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2 0 11 Annual Report
McDonald’s
Corporation

Table of contents

  • Page 1
    2011 Annual Report McDonald's Corporation

  • Page 2
    Highlights # in the 1 Global Comparable Sales Growth Earnings Per Share Growth 2011 Total Shareholder Return DOW 30 5.6 % 11 %* 34.7 % * in constant currencies 2011

  • Page 3
    ... we continued to extend our market share lead around the world. In addition, we returned $6 billion to shareholders through share repurchases and dividends paid, and we delivered a 35% total return to investors, making us the top performing company in the Dow Jones Industrial Average for 2011. Jim...

  • Page 4
    ..., from specialty coffees to real fruit smoothies, differentiating our brand as a beverage destination. We'll stay focused on adding greater choice and balanced options around the world, from wraps to oatmeal to new Happy Meal alternatives, as we stay in step with our customers' needs. We also will...

  • Page 5
    ... this great brand. Sincerely, Dividends Paid (In billions) Earnings Per Share Combined Operating Margin '09 '10 '11 30.1% 31.0% 31.6% '09 '10 '11 $ 4.11 $ 4.58 $ 5.27 '09 $ 2.2 $ 2.4 $ 2.6 Jim Skinner Vice Chairman and CEO '10 '11 McDonald's Corporation 2011 Annual Report | 3 2011 Annual...

  • Page 6
    ...brand in all the communities we serve. Our System partners are as unified as ever, with our franchisees, suppliers, and employees all working together toward our shared goals under the Plan to Win. Vice Chairman and CEO Jim Skinner and his global leadership team continue to direct the Company in an...

  • Page 7
    2011 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 2011

  • 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 Earnings-diluted Dividends declared Market price at year end Company-operated restaurants Franchised...

  • Page 10
    ...'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, 2011. The graph assumes that the value of an investment in McDonald...

  • Page 11
    ... rent payments, and initial fees. Revenues from restaurants licensed to affiliates and developmental licensees include a royalty based on a percent of sales, and generally include initial fees. Fees vary by type of site, amount of Company investment, if any, and local business conditions. These fees...

  • Page 12
    ... a menu with entry-point value, core, premium and fourth-tier offerings. We also introduce new products that meet customer needs, which can expand average check and increase guest counts. 10 McDonald's Corporation Annual Report 2011 In the U.S., we grew sales, guest counts and market share with...

  • Page 13
    ... we can again meet or exceed our long-term constant currency financial targets. In the U.S., our 2012 initiatives focus on balancing core menu classics with new products and promotional food events such as Chicken McBites, made with bite-sized pieces of premium chicken breast, Blueberry Banana...

  • Page 14
    ... a balanced mix of products to our customers. We will grow our business by opening approximately 750 new restaurants and reimaging about 475 existing restaurants while elevating our focus on service and operations to drive efficiencies. In China, we will continue to build a foundation for long-term...

  • Page 15
    ... Dollar. Impact of foreign currency translation on reported results Reported amount 2010 2009 Currency translation benefit/(cost) 2010 2009 In millions, except per share data 2011 2011 Revenues Company-operated margins Franchised margins Selling, general & administrative expenses Operating...

  • Page 16
    ...and initial fees. Revenues from franchised restaurants that are licensed to foreign affiliates and developmental licensees include a royalty based on a percent of sales, and generally include initial fees. In 2011 and 2010, constant currency revenue growth was driven primarily by positive comparable...

  • Page 17
    ... margin percent increase in 2011 and 2010 was primarily due to positive comparable sales, partly offset by higher occupancy costs. In Europe, the franchised margin percent increase in 2011 was primarily due to positive comparable sales, partly offset by McDonald's Corporation Annual Report 2011...

  • Page 18
    ... labor costs. In APMEA, the Company-operated margin percent in 2011 reflected positive comparable sales, offset by higher commodity, labor and occupancy costs. Acceleration of new restaurant openings in China negatively impacted the margin percent. Similar to 16 McDonald's Corporation Annual Report...

