McDonalds 2013 Annual Report Download - page 45

McDonald’s Corporation 2013 Annual Report | 37
Franchise Arrangements
Conventional franchise arrangements generally include a lease
and a license and provide for payment of initial fees, as well as
continuing rent and royalties to the Company based upon a
percent of sales with minimum rent payments that parallel the
Company’s underlying leases and escalations (on properties that
are leased). Under this arrangement, franchisees are granted the
right to operate a restaurant using the McDonald’s System and, in
most cases, the use of a restaurant facility, generally for a period
of 20 years. These franchisees pay related occupancy costs
including property 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.
Revenues from franchised restaurants consisted of:
In millions 2013 2012 2011
Rents $6,054.4 $5,863.5 $ 5,718.5
Royalties 3,100.4 3,032.6 2,929.8
Initial fees 76.7 68.4 64.9
Revenues from franchised
restaurants $9,231.5 $8,964.5 $ 8,713.2
Future minimum rent payments due to the Company under
existing franchise arrangements are:
In millions Owned sites Leased sites Total
2014 $ 1,321.4 $ 1,381.8 $ 2,703.2
2015 1,279.4 1,332.3 2,611.7
2016 1,228.5 1,278.2 2,506.7
2017 1,166.9 1,209.7 2,376.6
2018 1,121.9 1,138.6 2,260.5
Thereafter 9,636.4 8,405.8 18,042.2
Total minimum payments $15,754.5 $14,746.4 $30,500.9
At December 31, 2013, net property and equipment under
franchise arrangements totaled $15.5 billion (including land of $4.4
billion) after deducting accumulated depreciation and amortization
of $8.1 billion.
Leasing Arrangements
At December 31, 2013, the Company was the lessee at 14,815
restaurant locations through ground leases (the Company leases
the land and the Company or franchisee owns the building) and
through improved leases (the Company leases land and
buildings). Lease terms for most restaurants, where market
conditions allow, are generally for 20 years and, in many cases,
provide for rent escalations and renewal options, with certain
leases providing purchase options. Escalation terms vary by
geographic segment with examples including fixed-rent
escalations, escalations based on an inflation index, and fair-value
market adjustments. The timing of these escalations generally
ranges from annually to every five years. For most locations, the
Company is obligated for the related occupancy costs including
property taxes, insurance and maintenance; however, for
franchised sites, the Company requires the franchisees to pay
these costs. In addition, the Company is the lessee under non-
cancelable leases covering certain offices and vehicles.
The following table provides detail of rent expense:
In millions 2013 2012 2011
Company-operated
restaurants:
U.S. $ 61.6 $ 59.1 $ 55.9
Outside the U.S. 713.4 661.0 620.4
Total 775.0 720.1 676.3
Franchised restaurants:
U.S. 441.6 433.0 420.0
Outside the U.S. 572.0 519.7 514.7
Total 1,013.6 952.7 934.7
Other 104.0 104.2 101.7
Total rent expense $1,892.6 $1,777.0 $ 1,712.7
Rent expense included percent rents in excess of minimum
rents (in millions) as follows–Company-operated restaurants:
2013–$175.6; 2012–$169.6; 2011–$165.2. Franchised
restaurants: 2013–$187.4; 2012–$178.7; 2011–$173.4.
Future minimum payments required under existing operating
leases with initial terms of one year or more are:
In millions Restaurant Other Total
2014 $ 1,361.5 $ 78.9 $ 1,440.4
2015 1,266.3 67.5 1,333.8
2016 1,160.4 57.9 1,218.3
2017 1,051.4 47.4 1,098.8
2018 947.7 42.0 989.7
Thereafter 7,444.9 187.0 7,631.9
Total minimum payments $13,232.2 $ 480.7 $13,712.9
Income Taxes
Income before provision for income taxes, classified by source of
income, was as follows:
In millions 2013 2012 2011
U.S. $2,912.7 $2,879.7 $ 3,202.8
Outside the U.S. 5,291.8 5,199.3 4,809.4
Income before provision for
income taxes $8,204.5 $ 8,079.0 $8,012.2
The provision for income taxes, classified by the timing and
location of payment, was as follows:
In millions 2013 2012 2011
U.S. federal $1,238.2 $1,129.9 $ 1,173.4
U.S. state 175.0 189.8 165.2
Outside the U.S. 1,180.2 1,160.0 982.1
Current tax provision 2,593.4 2,479.7 2,320.7
U.S. federal 46.2 144.9 189.0
U.S. state (6.7) 5.5 8.6
Outside the U.S. (14.3) (15.9) (9.2)
Deferred tax provision 25.2 134.5 188.4
Provision for income taxes $2,618.6 $2,614.2 $ 2,509.1