.5 $220.2 ========================================================================== SUPPLEMENTAL CASH FLOW DISCLOSURES Interest paid $312.2 $395.7 $368.1 Income taxes paid $521.7 $531.6 $313.5 -------------------------------------------------------------------------- The accompanying Financial Comments are an integral part of the consolidated financial statements.
36 McDONALD'S CORPORATION CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Dollars and shares in millions, except per share data) Foreign Preferred Common Additional Guarantee currency Common stock stock issued stock issued paid-in of Retained translation in treasury Shares Amount Shares Amount capital ESOP Notes earnings adjustment Shares Amount - ---------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1990 6.9 $199.7 415.2 $46.2 $173.7 $(196.5) $5,214.5 $46.7 (56.1) $(1,302.0) - ---------------------------------------------------------------------------------------------------------------------------------- Net income 859.6 Common stock cash dividends ($.36 per share) (129.7) Preferred stock cash dividends ($2.01 for Series B and $1.74 for Series C) (19.2) Preferred stock issuance 3.0 100.0 (.2) (100.0) ESOP Notes payment 8.1 Treasury stock acquisitions (3.4) (116.7) Translation adjustments (including taxes of $1.0) (14.4) Stock option exercises and other (including tax benefits of $15.9) (1.5) 28.4 1.7 3.0 36.7 - ---------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1991 9.9 298.2 415.2 46.2 201.9 (286.7) 5,925.2 32.3 (56.5) (1,382.0) - ---------------------------------------------------------------------------------------------------------------------------------- Net income 958.6 Common stock cash dividends ($.39 per share) (141.8) Preferred stock cash dividends ($2.01 for Series B, $2.32 for Series C and $.16 for Series E depositary share), (net of tax benefits of $6.4) (14.7) Preferred stock issuance 500.0 (15.1) Preferred stock conversion (4.1) (118.0) 22.9 3.2 95.1 ESOP Notes payment 12.6 Treasury stock acquisitions (1.9) (92.3) Translation adjustments (including taxes of $21.2) (159.7) Common equity put options issuance (91.5) Stock option exercises and other (including tax benefits of $29.7) 50.5 2.8 3.6 47.9 - ---------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1992 5.8 680.2 415.2 46.2 260.2 (271.3) 6,727.3 (127.4) (51.6) (1,422.8) - ---------------------------------------------------------------------------------------------------------------------------------- Net income 1,082.5 Common stock cash dividends ($.42 per share) (150.3) Preferred stock cash dividends ($2.01 for Series B, $2.32 for Series C and $1.93 for Series E depositary share), (net of tax benefits of $4.1) (46.9) Preferred stock conversion (.1) (2.9) .5 .1 2.4 ESOP Notes payment 15.5 Treasury stock acquisitions (12.5) (627.7) Translation adjustments (including taxes of $1.6) (64.8) Common equity put options expiration 94.0 Stock option exercises and other (including tax benefits of $23.0) 42.1 2.2 2.5 35.1 - ---------------------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1993 5.7 $677.3 415.2 $46.2 $302.8 $(253.6) $7,612.6 $(192.2) (61.5) $(1,919.0) ================================================================================================================================== The accompanying Financial Comments are an integral part of the consolidated financial statements.
37 MCDONALD'S CORPORATION FINANCIAL COMMENTS -------------------------------------------------------------------- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -------------------------------------------------------------------- CONSOLIDATION The consolidated financial statements include the accounts of the Company and its subsidiaries. Investments in 50% or less owned affiliates are carried at equity in the companies' net assets. FOREIGN CURRENCY TRANSLATION The functional currency of each operation outside of the U.S., except for those located in hyperinflationary countries, is the respective local currency. INCOME TAXES In 1992, the Company adopted Financial Accounting Standards Board Statement No. 109, Accounting for Income Taxes. The effects were not material, as the Company had previously adopted Statement No. 96. PROPERTY AND EQUIPMENT Property and equipment are stated at cost with depreciation and amortization provided on the straight-line method over the following estimated useful lives: buildings--up to 40 years; leasehold improvements--lesser of useful lives of assets or lease terms including option periods; and equipment--3 to 12 years. INTANGIBLE ASSETS Intangible assets consist primarily of franchise rights reacquired from franchisees and affiliates, and are amortized on the straight- line method over an average life of 29 years. FINANCIAL INSTRUMENTS Non-U.S. Dollar financing transactions generally are effective as hedges of long-term investments in the corresponding currency. Interest-rate exchange agreements are designated and generally are effective as hedges of the Company's interest-rate exposures. The carrying amounts for cash and equivalents and notes receivable approximated fair value. For noninterest-bearing security deposits by franchisees, no fair value was provided as these deposits are an integral part of the overall franchise arrangements. STATEMENT OF CASH FLOWS The Company considers all highly liquid investments with short-term maturity dates to be cash equivalents. The impact of changing foreign currencies on cash and equivalents was not material. 38 ---------------------------------------------------------------------- NUMBER OF RESTAURANTS IN OPERATION ---------------------------------------------------------------------- 1993 1992 1991 1990 ---------------------------------------------------------------------- Operated by franchisees 9,288 8,654 8,151 7,578 Operated under business facilities lease arrangements 544 583 584 553 Operated by the Company 2,699 2,551 2,547 2,643 Operated by 50% or less owned affiliates 1,462 1,305 1,136 1,029 ---------------------------------------------------------------------- Systemwide restaurants 13,993 13,093 12,418 11,803 ====================================================================== Franchisees operating under business facilities lease arrangements have options to purchase the businesses. The results of operations of restaurant businesses purchased and sold in transactions with franchisees and affiliates were not material to the consolidated financial statements for periods prior to purchase and sale. ---------------------------------------------------------------------- OTHER OPERATING (INCOME) EXPENSE--NET ---------------------------------------------------------------------- (In millions of dollars) 1993 1992 1991 ---------------------------------------------------------------------- Gains on sales of restaurant businesses $(48.2) $(43.1) $ (64.0) Equity in earnings of unconsolidated affiliates (34.6) (29.5) (57.5) Net losses from property dispositions 15.5 18.1 9.9 Other--net 5.3 (9.5) (2.2) ---------------------------------------------------------------------- Other operating (income) expense--net $(62.0) $(64.0) $(113.8) ====================================================================== Gains on sales of restaurant businesses are recognized as income when the sales are consummated and other stipulated conditions are met. Proceeds from certain sales of restaurant businesses and property include notes receivable. --------------------------------------------------------------------- INCOME TAXES --------------------------------------------------------------------- Income before provision for income taxes and the provision for income taxes, classified by source of income, were as follows: --------------------------------------------------------------------- (In millions of dollars) 1993 1992 1991 --------------------------------------------------------------------- U.S. $ 986.0 $ 873.3 $ 847.3 Outside of the U.S. 689.7 574.8 452.1 --------------------------------------------------------------------- Income before provision for income taxes $1,675.7 $1,448.1 $1,299.4 ===================================================================== U.S. $ 391.9 $ 316.8 $ 312.6 Outside of the U.S. 201.3 172.7 127.2 --------------------------------------------------------------------- Provision for income taxes $ 593.2 $ 489.5 $ 439.8 ===================================================================== 39 Income before provision for income taxes outside of the U.S. and the related provision for income taxes reflect fees received in the U.S. from operations outside of the U.S. Income before provision for income taxes in the U.S. and the related provision for income taxes reflect interest received in the U.S. from operations outside of the U.S. The provision for income taxes, classified by the timing and location of payment, consisted of: ------------------------------------------------------------------------- (In millions of dollars) 1993 1992 1991 ------------------------------------------------------------------------- Current U.S. federal $331.6 $256.8 $230.8 U.S. state 62.0 56.3 45.3 Outside of the U.S. 147.2 154.0 99.0 ------------------------------------------------------------------------- 540.8 467.1 375.1 ------------------------------------------------------------------------- Deferred U.S. federal 21.9 (10.3) 46.9 U.S. state 3.4 4.0 8.2 Outside of the U.S. 27.1 28.7 9.6 ------------------------------------------------------------------------- 52.4 22.4 64.7 ------------------------------------------------------------------------- Provision for income taxes $593.2 $489.5 $439.8 ========================================================================= Included in the 1993 deferred tax provision were $14.0 million attributable to a one-time, noncash revaluation of deferred tax liabilities resulting from the increase in the statutory U.S. federal income tax rate. Net deferred tax liabilities were comprised of: ------------------------------------------------------------------------- (In millions of dollars) December 31, 1993 1992 ------------------------------------------------------------------------- Property and equipment basis differences $786.1 $738.2 Other 175.4 154.8 ------------------------------------------------------------------------- Total deferred tax liabilities 961.5 893.0 ------------------------------------------------------------------------- Deferred tax assets before valuation allowance (1) (192.8) (183.8) Valuation allowance 44.5 35.7 ------------------------------------------------------------------------- Net deferred tax liabilities (2) $813.2 $744.9 ========================================================================= (1) Includes loss carryforwards: 1993--$46.7 million; 1992--$44.4 million. (2) Net of assets recorded in current income taxes: 1993--$22.1 million; 1992--$3.7 million. 40 Reconciliations of the statutory U.S. federal income tax rates to the effective income tax rates are shown in the following table. -------------------------------------------------------------------- 1993 1992 1991 -------------------------------------------------------------------- Statutory federal income tax rates 35.0% 34.0% 34.0% State income taxes, net of related federal income tax benefit 2.5 2.7 2.7 Other (2.1) (2.9) (2.9) -------------------------------------------------------------------- Effective income tax rates 35.4% 33.8% 33.8% ==================================================================== U.S. income and foreign withholding taxes have not been provided on $760.8 million of undistributed earnings of certain subsidiaries and affiliates outside of the U.S. at December 31, 1993. These earnings are considered to be permanently invested in the businesses and, under the tax laws, are not subject to taxes until distributed as dividends. If these earnings were not considered permanently invested, no additional taxes would be provided due to the overall higher tax rates in markets outside of the U.S. and the ability to recover withholding taxes as foreign tax credits in the U.S. 41 ---------------------------------------------------------------------- SEGMENT AND GEOGRAPHIC INFORMATION ---------------------------------------------------------------------- The Company operates exclusively in the foodservice industry. Substantially all revenues result from the sale of menu products at restaurants operated by the Company, franchisees or affiliates. Operating income includes the Company's share of operating results of affiliates. All intercompany revenues and expenses are eliminated in computing revenues and operating income. Fees received in the U.S. from subsidiaries outside of the U.S. were: 1993--$202.8 million; 1992--$187.8 million; 1991--$153.1 million. ---------------------------------------------------------------------- (In millions of dollars) 1993 1992 1991 ---------------------------------------------------------------------- U.S. $3,931.2 $3,749.4 $3,710.2 Europe/Africa/Middle East 2,235.9 2,187.0 1,806.0 Canada 557.8 595.1 629.5 Asia/Pacific 494.4 434.6 392.5 Latin America 188.8 167.2 156.8 ---------------------------------------------------------------------- Total revenues $7,408.1 $7,133.3 $6,695.0 ====================================================================== U.S. $1,087.1 $1,041.6 $1,000.4 Europe/Africa/Middle East 547.5 484.0 361.3 Canada 111.2 113.5 120.7 Asia/Pacific 190.6 163.2 157.2 Latin America 47.6 59.3 38.9 ---------------------------------------------------------------------- Operating income $1,984.0 1,861.6 1,678.5 ====================================================================== U.S. $6,385.4 $6,410.6 $6,154.3 Europe/Africa/Middle East 3,473.2 3,290.9 3,316.1 Canada 562.5 587.4 618.2 Asia/Pacific 1,103.2 980.3 925.0 Latin America 510.9 412.0 335.5 ---------------------------------------------------------------------- Total assets $12,035.2 $11,681.2 $11,349.1 ====================================================================== 42 ------------------------------------------------------------------------ PROPERTY AND EQUIPMENT ------------------------------------------------------------------------ (In millions of dollars) December 31, 1993 1992 ------------------------------------------------------------------------ Land $2,587.2 $2,440.0 Buildings and improvements on owned land 5,209.4 4,906.0 Buildings and improvements on leased land 3,673.0 3,423.7 Equipment, signs and seating 1,545.4 1,467.2 Other 444.0 421.1 ------------------------------------------------------------------------ 13,459.0 12,658.0 ------------------------------------------------------------------------ Accumulated depreciation and amortization (3,377.6) (3,060.6) ------------------------------------------------------------------------ Net property and equipment $10,081.4 $9,597.4 ======================================================================== Depreciation and amortization were: 1993--$492.8 million; 1992--$492.9 million; 1991--$456.9 million. Contractual obligations for the acquisition and construction of property amounted to $193.1 million at December 31, 1993. ------------------------------------------------------------------------ DEBT FINANCING ------------------------------------------------------------------------ LINE OF CREDIT AGREEMENTS The Company has a long-term line of credit agreement for $700.0 million, which remained unused at December 31, 1993, and which continues indefinitely unless terminated by the participating banks upon advance notice of at least 18 months. Each borrowing under the agreement bears interest at one of several specified floating rates, to be selected by the Company at the time of borrowing. The agreement provides for fees of .15 of 1% per annum on the unused portion of the commitment. In addition, certain subsidiaries outside of the U.S. had unused lines of credit totaling $1.0 billion at December 31, 1993; these were principally short-term and denominated in various currencies at local market rates of interest. 43 EXCHANGE AGREEMENTS The Company uses derivatives and has entered into agreements for the exchange of various currencies. Certain of these agreements also provide for the periodic exchange of interest payments. These agreements, as well as additional interest-rate exchange agreements, expire through 2003 and provide for an effective right of offset; therefore, the related receivable and liability are offset in the financial statements. The counterparties to these exchange agreements consist of a diverse group of financial institutions. The Company continually monitors its positions and the credit ratings of its counterparties, and adjusts positions as appropriate. The Company also had short-term forward foreign exchange contracts outstanding at December 31, 1993, with a U.S. Dollar equivalent of $83.4 million in various currencies, primarily the Japanese Yen, Deutsche Mark and British Pound Sterling. AGGREGATE MATURITIES Included in the 1995 maturities are $700.0 million of notes maturing within one year, as 1995 is the earliest time at which the banks can terminate the line of credit agreement, which supports the classification in long-term debt. Under certain agreements, the Company has the option to retire debt prior to maturity, either at par or at a premium over par. During 1993, $264.5 million was retired prior to maturity. GUARANTEES Included in total debt at December 31, 1993, were $171.3 million of 7.60% ESOP Notes Series A and $89.0 million of 7.23% ESOP Notes Series B issued by the Leveraged Employee Stock Ownership Plan (LESOP), with payments through 2004 and 2006, respectively, which are guaranteed by the Company. Interest rates on the notes were adjusted due to U.S. tax law changes in 1993. The Company has agreed to repurchase the notes upon the occurrence of certain events. The Company also has guaranteed certain foreign affiliate loans of $154.7 million at December 31, 1993. The Company also was a general partner in 48 domestic partnerships with total assets of $174.3 million and total liabilities of $95.8 million at December 31, 1993. FAIR VALUES The carrying amounts for notes payable and short-term forward foreign exchange contracts approximated fair value at December 31, 1993. The fair value of the remaining debt obligations (excluding capital leases), including the net effects of currency and interest-rate exchange agreements, was estimated using quoted market prices, various pricing models or discounted cash flow analyses. At December 31, 1993, the fair value of these obligations, which were primarily used to finance property and equipment, was $3.7 billion, compared to a carrying value of $3.4 billion. The Company currently has no plans to retire any of these obligations prior to maturity. The Company believes that the fair value of total assets is higher than their carrying value. 44 DEBT OBLIGATIONS The Company has incurred debt obligations principally through various public and private offerings and bank loans. The terms of most debt obligations contain restrictions on Company and subsidiary mortgages and long-term debt of certain subsidiaries. The following table summarizes these debt obligations:
Interest rates (1) Amounts outstanding Maturity December 31 December 31 Aggregate maturities by currency for 1993 balances dates 1993 1992 1993 1992 1994 1995 1996 1997 1998 Thereafter (In millions of U.S. Dollars) - --------------------------------------------------------------------------------------------------------------------------------- Fixed-original issue 8.5% 8.9% $1,790.6 $2,002.8 Fixed-converted via exchange agreements(2) 5.6 6.9 (1,449.0) (1,174.7) Floating 3.0 4.0 163.2 214.6 - --------------------------------------------------------------------------------------------------------------------------------- Total U.S. Dollars 1994-2033 504.8 1,042.7 $419.2 $39.7 $(143.8) $(73.7) $(299.4) $562.8 - --------------------------------------------------------------------------------------------------------------------------------- Fixed 9.8 10.8 498.6 489.6 Floating 5.4 7.8 178.0 275.3 - --------------------------------------------------------------------------------------------------------------------------------- Total British Pounds Sterling 1994-2003 676.6 764.9 61.5 29.6 151.2 14.8 73.4 346.1 - --------------------------------------------------------------------------------------------------------------------------------- Fixed 8.9 9.9 447.1 293.2 Floating 6.7 10.1 168.6 165.6 - --------------------------------------------------------------------------------------------------------------------------------- Total French Francs 1994-2003 615.7 458.8 102.7 50.3 53.7 50.8 88.3 269.9 - --------------------------------------------------------------------------------------------------------------------------------- Fixed 6.3 7.4 423.1 366.9 Floating 6.9 11.5 116.7 19.3 - --------------------------------------------------------------------------------------------------------------------------------- Total Deutsche Marks 1994-2007 539.8 386.2 71.1 85.4 17.6 104.0 203.6 58.1 - --------------------------------------------------------------------------------------------------------------------------------- Fixed Japanese Yen 1996-2023 4.3 5.8 357.7 120.2 89.6 89.6 178.5 - --------------------------------------------------------------------------------------------------------------------------------- Fixed 11.6 11.4 166.9 175.7 Floating 4.5 7.4 50.3 56.7 - --------------------------------------------------------------------------------------------------------------------------------- Total Canadian Dollars 1994-2021 217.2 232.4 75.8 64.0 75.7 .2 .2 1.3 - --------------------------------------------------------------------------------------------------------------------------------- Fixed 12.0 12.9 117.3 155.7 Floating 5.0 6.2 61.0 64.3 - --------------------------------------------------------------------------------------------------------------------------------- Total Australian Dollars 1994-2000 178.3 220.0 58.1 2.0 57.4 .9 58.7 1.2 - --------------------------------------------------------------------------------------------------------------------------------- Fixed 8.6 8.9 118.4 115.4 Floating 4.1 4.2 21.0 34.5 - --------------------------------------------------------------------------------------------------------------------------------- Total Hong Kong Dollars 1994-2008 139.4 149.9 42.2 19.4 11.2 17.7 17.7 31.2 - --------------------------------------------------------------------------------------------------------------------------------- Fixed 8.0 8.5 303.3 246.1 Floating 11.2 14.6 71.1 119.8 - --------------------------------------------------------------------------------------------------------------------------------- Total other currencies 1994-2003 374.4 365.9 76.2 56.5 14.6 2.1 81.2 143.8 - --------------------------------------------------------------------------------------------------------------------------------- Debt obligations including the net effects of currency and interest- rate exchange agreements 3,603.9 3,741.0 906.8 346.9 327.2 206.4 223.7 1,592.9 - --------------------------------------------------------------------------------------------------------------------------------- Obligations supported by long-term line of credit agreement (700.0) 700.0 - --------------------------------------------------------------------------------------------------------------------------------- Net asset positions of currency exchange agreements (included in miscellaneous other assets) 108.8 115.8 16.5 10.1 15.6 8.4 19.0 39.2 - --------------------------------------------------------------------------------------------------------------------------------- Total debt obligations $3,712.7 $3,856.8 $223.3 $1,057.0 $342.8 $214.8 $242.7 $1,632.1 ================================================================================================================================= (1) Weighted average effective rate, computed on a semi-annual basis. (2) A portion of U.S. Dollar fixed-rate debt effectively has been converted into other currencies and/or into floating-rate debt through the use of exchange agreements. The rates shown reflected the fixed rate on the receivable portion of the exchange agreements. All other obligations in this table reflected the gross effects of these and other exchange agreements.
45 ------------------------------------------------------------------- OTHER LONG-TERM LIABILITIES AND MINORITY INTERESTS ------------------------------------------------------------------- (In millions of dollars) December 31, 1993 1992 ------------------------------------------------------------------- Security deposits by franchisees $121.4 $116.6 Preferred interests in consolidated subsidiaries 106.7 12.8 Minority interests in consolidated subsidiaries 38.2 32.1 Other 68.1 63.7 ------------------------------------------------------------------- Other long-term liabilities and minority interests $334.4 $225.2 =================================================================== In 1993, a Company subsidiary issued 50 million British Pounds Sterling (U.S. $74.0 million at December 31, 1993) of 5.91% Series A Preferred Stock which, unless redeemed earlier at the Company's option, must be redeemed on February 19, 1998. Also, another subsidiary issued additional preferred stock. All of the preferred stock of this subsidiary has a dividend rate adjusted annually (8.2% at December 31, 1993) and is redeemable at the option of the holder at a current redemption price of $32.7 million. Both of these issues were reflected in preferred interests in consolidated subsidiaries. Included in other was the $100.00 per share redemption value of 181,868 shares of 5% Series D Preferred Stock issued in connection with the Company's 1991 increase in ownership of its Hawaii affiliate. This stock, which carries one vote per share, must be redeemed on the occurrence of specified events. 46 --------------------------------------------------------------------- LEASING ARRANGEMENTS --------------------------------------------------------------------- At December 31, 1993, the Company was lessee at 2,294 restaurant locations under ground leases (the Company leases land and constructs and owns buildings) and at 2,305 locations under improved leases (lessor owns land and buildings). Land and building lease terms are generally for 20 to 25 years and, in many cases, provide for rent escalations and one or more five-year renewal options with certain leases providing purchase options. The Company is generally obligated for the related occupancy costs that include property taxes, insurance and maintenance. In addition, the Company is lessee under noncancelable leases covering offices and vehicles. Future minimum payments required under operating leases with initial terms of one year or more after December 31, 1993, are: ------------------------------------------------------------ (In millions of dollars) Restaurant Other Total ------------------------------------------------------------ 1994 $ 277.0 $ 34.7 $ 311.7 1995 266.7 33.3 300.0 1996 255.7 31.5 287.2 1997 242.4 28.4 270.8 1998 227.2 25.8 253.0 Thereafter 2,334.1 165.0 2,499.1 ------------------------------------------------------------ Total minimum payments $3,603.1 $318.7 $3,921.8 ============================================================ Rent expense was: 1993--$339.0 million; 1992--$320.2 million; 1991-$283.6 million. Included in these amounts were percentage rents based on sales by the related restaurants in excess of minimum rents stipulated in certain lease agreements: 1993--$29.0 million; 1992--$26.1 million; 1991--$26.3 million. 