  • Page 19
    ...market. These costs reflect the indirect services we believe are necessary to provide the appropriate support of the restaurant. U.S. Dollars in millions Europe 2011 2010 2009 2011 2010 2009 As reported Number of Company-operated restaurants at year end Sales by Company-operated restaurants...

  • Page 20
    ... to higher combined restaurant margin dollars, primarily franchised margin dollars. 18 McDonald's Corporation Annual Report 2011 In Europe, results for 2011 and 2010 were driven by stronger operating performance in France, the U.K., Russia and Germany. The increases in 2011 and 2010 were driven by...

  • Page 21
    ... defined as operating income as a percent of total revenues. Combined operating margin for 2011, 2010 and 2009 was 31.6%, 31.0% and 30.1%, respectively. INTEREST EXPENSE ACCOUNTING CHANGES • Fair value measurements In May 2011, the Financial Accounting Standards Board (FASB) issued an update to...

  • Page 22
    ... shares repurchased $3,373 Dividends paid 2,610 Total returned to shareholders $5,983 Approximately 65% of Company-operated restaurants and over 75% of franchised restaurants were located in the major markets at the end of 2011. Over 80% of the restaurants at year-end 2011 were franchised. Capital...

  • Page 23
    .... Financial Position and Capital Resources TOTAL ASSETS AND RETURNS Total assets increased $1.0 billion or 3% in 2011. Excluding the effect of changes in foreign currency exchange rates, total assets increased $1.4 billion in 2011. Over 75% of total assets were in major markets at year-end 2011...

  • Page 24
    ... liabilities) at year end were as follows: Foreign currency net asset exposures In millions of U.S. Dollars In millions Contractual cash outflows Operating Debt leases obligations(1) Contractual cash inflows Minimum rent under franchise arrangements 2012 2013 2014 2015 2016 Thereafter Total...

  • Page 25
    ... the market price of the Company's stock at date of grant less the present value of expected dividends over the vesting period. • Long-lived assets impairment review Long-lived assets (including goodwill) are reviewed for impairment annually in the fourth quarter and whenever events or changes in...

  • Page 26
    ....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 (6) The impact of impairment and other charges (credits), net between 2011 and 2008 positively impacted the three year ROIIC by 1.2 percentage points. 24 McDonald's Corporation Annual Report 2011

  • Page 27
    ... Statement of Income In millions, except per share data Years ended December 31, 2011 $18,292.8 8,713.2 27,006.0 2010 $16,233.3 7,841.3 24,074.6 2009 $15,458.5 7,286.2 22,744.7 REVENUES Sales by Company-operated restaurants Revenues from franchised restaurants Total revenues OPERATING COSTS...

  • Page 28
    ... In millions, except per share data December 31, 2011 2010 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 and advances to affiliates...

  • Page 29
    ... (credits), net Gain on sale of investment Share-based compensation Other Changes in working capital items: Accounts receivable Inventories, prepaid expenses and other current assets Accounts payable Income taxes Other accrued liabilities Cash provided by operations Investing activities Capital...

  • Page 30
    ... income Common stock cash dividends ($2.26 per share) Treasury stock purchases Share-based compensation Stock option exercises and other (including tax benefits of $146.1) Balance at December 31, 2010 Net income Translation adjustments including net investment hedging (including tax benefits of $61...

  • Page 31
    ...on a percent of sales, and may include initial fees. Continuing rent and royalties are recognized in the period earned. Initial fees are recognized upon opening of a restaurant or granting of a new franchise term, which is when the Company has performed substantially all initial services required by...

  • Page 32
    ... the 2011 activity in goodwill by segment: Europe APMEA(1) Other Countries & Corporate(2) Consolidated Balance at December 31, 2010 Net restaurant purchases (sales) Ownership changes and other Currency translation Balance at December 31, 2011 (1) APMEA represents Asia/Pacific, Middle East and...

