McDonalds 2013 Annual Report Download

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2013 Annual Report

Table of contents

  • Page 1
    2013 Annual Report

  • Page 2
    ...Our customers are at the heart of all we do. That's why we work passionately to serve great-tasting food and beverages to more customers, more often; to be convenient and affordable; to provide opportunities that open doors; and to be a good neighbor...in our local communities and around the world.

  • Page 3
    ... the world's largest quick-service restaurant brand. It's also the reason we continued to grow in 2013. Global comparable sales increased 0.2%, and Systemwide sales were up 3%* . We increased operating income 3%* and diluted earnings per share 4%* . And, we invested approximately $2.8 billion in new...

  • Page 4
    ... difference - to us as a company, and to our approximately 70 million daily customers. Whether we're providing a teenager with a first job or equipping a new manager with skills to run one of our 35,000 restaurants, we're honored to provide resources that open the doors of opportunity for learning...

  • Page 5
    ... global environment, we continued working to deliver an outstanding experience for our customers. Guided by the Plan to Win and our global growth priorities, our entire System of franchisees, suppliers and employees strived to raise the bar on what drives our success - from our menu and service...

  • Page 6
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  • Page 7
    ... reporting company Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No The aggregate market value of common stock held by non-affiliates of the registrant as of June 30, 2013 was $98,932,168,368. The number of shares outstanding...

  • Page 8
    ... Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities Selected Financial Data ...Management's Discussion and Analysis of Financial Condition and Results of Operations ...Quantitative and Qualitative Disclosures About Market Risk ...Financial Statements and Supplementary Data...

  • Page 9
    ... entire business, including the real estate interest. While the Company has no capital invested, it receives a royalty based on a percent of sales, as well as initial fees. The largest of these developmental license arrangements operates nearly 2,100 restaurants across 19 countries in Latin America...

  • Page 10
    ...,000 as of year-end 2013. Competition McDonald's restaurants compete with international, national, regional and local retailers of food products. The Company competes on the basis of price, convenience, service, menu variety and product quality in a highly fragmented global restaurant industry. In...

  • Page 11
    ... of our tiered approach to menu offerings; the impact of pricing, product, marketing and promotional plans on sales and margins; and our ability to adjust these plans to respond quickly to changing economic and competitive conditions; Our ability to drive restaurant improvements that achieve optimal...

  • Page 12
    ... targeted operating income growth despite the current adverse economic conditions, resurgent competitors and an increasingly complex and costly advertising environment; The effectiveness of our supply chain management to assure reliable and sufficient product supply on favorable terms; The impact on...

  • Page 13
    ... not directly relate to our business; Changes in financial or tax reporting and accounting principles or practices that materially affect our reported financial condition and results and investor perceptions of our performance; Trading activity in our common stock or trading activity in derivative...

  • Page 14
    ... data. The Company's experience and access to advanced technology aid in evaluating this information. The Company generally owns the land and building or secures longterm leases for restaurant sites, which ensures long-term occupancy rights and helps control related costs. Restaurant profitability...

  • Page 15
    ... are the Executive Officers of our Company (as of the date of this filing): Jose Armario, 54, is Corporate Executive Vice President- Global Supply Chain, Development and Franchising, a position he has held since October 2011. He previously served as Group President, McDonald's Canada and Latin...

  • Page 16
    ... information related to repurchases of common stock the Company made during the quarter ended December 31, 2013*: Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(1) Period...

  • Page 17
    ... activities Treasury stock purchases(4) Common stock cash dividends Financial position at year end: Total assets Total debt Total shareholders' equity Shares outstanding in millions Per common share: Earnings-diluted Dividends declared Market price at year end Company-operated restaurants Franchised...

  • Page 18
    ... capital expenditures. The calculation uses a constant average foreign exchange rate over the periods included in the calculation. STRATEGIC DIRECTION AND FINANCIAL PERFORMANCE The Company franchises and operates McDonald's restaurants. Of the 35,429 restaurants in 119 countries at year-end 2013...

  • Page 19
    ... with customers amid a sluggish IEO segment and heightened competitive activity. The U.S. introduced a number of significant new products (such as Premium McWraps, Egg White Delight McMuffins and an extended line-up of Quarter Pounder Burgers) and featured new limited-time food and beverage options...

  • Page 20
    ... make adjustments designed to regain momentum, including providing greater customer relevance and better restaurant execution. Our 2014 menu strategies better balance affordability, core products, new choices and limited-time offers. We will also adjust the pace of product introductions to improve...

  • Page 21
    ...U.S. or Europe would change annual diluted earnings per share by about 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 2014, the total basket...

  • Page 22
    ... results 2013 Dollars and shares in millions, except per share data Amount Increase/ (decrease) Amount 2012 Increase/ (decrease) 2011 Amount Revenues Sales by Company-operated restaurants Revenues from franchised restaurants Total revenues Operating costs and expenses Company-operated restaurant...