47 ---------------------------------------------------------------------- FRANCHISE ARRANGEMENTS ---------------------------------------------------------------------- Franchise arrangements, with franchisees who operate in various geographic locations, generally provide for initial fees and continuing payments to the Company based upon a percentage of sales, with minimum rent payments. Among other things, franchisees are provided the use of restaurant facilities, generally for a period of 20 years. They are required to pay related occupancy costs that include property taxes, insurance, maintenance and a refundable, noninterest-bearing security deposit. On a limited basis, the Company receives notes from franchisees. Generally the notes are secured by interests in restaurant equipment and franchises. ---------------------------------------------------------------------- (In millions of dollars) 1993 1992 1991 ---------------------------------------------------------------------- Minimum rents Owned sites $ 573.6 $ 538.7 $ 494.5 Leased sites 381.7 353.3 303.7 ---------------------------------------------------------------------- 955.3 892.0 798.2 ---------------------------------------------------------------------- Percentage fees 1,272.1 1,120.6 970.4 Initial fees 23.5 18.2 17.9 ---------------------------------------------------------------------- Revenues from franchised restaurants $2,250.9 $2,030.8 $1,786.5 ====================================================================== Future minimum payments based on minimum rents specified under franchise arrangements after December 31, 1993, are: ---------------------------------------------------------------------- Owned Leased (In millions of dollars) sites sites Total ---------------------------------------------------------------------- 1994 $ 618.4 $ 404.7 $ 1,023.1 1995 607.4 390.3 997.7 1996 593.2 375.9 969.1 1997 579.5 365.2 944.7 1998 567.3 353.2 920.5 Thereafter 5,309.1 3,406.6 8,715.7 ---------------------------------------------------------------------- Total minimum payments $8,274.9 $5,295.9 $13,570.8 ====================================================================== At December 31, 1993, net property and equipment under franchise arrangements totaled $5.9 billion (including land of $1.8 billion), after deducting accumulated depreciation and amortization of $1.7 billion. 48 ---------------------------------------------------------------------- PROFIT SHARING PROGRAM ---------------------------------------------------------------------- The Company has a program for U.S. employees which includes profit sharing, 401(k) (McDESOP), and leveraged employee stock ownership features. McDESOP allows employees to invest in McDonald's common stock by making contributions that are partially matched by the Company. Assets of the profit sharing plan can be invested in McDonald's common stock, or among several other alternatives. Certain subsidiaries outside of the U.S. also offer profit sharing, stock purchase or other similar benefit plans. Total U.S. program costs were: 1993--$47.1 million; 1992--$38.8 million; 1991--$46.4 million. Total plan costs outside of the U.S. were: 1993--$13.0 million; 1992-- $14.0 million; 1991--$9.8 million. The Company does not provide any other postretirement benefits, and postemployment benefits were immaterial. ---------------------------------------------------------------------- STOCK OPTIONS ---------------------------------------------------------------------- Under the 1992 Stock Ownership Incentive and the 1975 Stock Ownership Option Plans, options to purchase common stock are granted at prices not less than fair market value of the stock on date of grant. Substantially all of these options become exercisable in four equal biennial installments, commencing one year from date of grant, and expire ten years from date of grant. At December 31, 1993, 41.5 million shares of common stock were reserved for issuance under both plans. ----------------------------------------------------------------------- (In millions, except per common share data) 1993 1992 1991 ----------------------------------------------------------------------- Options outstanding at January 1 25.1 23.7 21.6 Options granted 6.0 5.8 5.5 Options exercised (2.7) (3.8) (2.6) Options forfeited (.9) (.6) (.8) ----------------------------------------------------------------------- Options outstanding at December 31 27.5 25.1 23.7 ======================================================================= Options exercisable at December 31 8.8 7.7 7.8 Common shares reserved for future grants at December 31 14.0 19.1 6.3 Option prices per common share Exercised during the year $ 9 to $48 $9 to $45 $6 to $34 Outstanding at year end $10 to $56 $9 to $48 $9 to $34 ----------------------------------------------------------------------- 49 ---------------------------------------------------------------------- CAPITAL STOCK ---------------------------------------------------------------------- PER COMMON SHARE INFORMATION Income used in the computation of per common share information was reduced by preferred stock cash dividends (net of tax benefits in 1993 and 1992) and divided by the weighted average shares of common stock outstanding during each year: 1993--355.9 million; 1992--363.2 million; 1991--358.1 million. The effect of potentially dilutive securities was not material. PREFERRED STOCK In December 1992, the Company issued $500.0 million of Series E 7.72% Cumulative Preferred Stock; 10,000 preferred shares are equivalent to 20.0 million depositary shares having a liquidation preference of $25.00 per depositary share. Each preferred share is entitled to one vote under certain circumstances, and is redeemable at the option of the Company beginning on December 3, 1997, at its liquidation preference plus accrued and unpaid dividends. In September 1989 and April 1991, the Company sold $200.0 million of Series B and $100.0 million of Series C ESOP Convertible Preferred Stock, respectively, to the LESOP. The LESOP financed the purchase by issuing notes that are guaranteed by the Company and are included in long-term debt, with an offsetting reduction in shareholders' equity. Each preferred share has a liquidation preference of $28.75 and $33.125, respectively, and is convertible into a minimum of .7692 and .8 common share (conversion rate), respectively. Upon termination, employees are guaranteed a minimum value payable in common shares equal to the greater of the conversion rate; the fair market value of their preferred shares; or the liquidation preference plus accrued dividends, not to exceed one common share. Each preferred share is entitled to one vote and is redeemable at the option of the Company three years after issuance and, under certain circumstances, is redeemable prior to that date. In 1992, 4.1 million Series B shares were converted into 3.2 million common shares. COMMON EQUITY PUT OPTIONS In December 1992, the Company sold 2.0 million common equity put options. At December 31, 1992, the $94.0 million exercise price of these options was classified in common equity put options and the related offset was recorded in common stock in treasury, net of premiums received. In April 1993, these options expired unexercised. In April 1993, the Company also sold 1.0 million common equity put options which expired unexercised in July 1993. 50 SHAREHOLDER RIGHTS PLAN In December 1988, the Company declared a dividend of one Preferred Share Purchase Right (Right) on each outstanding share of common stock. Under certain conditions, each Right may be exercised to purchase one two-hundredth of a share of Series A Junior Participating Preferred Stock (the economic equivalent of one common share) at an exercise price of $125.00 (which may be adjusted under certain circumstances), and is transferable apart from the common stock ten days following a public announcement that a person or group has acquired beneficial ownership of 20% or more of the outstanding common shares, or ten business days following the commencement or announcement of an intention to make a tender or exchange offer, resulting in beneficial ownership by a person or group of 20% or more of the outstanding common shares. If a person or group acquires 20% or more of the outstanding common shares, or if the Company is acquired in a merger or other business combination transaction, each Right will entitle the holder, other than such person or group, to purchase at the then current exercise price, stock of the Company or the acquiring company having a market value of twice the exercise price. Each Right is nonvoting and expires on December 28, 1998, unless redeemed by the Company, at a price of $.005, at any time prior to the public announcement that a person or group has acquired beneficial ownership of 20% or more of the outstanding common shares. At December 31, 1993, 2.1 million shares of the Series A Junior Participating Preferred Stock were reserved for issuance under this plan. 51 QUARTERLY RESULTS (UNAUDITED)
(In millions of dollars, except per common share data) - --------------------------------------------------------------------------------------------------------------------------------- Quarters ended December 31 September 30 June 30 March 31 1993 1992 1993 1992 1993 1992 1993 1992 - --------------------------------------------------------------------------------------------------------------------------------- REVENUES Sales by Company-operated restaurants $1,345.2 $1,294.9 $1,351.1 $1,366.9 $1,307.6 $1,273.6 $1,153.3 $1,167.1 Revenues from franchised restaurants 586.7 533.5 593.2 545.6 570.2 500.5 500.8 451.2 - --------------------------------------------------------------------------------------------------------------------------------- TOTAL REVENUES 1,931.9 1,828.4 1,944.3 1,912.5 1,877.8 1,774.1 1,654.1 1,618.3 - --------------------------------------------------------------------------------------------------------------------------------- OPERATING COSTS AND EXPENSES Company-operated restaurants 1,085.3 1,044.4 1,076.9 1,092.0 1,049.5 1,031.6 952.9 958.5 Franchised restaurants 100.3 90.1 95.7 90.4 93.6 85.1 90.8 83.0 General, administrative and selling expenses 256.2 239.6 234.6 217.1 232.5 209.4 217.8 194.5 Other operating (income) expense--net 3.5 (1.4) (31.1) (21.7) (15.6) (30.0) (18.8) (10.9) - --------------------------------------------------------------------------------------------------------------------------------- TOTAL OPERATING COSTS AND EXPENSES 1,445.3 1,372.7 1,376.1 1,377.8 1,360.0 1,296.1 1,242.7 1,225.1 - --------------------------------------------------------------------------------------------------------------------------------- OPERATING INCOME 486.6 455.7 568.2 534.7 517.8 478.0 411.4 393.2 - --------------------------------------------------------------------------------------------------------------------------------- Interest expense 78.7 86.4 75.7 97.0 82.4 93.0 79.3 97.2 Nonoperating income (expense)--net (4.9) (25.0) 7.2 (.8) 4.3 (1.2) 1.2 (12.9) - --------------------------------------------------------------------------------------------------------------------------------- INCOME BEFORE PROVISION FOR INCOME TAXES 403.0 344.3 499.7 436.9 439.7 383.8 333.3 283.1 - --------------------------------------------------------------------------------------------------------------------------------- Provision for income taxes 138.5 116.4 188.8 147.7 150.9 129.7 115.0 95.7 - --------------------------------------------------------------------------------------------------------------------------------- NET INCOME $264.5 $227.9 $310.9 $289.2 $288.8 $254.1 $218.3 $187.4 ================================================================================================================================= NET INCOME PER COMMON SHARE $ .72 $ .61 $ .85 $ .79 $ .78 $ .69 $ .57 $ .51 - ---------------------------------------------------------------------------------------------------------------------------------
52 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. PART III Item 10. Directors and Executive Officers of the Registrant Information regarding directors is incorporated herein by reference from the Company's definitive proxy statement which will be filed no later than 120 days after December 31, 1993. On December 1, 1993, Donald R. Keough, Chairman of Allen & Company, Inc., was appointed to the Company's Board of Directors. Information regarding all of the Company's executive officers is included in Part I. Item 11. Executive Compensation Incorporated herein by reference from the Company's definitive proxy statement which will be filed no later than 120 days after December 31, 1993. Item 12. Security Ownership of Certain Beneficial Owners and Management Incorporated herein by reference from the Company's definitive proxy statement which will be filed no later than 120 days after December 31, 1993. Item 13. Certain Relationships and Related Transactions Incorporated herein by reference from the Company's definitive proxy statement which will be filed no later than 120 days after December 31, 1993. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) 1. Financial statements Consolidated financial statements filed as part of this report are listed under Part II, Item 8 of this Form 10-K. 2. Financial statement schedules The financial schedules listed in the accompanying index to consolidated financial statement schedules are filed as part of this report. 