  • Page 33
    ... * Includes investments and derivatives that hedge market driven changes in liabilities associated with the Company's supplemental benefit plans. • Non-Financial Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis Certain assets and liabilities are measured at fair value on...

  • Page 34
    ... assets Equity Miscellaneous other assets 154.5 Total derivatives not designated as hedging instruments $162.8 Total derivatives $225.6 2010 Derivative Liabilities Balance Sheet Classification 2011 Accrued payroll and other liabilities 2010 $ 7.5 0.5 $ (0.3) $(4.6) 72.1 $ 80.1 Other long-term...

  • Page 35
    ... than not threshold, a tax liability may be recorded depending on management's assessment of how the tax position will ultimately be settled. The Company records interest and penalties on unrecognized tax benefits in the provision for income taxes. McDonald's Corporation Annual Report 2011 33

  • Page 36
    ... to its share of restaurant closing costs in McDonald's Japan (a 50%-owned affiliate) in conjunction with the strategic review of the market's restaurant portfolio. These actions were designed to enhance the brand image, overall profitability and returns of the market. The Company also recorded...

  • Page 37
    ... a percent of sales, and may pay initial fees. The results of operations of restaurant businesses purchased and sold in transactions with franchisees were not material either individually or in the aggregate to the consolidated financial statements for periods prior to purchase and sale. 2012 2013...

  • Page 38
    ... 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 sheet presentation...

  • Page 39
    ... permanently invested in operations outside the U.S. Determination of the deferred income tax liability on these unremitted earnings is not practicable because such liability, if any, is dependent on circumstances existing if and when remittance occurs. McDonald's Corporation Annual Report 2011 37

  • Page 40
    ... 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 and training. Corporate assets include corporate cash and equivalents, asset portions of...

  • Page 41
    ... 2011 was $334.0 million and the actual tax benefit realized for tax deductions from stock options exercised totaled $110.6 million. The Company uses treasury shares purchased under the Company's share repurchase program to satisfy share-based exercises. McDonald's Corporation Annual Report 2011...

  • Page 42
    ...activities, were (in millions): 2011-$41.3; 2010-$51.4; 2009-$51.3. Certain subsidiaries outside the U.S. also offer profit sharing, stock purchase or other similar benefit plans. Total plan costs outside the U.S. were (in millions): 2011-$58.3; 2010-$57.6; 2009-$45.2. The total combined liabilities...

  • Page 43
    ... 2011 2010 Revenues Sales by Company-operated restaurants Revenues from franchised restaurants Total revenues Company-operated margin Franchised margin Operating income Net income Earnings per common share-basic Earnings per common share-diluted Dividends declared per common share Weighted-average...

  • Page 44
    ... of December 31, 2011, 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, 2011, 2010 and 2009 and...

  • Page 45
    ... of McDonald's Corporation as of December 31, 2011 and 2010, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2011. These financial statements are the responsibility of the Company's management. Our...

  • Page 46
    ...the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of McDonald's Corporation as of December 31, 2011 and 2010 and for each of the three years in the period ended December 31, 2011, and our report dated February 24, 2012, expressed an...

  • Page 47
    ...& Middle East Gloria Santona* Corporate EVP - General Counsel & Secretary James Skinner* Vice Chairman & Chief Executive Officer Jeffrey Stratton* Corporate EVP - Chief Restaurant Officer Donald Thompson* President and Chief Operating Officer *Executive Officer McDonald's Corporation Annual Report...

  • Page 48
    ... Thompson President and Chief Operating Officer McDonald's Corporation Miles D. White2, 6 Chairman and Chief Executive Officer Abbott Laboratories 46 McDonald's Corporation Annual Report 2011 1. Audit Committee 2. Compensation Committee 3. Corporate Responsibility Committee 4. Executive Committee...

  • Page 49
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  • Page 50
    ... 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 1.630.623.3678 Franchising...

  • Page 51
    2011 Annual Report

  • Page 52
    2011 Annual Report McDonald's Corporation One McDonald's Plaza Oak Brook, IL 60523 aboutmcdonalds.com