  • Page 23
    ... competitive activity. Europe's constant currency increase in revenues in 2013 benefited from expansion, primarily in Russia (which is almost entirely Company-operated), and positive comparable sales performance in the U.K. and Russia, the segment's two largest Company-operated restaurant markets...

  • Page 24
    ... franchised margin percent was flat in 2012 as positive comparable sales performance was offset by higher depreciation related to reimaging. In Europe, the franchised margin percent decreased in 2013 due to higher rent expense in many markets and weak 16 | McDonald's Corporation 2013 Annual Report

  • Page 25
    ...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 and administrative expenses as a percent of revenues were 8.5% in 2013 and 8.9% in 2012 and 2011. Selling...

  • Page 26
    ... increased due to higher franchised margin dollars, partly offset by lower other operating income and Company-operated margin dollars. In Europe, results for 2013 and 2012 were driven by higher franchised and Company-operated margin dollars. Results in 2012 also benefited from higher gains on sales...

  • Page 27
    ... 2014. In addition to cash and equivalents on hand and cash provided by operations, the Company can meet short-term funding needs through its continued access to commercial paper borrowings and line of credit agreements. RESTAURANT DEVELOPMENT AND CAPITAL EXPENDITURES In 2013, the Company opened...

  • Page 28
    .... Financial Position and Capital Resources TOTAL ASSETS AND RETURNS Primarily corporate equipment and other office-related expenditures. New restaurant investments in all years were concentrated in markets with strong returns or opportunities for long-term growth. Average development costs vary...

  • Page 29
    ... the years ended December 31, 2013 and 2012, respectively. In addition, where practical, the Company's restaurants purchase goods and services in local currencies resulting in natural hedges. See the Summary of significant accounting policies note to the consolidated financial statements related to...

  • Page 30
    ... generate revenue (not to exceed lease term plus options for leased property). The useful lives are estimated based on historical experience with similar assets, taking into account anticipated technological or other changes. The Company periodically reviews these lives relative to physical factors...

  • Page 31
    ...contrast, fourth quarter 2012 is heavily weighted because the assets purchased were deployed more than 12 months ago, and therefore have a full-year impact on 2013 operating income, with little or no impact to the base period (87.5% and 100.0% of fourth quarter 2012 investing activities are included...

  • Page 32
    ...an average exchange rate for the periods measured. Represents one-year weighted-average cash used for investing activities, determined by applying the weightings below to the cash used for investing activities for each quarter in the two-year period ended December 31, 2013. Represents the effect of...

  • Page 33
    ... of shareholders' equity for each of the three years in the period ended December 31, 2013 Notes to consolidated financial statements Quarterly results (unaudited) Management's assessment of internal control over financial reporting Report of independent registered public accounting firm Report of...

  • Page 34
    Consolidated Statement of Income Years ended December 31, 2013 In millions, except per share data REVENUES Sales by Company-operated restaurants $ 18,874.2 Revenues from franchised restaurants 9,231.5 Total revenues 28,105.7 OPERATING COSTS AND EXPENSES Company-operated restaurant expenses Food & ...

  • Page 35
    ...Notes to consolidated financial statements. (279.4) - (279.4) (73.4) 35.9 (37.5) (52.8) 0.9 (51.9) (368.8) $5,217.1 274.7 (0.1) 274.6 19.8 10.8 30.6 33.1 8.4 41.5 346.7 $5,811.5 (310.5) 25.4 (285.1) (12.2) 1.8 (10.4) (8.1) 0.4 (7.7) (303.2) $5,199.9 McDonald's Corporation 2013 Annual Report | 27

  • Page 36
    ... Balance Sheet December 31, 2013 In millions, except per share data ASSETS Current assets Cash and equivalents $ 2,798.7 Accounts and notes receivable 1,319.8 Inventories, at cost, not in excess of market 123.7 Prepaid expenses and other current assets 807.9 Total current assets 5,050.1 Other assets...

  • Page 37
    ...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 Sales...

  • Page 38
    ... cash dividends ($3.12 per share) Treasury stock purchases Share-based compensation Stock option exercises and other (including tax benefits of $93.6) Balance at December 31, 2013 (670.2) $ (32,179.8) See Notes to consolidated financial statements. 30 | McDonald's Corporation 2013 Annual Report

  • Page 39
    ... management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. REVENUE RECOGNITION Compensation expense related to share-based awards is generally amortized on a straight-line...

  • Page 40
    ... impacted the consolidated financial statements. The following table presents the 2013 activity in goodwill by segment: Europe APMEA(1) Other Countries & Corporate(2) Consolidated Balance at December 31, 2012 Net restaurant purchases (sales) Currency translation Balance at December 31, 2013...

  • Page 41
    ... Investment" hedge sections. The Company also enters into certain derivatives that are not designated for hedge accounting. The Company has entered into equity derivative contracts, including total return swaps, to hedge market-driven changes in certain of its supplemental benefit plan liabilities...