3. Exhibits 53 (3) Restated Certificate of Incorporation, dated as of February 2, 1993, incorporated herein by reference from Exhibit (3) of Form 10-K dated December 31, 1992. By-laws incorporated herein by reference from Exhibit 3 of Form 10-K dated December 31, 1991. (4) Instruments defining the rights of security holders, including indentures (A): (a) Debt Securities. Indenture dated as of March 1, 1987 incorporated herein by reference from Exhibit 4(a) of Form S-3 Registration Statement, SEC file no. 33-12364. (i) Supplemental Indenture No. 5 incorporated herein by reference from Exhibit (4) of Form 8-K dated January 23, 1989. (ii) 9-3/4% Notes due 1999. Supplemental Indenture No. 6 incorporated herein by reference from Exhibit (4) of Form 8-K dated January 23, 1989. (iii) Medium-Term Notes, Series B, due from nine months to 30 years from Date of Issue. Supplemental Indenture No. 12 incorporated herein by reference from Exhibit (4) of Form 8-K dated August 18, 1989 and Forms of Medium-Term Notes, Series B, incorporated herein by reference from Exhibit (4)(b) of Form 8-K dated September 14, 1989. (iv) 9-3/8% Notes due 1997. Form of Supplemental Indenture No. 14 incorporated herein by reference from Exhibit (4) of Form 10-K for the year ended December 31, 1989. (v) Medium-Term Notes, Series C, due from nine months to 30 years from Date of Issue. Form of Supplemental Indenture No. 15 incorporated herein by reference from Exhibit 4(b) of Form S-3 Registration Statement, SEC file no. 33-34762 dated May 14, 1990. (vi) Medium-Term Notes, Series C, due from nine months/184 days to 30 years from Date of Issue. Amended and restated Supplemental Indenture No. 16 incorporated herein by reference from Exhibit (4) of Form 10-Q for the period ended March 31, 1991. (vii) 8-7/8% Debentures due 2011. Supplemental Indenture No. 17 incorporated herein by reference from Exhibit (4) of Form 8-K dated April 22, 1991. 54 (viii)Medium-Term Notes, Series D, due from nine months/184 days to 60 years from Date of Issue. Supplemental Indenture No. 18 incorporated herein by reference from Exhibit 4(b) of Form S-3 Registration Statement, SEC file no. 33-42642 dated September 10, 1991. (ix) 7-3/8% Notes due July 15, 2002. Form of Supplemental Indenture No. 19 incorporated herein by reference from Exhibit (4) of Form 8-K dated July 10, 1992. (x) 6-3/4% Notes due February 15, 2003. Form of Supplemental Indenture No. 20 incorporated herein by reference from Exhibit (4) of Form 8-K dated March 1, 1993. (xi) 7-3/8% Debentures due July 15, 2033. Form of Supplemental Indenture No. 21 incorporated herein by reference from Exhibit (4)(a)of Form 8-K dated July 15, 1993. (b) Form of Deposit Agreement dated as of November 25, 1992 by and between McDonald's Corporation, First Chicago Trust Company of New York, as Depositary, and the Holders from time to time of the Depositary Receipts. (c) Rights Agreement dated as of December 13, 1988 between McDonald's Corporation and The First National Bank of Chicago, incorporated herein by reference from Exhibit 1 of Form 8-K dated December 23, 1988. 55 (i) Amendment No. 1 to Rights Agreement incorporated herein by reference from Exhibit 1 of Form 8-K dated May 25, 1989. (ii) Amendment No. 2 to Rights Agreement incorporated herein by reference from Exhibit 1 of Form 8-K dated July 25, 1990. (d) Indenture and Supplemental Indenture No. 1 dated as of September 8, 1989, between McDonald's Matching and Deferred Stock Ownership Trust, McDonald's Corporation and Pittsburgh National Bank in connection with SEC Registration Statement Nos. 33-28684 and 33-28684-01, incorporated herein by reference from Exhibit (4)(a) of Form 8-K dated September 14, 1989. (e) Form of Supplemental Indenture No. 2 dated as of April 1, 1991, supplemental to the Indenture between McDonald's Matching and Deferred Stock Ownership Trust, McDonald's Corporation and Pittsburgh National Bank in connection with SEC Registration Statement Nos. 33-28684 and 33-28684-01, incorporated herein by reference from Exhibit (4)(c) of Form 8-K dated March 22, 1991. (10) Material Contracts (a) Material contract between McDonald's Corporation and Joan B. Kroc, incorporated herein by reference from Exhibit (10) of Form 10-K for the year ended December 31, 1984. (b) Director's Deferred Compensation Plan, incorporated herein by reference from Exhibit (10)(b)of Form 10-K for the year ended December 31, 1992*. (c) Profit Sharing Program, as amended, McDonald's Supplemental Employee Benefit Equalization Plan, McDonald's Profit Sharing Program Equalization Plan and McDonald's 1989 Equalization Plan, incorporated by reference from Form 10-K/A dated May 4, 1993, Amendment No. 1 to Form 10-K for the year ended December 31, 1992*. (i) Amendment No. 1 to McDonald's 1989 Equalization Plan, incorporated herein by reference from Form 10-Q for the period ended June 30, 1993. (ii) Amendment No. 2 to McDonald's 1989 Equalization Plan, attached hereto as an Exhibit. (iii)Amendment No. 1 to McDonald's Supplemental Employee Benefit Equalization Plan, attached hereto as an Exhibit. (iv) Amendment No. 2 to McDonald's Supplemental Employee Equalization Plan, attached hereto as an Exhibit. 56 (v) Amendment No. 5 to the Profit Sharing Program, as amended, attached hereto as an Exhibit. Amendment No. 6 to the Profit Sharing Program, as (vi) amended, attached hereto as an Exhibit. (d) 1975 Stock Ownership Option Plan, incorporated herein by reference from Exhibit (10)(d) of Form 10-K for the year ended December 31, 1992*. (e) Stock Sharing Plan, incorporated herein by reference from Exhibit (10)(e) of Form 10-K for the year ended December 31, 1992*. (f) 1992 Stock Ownership Incentive Plan, incorporated herein by reference from exhibit pages 20-34 of McDonald's 1992 Proxy Statement and Notice of 1992 Annual Meeting of Shareholders dated April 10, 1992*. (g) McDonald's Corporation Deferred Incentive Plan, incorporated herein by reference from Exhibit(10) of Form 10-Q for the period ended September 30, 1993*. (11) Statement re: Computation of per share earnings. (12) Statement re: Computation of ratios. (21) Subsidiaries of the registrant. (23) Consent of independent auditors. -------------------- * Denotes compensatory plan. (A) Other instruments defining the rights of holders of long-term debt of the registrant and all of its subsidiaries for which consolidated financial statements are required to be filed and which are not required to be registered with the Securities and Exchange Commission, are not included herein as the securities authorized under these instruments, individually, do not exceed 10% of the total assets of the registrant and its subsidiaries on a consolidated basis. An agreement to furnish a copy of any such instruments to the Securities and Exchange Commission upon request has been filed with the Commission. (b) Reports on Form 8-K The following reports on Form 8-K were filed for the last quarter covered by this report, and subsequently up to March 29, 1994. Financial Statements Date of Report Item Number required to be filed -------------- ----------- -------------------- November 22, 1993 Item 7 No January 18, 1994 Item 7 No 57 McDONALD'S CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENT SCHEDULES (Item 14) (a) The following documents are filed as part of this report: Page 1. Financial Statement Schedules Reference Report of Independent Auditors 58 Consolidated schedules for the years ended December 31, 1993, 1992 and 1991: V - Property and equipment 59 VI - Accumulated depreciation and amortization of property and equipment 60 IX - Short-term borrowings 62 X - Supplementary income statement information 63 Consolidated schedule at December 31, 1993: VII - Guarantees of securities of other issuers 61 All other schedules have been omitted as the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements or the notes thereto. 58 REPORT OF INDEPENDENT AUDITORS We have audited the consolidated financial statements of McDonald's Corporation as of December 31, 1993 and 1992, and for each of the three years in the period ended December 31, 1993, and have issued our report thereon dated January 27, 1994 (included elsewhere in this Annual Report on Form 10-K). Our audits also included the consolidated financial statement schedules of McDonald's Corporation listed in Item 14(a). These schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the consolidated financial statement schedules referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. Ernst & Young Chicago, Illinois January 27, 1994 59 McDONALD'S CORPORATION Schedule V SCHEDULE V - PROPERTY AND EQUIPMENT (In millions of dollars) Years Ended December 31, 1993, 1992 and 1991
Balance at Other changes Balance beginning Additions add (deduct) at end Classification of period at cost (A) Retirements (B) of period -------------- --------- ----------- ----------- ------------- --------- 1993: Land $ 2,440.0 $ 206.1 $ 31.4 $ (27.5) $ 2,587.2 Buildings and improvements on owned land 4,906.0 383.5 33.0 (47.1) 5,209.4 Buildings and improvements on leased land 3,423.7 433.1 50.0 (133.8) 3,673.0 Equipment, signs and seating 1,467.2 247.8 164.8 (4.8) 1,545.4 Other 421.1 83.6 43.8 (16.9) 444.0 --------- --------- --------- --------- --------- $12,658.0 $1,354.1 $323.0 $(230.1) $13,459.0 ========= ========= ========= ========= ========= 1992: Land $ 2,375.8 $ 170.1 $ 5.4 $(100.5) $ 2,440.0 Buildings and improvements on owned land 4,774.3 335.0 17.4 (185.9) 4,906.0 Buildings and improvements on leased land 3,293.2 357.6 39.7 (187.4) 3,423.7 Equipment, signs and seating 1,516.4 225.9 180.3 (94.8) 1,467.2 Other 408.3 82.3 51.6 (17.9) 421.1 --------- --------- --------- --------- --------- $12,368.0 $1,170.9 $294.4 $(586.5) $12,658.0 ========= ========= ========= ========= ========= 1991: Land $ 2,227.4 $ 179.3 $ 24.7 $ (6.2) $ 2,375.8 Buildings and improvements on owned land 4,529.2 306.6 54.6 (6.9) 4,774.3 Buildings and improvements on leased land 2,895.5 456.5 40.6 (18.2) 3,293.2 Equipment, signs and seating 1,490.0 233.0 200.8 (5.8) 1,516.4 Other 393.4 57.2 41.3 (1.0) 408.3 --------- --------- --------- --------- --------- $11,535.5 $1,232.6 $362.0 $ (38.1) $12,368.0 ========= ========= ========= ========= ========= (A) Includes $13.1 in 1993, $33.4 in 1992, and $77.5 in 1991, as a result of purchases of restaurant businesses. Additionally, 1992 includes the consolidation of the Company's affiliates in Hungary, South Korea and Chile. In 1991, affiliates in Hawaii and Venezuela were consolidated. (B) Primarily foreign currency translation effects and certain reclassification between accounts.
60 McDONALD'S CORPORATION Schedule VI SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY AND EQUIPMENT (In millions of dollars) Years Ended December 31, 1993, 1992 and 1991
Balance at Other changes Balance beginning Additions add (deduct) at end Classification of period at cost Retirements (A) of period -------------- --------- ----------- ----------- ------------- --------- 1993: Buildings and improvements on owned land $1,390.3 $175.1 $ 11.7 $ (9.4) $1,544.3 Buildings and improvements on leased land 813.8 123.4 14.2 (22.3) 900.7 Equipment, signs and seating 653.3 143.3 80.2 .3 716.7 Other 203.2 51.0 24.7 (13.6) 215.9 --------- --------- --------- --------- --------- $3,060.6 $492.8 $130.8 $ (45.0) $3,377.6 ========= ========= ========= ========= ========= 1992: Buildings and improvements on owned land $1,262.4 $165.9 $ 7.9 $ (30.1) $1,390.3 Buildings and improvements on leased land 726.7 129.4 10.6 (31.7) 813.8 Equipment, signs and seating 626.1 150.5 85.2 (38.1) 653.3 Other 194.3 47.1 28.6 (9.6) 203.2 --------- --------- --------- --------- --------- $2,809.5 $492.9 $132.3 $(109.5) $3,060.6 ========= ========= ========= ========= ========= 1991: Buildings and improvements on owned land $1,114.7 $160.4 $ 12.5 $ (0.2) $1,262.4 Buildings and improvements on leased land 632.0 105.0 9.5 (0.8) 726.7 Equipment, signs and seating 564.3 149.7 87.7 (0.2) 626.1 Other 177.4 41.8 24.8 (0.1) 194.3 --------- --------- --------- --------- --------- $2,488.4 $456.9 $134.5 $ (1.3) $2,809.5 ========= ========= ========= ========= ========= (A) Primarily foreign currency translation effects and certain reclassifications between accounts.
61 Schedule VII McDONALD'S CORPORATION SCHEDULE VII - GUARANTEES OF SECURITIES OF OTHER ISSUERS December 31, 1993
Total Amount Name of Issuer of Title of Issue Guaranteed and Securities Guaranteed of Each Class of Outstanding Nature of by Registrant Securities Guaranteed (In millions of dollars) Guarantee --------------------- --------------------- ------------------------ --------- Quanta Foods, Ltd. (Taiwan) Unsecured Notes $99.9 Principal and Interest De Alba, S. de R.L. de C.V. (Mexico) Unsecured Notes 10.1 Principal and Interest Golden Arches Restaurants Sdn. Bhd. (Malaysia) Unsecured Notes 10.0 Principal and Interest Sistemas de Alimentos Rapido S. de R.L. de C.V. (Mexico) Unsecured Notes 9.4 Principal and Interest McThai Company, Ltd. (Thailand) Unsecured Notes 9.2 Principal and Interest Arcos Dorados S.A. (Argentina) Unsecured Notes 6.5 Principal and Interest Okil S. de R.L. de C.V. (Mexico) Unsecured Notes 4.2 Principal and Interest Alimentos Rapidos de Occidente S. de R.L. de C.V. (Mexico) Unsecured Notes 3.4 Principal and Interest To Go, S.A. (Chile) Unsecured Notes 1.4 Principal and Interest McKey Food Svcs., Ltd. (China) Unsecured Notes .6 Principal and Interest
62 Schedule IX McDONALD'S CORPORATION SCHEDULE IX - SHORT-TERM BORROWINGS (In millions of dollars) Years Ended December 31, 1993, 1992 and 1991
Maximum amount Average amount Balance Weighted average outstanding at outstanding Weighted average at end of interest rate at any month end during the interest rate period end of period during the period period during the period ------ ------------- ----------------- ------ ----------------- Notes payable: 1993 $193.3 8.1% $561.1 $297.9 7.4% ====== ====== ====== ====== ====== 1992 $411.0 9.5% $668.3 $410.4 8.4% ====== ====== ====== ====== ====== 1991 $278.3 10.0% $517.4 $254.0 11.1% ====== ====== ====== ====== ====== _________________________ Notes payable generally represent obligations of the Company under line of credit agreements with various banks. Borrowings are denominated in various currencies, generally at local market rates of interest. The average amount outstanding each period was computed by averaging the month-end balances during the year. The weighted average interest rate during the period was computed on a semi-annual basis by dividing interest expense by the average amount outstanding.
