McDonalds 2009 Annual Report Download

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Annual
Report
2009

Table of contents

  • Page 1
    Annual Report 2009

  • Page 2
    2009 Highlights: Comparable Sales Growth 3.8% Earnings Per Share Growth 9% Total Cash Returned to Shareholders 200 -2009 $ 16.6 Billion

  • Page 3
    ... around initiatives that drive results. Jim Skinner Vice Chairman and CEO Operating Income (In billions) * Includes $1.7 billion of charges related to the Latin America developmental license transaction. 3-year Compound Annual Total Return (2007-2001) 1 McDonald's Corporation Annual Report 2009

  • Page 4
    ..., which initially excited customers in Europe, is now a foundational element of each Area of the World business plan. Similarly, our successful value menu, pioneered so well in the United States, now appears on McDonald's menu boards throughout the world. From restaurant operations to marketing...

  • Page 5
    ... investment. Sincerely, Combined Operating Margin (Operating income as a percent of total revenues) * Includes 7. percentage point negative impact related to the Latin America developmental license transaction. Cash Returned to Shareholders* (In billions) * Via dividends and share repurchases...

  • Page 6
    ... Shareholders: Your Board of Directors is pleased to report that McDonald's Corporation continued to perform well in 2009, despite a difficult economic environment around the world. In a year when sales in the Informal Eating Out segment declined, McDonald's continued to execute our Plan to Win...

  • Page 7
    2009 Financial Report

  • Page 8
    ... Reporting Report of Independent Registered Public Accounting Firm Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting Executive Management & Business Unit Officers Board of Directors Investor Information 6 McDonald's Corporation Annual Report 2009

  • Page 9
    ... stock cash dividends 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...

  • Page 10
    ... generate mean- ingful revenues and income outside the U.S. and some manage global brands. Thus, we believe that the use of the DJIA companies as the group for comparison purposes is appropriate. The following performance graph shows McDonald's cumulative total shareholder returns (i.e., price...

  • Page 11
    ... throughout 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 opportunities remain for long-term growth. Accordingly, in 2009, the Company sold its minority ownership interest...

  • Page 12
    ... classic menu favorites like the Quarter Pounder. Our customer-centered strategies seek to optimize price, product mix and promotion as a means to drive sales and profits. This approach is complemented by a focus on driving operating efficiencies and effectively managing restaurant-level costs by...

  • Page 13
    ... franchised worldwide to 81%. Refranchising impacts our consolidated financial statements as follows: • Consolidated revenues are initially reduced because we collect rent and royalty as a percent of sales from a refranchised restaurant instead of 100% of its sales. • Company-operated margin...

  • Page 14
    ... between the quarters resulting in a quarterly tax rate that is outside the annual range. • McDonald's Japan (a 50%-owned affiliate) announced plans to close approximately 430 restaurants over the next 12-18 months in conjunction with the strategic review of the market's real estate portfolio...

  • Page 15
    ...with market rates for similar license arrangements; (ii) commit to adding approximately 150 new McDonald's restaurants by the end of 2010 and pay an initial fee for each new restaurant opened; and (iii) commit to specified annual capital expenditures for existing restaurants. McDonald's Corporation...

  • Page 16
    ... tax benefit of $288 million or $0.24 per 14 McDonald's Corporation Annual Report 2009 share resulting from the completion of an IRS examination of the Company's 2003-2004 U.S. federal income tax returns, partly offset by the impact of a tax law change in Canada. Income from discontinued operations...

  • Page 17
    ... major markets. The shift to a greater percentage of franchised restaurants negatively impacts consolidated revenues as Company-operated sales shift to franchised sales, where the Company receives rent and/or royalties based on a percent of sales. Revenues In 2009, constant currency revenue growth...

  • Page 18
    ...most markets, partly offset by the impact of the refranchising strategy, higher rent expense and the cost of strategic brand and sales building initiatives. In APMEA, the franchised margin percent increase in 2008 was primarily driven by positive comparable sales. In Other Countries & Corporate, the...

  • Page 19
    ... related to the beverage initiative and higher commodity costs. The margin percent decreased in 2008 due to cost pressures including higher commodity and labor costs, partly offset by positive comparable sales. Europe's Company-operated margin percent increased in 2009 and 2008 primarily due to...

  • Page 20
    ...Other Countries & Corporate are home office support costs in areas such as facilities, finance, human resources, information technology, legal, marketing, restaurant operations, supply chain and training. Selling, general & administrative expenses as a percent of revenues were 9.8% in 2009 compared...

