McDonalds 2011 Annual Report Download - page 14

impact on the environment with energy management tools that
enable us to use green energy in markets where available. In
addition, the U.K. will be the proud host of our Olympic sponsor-
ship, marking the ninth consecutive time that McDonald’s will
serve as the Official Restaurant of the Olympic Games. In 2012,
our European business will continue to face headwinds due to
economic uncertainty and additional government-initiated aus-
terity measures implemented in many countries. While we will
closely monitor consumer reactions to these measures, we
remain confident that our business model will continue to drive
profitable growth.
In APMEA, we will continue our efforts to become our
customers’ first choice for eating out by continuing to provide
robust value platforms and focusing on menu variety, restaurant
experience and convenience. Value will continue to be a key
growth driver as we reinforce the affordability of our menu to
consumers across all dayparts, by building on our successful
Value Lunch platforms and expanding our breakfast offerings.
The markets will continue to execute against a combination of
core menu items, promotional food events, desserts and limited-
time offerings to provide a balanced mix of products to our
customers. We will grow our business by opening approximately
750 new restaurants and reimaging about 475 existing restau-
rants while elevating our focus on service and operations to drive
efficiencies. In China, we will continue to build a foundation for
long-term growth by opening 225 to 250 restaurants in 2012
toward our goal of reaching 2,000 restaurants by the end of
2013. Convenience initiatives will focus on expanding delivery
service across the region and building on the success of our
extended operating hours.
We continue to maintain strong financial discipline by effec-
tively managing spending in order to maximize financial
performance. In making capital allocation decisions, our goal is to
make investments that elevate the McDonald’s experience and
drive sustainable growth in sales and market share while earning
strong returns. We remain committed to returning all of our free
cash flow (cash from operations less capital expenditures) to
shareholders over the long-term via dividends and share
repurchases.
McDonald’s does not provide specific guidance on diluted
earnings per share. The following information is provided to assist
in analyzing the Company’s results:
• Changes in Systemwide sales are driven by comparable sales
and net restaurant unit expansion. The Company expects net
restaurant additions to add approximately 2 percentage points
to 2012 Systemwide sales growth (in constant currencies),
most of which will be due to about 870 net traditional restau-
rants added in 2011.
• The Company does not generally provide specific guidance on
changes in comparable sales. However, as a perspective, assum-
ing no change in cost structure, a 1 percentage point increase in
comparable sales for either the U.S. or Europe would increase
annual diluted earnings per share by about 3-4 cents.
• With about 75% of McDonald’s grocery bill comprised of 10
different commodities, a basket of goods approach is the most
comprehensive way to look at the Company’s commodity costs.
For the full year 2012, the total basket of goods cost is
expected to increase 4.5-5.5% in the U.S. and 2.5-3.5% in
Europe, with more pressure expected in the first half.
• The Company expects full-year 2012 selling, general & admin-
istrative expenses to increase about 6% in constant currencies,
driven by certain technology investments, primarily to accel-
erate future restaurant capabilities, and costs related to the
2012 Worldwide Owner/Operator Convention and Olympics.
The Company expects the magnitude of the increase to be
confined to 2012. Fluctuations will be experienced between
quarters due to the timing of certain items such as the World-
wide Owner/Operator Convention and the Olympics.
• Based on current interest and foreign currency exchange rates,
the Company expects interest expense for the full year 2012
to increase approximately 6-8% compared with 2011.
• A significant part of the Company’s operating income is gen-
erated outside the U.S., and about 40% of its total debt is
denominated in foreign currencies. Accordingly, earnings are
affected by changes in foreign currency exchange rates,
particularly the Euro, British Pound, Australian Dollar and
Canadian Dollar. Collectively, these currencies represent
approximately 65% of the Company’s operating income out-
side the U.S. If all four of these currencies moved by 10% in
the same direction, the Company’s annual diluted earnings per
share would change by about 24 cents.
• The Company expects the effective income tax rate for the full-
year 2012 to be 31% to 33%. Some volatility may be
experienced between the quarters resulting in a quarterly tax
rate that is outside the annual range.
• The Company expects capital expenditures for 2012 to be
approximately $2.9 billion. About half of this amount will be
used to open new restaurants. The Company expects to open
more than 1,300 restaurants including about 450 restaurants
in affiliated and developmental licensee markets, such as
Japan and Latin America, where the Company does not fund
any capital expenditures. The Company expects net additions
of about 900 restaurants. The remaining capital will be used
for reinvestment in existing restaurants. Nearly half of this
reinvestment will be used to reimage more than 2,400 loca-
tions worldwide, some of which will require no capital
investment from the Company.
12 McDonald’s Corporation Annual Report 2011