63 Schedule X McDONALD'S CORPORATION SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION (In millions of dollars) Years Ended December 31, 1993, 1992 and 1991
Charged to operating costs and expenses ------------------------------------ 1993 1992 1991 ------ ------ ------ Maintenance and repairs $84.7 $85.2 $83.2 ====== ====== ====== Advertising costs $332.8 $334.1 $344.4 ====== ====== ======
64 McDonald's Corporation Exhibit Index (Item 14) Amendment No. 2 to McDonald's 1989 Equalization Plan Amendment No. 1 to McDonald's Supplemental Employee Benefit Equalization Plan Amendment No. 2 to McDonald's Supplemental Employee Benefit Equalization Plan Amendment No. 5 to the Profit Sharing Program Amendment No. 6 to the Profit Sharing Program Statement re: Computation of per share earnings Statement re: Computation of ratios Subsidiaries of the registrant Consent of independent auditors 65 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. McDONALD'S CORPORATION (Registrant) By Jack M. Greenberg ---------------------- Jack M. Greenberg Vice Chairman, Chief Financial Officer March 29, 1994 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated: Signature Title Date --------- ----- ---- ------------------------- Director Hall Adams, Jr. Robert M. Beavers, Jr. ------------------------- Senior Vice President March 29, 1994 Robert M. Beavers, Jr. and Director James R. Cantalupo ------------------------- President and Chief Executive March 29, 1994 James R. Cantalupo Officer-International and Director Michael L. Conley ------------------------- Senior Vice President, March 29, 1994 Michael L. Conley Controller Gordon C. Gray ------------------------- Director March 29, 1994 Gordon C. Gray Jack M. Greenberg ------------------------- Vice Chairman, March 29, 1994 Jack M. Greenberg Chief Financial Officer and Director ------------------------- Director Donald R. Keough 66 Signature Title Date --------- ----- ---- Donald G. Lubin ------------------------- Director March 29, 1994 Donald G. Lubin ------------------------- Director Andrew J. McKenna Michael R. Quinlan ------------------------- Chairman, Chief Executive March 29, 1994 Michael R. Quinlan Officer and Director Edward H. Rensi ------------------------- President and Chief Executive March 29, 1994 Edward H. Rensi Officer-U.S.A. and Director ------------------------- Director Terry Savage Paul D. Schrage ------------------------- Senior Executive Vice March 29, 1994 Paul D. Schrage President, Chief Marketing Officer and Director ------------------------- Director Ballard F. Smith ------------------------- Director Roger W. Stone Robert N. Thurston ------------------------- Director March 29, 1994 Robert N. Thurston Fred L. Turner ------------------------- Senior Chairman and Director March 29, 1994 Fred L. Turner B. Blair Vedder, Jr. ------------------------- Director March 29, 1994 B. Blair Vedder, Jr. EX-10 2 MCDONALD'S AMENDMENT 2 TO MCCAP I EXHIBIT 10-A AMENDMENT NO. 2 TO THE McDONALD'S 1989 EXECUTIVE EQUALIZATION PLAN ("McCAP I") WHEREAS, McDonald's Corporation (the "Company") established the McDonald's 1989 Executive Equalization Plan ("McCAP I") and amended and restated McCAP I effective January 1, 1990, which restatement was most recently amended by the first amendment effective January 1, 1993; and WHEREAS, the Company has given the Committee responsible for the administration of McCAP I the right to amend McCAP I in Section 5 thereof; and WHEREAS, the Committee now desires to amend McCAP I to reflect the change in the compensation limit under Internal Revenue Code Section 401(a)(17), as amended by the Omnibus Budget Reconciliation of 1993; NOW, THEREFORE, IT IS RESOLVED, that McCAP I is hereby amended, effective January 1, 1994, by substituting the following for the second sentence of Section 1.2 thereof: Code Section 402(g) generally limits to $8,994 (in 1993, as adjusted in subsequent years by the Secretary of the Treasury for cost of living adjustments in accordance with Code Section 402(g)(5)) the maximum amount of employee elective deferrals under a qualified plan ("Elective Contribution Limit"); Code Section 401(a)(17) limits to $150,000 (in 1994, as adjusted in subsequent years as provided by the Secretary of the Treasury) the amount of compensation which may be taken into account for a plan year under a qualified plan ("Compensation Limit"); and elective deferrals to a non-qualified plan are not taken into account in determining compensation and benefits under the qualified plans ("Elective Deferral Exclusions") (such limits and exclusion are collectively referred to herein as the "Limits"). IN WITNESS WHEREOF, the Committee has caused an authorized officer of the Company to execute this Amendment No. 2 in multiple originals this 17th day of December, 1993. By: /s/ Stanley R. Stein Title: Senior Vice President EX-10 3 MCDONALD'S AMENDMENT 1 TO MCCAP II EXHIBIT 10-B AMENDMENT NO. 1 TO THE McDONALD'S SUPPLEMENTAL EMPLOYEE BENEFIT EQUALIZATION PLAN ("McCAP II") WHEREAS, McDonald's Corporation (the "Company") established the McDonald's Supplemental Employee Benefit Equalization Plan ("McCap II") and amended and restated McCap II most recently effective January 1, 1990; and WHEREAS, the Company has given the Committee responsible for its administration the right to amend McCap II in Section 5 thereof; and WHEREAS, the Committee now desires to amend McCap II to provide a procedure for the payment of benefits thereunder to a spouse, child or other dependent pursuant to a state court domestic relations order; NOW, THEREFORE, BE IT RESOLVED, that McCap II is hereby amended effective January 1, 1993 as follows: I The following sentence shall be added to Section 2.5(a) at the end thereof: Notwithstanding the foregoing, no distribution shall be made in accordance with the first sentence of this Section 2.5(a) on account of the payment under the McDESOP portion of the Profit Sharing Program of a distribution from the account of a participant who is at the time of distribution a McDonald's employee, including a distribution made from the Profit Sharing Program in accordance with a Qualified Domestic Relations Order. II The following sentence shall be added to Section 2.5(b) at the end thereof: Notwithstanding the foregoing, no distribution shall be made in accordance with the first sentence of this Section 2.5(b) on account of the payment under the Profit Sharing Plan portion of the Profit Sharing Program of a distribution from the account of a participant who is at the time of distribution a McDonald's employee, including a distribution made from the Profit Sharing Program in accordance with a Qualified Domestic Relations Order. III A new Section 3.8 shall be added to read as follows: 3.8 Qualified Domestic Relations Order. (a) Notwithstanding the provision of Section 3.3, the Committee shall comply with the provisions of any order determined by the Committee to be a Qualified Domestic Relations Order. (b) "Qualified Domestic Relations Order" means any judgment, decree, or order (including approval of a property settlement agreement): (1) which is made pursuant to a state domestic relations law (including a community property law); (2) which relates to the provision of child support, alimony payments, or marital property rights to a spouse, former spouse, child, or other dependent of a Participant; (3) which creates or recognizes the existence of an alternate payee's right to or assigns to an alternate payee the right to receive all or a portion of the Participant's Accrued Benefit under the Plan; and (4) with respect to which the requirements of paragraphs (c) and (d) are met. (c) A domestic relations order can be a Qualified Domestic Relations Order only if such order clearly specifies: (1) the name and last known mailing address, if any, of the Participant and the name and mailing address of each alternate payee covered by the order; (2) the amount or percentage of the Participant's Accrued Benefit to be paid by the Plan to each such alternate payee, or the manner in which such amount or percentage is to be determined; (3) the number of payments or period to which such order applies; and (4) each plan to which such order applies. (d) A domestic relations order can be a Qualified Domestic Relations Order only if such order does not (1) require the Plan to provide any type or form of benefit, or any option not otherwise provided under the Plan; (2) require the Plan to provide increased benefits (determined on the basis of actuarial value); or (3) require the payment of benefits to an alternate payee which are required to be paid to another alternate payee under another order previously determined to be a Qualified Domestic Relations Order. (e) In the case of any payment before a Participant has had a termination of employment, a domestic relations order shall not be treated as failing to meet the requirements of Section 3.8(d)(1) solely because such order requires that payment of benefits be made to an alternate payee: (1) in the case of any payment before a Participant has had a termination of employment, on or after the earlier of: (i) the date on which the Participant is entitled to receive benefits under the Plan, or (ii) the later of (A) the date the Participant attains age 50, or (B) the earliest date on which the Participant could begin receiving benefits under the Plan if the Participant had a termination of employment; (2) as if the Participant had retired on the date on which such payment is to begin under such order; and (3) in any form in which such benefits may be paid under the Plan to the Participant. IN WITNESS WHEREOF, the Committee has caused an authorized officer of the Company to execute this Amendment No. 1 in multiple originals this 1st day of July, 1993. By: /s/ Stanley R. Stein Title: Senior Vice President EX-10 4 MCDONALD'S AMENDMENT 2 TO MCCAP II EXHIBIT 10-C AMENDMENT NO. 2 TO THE McDONALD'S SUPPLEMENTAL EMPLOYEE BENEFIT EQUALIZATION PLAN ("McCAP II") WHEREAS, McDonald's Corporation (the "Company") established the McDonald's Supplemental Employee Benefit Equalization Plan ("McCAP II") and amended and restated McCAP II effective January 1, 1990, which restatement was most recently amended by the first amendment effective January 1, 1993; and WHEREAS, the Company has given the Committee responsible for the administration of McCAP II the right to amend McCAP II in Section 5 thereof; and WHEREAS, the Committee now desires to amend McCAP II to reflect the change in the compensation limit under Internal Revenue Code Section 401(a)(17), as amended by the Omnibus Budget Reconciliation of 1993; NOW, THEREFORE, IT IS RESOLVED, that McCAP II is hereby amended, effective January 1, 1994, by substituting the following for the second sentence of Section 1.2 thereof: Code Section 402(g) generally limits to $8,994 (in 1993, as adjusted in subsequent years by the Secretary of Treasury for cost of living adjustments in accordance with Code Section 402(g)(5)) the maximum amount of employee elective deferrals under a qualified plan ("Elective Contribution Limit"); Code Section 401(a)(17) limits to $150,000 (in 1994, as adjusted in subsequent years as provided by the Secretary of the Treasury) the amount of compensation which may be taken into account for a plan year under a qualified plan ("Compensation Limit"); and elective deferrals to a non-qualified plan are not taken into account in determining compensation and benefits under the qualified plans ("Elective Deferral Exclusions") (such limits and exclusion are collectively referred to herein as the "Limits"). IN WITNESS WHEREOF, the Committee has caused an authorized officer of the Company to execute this Amendment No. 2 in multiple originals this 17th day of December, 1993. By: /s/ Stanley R. Stein Title: Senior Vice President EX-10 5 MCDONALD'S 5TH AMENDMENT TO PROFIT SHARING PROGRAM EXHIBIT 10-D FIFTH AMENDMENT TO THE MCDONALD'S CORPORATION PROFIT SHARING PROGRAM The McDonald's Corporation Profit Sharing Program (the "Plan"), as amended and restated effective January 1, 1989 and subsequently amended by the First Amendment, effective January 1, 1990, the Second Amendment, generally effective May 1, 1992, the Third Amendment, effective July 1, 1992 and the Fourth Amendment, generally effective January 1, 1993 is hereby amended effective July 1, 1993, except as otherwise provided herein. I Section 1.2(a) shall be amended to delete the phrase "the Profit Sharing Plan portion of the Plan" and to substitute the following therefore: "receiving an allocation of Profit Sharing Contributions pursuant to Section 7.1" II Effective January 1, 1993, section 1.14 shall be amended to read as follows: 1.14 "Considered Compensation" of a Participant for a Plan Year means: (a) except as otherwise specified below, the Participant's total compensation paid during the Plan Year to such Participant by an Employer while an Active Participant as reported in Box 1 of Internal Revenue Service Form W-2 as revised for 1993 (or the equivalent box on any comparable form for subsequent years) for the Plan Year, increased by any amounts by which the Participant's compensation is reduced by Participant Elected Contributions under the McDESOP portion of the Plan or any other portion of the Plan or of any Related Plan which meets the requirements of Section 401(k) of the Internal Revenue Code; compensation reduction contributions for medical, dental or dependent care or other benefits under a cafeteria plan meeting the requirements of Section 125 of the Internal Revenue Code; and excluding provisions for life insurance; reimbursement or other payments for expenses related to moving (other than the relocation bonus); any benefits under the Plan or any other qualified plan described in Section 401(a) of the Internal Revenue Code; and distributions under McDonald's Profit Sharing Program Equalization Plan ("McEqual"), McDonald's 1989 Executive Equalization Plan ("McCAP I") or the McDonald's Supplemental Employee Benefit Equalization Plan ("McCAP II"); income earned from stock options granted under the McDonald's 1975 Stock Ownership Option Plan; options, restricted stock, stock appreciation rights, performance units and stock bonuses awarded under the McDonald's 1992 Stock Ownership Incentive Plan; Stock Exchange Rights or Performance Units awarded under the McDonald's Corporation 1978 Incentive Plan; payments to a Participant for foreign service in the form of tax gross-up benefits, allowances for cost of living, housing and education, and other similar payments; and, any severance pay and any special termination bonus paid pursuant to a termination agreement; (b) for purposes of Article XV (except for determining whether a Participant is a Key Employee pursuant to Section 15.2(d)) and for determining the limitations under Article IX, Considered Compensation means total compensation paid to the Participant by an Employer, a Commonly Controlled Entity or a member of an Affiliated Service Group in the Plan Year, including distributions from any nonqualified deferred compensation plans maintained by an Employer, Commonly Controlled Entity or member of an Affiliated Service Group and amounts paid or reimbursed by the employer for moving expenses incurred by the Participant to the extent it is reasonable to believe that such amounts are not deductible by