McDonalds 2008 Annual Report Download

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Table of contents

  • Page 1

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    ... qualities drive our success. As this Annual Report indicates, 2008 was a banner year for McDonald's. Revenues increased to a record $23.5 billion ...global comparable sales increased 6.9 percent and we marked our 68th consecutive monthly increase ...operating income and earnings per share rose 17...

  • Page 4
    ...In 2008, our average increased to 58 million customers a day - an increase of about 25 percent in just five years. Our 5,000 franchisees worldwide, who own and operate 80 percent of our restaurants, display outstanding leadership in their restaurants and 2 McDonald's Corporation Annual Report 2008

  • Page 5
    ...owner/operators and suppliers, who continue to have access to the credit needed to reinvest in their businesses. CASH RETURNED TO SHAREHOLDERS Jim Skinner Vice Chairman and CEO 06 07 08 Through dividends and share repurchases. In billions. $4.9 $5.7 $5.8 McDonald's Corporation Annual Report 2008...

  • Page 6
    ...UNIT OFFICERS Ralph Alvarez* President, Chief Operating Officer Jose Armario* Group President - Canada & Latin America Peter Bensen* Chief Financial Officer Peter Bush President - APMEA Pacific & South Africa Division Mary Dillon* Global Chief Marketing Officer Steven Easterbrook President - Europe...

  • Page 7
    ... moms, from breakfast to late night, from Beijing to Brussels to Boston, McDonald's is firing on all cylinders. We drive our business momentum by focusing on what matters most to customers. Our owner/operators, suppliers and employees work together to meet customer needs in uniquely McDonald's ways...

  • Page 8
    ... of the great-tasting, feel-good choices we've introduced in recent years, from flavorful Premium Salads and Snack Wraps to fresh Apple Dippers in the U.S. and Corn Cups in China. Research tells us that customer perceptions of our food's nutritional content have improved in many markets. In the...

  • Page 9
    ... has driven sales in several European countries, including France, Germany and the U.K. Beverage Destination Cappuccinos, lattes and mochas are part of our delicious lineup of new McCafé specialty coffees. Available at the front counter and drive-thru, McDonald's can now provide express service to...

  • Page 10
    ... East and Latin America can have their McDonald's favorites delivered directly to their homes or offices. Early Risers Earlier opening times, premium coffee and a flavorful breakfast menu have accelerated our morning momentum in the U.K. and U.S., growing sales and our market share at breakfast...

  • Page 11
    ... In Europe, nearly 80% of our restaurants open early or stay open late. We continue to build our momentum in the growing breakfast category. Great coffee and new products such as the Bacon Roll in the U.K. are driving sales, while we're creating new fans of portable, quick-service breakfast in China...

  • Page 12
    ...our owner/ operators, suppliers and employees around our customerfocused Plan to Win continues to drive our success around the world, creating great restaurant experiences for customers and bringing our brand to life in our local communities. Crew Interactive Crew in the U.S. and Canada can connect...

  • Page 13
    ...prepared food with fast and friendly service in a clean and attractive restaurant. We consistently measure restaurant performance in these areas and address improvement opportunities with new training, equipment and processes. In 2008, we improved our customer satisfaction scores for both drive-thru...

  • Page 14
    .... The McDonald's experience continues to be in demand given the menu choices, convenience and value we offer. To satisfy this demand, we continue to build new restaurants in our major markets such as the U.S., Japan and Germany, as well as in high - potential countries like China and Russia...

  • Page 15
    ... Connection With more than 500 McCafé locations, McDonald's is the largest coffee chain in Germany. Throughout Europe we have about 1,000 McCafés and we continue to add more as the popularity of our coffee builds across the continent. Energy Savings We continue to explore ways to be more energy...

  • Page 16
    ... delightfully low prices. Value on the Go In Japan, we e-mail the latest offers directly to more than 10 million customers, which is more efficient than traditional coupons. More than 150,000 customers use their mobile phones to pay for their McDonald's meals. A Lot for a Little Cheeseburger fans...

