How is McDonald's making money beyond selling food?

Most revenue comes from franchise arrangements. Franchisees supply the capital for equipment, signs, and decor and pay rent and service fees based on a percent of sales, with specified minimum payments. Franchised revenues were $2.25 billion in 1993, up 11%, and franchised margins were 83.1%. Company-operated restaurant sales were $5.16 billion, with margins of 19.2%.

How much did currency movements affect 1993 results?

Weaker foreign currencies, especially European currencies and the Canadian and Australian dollars, lowered reported results. Adjusted for currency, Systemwide sales would have grown 10% instead of 8%, and net income would have been $1.11 billion instead of $1.08 billion. The company actively hedges seven key currencies, but the effects remain material.

Is McDonald's financially strong enough to keep growing and returning cash to shareholders?

Yes, based on the filing. Cash from operations of $1.68 billion covered capital expenditures of $1.32 billion, and the company had $1.7 billion available under line of credit agreements. Its debt ratings were Aa2 from Moody's and AA from S&P, and it has not reported difficulty obtaining financing. The company also repurchased $620 million of stock in 1993 and announced a plan to buy back up to $1 billion over three years.

What are the main risks highlighted in the filing?

Key risks include foreign currency volatility, which hurt 1993 results, and the Company's heavy exposure to international markets, where 47% of assets are located. Other risks are higher tax rates after the 1993 U.S. legislation, weak economies in markets such as Japan, Canada, England, and Brazil, and ongoing franchise, supplier, and employee disputes. Management also said it cannot predict the effect of future environmental or regulatory changes.

Where is McDonald's growth coming from?

Growth is coming from both expansion and sales at existing restaurants. Outside the U.S., Europe/Africa/Middle East generated $2.24 billion in revenues, and Asia/Pacific revenues rose $60 million. Management expects the share of new openings outside the U.S. to keep rising, with 600 to 800 planned international openings in 1994 versus 300 to 400 in the U.S. The company also cited growing importance of emerging markets and planned satellite locations in addition to full restaurants.

MCD 10-K FY1993 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 29, 1994. Cited figures are marked; the original filing is the authoritative source.

McDonald's reported a strong 1993 with Systemwide sales up 8% to $23.6 billion^a (about 10% excluding weaker foreign currencies) and total revenues up 4% to $7.4 billion.

Operating income rose 7% to $1.98 billion^b, and net income rose 13% to $1.08 billion, or $2.91 per share. Growth was driven by accelerated expansion, with 900 restaurants added in 1993 and plans for 900 to 1,200 additions in 1994. Results were held back by weaker foreign currencies, which reduced reported net income by roughly $32 million, and by new U.S. tax legislation that raised the effective tax rate to 35.4% from 33.8%.

The balance sheet strengthened over the past three years. Total debt as a percent of total capitalization fell to 37% from 49% in 1991, and cash provided by operations ($1.68 billion^c) exceeded capital expenditures for the third straight year. Return on average common equity improved to 19.0% and return on average assets to 17.1%.

Management returned capital to shareholders through $620 million^d in 1993 treasury stock purchases and a new program to buy up to $1 billion of stock over three years, while dividends per share rose to $0.42. The company relies on franchising, with franchisees supplying most of the capital and paying rent and percentage-of-sales fees. Franchised revenues rose 11% to $2.25 billion, and franchised restaurant margins were 83.1%.

International operations are now a major growth engine, accounting for 47% of total revenues and 45% of operating income. Management's stated strategy is to keep building the global system while leveraging real estate ownership and low-cost building designs to control costs.

02—Key points

Key Highlights

Systemwide sales rose 8% to $23.6 billion in 1993 (10% excluding weaker foreign currencies); U.S. sales were $14.2 billion and international sales were $9.4 billion.
Net income rose 13% to $1.08 billion, or $2.91 per share; excluding currency effects and the retroactive tax law impact, adjusted net income was $1.13 billion, or $3.04 per share.
Total revenues grew 4% to $7.4 billion, driven by franchised restaurant revenues up 11% to $2.25 billion.
The company added 900 restaurants in 1993 and plans 900 to 1,200 additions in 1994, with roughly one-third in the U.S. and two-thirds abroad.
Total debt as a percent of total capitalization improved to 37% from 49% in 1991, and cash from operations exceeded capital expenditures for a third consecutive year.
Return on average common equity rose to 19.0% and return on average assets to 17.1%, supported by $620 million in share repurchases during 1993.
The effective tax rate increased to 35.4% from 33.8% due to new U.S. tax legislation, and the 1994 rate is expected to be 35.5% to 36.0%.

03—Questions

Frequently Asked Questions

How is McDonald's making money beyond selling food?
Most revenue comes from franchise arrangements. Franchisees supply the capital for equipment, signs, and decor and pay rent and service fees based on a percent of sales, with specified minimum payments. Franchised revenues were $2.25 billion in 1993, up 11%, and franchised margins were 83.1%. Company-operated restaurant sales were $5.16 billion, with margins of 19.2%.
How much did currency movements affect 1993 results?
Weaker foreign currencies, especially European currencies and the Canadian and Australian dollars, lowered reported results. Adjusted for currency, Systemwide sales would have grown 10% instead of 8%, and net income would have been $1.11 billion instead of $1.08 billion. The company actively hedges seven key currencies, but the effects remain material.
Is McDonald's financially strong enough to keep growing and returning cash to shareholders?
Yes, based on the filing. Cash from operations of $1.68 billion covered capital expenditures of $1.32 billion, and the company had $1.7 billion available under line of credit agreements. Its debt ratings were Aa2 from Moody's and AA from S&P, and it has not reported difficulty obtaining financing. The company also repurchased $620 million of stock in 1993 and announced a plan to buy back up to $1 billion over three years.
What are the main risks highlighted in the filing?
Key risks include foreign currency volatility, which hurt 1993 results, and the Company's heavy exposure to international markets, where 47% of assets are located. Other risks are higher tax rates after the 1993 U.S. legislation, weak economies in markets such as Japan, Canada, England, and Brazil, and ongoing franchise, supplier, and employee disputes. Management also said it cannot predict the effect of future environmental or regulatory changes.
Where is McDonald's growth coming from?
Growth is coming from both expansion and sales at existing restaurants. Outside the U.S., Europe/Africa/Middle East generated $2.24 billion in revenues, and Asia/Pacific revenues rose $60 million. Management expects the share of new openings outside the U.S. to keep rising, with 600 to 800 planned international openings in 1994 versus 300 to 400 in the U.S. The company also cited growing importance of emerging markets and planned satellite locations in addition to full restaurants.

04—Continue

← View all 10-K filings