the Participant under Section 217 of the Internal Revenue Code and excluding any salary reduction contributions to a cafeteria plan meeting the requirements of Code Section 125 or to the Plan or any other qualified plan described in Section 401(a) of the Internal Revenue Code, or the amount of the Participant's Participant Elected Contributions under the McDESOP portion of the Plan or any other portion of the Plan or of any other plan which meets the requirements of Section 401(k) of the Internal Revenue Code, whether credited to the Participant's accounts under the Plan, the McDonald's Supplemental Employee Benefit Equalization Plan ("McCAP II"), the McDonald's Profit Sharing Program Equalization Plan ("McEqual"), the McDonald's 1989 Executive Equalization Plan ("McCAP I") or any other non-qualified deferred compensation plans from time to time maintained by the Company, or other deferred compensation, stock options, and any other amounts which receive special tax benefits; (c) for the purpose of determining whether a Participant is (1) a Highly Compensated Employee in accordance with Section 1.30 or (2) a member of the Top Paid Group as defined in Section 1.52 and (3) whether a Participant is a Key Employee pursuant to Section 15.2(d), Considered Compensation shall be the Participant's Considered Compensation as defined in Section 1.14(b) increased by the amount by which the Participant's compensation is reduced pursuant to a compensation reduction election under Section 5.1 or any Related Plan which meets the requirements of Code Section 401(k) or pursuant to other compensation reduction contributions for medical, dental or dependent care or other benefits under a cafeteria plan meeting the requirements of Section 125 of the Internal Revenue Code; (d) for the purpose of calculating (1) the actual contribution percentage in accordance with Section 4.1, (2) the actual deferral percentage in accordance with Section 5.2 or (3) the multiple use test in accordance with Section 5.4, Considered Compensation shall be the Participant's compensation for the portion of the Plan Year during which he or she was an Active Participant as defined in Section 1.2(c) (i) as reported in Box 1 of his Internal Revenue Service Form W-2 as revised for 1993 (or the equivalent box on any comparable form for subsequent years) plus (ii) any amounts by which the Participant's compensation is reduced by Participant Elected Contributions under the McDESOP portion of the Plan or any other portion of the Plan or any other plan which meets the requirements of Section 401(k) of the Internal Revenue Code or compensation reduction contributions for medical, dental or dependent care or other benefits under a cafeteria plan meeting the requirements of Section 125 of the Internal Revenue Code; (e) for the purpose of determining the amount of Participant Elected Contributions pursuant to Section 5.1, Considered Compensation means a Participant's Considered Compensation as defined in Section 1.14(a) increased by expatriate equalization differentials and reduced by all compensation not paid in cash, by cash perquisites and by any payments for referrals to the extent included in Considered Compensation as defined in Section 1.14(a). For purposes of Sections 1.14(a), (c), (d) and (e), Considered Compensation taken into account under the Plan shall not exceed $200,000 (in 1989, and as adjusted in subsequent years as provided by the Secretary of the Treasury). In determining whether a Participant's compensation for a Plan Year exceeds $200,000, if and only to the extent required by the Internal Revenue Code, the compensation of each Five Percent Owner and of each Participant who is one of the ten Highly Compensated Employees paid the greatest compensation (determined before the aggregation of the compensation of any family member) shall include the compensation of such Participant's spouse and lineal descendants who have not attained age 19 before the end of the Plan Year earned as employees of McDonald's or a Commonly Controlled Entity. Effective January 1, 1994, "$150,000" shall be substituted for "$200,000" in this paragraph. Anything to the contrary herein notwithstanding, Considered Compensation for a Plan Year shall not be reduced by the pay for a period of short term disability which is repaid to an Employer in a subsequent Plan Year by a Participant who fails to complete the requirements to be eligible to retain such pay. III The final paragraph of Section 1.30 is hereby deleted and the following substituted therefore: (h) In lieu of determining which individuals are Highly Compensated Employees as provided in paragraphs (a), (b), (c), and (d) of this Section 1.30, the Committee may elect for any Plan Year to consider as a Highly Compensated Employee for such Plan Year each Participant who performs services as an employee for an Employer, Commonly Controlled Entity or member of an Affiliated Service Group during such Plan Year and who, during the Plan Year: (1) was at any time a Five Percent Owner; (2) received Considered Compensation in excess of $81,720 (for 1989, adjusted in subsequent years as provided by the Secretary of the Treasury or his delegate); (3) received Considered Compensation in excess of $64,245 (for 1993, adjusted in subsequent years as provided by the Secretary of the Treasury or his delegate) and was a member of the Top Paid Group; and (4) was an officer of (or performed the duties of an officer for) an Employer, a Commonly Controlled Entity or member of an Affiliated Service Group and received Considered Compensation in excess of fifty percent (50%) of the amount in effect under Section 415(b)(1)(A) of the Internal Revenue Code ($98,064 for 1989, adjusted in subsequent years as provided by the Secretary of the Treasury or his delegate). (i) The Plan Administrator may elect for any Plan Year to determine the Highly Compensated Employees for such year by substituting (1) "$54,480" (in 1989, adjusted in subsequent years provided by the Secretary of the Treasury or his delegate) for "$81,720" (in 1989, adjusted in subsequent years provided by the Secretary of the Treasury or his delegate) in Sections 1.30(b) or 1.30(h)(2) as applicable, and ignoring Sections 1.30(c) or 1.30(h)(3), respectively. (j) A Plan Administrator may make any of the elections permitted under Sections 1.30(h) and 1.30(i) for a Plan Year, may make different elections from Plan Year to Plan Year and may make different elections for different purposes under the Plan (e.g., which Participants are considered to be Highly Compensated Employees (1) for the purposes of calculating the limits described in Sections 4.1(c), 5.2(e) and 5.4 and (2) for other purposes under the Plan). IV Section 1.56(a)(6) shall be deleted. V A new Section 1.56(c) shall be added to read as follows: (c) The Diversification Trust Sub-fund is part of the McDESOP portion of the Plan but is held in the Profit Sharing Master Trust in order to implement Participants' diversification elections made in accordance with Section 10.12. "Diversification Fund" means the portion of the Trust Fund established by segregating the amounts transferred from Participant's Employer Auxiliary ESOP Contribution Accounts, Participant Elected Contribution Accounts and Employer Matching Contribution Accounts in the McDESOP portion of the Plan in accordance with Section 10.12. VI Section 1.57 shall be amended to read as follows: 1.57 "Valuation Date" means the last business day of each calendar month and such additional dates as the Committee may from time to time specify except that solely for the purpose of valuing accounts to make distributions pursuant to Article XI, "Valuation Date" means the fifteenth day of each calendar month (or if the fifteenth day of the month is not a business day, the next previous business day) and the last business day of each calendar month and such additional dates as the Committee may from time to time specify. VII Effective January 1, 1993, Section 4.3(a) is amended to read as follows: 4.3 Annual Employer Contribution Elections. (a) Minimum and Maximum Amount of Participant Elected Matched Contributions. If Participant Elected Matched Contributions are permitted for all or any portion of a Plan Year, the Company by action of its Board of Directors shall specify for the Plan Year or portion of a Plan Year, the amount (either as a dollar amount or a percentage of each Active Participant's Considered Compensation) of such Participant Elected Matched Contributions ("Specified Participant Elected Matched Contributions") which shall be made on behalf of an Active Participant in the absence of a contrary election by the Participant and may also specify, the minimum and maximum amounts of Participant Elected Matched Contributions which a Participant may elect in lieu of Specified Participant Elected Matched Contributions (either as a dollar amount or a percentage of each Participant's Considered Compensation) for the Plan Year or portion of the Plan Year as permitted by procedures established by the Plan Administrator, provided that such minimum and maximum amounts shall not be greater for any Plan Year than: (1) five percent (5%) of the Participant's Considered Compensation if the Participant is a staff or an executive employee or a store manager, (2) ten percent (10%) of the Participant's Compensation if the Participant is a Certified Swing Manager or primary maintenance employee, and (3) eight percent (8%) of the Participant's Compensation if the Participant is a crew member or other hourly restaurant employee; and VIII The first paragraph of Section 5.1 is amended, effective January 1, 1993, to substitute "seven percent (7%)" for "five percent (5%)" in the second sentence thereof. IX The first two sentences of the second paragraph of Section 5.1 shall be deleted and the third sentence of the second paragraph shall become the last sentence of the first paragraph of Section 5.1. X Section 10.6(a) up to the colon (:) shall be amended to read as follows: (a) Profit Sharing Plan. The assets of the Profit Sharing Plan portion of the Trust shall be held in the following Investment Funds: XI Section 10.6 shall be amended to add the following at the end thereof: (c) McDESOP Diversification Account. Participant Elected Contributions which a Participant has elected to diversify pursuant to Section 10.12(a) or (b) shall be credited to the Participant's McDESOP Contribution Diversification Account and invested in the Trust Investment Funds listed in Section 10.6(a) as provided in Section 10.12(a) or (b) as of the first business day of the calendar month following the month in which (1) the diversification election was made for amounts diversified in accordance with Section 10.12(a) and (2) the compensation (from which such Participant Elected Contributions were taken) was paid or as of such earlier date as the Committee shall provide for amounts diversified in accordance with Section 10.12(b). Until such date as the Committee shall provide otherwise, Participant Elected Contributions and Employer Matching Contributions which the Participant has elected to diversify pursuant to Section 10.12 shall be invested in the McDESOP McDonald's Common Stock Fund until invested pursuant to the preceding sentence. XII Section 10.8 shall be amended to read as follows: 10.8 Investment Election with Regard to a Participant's Profit Sharing Fund Account and Diversification Account. Four times each Plan Year (or on such more frequent basis as the Committee shall permit), each Participant shall have the right to elect, on such forms and in accordance with such rules and procedures as the Committee may from time to time prescribe, to have his Profit Sharing Fund Account (including any amounts which have previously been invested in the Profit Sharing McDonald's Common Stock Fund pursuant to Section 10.7) and his Diversification Account, if any, invested in the Diversified Stock Fund, the Bond Fund (for periods before December 1, 1989), the Money Market Fund, the Profit Sharing McDonald's Common Stock Fund, the Insurance Contract Fund or the Multi-Asset Fund (for periods on or after March 1, 1990 or other similar fund designated by the Committee or in any combination of them; provided that amounts which have been invested in the Profit Sharing McDonald's Common Stock Fund in accordance with Section 10.7 shall remain invested in the Profit Sharing McDonald's Common Stock Fund until a new investment election made by the Participant in accordance with this Section 10.8 is effective. If a Participant makes a Diversification Election or a Future Contribution Diversification Election in accordance with Section 10.12, his Diversification Account, if any, shall be invested in accordance with his Profit Sharing Fund Account investment election in effect at the time of his diversification election or in accordance with Section 10.11(a) if no such investment election is in effect and shall be invested in accordance with any subsequently effective Investment Election as provided above. The Participant's election as to the percentage of his Profit Sharing Fund Account and Diversification Account to be invested in each Investment Fund, shall be made in increments of 10 percent (10%) up to 100 percent (100%). A Participant may elect to invest as much as 100% of his Profit Sharing Fund Account and Diversification Account in the Profit Sharing McDonald's Common Stock Fund. Subject to Section 10.7, a Participant's investment election shall be effective until his next investment election is effective. Notwithstanding the foregoing, the Bond Fund is dissolved effective November 30, 1989. After November 30, 1989, any effective investment election made by a Participant on any date to invest contributions in the Bond Fund shall be treated as an election to invest such contributions in the Money Market Fund. XIII Sections 10.9 and 10.10 shall be amended to substitute "Four times" for "Three times" in the first sentence of each such section. XIV Section 10.12 is hereby amended to read as follows: 10.12 Diversification of McDESOP Accounts and Contributions. (a) Diversification of Account Balances. (1) Elections by Qualified Participant. At the same time that he may make an Investment Election in accordance with Section 10.8 or during each Annual Election Period, each Qualified Participant who is an Employee, the total of whose Qualified Account balances have, at any time, been equal to or more than $500, shall be permitted to elect ("Diversification Election") to transfer an amount equal to the difference between (A) 25 percent of the sum of (i) the balances of the Participant's Qualified Accounts which are Accounts under the Plan plus (ii) the total amount previously transferred under this Section 10.12(a) from the Qualified Accounts which are Accounts under the Plan to such Participant's Diversification Account ("Prior Diversification Transfers"), reduced by (B) the total amount of such Participant's Prior Diversification Transfers and to have the same percentage of his future contributions or allocations, to the Qualified Accounts credited to his Diversification Account. Commencing with the earlier of the first day of the sixth Plan Year after the Participant became a Qualified Participant or the first day of the calendar month after he attains 60 years of age, a Qualified