McDonalds 2009 Annual Report Download - page 35

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
2009 2008 2007
Expected dividend yield 3.22% 2.55% 2.26%
Expected stock price volatility 24.4% 24.9% 24.7%
Risk-free interest rate 2.00% 2.96% 4.76%
Expected life of options In years 6.17 6.18 6.26
Fair value per option granted $9.66 $11.85 $11.59
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; lease-
hold 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 identifiable intangible assets of acquired restaurant
businesses. The Company’s goodwill primarily results from pur-
chases of McDonald’s restaurants from franchisees and
ownership increases in international subsidiaries or affiliates, and
it is generally assigned to the reporting unit expected to benefit
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 reporting unit (defined as
each individual country).
In accordance with guidance on goodwill impairment testing
in the Intangibles – Goodwill and Other Topic of the FASB ASC,
the Company conducts goodwill impairment testing in the fourth
quarter of each year or whenever an indicator of impairment
exists. If an indicator of impairment exists (e.g., estimated earn-
ings multiple value of a reporting unit is less than its carrying
value), the goodwill impairment test compares the fair value of a
reporting unit, generally based on discounted future cash flows,
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.
Historically, goodwill impairment has not significantly impacted
the consolidated financial statements.
The following table presents the 2009 activity in goodwill by
segment:
In millions U.S. Europe APMEA(1) Other Countries & Corporate(2) Consolidated
Balance at December 31, 2008 $1,149.7 $692.0 $276.7 $119.0 $2,237.4
Net restaurant purchases (sales) 1.9 26.1 32.1 (1.5) 58.6
Ownership increases in subsidiaries/affiliates 34.5 34.5
Currency translation 38.1 37.6 19.0 94.7
Balance at December 31, 2009 $1,151.6 $790.7 $346.4 $136.5 $2,425.2
(1) APMEA represents Asia/Pacific, Middle East and Africa.
(2) Other Countries & Corporate represents Canada, Latin America and Corporate.
LONG-LIVED ASSETS
In accordance with guidance on the impairment or disposal of
long-lived assets in the Property Plant and Equipment Topic of
the FASB ASC, long-lived assets are reviewed for impairment
annually in the fourth quarter and whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. For purposes of annually reviewing
McDonald’s restaurant assets for potential impairment, assets
are initially grouped together at a television market level in the
U.S. and at a country level for each of the international markets.
The Company manages its restaurants as a group or portfolio
with significant common costs and promotional activities; as such,
an individual restaurant’s cash flows are not generally
independent of the cash flows of others in a market. If an
indicator of impairment (e.g., negative operating cash flows for
the most recent trailing 24-month period) exists for any grouping
of assets, an estimate of undiscounted future cash flows pro-
duced by each individual restaurant within the asset grouping is
compared to its carrying value. If an individual restaurant is
determined to be impaired, the loss is measured by the excess of
the carrying amount of the restaurant over its fair value as
determined by an estimate of discounted future cash flows.
Losses on assets held for disposal are recognized when
management and the Board of Directors, as required, have
approved and committed to a plan to dispose of the assets, the
assets are available for disposal, the disposal is probable of
occurring within 12 months, and the net sales proceeds are
expected to be less than its net book value, among other factors.
Generally, such losses relate to restaurants that have closed and
ceased operations as well as other assets that meet the criteria
to be considered “available for sale”.
McDonald’s Corporation Annual Report 2009 33