  • Page 17
    ... snack. Compelling value requires the right balance of quality and price. McDonald's collaborates with suppliers to obtain fresh, high-quality ingredients for our products while, at the same time, leveraging our size and scale to achieve cost savings. We're also using fresh food imagery on our new...

  • Page 18
    .... In addition to overseeing McDonald's plans and performance, your Board of Directors is dedicated to maintaining strong corporate governance principles and management oversight. Our diverse team of 16 McDonald's Corporation Annual Report 2008 directors brings independent and experienced voices...

  • Page 19
    2008 Financial Report

  • Page 20
    2008 Financial Report 19 20 21 40 41 42 43 44 55 56 57 58 6-year Summary Stock Performance Graph Management's Discussion and Analysis of Financial Condition and Results of Operations Consolidated Statement of Income Consolidated Balance Sheet Consolidated Statement of Cash Flows Consolidated ...

  • Page 21
    ... Financial position at year end: Total assets Total debt Total shareholders' equity Shares outstanding in millions Per common share: Income from continuing operations-diluted Net income-diluted Dividends declared Market price at year end Company-operated restaurants Franchised restaurants Total...

  • Page 22
    .... The following performance graph shows McDonald's cumulative total shareholder returns (i.e., price appreciation and reinvestment of dividends) relative to the Standard & Poor's 500 Stock Index (S&P 500 Index) and to the DJIA companies for the five-year period ended December 31, 2008. The graph...

  • Page 23
    ...this report and comprise over 70% of total revenues. The Company continues to focus its management and financial resources on the McDonald's restaurant business as we believe the opportunities for long-term growth remain significant. Accordingly, in second quarter 2008, the Company sold its minority...

  • Page 24
    ...The Company is investing capital to fund a portion of this constructionrelated reinvestment for franchised restaurants. In Europe, we posted record-high comparable sales growth in 2008. Every country contributed to this performance, which was led by France, the U.K., Russia and Germany. This success...

  • Page 25
    ..., breakfast and branded affordability are essential in this diverse and dynamic part of the world. Convenience initiatives include leveraging the success of 24-hour or extended operating hours, offering delivery service and building our drive-thru McDonald's Corporation Annual Report 2008 23

  • Page 26
    ... restaurants added in 2008. • The Company does not generally provide specific guidance on changes in comparable sales. However, as a perspective, assuming no change in cost structure, a 1 percentage point increase in comparable sales for either the U.S. or Europe would increase annual net income...

  • Page 27
    ... OPERATING RESULTS Operating results 2008 Dollars in millions, except per share data Revenues Sales by Company-operated restaurants Revenues from franchised restaurants Total revenues Operating costs and expenses Company-operated restaurant expenses Franchised restaurants-occupancy expenses Selling...

  • Page 28
    ... related to the impact of a tax law change in Canada. Net income and diluted net income per common share In 2008, net income and diluted net income per common share were $4.3 billion and $3.76. Results benefited by a $109 million, or $0.09 per share, gain on the sale of the Company's minority...

  • Page 29
    ..., Canadian Dollar and British Pound. Impact of foreign currency translation on reported results In millions, except per share data 2008 Reported amount 2007 2006 Currency translation benefit/(cost) 2008 2007 2006 Revenues Company-operated margins Franchised margins Selling, general & administrative...

  • Page 30
    ... strategy. Higher rent expense and the cost of strategic brand and sales building initiatives also negatively affected the franchised margin percent in 2008. The Company will continue to execute these strategies, which are designed to drive comparable guest count growth and long term profitability...

  • Page 31
    .../real estate margin. Those costs consist of rent payable by McDonald's to third parties on leased sites and depreciation for buildings and leasehold improvements and constitute a portion of occupancy & other operating expenses recorded on the Consolidated statement of income. Store operating margins...

  • Page 32
    ...2008 2007 U.S. 2006 2008 2007 Europe 2006 As reported Number of Company-operated restaurants at year end Sales by Company-operated restaurants Company-operated margin Store operating margin Company-operated margin Plus: Outside rent expense(1) Depreciation - buildings & leasehold improvements...