Participant may make a Diversification Election, (A) in accordance with such rules and procedures and effective dates as the Committee shall from time to time prescribe or (B) during his sixth Annual Election Period, to transfer from his Qualified Accounts which are Accounts in the Plan to his Diversification Account an amount equal to the difference between (A) 50 percent of the sum of (i) the balances of the Participant's Qualified Accounts which are Accounts under the Plan plus (ii) the total amount of the Participant's Prior Diversification Transfers, reduced by (B) the total amount of the Participant's Prior Diversification Transfers and to have the same percentage of his future contributions to the Qualified Accounts credited to his Diversification Account. If the total balances of a Qualified Participant's Qualified Accounts under the Plan have, at any time, been equal to or more than $500, a Qualified Participant who has had a Termination of Employment or the Beneficiary of a deceased Qualified Participant may make a Diversification Election, at such time and in such manner as such elections are otherwise permitted pursuant to this Section 10.12(a), with respect to 100 percent of the balances of his Qualified Accounts; provided that at the time such election is made the Participant is not an employee of McDonald's or of any Commonly Controlled Entity. Not later than 90 days after each Annual Election Period during which the Participant makes a Diversification Election or at such earlier dates as the Committee, pursuant to Section 10.13 shall permit, the applicable amount shall be transferred to the Participant's Diversification Account under the Plan and thereafter shall be invested in accordance with the Participant's elections pursuant to Section 10.8 or 10.11(a) but determined without regard to Section 10.7. A Participant to whom a distribution is payable under Article X shall have the right to elect to receive any distributions made from his Diversification Account attributable to Participant Elected Contributions or Employer Matching Contributions in McDonald's common stock. (2) "Qualified Participant" means a Participant who has attained age 55 or the Beneficiary of a deceased Participant who would have attained the age of 55 if he were alive. (3) "Annual Election Period" means the 90 day period after the last day of each Plan Year commencing with the Plan Year in which the Participant first becomes a Qualified Participant. (4) "Qualified Accounts" means a Qualified Participant's accounts identified below: (A) before July 1, 1990, the Qualified Participant's Employer Auxiliary ESOP Contribution Account (and any corresponding accounts in McEqual, McCAP I or McCAP II) and his McDonald's Stock Sharing Plan Accounts (the latter considering only the portion of the balance attributable to Company Stock acquired by the McDonald's Stock Sharing Plan after December 31, 1986); and (B) on or after July 1, 1990, the Qualified Participant's Employer Auxiliary ESOP Contribution Account, Participant Elected Contribution Account and Employer Matching Contribution Account (and any corresponding accounts in McEqual, McCAP I or McCAP II) and his McDonald's Stock Sharing Plan Accounts (the latter considering only the portion of the balance attributable to Company Stock acquired by the McDonald's Stock Sharing Plan after December 31, 1986). (b) Diversification of Future Contributions. If the sum of the balances of a Participant's Participant Elected Contribution Account and his Employer Matching Contribution Account is equal to $1500 or more, the Participant may make an election ("Future Contribution Diversification Election") with respect to his future Participant Elected Contributions in accordance with such rules and procedures and effective dates as the Committee shall from time to time prescribe, to have up to 100 percent of the amount of such contributions, in increments of 25 percent, credited to his Diversification Account. Once he has made a Future Contribution Diversification Election, a Participant may change his election with respect to future Participant Elected Contributions, in accordance with such rules and procedures and effective dates as the Committee shall from time to time prescribe, but each such change shall only effect Participant Elected Contributions made to the Plan after the date the election is effective and before the date a new Future Contribution Diversification Election becomes effective. The provisions of the Plan shall apply to Participants' Diversification Accounts in the same manner as to Participant Elected Contribution Accounts, except that the balance in a Participant's Diversification Account shall be invested in the Trust Investment Funds in the same manner as the Participant elects to invest his Profit Sharing Fund Account pursuant to Section 10.8 or as provided in Section 10.11(a), whichever is applicable, but determined without regard to Section 10.7. Contributions credited to a Participant's McDESOP Contribution Diversification Account shall be credited to the Investment Funds available under the Profit Sharing Plan in the same proportions as the Participant elects pursuant to Section 10.8 or as provided in Section 10.11(a) whichever is applicable, but determined without regard to Section 10.7. A Participant to whom a distribution is payable under Article X shall have the right to elect to receive any distributions made from his Diversification Account in McDonald's common stock. XV Section 10.18 is hereby amended to add the following sentence at the end thereof: For purposes of making the foregoing allocations, distributions from Participants' Diversification Accounts shall be considered to be part of the McDESOP portion of the Plan. XVI Section 11.2(a)(2) is hereby amended as follows: (2) Termination for Reasons Other than Retirement or Disability or Death. If a Participant has a Termination of Employment for reasons other than retirement on or after his Vesting Retirement Date, Disability or death, the Trustee shall distribute the Participant's vested Net Balance Account, subject to (i) the Participant's election to receive nonperiodic or installment distributions or, (ii) if applicable, Section 11.2(a)(2)(E) as follows: (A) Profit Sharing Fund Account. The vested portion of the Participant's Profit Sharing Fund Account shall be distributed to the Participant in cash or in McDonald's common stock, in accordance with Section 11.2(f), within a reasonable time after the Participant elects to receive or to commence receiving a distribution of such account. (B) Investment Savings Fund Account. The Participant's Investment Savings Fund Account shall be distributed to the Participant in cash within a reasonable time after the Participant elects to receive or to commence receiving a distribution of such account. (C) Rollover Contribution Account and Rollover Contribution Holding Account. The Participant's Rollover Contribution Account and Rollover Contribution Holding Account shall be distributed to the Participant in cash within a reasonable time after the Participant elects to receive or to commence receiving a distribution of such account. (D) McDESOP Accounts. The Participant's McDESOP Accounts, including the vested portion of all accounts identified in Section 1.1(a)(5) and in 1.1(b) shall be distributed to the Participant in cash or in McDonald's common stock as provided in Section 11.2(g) within a reasonable time after the Participant elects to receive or to commence receiving a distribution of such account. (E) Distributions in Default of Election. In the absence of an election by a Participant to receive a distribution of his entire vested Net Balance Account or to commence to receive installment distributions at least equal to the greater of the Minimum Distribution Amount and the amount determined under Section 11.2(d)(3), his entire vested Net Balance Account shall be distributed or to commence to be distributed within a reasonable time after the last day of the Plan Year in which he attains the age of 70 1/2, but not later than his Required Beginning Date. A Participant entitled to elect to receive a distribution or to commence receiving distributions pursuant to this Section 11.2(a)(2) is not entitled to elect an annuity form of distribution. XVII Section 11.2(f) shall be amended to read as follows: (f) Form of Profit Sharing Distributions. If the method of distribution selected by a Participant includes either a nonperiodic payment or installment payments or a combination of nonperiodic payments and installments, the Participant who has a Termination of Employment on or after his Vesting Retirement Date or on account of Disability or Death may elect, on such form and in such manner as the Committee shall provide or permit, to receive the portion of his vested Net Balance Account in the Profit Sharing Plan distributed in cash or in shares of McDonald's common stock or in any combination of the two as elected by the Participant; provided however that, in the absence of an election to receive shares of McDonald's common stock, such distributions shall be made in cash and, further provided, that the portion of such distribution distributed in the form of shares of McDonald's common stock shall not, except as otherwise provided below, exceed the value (if any) of the Participant's interest in the Profit Sharing McDonald's Common Stock Fund. Until such time as a Participant's vested Net Balance Account has been distributed, transferred to a Distribution Fund in accordance with Section 10.27 or forfeited in accordance with Section 11.4, any portion of the Participant's Net Balance Account remaining in the Profit Sharing Plan portion of the Plan shall continue to be invested in accordance with Section 10.7 and the Participant's (or his Beneficiary's) investment elections in accordance with Sections 10.8, 10.9, 10.10 and 10.11, as applicable. XVIII Effective January 1, 1989, Section 11.2(g) shall be redesignated Section 11.2(h) and Section 11.2(f)(2) shall be redesignated Section 11.2(g) and shall be amended as read as follows: (g) McDESOP Accounts. If the sum of the portion of a Participant's vested balances in his Participant Elected Contribution Account, Employer Matching Contribution Account and Diversification Account to the extent it is attributable to amounts diversified from his Participant Elected Contributions or Employer Matching Contribution Account and is invested in McDonald's common stock, consists of $1500 or more as of the Valuation Date immediately preceding a distribution, such accounts shall be distributed in the form of shares of McDonald's common stock, unless the Participant (or his Beneficiary) elects a distribution in cash. If the sum of the portion of a Participant's vested balance in his Employer Auxiliary ESOP Contribution Accounts and his Diversification Account to the extent it is attributable to amounts diversified from his Employer Auxiliary ESOP Contribution Account and is invested in McDonald's common stock consists of $1500 or more as of the Valuation Date immediately preceding the date of distribution, such accounts shall be distributed in the form of shares of McDonald's common stock, unless the Participant (or his Beneficiary) elects a distribution in cash. If the sum of the portion of a Participant's vested balance in his Participant Elected Contribution Account, Employer Matching Contribution Account and his Diversification Account to the extent it is attributable to his Participant Elected Contributions or Employer Matching Contributions and is invested in McDonald's common stock is less than $1500 as of the Valuation Date immediately preceding the distribution, such Accounts shall be distributed in cash, unless the Participant (or his Beneficiary) elects to receive a distribution in shares of McDonald's common stock. If the sum of the portion of a Participant's vested Net Balance Account in his Employer Auxiliary ESOP Contribution Account and his Diversification Account to the extent it is attributable to his Employer Auxiliary ESOP Contributions and is invested in McDonald's common stock has a value of less than $1500 as of the Valuation Date immediately preceding the distribution, such Accounts shall be distributed in cash, unless the Participant (or his Beneficiary) elects to receive a distribution in shares of McDonald's common stock. If any distribution in shares of McDonald's common stock described in this Section 11.2 would not be in whole shares, the value of any fractional share shall be distributed in cash. A Participant or Beneficiary who is entitled to a distribution may elect to receive a cash distribution in lieu of McDonald's common stock or a McDonald's common stock distribution in lieu of cash by filing a written election with the Committee on forms approved by the Committee and in a manner prescribed by the Committee on or before the Valuation Date coincident with or next preceding the date of distribution. Until such time as a Participant's vested Net Balance Account has been distributed, transferred to a Distribution Fund in accordance with Section 10.27, or forfeited in accordance with Section 11.4 (A) any portion of his Net Balance Account in his Diversification Account shall continue to be invested as provided in Section 10.12(b), and (B) any portion of his Net Balance Account remaining in the McDESOP portion of the Plan shall continue to be invested in Company Stock and held therein. If any McDonald's common stock distributed from a Participant's Participant Elected Contribution Account, Employer Matching Contribution Account or Diversification Account is not readily tradeable on an established market when distributed, the distributee shall have the put option rights which are described in Section 6.5(b) with respect to such shares. XIX Section 11.9 is hereby amended to read as follows: 11.9 Deadline for Payment of Benefits. Except to the extent that a Participant in accordance with the Plan otherwise elects and except to the extent it is not administratively feasible, payment of benefits shall be made or commence not later than sixty (60) days after the latest of (a) the close of the Plan Year in which the Participant attains age fifty- five (55), (b) the close of the Plan Year in which occurs the tenth (10th) anniversary of the Plan Year in which the Participant commenced participation, and (c) the close of the Plan Year in which the Participant has a Termination of Employment; provided that a Participant, who is entitled to receive a distribution pursuant to this Section 11.9, must submit a claim for benefits before any distributions will be made hereunder. XX Section 11.11 shall be amended to read as follows: 11.11 Single Sum Payment without Election. Notwithstanding any provisions of this Article XI (except Section 11.14 to the extent therein provided) to the contrary, if the Participant or Beneficiary is entitled to a distribution because of the Participant's Break in Service (but not in the case of a Break in Service without a Termination of Employment), retirement on or after his Vesting Retirement Date, death, Disability, or other Termination of Employment, and if the value of the sum of (a) the vested portion of a Participant's Net Balance Account under the Plan and (2) his Accounts under the McDonald's Stock Sharing