McDonalds 2007 Annual Report Download - page 51

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period approximating the expected life. The expected dividend
yield is based on the Company’s most recent annual dividend
payout. The risk-free interest rate is based on the U.S. Treasury
yield curve in effect at the time of grant with a term equal to the
expected life.
Weighted-average assumptions
2007
2006 2005
Expected dividend yield 2.26% 1.99% 1.72%
Expected stock price volatility 24.7% 26.4% 27.8%
Risk-free interest rate 4.76% 4.55% 3.97%
Expected life of options IN YEARS 6.26 6.22 7.00
Fair value per option granted $11.59 $9.72 $10.06
Property and equipment
Property and equipment are stated at cost, with depreciation
and amortization provided using the straight-line method over
the following estimated useful lives: buildings–up to 40 years;
leasehold improvements–the lesser of useful lives of assets or
lease terms which generally include option periods; and
equipment–three to 12 years.
Goodwill
Goodwill represents the excess of cost over the net tangible
assets and identifi able intangible assets of acquired restaurant
businesses. The Company’s goodwill primarily results from
purchases of McDonald’s restaurants from franchisees and
ownership increases in international subsidiaries or affi liates,
and it is generally assigned to the reporting unit expected to
benefi t from the synergies of the combination. If a Company-
operated restaurant is sold within 24 months of acquisition,
the goodwill associated with the acquisition is written off in
its entirety. If a restaurant is sold beyond 24 months from the
acquisition, the amount of goodwill written off is based on the
relative fair value of the business sold compared to the portion
of the reporting unit (defi ned as each individual country).
In accordance with Statement of Financial Accounting
Standards No. 142, Goodwill and Intangible Assets, the annual
goodwill impairment test, conducted in the fourth quarter,
compares the fair value of a reporting unit, generally based on
discounted future cash fl ows, with its carrying amount including
goodwill. If the carrying amount of a reporting unit exceeds its
fair value, an impairment loss is measured as the difference
between the implied fair value of the reporting unit’s goodwill
and the carrying amount of goodwill.
The following table presents the 2007 activity in goodwill
by segment:
Other Countries
IN MILLIONS
U.S. Europe APMEA
(1)
& Corporate
(2)
Consolidated
Balance at December 31, 2006 $ 1,012.8 $ 652.4 $ 277.9 $ 130.5 $ 2,073.6
Net restaurant purchases (sales) 133.7 (5.5) 1.2 (4.7) 124.7
Ownership increases in subsidiaries/affi liates 6.1 6.1
Currency translation 53.3 20.9 22.7 96.9
Balance at December 31, 2007 $1,146.5 $700.2 $306.1 $148.5 $2,301.3
(1) APMEA represents Asia/Pacifi c, Middle East and Africa.
(2) Other Countries & Corporate represents Canada, Latin America and Corporate.
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