  • Page 21
    ...Other operating (income) expense, net In millions 2009 $(113) (168) 59 $(222) 2008 $(126) (111) 72 $(165) 2007 $ (89) (116) 194 $ (11) Gains on sales of restaurant businesses Equity in earnings of unconsolidated affiliates Asset dispositions and other expense Total McDonald's Corporation Annual...

  • Page 22
    ... 2007 Latam transaction. This benefit positively impacted the growth in total operating income by 1 percentage point. In the U.S., 2009 and 2008 results increased primarily due to higher franchised margin dollars. In Europe, results for 2009 and 2008 were driven by strong performance in France, the...

  • Page 23
    ... and financial resources on the McDonald's restaurant business as it believes the opportunities for long-term growth remain significant. Accordingly, during third quarter 2007, the Company sold its investment in Boston Market. As a result of the disposal, Boston Market's results of operations and...

  • Page 24
    ... major markets in both years. The Company closes restaurants for a variety of reasons, such as existing sales and profit performance or loss of real estate tenure. Systemwide restaurants at year end(1) U.S. Europe APMEA Other Countries & Corporate Total 2009 13,980 6,785 8,488 3,225 32,478 2008 13...

  • Page 25
    ...the effect of interest rate exchange agreements. In 2009, 2008 and 2007, return on average assets and return on average common equity both benefited from strong global operating results. During 2010, the Company will continue to concentrate restaurant openings and invest new capital in markets with...

  • Page 26
    ... shareholders' equity. Total foreign currency-denominated debt was $4.5 billion for the years ended December 31, 2009 and 2008. In addition, where practical, the Company's restaurants purchase goods and services in local currencies resulting in natural hedges. See Summary of significant accounting...

  • Page 27
    ... position and capital resources as well as the Notes to the consolidated financial statements for further details. Contractual cash outflows Operating Debt leases obligations(1) Contractual cash inflows Minimum rent under franchise arrangements In millions 2010 2011 2012 2013 2014 Thereafter Total...

  • Page 28
    ...-the cash sales price and the future royalties and initial fees. The Company bases its accounting policy on management's determination that royalties payable under its developmental license arrangements are substantially consistent with market rates for similar license arrangements. The Company does...

  • Page 29
    ... between 2009 and 2006 benefited the three-year ROIIC by 4.4 percentage points. RISK FACTORS AND CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING INFORMATION This report includes forward-looking statements about our plans and future performance, including those under Outlook for 2010. These statements...

  • Page 30
    ... Statement of Income In millions, except per share data Years ended December 31, 2009 $15,458.5 7,286.2 22,744.7 2008 $16,560.9 6,961.5 23,522.4 2007 $16,611.0 6,175.6 22,786.6 REVENUES Sales by Company-operated restaurants Revenues from franchised restaurants Total revenues OPERATING COSTS...

  • Page 31
    Consolidated Balance Sheet In millions, except per share data December 31, 2009 2008 ASSETS Current assets Cash and equivalents Accounts and notes receivable Inventories, at cost, not in excess of market Prepaid expenses and other current assets Total current assets Other assets Investments in ...

  • Page 32
    ... Long-term financing repayments Treasury stock purchases Common stock dividends Proceeds from stock option exercises Excess tax benefit on share-based compensation Other Cash used for financing activities Effect of exchange rates on cash and equivalents Cash and equivalents increase (decrease...

  • Page 33
    ...including tax benefits of $25.0) Comprehensive income Common stock cash dividends ($2.05 per share) Treasury stock purchases Share-based compensation Stock option exercises and other (including tax benefits of $93.3) Balance at December 31, 2009 See Notes to consolidated financial statements. 1,660...

  • Page 34
    ... the financial statements and accompanying notes. Actual results could differ from those estimates. REVENUE RECOGNITION The Company's revenues consist of sales by Company-operated restaurants and fees from franchised restaurants operated by 32 McDonald's Corporation Annual Report 2009 Compensation...

  • Page 35
    ... financial statements. The following table presents the 2009 activity in goodwill by segment: U.S. Europe APMEA(1) Other Countries & Corporate(2) Consolidated In millions Balance at December 31, 2008 Net restaurant purchases (sales) Ownership increases in subsidiaries/affiliates Currency...

  • Page 36
    ... prices for a similar asset or liability in an active market or model-derived valuations in which all significant inputs are observable for substantially the full term of the asset or liability. 34 McDonald's Corporation Annual Report 2009 Cash equivalents Investments Derivative receivables Total...

  • Page 37
    ... Balance sheet classification 2009 2008 Balance sheet classification 2009 2008 Derivatives designated as hedging instruments Foreign currency options Interest rate exchange agreements Forward foreign currency exchange agreements Foreign currency options Interest rate exchange agreements Total...