Plan does not exceed $3,500, the Committee shall direct the immediate distribution of such benefit prior to the annuity starting date or other date of distribution or commencement of distribution, regardless of any election or consent of the Participant, his spouse, or other Beneficiary. XXI The reference to "Section 11.2(e)" in Section 11.12(a) shall be amended to refer to "Section 11.12(e)". XXII The last sentence of Section 11.15 shall be amended to read as follows: This Section 11.15 shall not apply to any Participant who has a Termination of Employment on or after January 1, 1993; provided however, that this Section 11.15 will continue to apply to Participants who had a Termination of Employment before January 1, 1993, and who timely made the election provided herein. XXIII A new Section 11.17 is hereby added to the plan to read as follows: 11.17 Direct Rollovers. This Section 11.17 applies to distributions made on or after January 1, 1993. (a) Notwithstanding any provision of the Plan to the contrary that would otherwise limit a Distributee's election under this Section 11.17, a Distributee may elect, at the time and in the manner prescribed by the Committee, to have any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by the Distributee in a Direct Rollover; subject to such reasonable administrative requirements as the Committee may from time to time establish which may include, but shall not be limited to, requirements consistent with Treasury Regulations and other guidance issued by the Internal Revenue Service permitting de minimis standards for amounts eligible to be rolled over or paid partly to the Participant and partly rolled over. A Participant may make an election pursuant to this Section 11.17 only after the Distributee has met otherwise applicable requirements for receipt of a distribution under the Plan, including but not limited to any applicable requirements that the Participant's spouse or (pursuant to a Qualified Domestic Relations Order as defined in Section 16.5) former spouse consent to the Participant's waiver of a Qualified Joint and Survivor Annuity or Qualified Preretirement Survivor Annuity. If a Participant or Beneficiary elects to receive a Direct Rollover or a distribution in a form other than an annuity as provided in Section 11.2(a)(1)(C) or 11.3(a)(3)(C), such distribution may be made or commence to be made less than 30 days after the notice required under Section 1.411(a)-11(c) of the Income Tax Regulations is given, provided that: (1) the plan administrator clearly informs the participant that the participant has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option), and (2) the participant after receiving the notice affirmatively elects a distribution (b) In the absence of the adoption by the Committee of any requirements to the contrary, the following shall apply: (1) A Distributee whose Eligible Rollover Distribution is less than $200 upon the Valuation Date immediately preceding the date of distribution shall not be permitted to elect to have all or any portion of the distribution made in the form of a Direct Rollover. (2) A Distributee who elects a Direct Rollover in an amount equal to at least $500 may also elect to have the remaining portion of his distribution paid to the Distributee. (3) A Distributee shall be permitted to divide an Eligible Rollover Distribution into separate distributions to be paid to two or more Eligible Retirement Plans in two or more Direct Rollovers. (4) A Distributee's election to make or not to make a Direct Rollover with respect to a payment in a series of periodic payments shall apply to all subsequent payments in the series until the Distributee changes his election. (5) If a Distributee, who has been notified as to the availability of the Direct Rollover option, fails to elect a Direct Rollover with respect to an Eligible Rollover Distribution, such Distributee shall be deemed to have elected not to make a Direct Rollover. (c) As used in this Section 11.17, the following terms shall have the following meanings: (1) "Eligible Rollover Distribution" means any distribution of all or any portion of the balance to the credit of the Distributee, except that an Eligible Rollover Distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee's designated Beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Section 11.13; and the portion of any distribution that is not includable in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). (2) "Eligible Retirement Plan" means an individual retirement account described in Section 408(a) of the Internal Revenue Code, an individual retirement annuity described in Section 408(b) of the Internal Revenue Code, an annuity plan described in Section 403(a) of the Internal Revenue Code, or a qualified trust described in Section 401(a) of the Internal Revenue Code, that accepts the Distributee's Eligible Rollover Distributions. However, in the case of an Eligible Rollover Distribution to a Participant's surviving spouse or surviving former spouse who is a Distributee pursuant to a Qualified Domestic Relations Order, an Eligible Retirement Plan is an individual retirement account or individual retirement annuity. (3) "Distributee" means a Participant. In addition, a Participant's surviving spouse and a former spouse who is the alternate payee under a Qualified Domestic Relations Order are Distributees with regard to the interest of such spouse or former spouse. (4) "Direct Rollover" means a payment by the Plan to the Eligible Retirement Plan specified by the Distributee. XXIV Except as amended herein, the Plan as previously amended shall remain in full force and effect. Executed in multiple copies this 17th day of December, 1993. McDonald's Corporation By: /s/ Stanley R. Stein Its: Senior Vice President EX-10 6 MCDONALD'S 6TH AMENDMENT TO PROFIT SHARING PROGRAM EXHIBIT 10-E SIXTH AMENDMENT TO THE MCDONALD'S CORPORATION PROFIT SHARING PROGRAM The McDonald's Corporation Profit Sharing Program (the "Plan"), as amended and restated effective January 1, 1989 and subsequently amended by the First Amendment, effective January 1, 1990; the Second Amendment, generally effective May 1, 1992; Third Amendment, effective July 1, 1992; the Fourth Amendment, generally effective January 1, 1993, and the Fifth Amendment, generally effective July 1, 1993 is hereby amended effective January 1, 1994, except as otherwise provided herein. I Section 1.14(a) shall be amended as follows 1.14 "Considered Compensation" of a Participant for a Plan Year means: (a) except as otherwise specified below, the Participant's total compensation paid during the Plan Year to such Participant by an Employer while an Active Participant as reported in Box 1 of Internal Revenue Service Form W-2 as revised for 1993 (or the equivalent box on any comparable form for subsequent years) for the Plan Year, increased by any amounts by which the Participant's compensation is reduced by Participant Elected Contributions under the McDESOP portion of the Plan or any other portion of the Plan or of any Related Plan which meets the requirements of Section 401(k) of the Internal Revenue Code; compensation reduction contributions for medical, dental or dependent care or other benefits under a cafeteria plan meeting the requirements of Section 125 of the Internal Revenue Code; and payments under the McDonald's Target Incentive Plan which the Participant elected to have paid in April, 1994 and excluding provisions for life insurance; reimbursement or other payments for expenses related to moving (including the relocation bonus); any benefits under the Plan or any other qualified plan described in Section 401(a) of the Internal Revenue Code; and distributions under McDonald's Profit Sharing Program Equalization Plan ("McEqual"), McDonald's 1989 Executive Equalization Plan ("McCAP I"), the McDonald's Supplemental Employee Benefit Equalization Plan ("McCAP II") or the McDonald's Corporation Deferred Incentive Plan; income earned from stock options granted under the McDonald's 1975 Stock Ownership Option Plan; options, restricted stock, stock appreciation rights, performance units and stock bonuses awarded under the McDonald's 1992 Stock Ownership Incentive Plan; Stock Exchange Rights or Performance Units awarded under the McDonald's Corporation 1978 Incentive Plan; payments to a Participant for foreign service in the form of tax gross-up benefits, allowances for cost of living, housing and education, and other similar payments; any income attributable to personal use of an employer- provided vehicle, an allowance paid for the loss of an employer-provided vehicle, use of a company condo, participation in group trips, gift stock, spouse's travel and perquisites whether in cash or in kind and other similar items; and, any severance pay and any special termination bonus paid pursuant to a termination agreement; II Effective November 1, 1993, Section 1.31(b)(1) is hereby amended to read as follows: (b)(1) The credit for Hours of Service shall be given for the following: (i) For Plan Years beginning before January 1, 1994, an Employee's prior or subsequent employment by a Foreign Affiliate or Domestic Affiliate; (ii) For Plan years beginning after December 31, 1993, an Employee's prior or subsequent employment by a Domestic or Foreign Affiliate if the employee is transferred to or from such Domestic or Foreign Affiliate from or to the employment of an Employer at the initiative of an Employer (a "Company Initiated Transfer"). In determining the number of such Hours of Service to be credited, the Plan Administrator shall make good faith estimates based upon the available information and records including the use of reasonable equivalencies similar to those permitted under DOL Reg. Section 2530.200b-3 or estimated average number of hours per week for employees in a given job category. III Section 4.3(a)(1) shall be amended to read as follows: (1) six percent (6%) of the Participant's Considered Compensation if the Participant is a staff or an executive employee or a store manager, IV Except as amended here, the Plan as previously amended shall remain in full force and effect. Executed in multiple copies this 17th day of December, 1993. McDonald's Corporation By: /s/ Stanley R. Stein Its: Senior Vice President EX-11 7 MCDONALD'S STMT RE COMPUTATION PER SHARE EARNINGS Exhibit 1 McDONALD'S CORPORATION STATEMENT RE COMPUTATION OF PER SHARE EARNINGS (Dollars and shares in millions, except per common share data)
Year ended December 31, 1993 1992 199 ---- ---- --- Net Income $1,082.5 $958.6 $859. Preferred stock dividends (net of tax benefits of $4.1 for 1993 and $6.4 for 1992) (46.9) (14.7) (19.2 -------- -------- ------- Net income available after preferred stock dividends (A) 1,035.6 943.9 840. Common stock dividends on assumed conversion of preferred stock 1.2 1.8 1. -------- -------- ------- Net income available to common shareholders $1,036.8 $945.7 $842. ======== ======== ======= Weighted average number of common shares outstanding during the period (A) 355.9 363.2 358. Additional shares related to potentially dilutive securities 10.8 10.7 11. -------- -------- ------- Adjusted weighted average common shares 366.7 373.9 370. ======== ======== ======= Fully diluted net income per common share $2.83 $2.53 $2.2 ======== ======== ======= --------------------- (A) Refer to Consolidated statement of income and Financial comments on pages 33 and 49 from Part II, item 8 of this 1993 10-K for information concerning the computation of Net income per common share.
EX-12 8 MCDONALD'S STATEMENT RE COMPUTATION OF RATIOS Exhibit 12 McDONALDS' CORPORATION STATEMENT RE COMPUTATION OF RATIOS (Dollars in Millions)
Year Ended December 31, 1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- EARNINGS AVAILABLE FOR FIXED CHARGES - Income before provision for income taxes $1,675.7 $1,448.1 $1,299.4 $1,246.3 $1,157.2 - Minority interest in operating results of majority-owned subsidiaries, less equity in undistributed operating results of less-than-50% owned affiliates 6.9 5.3 5.1 0.6 1.3 - Provision for income taxes of 50% owned affiliates included in consolidated income before provision for income taxes 34.2 29.4 34.1 28.8 29.3 - Portion of rent charges (after reduction for rental income from subleased properties) considered to be representative of interest factors* 71.6 70.1 67.9 59.0 51.8 - Interest expense, amortization of debt discount and issuance costs, and depreciation of capitalized interest* 358.0 413.8 433.9 411.9 332.3 -------------------------------------------------------------- $2,146.4 $1,966.7 $1,840.4 $1,746.6 $1,571.9 ============================================================== FIXED CHARGES - Portion of rent charges (after reduction for rental income from subleased properties) considered to be representative of interest factors* $71.6 $70.1 $67.9 $59.0 $51.8 - Interest expense and amortization of debt discount and issuance costs* 349.3 405.4 425.7 403.4 324.8 - Capitalized interest* 20.7 20.5 28.5 38.9 31.8 -------------------------------------------------------------- $441.6 $496.0 $522.1 $501.3 $408.4 ============================================================== RATIO OF EARNINGS TO FIXED CHARGES 4.86 3.96 3.53 3.48 3.85 ============================================================== *Includes amounts of the Registrant and its majority-owned subsidiaries, and one-half of the amounts of 50% owned affiliates.
EX-21 9 MCDONALD'S SUBSIDIARIES OF THE REGISTRANT Exhibit 21 MCDONALD'S CORPORATION SUBSIDIARIES OF THE REGISTRANT NAME OF SUBSIDIARY (STATE OR COUNTRY OF INCORPORATION) DOMESTIC SUBSIDIARIES McDonald's Australian Property Corporation (Delaware) McDonald's Deutschland, Inc. (Delaware) McDonald's Restaurant Operations, Inc. (Delaware) McDonald's Property Company Limited (Delaware) McDonald's System of France, Inc. (Delaware) FOREIGN SUBSIDIARIES McDonald's Restaurants of Canada Limited (Canada) McDonald's Australia Limited (Australia) McDonald's Properties (Australia) Pty., Ltd. (Australia) McDonald's Immobilien GmbH (Germany) McDonald's GmbH (Germany) McDonald's Restaurants Limited (England) McDonald's France, S.A. (France) McDonald's Restaurants Limited (Hong Kong) McDonald's Nederland B.V. (Netherlands) _______________________ The names of certain subsidiaries have been omitted as follows: (a) 46 wholly-owned subsidiaries of the Company, each of which operates one or more McDonald's restaurants within the United States. (b) Additional subsidiaries, including some foreign, other than those mentioned in (a), because considered in the aggregate as a single subsidiary, they would not constitute a significant subsidiary. EX-23 10 MCDONALD'S CONSENT OF INDEPENDENT AUDITORS Exhibit 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the following registration statements of McDonald's Corporation and in the related prospectuses of our reports dated January 27, 1994 with respect to the consolidated financial statements and schedules of McDonald's Corporation included in this Annual Report on Form 10-K: Commission File No. ------------------------------------------ Form S-8 Form S-3 ------------------------------------------ 33-09267 33-00001 33-24958 33-40194 33-49817 33-42642 33-50701 33-50025 33-58840 33-50695 Ernst & Young Chicago, Illinois March 29, 1994 -----END PRIVACY-ENHANCED MESSAGE-----