McDonalds 2012 Annual Report Download

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2012 Annual Report

Table of contents

  • Page 1
    2012 Annual Report

  • Page 2
    2012 Highlights Global Comparable Sales Growth Earnings Per Share Growth Average Number of Customers Served Every Day 3.1 % 5 % * * in constant currencies 69 million McWraps | Europe McCafé Strawberry Banana Smoothie | USA

  • Page 3
    ... about good food. The Golden Arches have always stood for quality, consistency and value. But today they also promise unique tastes, modern choices and real ingredients. Our World Famous Fries and our iconic Big Mac sandwich share the menu with tempting specialty coffees and creative new selections...

  • Page 4
    ... Don Thompson, President and CEO & Tim Fenton, COO Operating Income (in billions) '10 '11 '12 $ 7.5 $ 8.5 $ 8.6 3-Year Compound Annual Total Return (2010 -2012) S&P 500 DJIA MCD 10.9% 10.3% 15.7% 24-Hour Accessibility | USA | Canada 2 | McDonald's Corporation 2012 Annual Report * in constant...

  • Page 5
    ... over the world. Sincerely, New Restaurant | Korea Combined Operating Margin '10 '11 '12 31.0% 31.6% 31.2% Earnings Per Share '10 '11 '12 $ 4.58 $ 5.27 $ 5.36 Dividends Paid (in billions) '10 '11 '12 $ 2.4 $ 2.6 $ 2.9 Don Thompson President and CEO McDonald's Corporation 2012 Annual Report | 3

  • Page 6
    ... through the current business environment to drive growth and deliver shareholder value. We remain confident in the company's overall strategies, its strong leadership and the many talented employees around the world who deliver for our millions of guests every day. McDonald's Board of diverse...

  • Page 7
    ... creates lifelong brand ambassadors who feel connected to each other, their restaurants and especially their customers. The ways we stand up for our people help us stand out from the competition. Bangkok | Thailand Madrid | Spain McDonald's Corporation 2012 Annual Report | 5 Columbus, Ohio | USA

  • Page 8
    ..., we will leverage our size and scope as tools for good. Our charity of choice, Ronald McDonald House Charities helps families in crisis. Dirk Giannini, Lettuce Supplier | USA Green Restaurant | Germany 6 | McDonald's Corporation 2012 Annual Report Ronald McDonald House, Chicago, Illinois | USA

  • Page 9
    2012 Financial Report

  • Page 10
    ... 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 8 McDonald's Corporation 2012 Annual Report

  • Page 11
    ... 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 12
    ... meaningful 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 appreciation...

  • Page 13
    ...generally include initial fees. Fees vary by type of site, amount of Company investment, if any, and local business conditions. These fees, along with occupancy and operating rights, are stipulated in franchise/license agreements that generally have 20-year terms. The business is managed as distinct...

  • Page 14
    ... mix by utilizing a menu with entry-point value, core, premium and promotional offerings. We also introduce new products to meet customers' needs, which can expand average check and increase guest counts. In 2012, average prices increased at Company-operated restaurants in each area of the world...

  • Page 15
    ...add-on and Extra Value Meal purchases. Consolidated Globally, our approach to offering affordable value to our customers is complemented by a focus on driving operating efficiencies and leveraging our scale, supply chain infrastructure and our suppliers' risk management practices to manage costs. We...

  • Page 16
    ...menu items, beverages, and extended hours. Our business plans are focused on building market share by emphasizing value across all dayparts and new restaurant growth. In some markets, our value offerings will evolve from a low-end entry price to multiple entry prices across our menu. This value menu...

  • Page 17
    ... year 2013 to increase approximately 4-6% compared with 2012. • A significant part of the Company's operating income is generated outside the U.S., and about 35% of its total debt is denominated in foreign currencies. Accordingly, earnings are affected by changes in foreign currency exchange rates...

  • Page 18
    ... 2012 Dollars in millions, except per share data Amount Increase/ (decrease) Amount 2011 Increase/ (decrease) 2010 Amount Revenues Sales by Company-operated restaurants Revenues from franchised restaurants Total revenues Operating costs and expenses Company-operated restaurant expenses Franchised...

