McDonalds 2013 Annual Report Download - page 41

Download and view the complete annual report

Please find page 41 of the 2013 McDonalds annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 64

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64

McDonald’s Corporation 2013 Annual Report | 33
Certain Financial Assets and Liabilities Measured at Fair
Value
The following tables present financial assets and liabilities
measured at fair value on a recurring basis by the valuation
hierarchy as defined in the fair value guidance:
December 31, 2013
In millions Level 1* Level 2
Carrying
Value
Investments $ 27.6 $ 27.6
Derivative assets 128.2 $ 71.6 199.8
Total assets at fair value $ 155.8 $ 71.6 $ 227.4
Derivative liabilities $(179.3) $(179.3)
Total liabilities at fair value $(179.3) $(179.3)
December 31, 2012
In millions Level 1* Level 2
Carrying
Value
Investments $ 155.1 $ 155.1
Derivative assets 132.3 $ 86.1 218.4
Total assets at fair value $ 287.4 $ 86.1 $ 373.5
Derivative liabilities $ (42.6) $ (42.6)
Total liabilities at fair value $ (42.6) $ (42.6)
* Level 1 is comprised of 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 a
nonrecurring basis; that is, the assets and liabilities are not
measured at fair value on an ongoing basis, but are subject to fair
value adjustments in certain circumstances (e.g., when there is
evidence of impairment). For the year ended December 31, 2013,
no material fair value adjustments or fair value measurements
were required for non-financial assets or liabilities.
Certain Financial Assets and Liabilities not Measured at
Fair Value
At December 31, 2013, the fair value of the Company’s debt
obligations was estimated at $15.0 billion, compared to a carrying
amount of $14.1 billion. The fair value was based on quoted
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
The Company is exposed to global market risks, including the
effect of changes in interest rates and foreign currency
fluctuations. The Company uses foreign currency denominated
debt and derivative instruments to mitigate the impact of these
changes. The Company does not hold or issue derivatives for
trading purposes.
The Company documents its risk management objective and
strategy for undertaking hedging transactions, as well as all
relationships between hedging instruments and hedged items. The
Company’s derivatives that are designated for hedge accounting
consist mainly of interest rate swaps, foreign currency forwards,
foreign currency options, and cross-currency swaps, further
explained in the "Fair Value," "Cash Flow" and "Net 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. Changes in the fair value of these derivatives are
recorded primarily in Selling, general & administrative expenses
together with the changes in the supplemental benefit plan
liabilities. In addition, the Company uses foreign currency forwards
to mitigate the change in fair value of certain foreign currency
denominated assets and liabilities. Since these derivatives are not
designated for hedge accounting, the changes in the fair value of
these derivatives are recognized immediately in Nonoperating
(income) expense together with the currency gain or loss from the
hedged balance sheet position. A portion of the Company’s foreign
currency options (more fully described in the "Cash Flow Hedges"
section) are undesignated as hedging instruments as the
underlying foreign currency royalties are earned.
All derivative instruments designated for hedge accounting
are classified as fair value, cash flow or net investment hedges. All
derivatives (including those not designated for hedge accounting)
are recognized on the Consolidated balance sheet at fair value
and classified based on the instruments’ maturity dates. Changes
in the fair value measurements of the derivative instruments are
reflected as adjustments to other comprehensive income ("OCI")
and/or current earnings.