  • Page 42
    ...Derivatives designated for hedge accounting Foreign currency Interest rate Commodity Foreign currency Interest rate Prepaid expenses and other current assets Prepaid expenses and other current assets Miscellaneous other assets Miscellaneous other assets 2013 2012 Derivative Liabilities Balance Sheet...

  • Page 43
    ... not threshold, a tax liability may still 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 2013 Annual Report | 35

  • Page 44
    ...): 2013-4.7; 2012-4.7; 2011-0.0. The Company has elected to exclude the pro forma deferred tax asset associated with share-based compensation in earnings per share. STATEMENT OF CASH FLOWS Other Operating (Income) Expense, Net In millions 2013 2012 2011 Gains on sales of restaurant businesses...

  • Page 45
    ...developmental licensees operating under license agreements pay a royalty to the Company based upon a percent of sales, and may pay initial fees. Revenues from franchised restaurants consisted of: In millions The following table provides detail of rent expense: In millions 2013 2012 2011 Company...

  • Page 46
    ... income tax benefit Benefits and taxes related to foreign operations Other, net Effective income tax rates As of December 31, 2013 and 2012, the Company's gross unrecognized tax benefits totaled $512.7 million and $482.4 million, respectively. After considering the deferred tax accounting impact...

  • Page 47
    ... 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 instruments and home office facilities...

  • Page 48
    ... current assets, miscellaneous other assets or other long-term liabilities. The increase in debt obligations from December 31, 2012 to December 31, 2013 was primarily due to net issuances of $0.5 billion. (4) (5) Employee Benefit Plans The Company's Profit Sharing and Savings Plan for U.S.-based...

  • Page 49
    ... based on Company performance. The fair value of each RSU granted is equal to the market price of the Company's stock at date of grant less the present value of expected dividends over the vesting period. A summary of the Company's RSU activity during the years ended December 31, 2013, 2012 and 2011...

  • Page 50
    ...Quarters ended December 31 2013 2012 Quarters ended September 30 2013 2012 Quarters ended June 30 2013 2012 Quarters ended March 31 2013 2012 Revenues Sales by Company-operated restaurants Revenues from franchised restaurants Total revenues Company-operated margin Franchised margin Operating income...

  • Page 51
    ...December 31, 2013, 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, 2013, 2012 and 2011 and the...

  • Page 52
    ... consolidated balance sheets of McDonald's Corporation as of December 31, 2013 and 2012, and the related consolidated statements of income, comprehensive income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2013. These financial statements are...

  • Page 53
    ...the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of McDonald's Corporation as of December 31, 2013 and 2012 and for each of the three years in the period ended December 31, 2013, and our report dated February 24, 2014, expressed an...

  • Page 54
    ... on Internal Control Over Financial Reporting are set forth in Part II, Item 8 of this Form 10-K. ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters The following table summarizes information about the Company's equity compensation plans as of...

  • Page 55
    ....** (b) McDonald's Excess Benefit and Deferred Bonus Plan, effective January 1, 2011, as amended and restated March 22, 2010, incorporated herein by reference from Form 10-Q, for the quarter ended March 31, 2010.** (c) McDonald's Corporation Supplemental Profit Sharing and Savings Plan, effective as...

  • Page 56
    ... Performance-Based Restricted Stock Unit Award Agreement in connection with the 2012 Omnibus Stock Ownership Plan, incorporated herein by reference from Form 10-Q, for the quarter ended March 31, 2013.** (p) McDonald's Corporation Severance Plan, as Amended and Restated, effective September 9, 2013...

  • Page 57
    ... not exceed 10% of the total assets of the registrant and its subsidiaries on a consolidated basis. An agreement to furnish a copy of any such instruments to the Commission upon request has been filed with the Commission. ** Denotes compensatory plan. McDonald's Corporation 2013 Annual Report | 49

  • Page 58
    ... Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. McDonald's Corporation (Registrant) By /s/ Peter J. Bensen Peter J. Bensen Corporate Executive Vice President and Chief Financial Officer Signature...

  • Page 59
    .... The following performance graph shows McDonald'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, 2013. The graph...

  • Page 60
    Executive 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 and Chief Communications ...

  • Page 61
    ... Miles D. White 2, 6 Chairman and Chief Executive Officer Abbott Laboratories 1. Audit Committee 2. Compensation Committee 3. Sustainability and Corporate Responsibility Committee 4. Executive Committee 5. Finance Committee 6. Governance Committee McDonald's Corporation 2013 Annual Report | 53

  • Page 62
    ...'s online Investor information www.investor.mcdonalds.com Corporate governance www.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...

  • Page 63
    2013 Highlights More than 35,000 We operate restaurants in over restaurants around the world 100 countries

  • Page 64
    McDonald's Corporation | One McDonald's Plaza, Oak Brook, IL 60523 | aboutmcdonalds.com