  • Page 19
    ..., Company-operated margin dollars, partly offset by a higher effective income tax rate. A decrease of 3% in diluted weighted average shares outstanding also contributed to the diluted earnings per share growth in 2011. The Company repurchased 28.1 million shares of its stock for $2.6 billion in 2012...

  • Page 20
    ... margin dollars represent revenues from franchised restaurants less the Company's occupancy costs (rent and depreciation) associated with those sites. Franchised margin dollars represented about two-thirds of the combined restaurant margins in 2012, 2011 and 2010. Franchised margin dollars increased...

  • Page 21
    ... to other markets, new restaurants in China initially open with lower margins that grow significantly over time. Supplemental information regarding Companyoperated restaurants We continually review our restaurant ownership mix with a goal of improving local relevance, profits and returns. In most...

  • Page 22
    ...0% 5 3 9 4% 2011 0% 2 5 (4) 0% (1) Included in 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. 20 McDonald's Corporation 2012 Annual Report

  • Page 23
    ...Europe APMEA Other Countries & Corporate Total 2012 $7 1 $8 2011 $(4) $(4) 2010 $ 1 49 (21) $ 29 In 2010, the Company recorded expense of $29 million primarily related to its share of restaurant closing costs in McDonald's Japan in conjunction with the strategic review of the market's restaurant...

  • Page 24
    ...defined as operating income as a percent of total revenues. Combined operating margin for 2012, 2011 and 2010 was 31.2%, 31.6% and 31.0%, respectively. INTEREST EXPENSE ACCOUNTING CHANGES • Fair value measurements In May 2011, the Financial Accounting Standards Board ("FASB") issued an update to...

  • Page 25
    ... Financial Position and Capital Resources TOTAL ASSETS AND RETURNS (1) Primarily corporate equipment and other 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...

  • Page 26
    ... Report a change in credit ratings or a material adverse change in the Company's business. Under existing authorization from the Company's Board of Directors, at December 31, 2012, the Company had $5.4 billion of authority remaining to borrow funds, including through (i) public or private offering...

  • Page 27
    ... of hypothetical changes in interest rates and foreign currency exchange rates on the Company's results of operations, cash flows and the fair value of its financial instruments. The interest rate analysis assumed a one percentage point adverse change in interest rates on all financial instruments...

  • Page 28
    ...new developments in each matter or changes in approach such as a change in settlement strategy in dealing with these matters. The Company does not believe that any such matter currently being reviewed will have a material adverse effect on its financial condition or results of operations. • Income...

  • Page 29
    ... activities(2) Currency translation(1) Weighted-average cash used for investing activities (at constant foreign exchange rates) One-year ROIIC Incremental change $ 74.9 73.5 286.1 Three-year ROIIC calculation (dollars in millions): Years ended December 31, 2012 2009 NUMERATOR: Operating income...

  • Page 30
    ... Statement of Income In millions, except per share data Years ended December 31, 2012 $18,602.5 8,964.5 27,567.0 2011 $18,292.8 8,713.2 27,006.0 2010 $16,233.3 7,841.3 24,074.6 REVENUES Sales by Company-operated restaurants Revenues from franchised restaurants Total revenues OPERATING COSTS...

  • Page 31
    ... to net income Defined benefit pension plans-net of tax benefit (expense) of $(16.6), $2.9 and $(3.5) Total other comprehensive income (loss), net of tax Comprehensive income See Notes to consolidated financial statements. Years ended December 31, 2012 $5,464.8 2011 $5,503.1 2010 $4,946.3 274...

  • Page 32
    Consolidated Balance Sheet In millions, except per share data December 31, 2012 2011 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 33
    ...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 expenditures Purchases of restaurant businesses...

  • Page 34
    ...comprehensive income (loss), net of tax Comprehensive income Common stock cash dividends ($2.87 per share) Treasury stock purchases Share-based compensation Stock option exercises and other (including tax benefits of $150.8) Balance at December 31, 2012 See Notes to consolidated financial statements...

  • Page 35
    ... Financial Statements Summary of Significant Accounting Policies NATURE OF BUSINESS 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...

