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    Mcdonald'S Roiic Calculations: Appendix

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    Mcdonald'S Roiic Calculations: Appendix

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    ROIIC

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    Mcdonald'S Roiic Calculations: Appendix

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    of 3

    Free Cash Flow: Seeing Through the Accounting

    Fog Machine to Find Great Stocks


    by George C. Christy
    Copyright © 2009 George C. Christy

    APPENDIX E
    McDonald’s ROIIC Calculations

    “The reconciliations to the most comparable measurements, in accordance


    with accounting principles generally accepted in the U.S., for the numerator
    and denominator of the one-year and three-year ROIIC are as follows:

    One-Year ROIIC Calculation

    Years Ended
    December 31, Incremental
    2006 2005 Change

    NUMERATOR:
    Operating income $4,445.1 $3,992.5 $ 452.6
    Depreciation and amortization(1) 1,224.9 1,220.3 4.6
    Currency translation(2) (41.2)
    Incremental operating income plus
    depreciation and amortization (at
    constant foreign exchange rates) $ 416.0
    DENOMINATOR:
    Weighted-average adjusted cash $ 1,661.4
    used for investing activities(3)
    Currency translation(2) 12.6
    Weighted-average adjusted cash
    used for investing activities (at
    constant foreign exchange rates) $1,674.0
    One-year ROIIC(4) 24.9%

    (1)
    Represents depreciation and amortization from continuing operations.
    (2)
    Represents the effect of foreign currency translation by translating results at an
    average exchange rate for the periods measured.
    (3)
    Determined by weighting the adjusted cash used for investing activities for each
    quarter in the two-year period ended December 31, 2006 by applying the weightings
    below.

    165
    166 FREE CASH FLOW

    Years Ended December 31

    2005 2006

    Cash used for investing activities $ 1,817.8 $ 1,273.4


    Adjusted for cash generated from (used for)
    investing activities related to Chipotle (83.9) 219.2
    Adjusted cash used for investing activities $ 1,733.9 $ 1,492.6
    AS A PERCENT
    Quarters ended:
    March 31 12.5% 87.5%
    June 30 37.5 62.5
    September 30 62.5 37.5
    December 31 87.5 12.5

    (4)
    The increase in impairment and other charges (credits), net between 2006 and
    2005 negatively impacted the one-year ROIIC by 9.5 percentage points.

    Three-year ROIIC calculation

    Years Ended
    December 31, Incremental
    2006 2003 Change

    NUMERATOR:
    Proforma operating income(5) $4,445.1 $2,482.6 $ 1,962.5
    Depreciation and amortization(6) 1,224.9 1,133.9 91.0
    Currency translation(7) (272.0)
    Incremental operating income plus
    depreciation and amortization (at
    constant foreign exchange rates) $ 1,781.5
    DENOMINATOR:
    Weighted-average adjusted cash used for
    investing activities(8) $ 4,328.9
    Currency translation(7) (13.1)
    Weighted-average adjusted cash used for
    investing activities (at constant foreign
    exchange rates) $4,315.8
    Three-year ROIIC(9) 41.3%

    (5)
    Share-based expense as reported in the Company’s year end 2003 Form 10-K
    was $224.1 million after tax ($354.4 million pretax). For comparability purposes to
    2006 results subsequent to adopting SFAS No. 123(R), the 2003 reported operating
    income of $2,837.0 million was adjusted for this proforma expense.
    (6)
    Represents depreciation and amortization from continuing operations.
    (7)
    Represents the effect of foreign currency translation by translating results at an
    average exchange rate for the periods measured.
    (8)
    Represents three-year weighted-average adjusted cash used for investing activities,
    determined by applying the weightings below to the adjusted cash used for investing
    activities for each quarter in the four-year period ended December 31, 2006.
    Appendix E: McDonald’s ROIIC Calculations 167

    Years Ended December 31

    2003 2004 2005 2006

    Cash used investing activities $1,369.6 $1,383.1 $1,817.8 $1,273.4


    Adjusted for cash generated (77.7) (97.8) (83.9) 219.2
    from (used for) investing
    activities related to Chipotle
    Adjusted cash used for $1,291.9 $1,285.3 $1,733.9 $1,492.6
    investing activities
    AS A PERCENT
    Quarters ended:
    March 31 12.5 100.0 100.0 87.5
    June 30 37.5 100.0 100.0 62.5
    September 30 62.5 100.0 100.0 37.5
    December 31 87.5 100.0 100.0 12.5

    (9)
    The decrease in impairment and other charges (credits), net between 2006 and
    2003 benefited the three-year ROIIC by 6.7 percentage points.”
    Source: From McDonald’s 2006 Annual Report, page 39.

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