  • Page 38
    ... foreign currency options. The Company periodically uses interest rate exchange agreements to effectively convert a portion of floating-rate debt into fixed-rate debt, and the agreements are designed to reduce the impact of interest rate changes on future interest expense. At December 31, 2009, none...

  • Page 39
    ... using net income divided by diluted weighted-average shares. Diluted weighted-average shares include weighted-average shares outstanding plus the dilutive effect of share-based compensation calculated using the treasury stock method, of (in millions of McDonald's Corporation Annual Report 2009 37

  • Page 40
    ...of forward foreign exchange agreements. The buyers of the Company's operations in Latam entered into a 20-year master franchise agreement that requires the buyers, among other obligations to (i) pay monthly royalties commencing at a rate of approximately 5% of gross sales of the restaurants in these...

  • Page 41
    rates for similar license arrangements; (ii) commit to adding approximately 150 new McDonald's restaurants by the end of 2010 and pay an initial fee for each new restaurant opened; and (iii) commit to specified annual capital expenditures for existing restaurants. reported before income taxes. ...

  • Page 42
    ... financial statements for periods prior to purchase and sale. Revenues from franchised restaurants consisted of: In millions Future minimum payments required under existing operating leases with initial terms of one year or more are: In millions Restaurant Other Total Rents Royalties Initial fees...

  • Page 43
    ... Property and equipment Employee benefit plans Intangible assets Deferred foreign tax credits Capital loss carryforwards Operating loss carryforwards Indemnification liabilities Other Total deferred tax assets before valuation allowance Valuation allowance Net deferred tax liabilities Balance...

  • Page 44
    ... revenues and operating income. Corporate general & administrative expenses are included in Other Countries & Corporate and consist of home office support costs in areas such as facilities, finance, human resources, information technology, legal, marketing, restaurant operations, supply chain...

  • Page 45
    ... (ii) receive Company-provided allocations that cannot be made under the Profit Sharing and Savings Plan because of Internal Revenue Service limitations. The investment alternatives and returns are based on certain market-rate investment alternatives under the Profit Sharing and Savings Plan. Total...

  • Page 46
    ...Total U.S. costs for the Profit Sharing and Savings Plan, including nonqualified benefits and related hedging activities, were (in millions): 2009-$51.3; 2008-$61.2; 2007-$57.6. Certain subsidiaries outside the U.S. also offer profit sharing, stock purchase or other similar benefit plans. Total plan...

  • Page 47
    ... per share data Quarters ended September 30 Quarters ended June 30 Quarters ended March 31 2009 2008 2009 2008 2009 2008 2009 2008 Revenues Sales by Companyoperated restaurants Revenues from franchised restaurants Total revenues Company-operated margin Franchised margin Operating income...

  • Page 48
    ... of December 31, 2009, management believes that the Company's internal control over financial reporting is effective. Ernst & Young, LLP, independent registered public accounting firm, has audited the financial statements of the Company for the fiscal years ended December 31, 2009, 2008 and 2007 and...

  • Page 49
    ... Registered Public Accounting Firm The Board of Directors and Shareholders of McDonald's Corporation We have audited the accompanying consolidated balance sheets of McDonald's Corporation as of December 31, 2009 and 2008, and the related consolidated statements of income, shareholders' equity, and...

  • Page 50
    ... of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of McDonald's Corporation as of December 31, 2009 and 2008 and for each of the three years in the period ended December 31, 2009, and our report dated February 26, 2010 expressed an unqualified...

  • Page 51
    Executive Management & Business Unit Officers Michael Andres (as of March 18, 2010) U.S. Division President (Central) Jose Armario* Group President - Canada & Latin America Peter Bensen* Chief Financial Officer Peter Bush Division President - Australia/New Zealand/South Africa Mary Dillon* Global ...

  • Page 52
    ... and Packaging Corporation Miles D. White5, 6 Chairman and Chief Executive Officer Abbott Laboratories 1. Audit Committee 2. Compensation Committee 3. Corporate Responsibility Committee 4. Executive Committee 5. Finance Committee 6. Governance Committee 50 McDonald's Corporation Annual Report 2009

  • Page 53
    [THIS PAGE INTENTIONALLY LEFT BLANK] McDonald's Corporation Annual Report 2009 51

  • Page 54
    ....governance.mcdonalds.com Corporate social responsibility www.crmcdonalds.com General information www.aboutmcdonalds.com Key phone numbers Shareholder Services 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...

  • Page 55

  • Page 56
    McDonald's Corporation One McDonald's Plaza Oak Brook, IL 60523 www.aboutmcdonalds.com