  • Page 33
    ... businesses in which the Company actively participates but does not control. The Company records equity in earnings from these entities representing McDonald's share of results. For foreign affiliated markets - primarily Japan - results are reported after interest expense and income taxes. McDonald...

  • Page 34
    ... in Total $(78) $(103) $(123) Boston Market. In 2006, the Company disposed of its investment in Chipotle via public stock offerings in the first and second quarters and a tax-free exchange for McDonald's common stock in the Interest income consists primarily of interest earned on short-term fourth...

  • Page 35
    ... shares of Chipotle class B common stock held by McDonald's and recorded a tax-free gain of $480 million. Chipotle's net income for 2006 was $18 million. Accounting changes • SFAS Statement No. 158 In 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting...

  • Page 36
    ... office related expenditures. New restaurant investments in all years were concentrated in markets with acceptable returns or opportunities for long-term growth. Average development costs vary widely by market depending on the types of restaurants built and the real estate and construction costs...

  • Page 37
    ... on average assets and return on average common equity both benefited from strong operating results in the U.S., Europe and APMEA. During 2009, the Company will continue to concentrate restaurant openings and invest new capital in markets with acceptable returns or opportunities for long-term growth...

  • Page 38
    ... the Company's estimate); capitalizing non-restaurant leases using a multiple of three times rent expense; and reducing total rent expense by a percentage of the annual minimum rent payments due to the Company from franchisees operating on leased sites. Based on this calculation, for credit analysis...

  • Page 39
    ... on McDonald's Consolidated balance sheet totaling $142 million at year-end 2008. OTHER MATTERS Critical accounting policies and estimates Management's discussion and analysis of financial condition and results of operations is based upon the Company's consolidated financial statements, which...

  • Page 40
    ...a measure reviewed by management over one-year and three-year time periods to evaluate the overall profitability of the business units, the effectiveness of capital deployed and the future allocation of capital. This measure is calculated using operating income and constant foreign exchange rates to...

  • Page 41
    ... principal risks and uncertainties that affect our performance in the Company's filings with the Securities and Exchange Commission, and investors are urged to consider these risks and uncertainties when evaluating our historical and expected performance. McDonald's Corporation Annual Report 2008...

  • Page 42
    ... except per share data Years ended December 31, 2008 REVENUES Sales by Company-operated restaurants $16,560.9 Revenues from franchised restaurants 6,961.5 Total revenues 23,522.4 OPERATING COSTS AND EXPENSES Company-operated restaurant expenses Food & paper 5,586.1 Payroll & employee benefits 4,300...

  • Page 43
    ... Accounts payable Other taxes Accrued interest Accrued payroll and other liabilities Current maturities of long-term debt Total current liabilities Long-term debt Other long-term liabilities Deferred income taxes Shareholders' equity Preferred stock, no par value; authorized - 165.0 million shares...

  • Page 44
    ... benefit Impairment and other charges, net Gain on sale of investment Gains on dispositions of discontinued operations, net of tax Share-based compensation Other Changes in working capital items: Accounts receivable Inventories, prepaid expenses and other current assets Accounts payable Income taxes...

  • Page 45
    ... income Common stock cash dividends ($1.625 per share) Treasury stock purchases Share-based compensation Stock option exercises and other (including tax benefits of $169.0) Balance at December 31, 2008 See Notes to consolidated financial statements. Retained earnings Total shareholders' equity...

  • Page 46
    ... McDonald's restaurants in the food service industry. Prior to May 2008, the Company had a minority ownership in U.K.-based Pret A Manger, which it sold in 2008. The Company previously operated Boston Market in the U.S., which it sold in August 2007, and had an ownership interest in Chipotle Mexican...

  • Page 47
    ... the Company sells an existing business to a developmental licensee, the licensee purchases the business, including the real estate, and uses his/her capital and local knowledge to build the McDonald's Brand and optimize sales and profitability over the long term. The sale of the business includes...