  • Page 36
    ...impacted the consolidated financial statements. The following table presents the 2012 activity in goodwill by segment: Other Countries & Corporate(2) In millions U.S. Europe APMEA(1) Consolidated Balance at December 31, 2011 Net restaurant purchases (sales) Ownership changes and other Currency...

  • Page 37
    ... Value market prices, Level 2 within the valuation hierarchy. The carrying amount for both cash equivalents and notes receivable approximate fair value. FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES Cash equivalents Investments Derivative assets Total assets at fair value Derivative payables Total...

  • Page 38
    ... values of derivative instruments included on the Consolidated balance sheet as of December 31, 2012 and 2011: Derivative Assets In millions Balance Sheet Classification 2012 Derivatives designated as hedging instruments Foreign currency Prepaid expenses and other current assets $ 5.0 Interest rate...

  • Page 39
    ... rate swaps are exactly offset by changes in the fair value of the underlying debt. No ineffectiveness has been recorded to net income related to interest rate swaps designated as fair value hedges for the year ended December 31, 2012. A total of $1.8 billion of the Company's outstanding fixed-rate...

  • Page 40
    ...this new guidance in 2012, as required, and included a separate Consolidated statement of comprehensive income for the years ended December 31, 2012, 2011 and 2010. In 2010, the Company recorded expense of $29 million primarily related to its share of restaurant closing costs in McDonald's Japan in...

  • Page 41
    ... taxes, insurance and maintenance. Affiliates and developmental licensees operating under license agreements pay a royalty to the Company based upon a percent of sales, and may pay initial fees. 2012 2011 2010 Company-operated restaurants: U.S. Outside the U.S. Total Franchised restaurants...

  • Page 42
    ....2; 2010-$142.5. Franchised restaurants: 2012-$178.7; 2011-$173.4; 2010-$167.3. Future minimum payments required under existing operating leases with initial terms of one year or more are: In millions Restaurant Other Total Net deferred tax liabilities consisted of: In millions 2013 2014 2015 2016...

  • Page 43
    ... balance sheet for 2012 and 2011, respectively. The remainder is included in deferred income taxes on the Consolidated balance sheet. In December 2012, the Company reached a final settlement with the Internal Revenue Service ("IRS") Appeals Division regarding its U.S. federal income tax returns...

  • Page 44
    ...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 financial...

  • Page 45
    ..., current maturities of long-term debt and long-term debt included on the Consolidated balance sheet. The increase in debt obligations from December 31, 2011 to December 31, 2012 was primarily due to net issuances of $1.2 billion. Employee Benefit Plans The Company's Profit Sharing and Savings Plan...

  • Page 46
    ... options outstanding at December 31, 2012) expire 13 years from the date of grant. Intrinsic value for stock options is defined as the difference between the current market value of the Company's stock and the exercise price. During 2012, 2011 and 2010, the total intrinsic value of stock options...

  • Page 47
    ...September 30 2012 2011 Quarters ended June 30 2012 2011 Quarters ended March 31 2012 2011 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...

  • Page 48
    ...December 31, 2012, 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, 2012, 2011 and 2010 and the...

  • Page 49
    Report of Independent 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, 2012 and 2011, and the related consolidated statements of income, ...

  • Page 50
    .... Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the...

  • Page 51
    ... Management & Business Unit Officers Jose Armario* Corporate EVP - Global Supply Chain, Development and Franchising Peter Bensen* Corporate EVP and Chief Financial Officer John Betts President - McDonald's Canada Bridget Coffing Corporate SVP - Corporate Relations Timothy Fenton* Chief Operating...

  • Page 52
    Investor Information Common stock Ticker symbol: MCD Stock exchange listing: New York The number of shareholders of record and beneficial owners of the Company's common stock as of January 31, 2013, was estimated to be 1,811,000. McDonald's home office McDonald's Corporation One McDonald's Plaza Oak...

  • Page 53
    ... to become our Chairman and CEO, Fred's simple genius was on display. From training our people to leading our global expansion to championing food people love to giving back to the communities we serve, we at McDonald's are who we are because of Fred. Fred Turner, our good friend and one-of-a-kind...

  • Page 54
    McDonald's Corporation One McDonald's Plaza Oak Brook, IL 60523 aboutmcdonalds.com