  • Page 48
    ...to hedges of net investments. Sales of stock by subsidiaries and affiliates As permitted by Staff Accounting Bulletin No. 51 issued by the Securities and Exchange Commission (SEC), when a subsidiary or affiliate sells unissued shares in a public offering, the Company records an adjustment to reflect...

  • Page 49
    ... forma deferred tax asset associated with share-based compensation in net income per share. Statement of cash flows The Company considers short-term, highly liquid investments with an original maturity of 90 days or less to be cash equivalents. Employers' accounting for defined benefit pension and...

  • Page 50
    ... held by McDonald's and recorded a tax-free gain of $479.6 million. In addition, Chipotle's net income for 2006 was $18.2 million. Represents long-term investments and derivatives that hedge market-driven changes in liabilities associated with the Company's supplemental benefit plans. Business...

  • Page 51
    ... businesses in which the Company actively participates but does not control. The Company records equity in earnings from these entities representing McDonald's share of results. For foreign affiliated markets - primarily Japan - results are reported after interest expense and income taxes. McDonald...

  • Page 52
    ....2 51.5 $5,492.8 Company-operated restaurants: U.S. Outside the U.S. Total Franchised restaurants: U.S. Outside the U.S. Total Other Total rent expense 374.7 409.4 784.1 101.8 $1,491.6 358.4 364.5 722.9 98.5 $1,437.3 340.2 312.5 652.7 104.5 $1,353.9 50 McDonald's Corporation Annual Report 2008

  • Page 53
    ... included percent rents in excess of minimum rents (in millions) as follows-Company-operated restaurants: 2008-$130.2; 2007-$118.3; 2006-$106.9. Franchised restaurants: 2008-$143.5; 2007-$136.1; 2006-$124.3. The statutory U.S. federal income tax rate reconciles to the effective income tax rates as...

  • Page 54
    ... of home office support costs in areas such as facilities, finance, human resources, information technology, legal, marketing, restaurant operations, supply chain and training. Corporate assets include corporate cash and equivalents, asset portions of financial instruments and home office facilities...

  • Page 55
    ...are recorded in selling, general & administrative expenses. Changes in fair value of the derivatives indexed to the Company's stock are recorded in the income statement because the contracts provide the counterparty with a choice to settle in cash or shares. McDonald's Corporation Annual Report 2008...

  • Page 56
    ...employment benefits were immaterial. SHARE-BASED COMPENSATION The Company maintains a share-based compensation plan which authorizes the granting of various equity-based incentives including stock options and restricted stock units (RSUs) to employees and nonemployee directors. The number of shares...

  • Page 57
    ...income-basic, $1.31 per share-diluted) related to the sale of Latam to a developmental licensee. (5) Includes a $0.375 per share dividend declared and paid in third quarter and a $0.50 per share dividend declared in third quarter and paid in fourth quarter. McDonald's Corporation Annual Report 2008...

  • Page 58
    ...the Company's internal control over financial reporting as of December 31, 2008. Their reports are presented on the following pages. The independent registered public accountants and internal auditors advise management of the results of their audits, and make recommendations to improve the system of...

  • Page 59
    ... sheets of McDonald's Corporation as of December 31, 2008 and 2007, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2008. These financial statements are the responsibility of the Company's management...

  • Page 60
    ... the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of McDonald's Corporation as of December 31, 2008 and 2007 and for each of the three years in the period ended December 31, 2008, and our report dated February 18, 2009, expressed...

  • Page 61
    BOARD OF DIRECTORS Ralph Alvarez President and Chief Operating Officer McDonald's Corporation Susan E. Arnold President - Global Business Units (retirement announced) The Procter & Gamble Company Robert A. Eckert Chairman and Chief Executive Officer Mattel, Inc. Enrique Hernandez, Jr. Chairman ...

  • Page 62
    ...Key phone numbers Investor Relations 1.630.623.7428 MCDirect Shares (direct stock purchase plan) 1.800.228.9623 U.S. customer comments/inquiries 1.800.244.6227 Financial media 1.630.623.3678 Franchising 1.630.623.6196 McDonald's Printed in the U.S.A. McD09-4539 Design: VSA Partners, Inc., Chicago...

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