McDonalds 2015 Annual Report Download

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-5231
McDONALD’S CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
36-2361282
(I.R.S. Employer
Identification No.)
One McDonald’s Plaza
Oak Brook, Illinois
(Address of principal executive offices)
60523
(Zip code)
Registrant’s telephone number, including area code: (630) 623-3000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
on which registered
Common stock, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to
be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required
to submit and post such files). Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer Accelerated filer
Non-accelerated filer (do not check if a smaller reporting company) Smaller 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, 2015 was $89,518,453,614.
The number of shares outstanding of the registrant’s common stock as of January 31, 2016 was 901,607,888.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Form 10-K incorporates information by reference from the registrant’s 2016 definitive proxy statement, which will be filed no later than 120 days after
December 31, 2015.

Table of contents

  • Page 1
    ... 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, 2015 was $89,518,453,614. The number of shares outstanding...

  • Page 2
    ... 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 ...Changes...

  • Page 3
    ..., marketing concepts and product and pricing strategies that will ultimately benefit relevant McDonald's restaurants. Under a conventional franchise arrangement, the Company owns the land and building or secures a long-term lease for the restaurant location and the franchisee pays for equipment...

  • Page 4
    ...on value, quality, food taste, menu choice, nutrition, convenience and the customer experience. In measuring the Company's competitive position, management reviews data compiled by Euromonitor International, a leading source of market data with respect to the global restaurant industry. The Company...

  • Page 5
    ... products, develop new products, price our products appropriately, manage the complexity of our restaurant operations and respond effectively to our McDonald's Corporation 2015 Annual Report 3 e. Available information The Company is subject to the informational requirements of the Securities...

  • Page 6
    ...economic conditions or adverse changes in economic conditions in our markets could pressure our operating performance, and our business and financial results may suffer. Supply chain interruptions may increase costs or reduce revenues. We depend on the effectiveness of our supply chain management to...

  • Page 7
    ... material adverse effect on our business and financial condition. Challenges with respect to talent management could harm our business. Our success depends in part on our System's ability to recruit and retain qualified personnel to work in our restaurants. Increased costs associated with recruiting...

  • Page 8
    ... harm the value of the McDonald's brand and our business. The success of our business depends on our continued ability to use our existing trademarks and service marks in order to increase brand awareness and further develop our branded products in both domestic and international markets. We rely...

  • Page 9
    ... technology aid in evaluating this information. The Company generally owns the land and building or secures longterm leases for conventional franchised and Company-operated restaurant sites, which ensures long-term occupancy rights and helps control related costs. Restaurant profitability for...

  • Page 10
    ..., promotion and pay practices, including wage and hour disputes, alleged discrimination and compliance with labor and employment laws. Customers Restaurants owned by subsidiaries of the Company regularly serve a broad segment of the public. In so doing, disputes arise as to products, service...

  • Page 11
    ... Executive Vice President - Strategy, Business Development and Innovation, a position he has held since October 2015. Mr. Kempczinski joined the Company from Kraft Heinz, a manufacturer and marketer of food and beverage products, where he most recently served as Executive Vice President of Growth...

  • Page 12
    ...Given the Company's returns on equity, incremental invested capital and assets, management believes it is prudent to reinvest in the business in markets with acceptable returns and/or opportunity for long-term growth and use excess cash flow to return cash to shareholders through dividends and share...

  • Page 13
    .... 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, 2015. The graph...

  • Page 14
    ... stock purchases(1) 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 restaurants Total...

  • Page 15
    ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview DESCRIPTION OF THE BUSINESS • • U.S. - the Company's largest segment. This segment did not change as a result of the new reporting structure. International Lead Markets - established markets ...

  • Page 16
    ... evidence that the turnaround plan is working. In McDonald's heavily franchised business model, growing comparable sales is important to increasing operating income and returns. Global comparable sales increased 1.5% in 2015, driven by positive performance across all segments in the third and...

  • Page 17
    ...400-500 total openings are planned for 2016, primarily in China, with a strong emphasis on freestanding restaurants with drive-thru's. The High Growth markets include about half of the System's planned global openings for 2016. McDonald's Corporation 2015 Annual Report 15 * Excluding the impact of...

  • Page 18
    ... the same direction, the Company's annual diluted earnings per share would change by up to 25 cents. The Company expects the effective income tax rate for the full-year 2016 to be in the 31%-33% range. Some volatility may be experienced between the quarters resulting in a quarterly tax rate outside...

  • Page 19
    ... results 2015 Dollars and shares in millions, except per share data Amount Increase/ (decrease) Amount 2014 Increase/ (decrease) 2013 Amount Revenues Sales by Company-operated restaurants Revenues from franchised restaurants Total revenues Operating costs and expenses Company-operated restaurant...

  • Page 20
    ... in 2015 and 33.1 million shares of its stock for $3.2 billion in 2014, driving reductions in weighted-average shares outstanding on a diluted basis in both periods, which positively benefited earnings per share. REVENUES The Company's revenues consist of sales by Company-operated restaurants and...

  • Page 21
    ... Markets & Corporate Total 2015 1% (10) (7) (13) (6%) 2014 (1%) 2 1 (7) (2%) 2015 1% 5 8 3 3% 2014 (1%) 3 4 3 1% Franchised sales are not recorded as revenues by the Company, but are the basis on which the Company calculates and records franchised revenues and are indicative of the financial...

  • Page 22
    ...restaurant performance and enhance our employment proposition. In 2014, the decrease was due to the impact of negative comparable guest counts and higher commodity and labor costs, partly offset by higher average check. International Lead Markets: In 2015, the increase in the Company-operated margin...

  • Page 23
    ... 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 was 9.6% in 2015, 9.1% in 2014 and 8.5% in 2013...

  • Page 24
    ... Markets: In 2015, the constant currency operating income increase reflected recovery from the 2014 supplier issue in China and higher franchised margin dollars, partly offset by restaurant closing charges. In 2014, the decrease reflected the negative impact of the supplier issue and lower Company...

  • Page 25
    ...billion in 2015 and $1.6 billion in 2014. Substantially all of the net tax assets are expected to be realized in the U.S. and other profitable markets. RECENTLY ISSUED ACCOUNTING STANDARDS treasury stock purchases. Cash used for financing activities totaled $4.6 billion in 2014, an increase of $575...

  • Page 26
    ... per share data Number of shares repurchased Shares outstanding at year end Dividends declared per share Treasury stock purchases (in Shareholders' equity) Dividends paid Total returned to shareholders 2015 61.8 907 $ 3.44 $ 6,182 3,230 $ 9,412 2014 33.1 963 $ 3.28 $3,175 3,216 $6,391 2013 18...

  • Page 27
    ... for the years ended December 31, 2015 and 2014, 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...

  • Page 28
    ... future years. 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. Long-lived assets impairment review Long-lived assets (including goodwill) are reviewed for impairment annually...

  • Page 29
    ... foreign-related tax matters negatively impacted the effective tax rate by 4.1%. See the Income Taxes footnote in the Consolidated Financial Statements for the related tax reconciliations. The most significant new developments in 2014 and 2015 are described below. In 2014, the Company received an...

  • Page 30
    ... measure reviewed by management over one-year and three-year time periods to evaluate the overall profitability of our markets, the effectiveness of capital deployed and the future allocation of capital. This measure is calculated using operating income and constant foreign exchange rates to exclude...

  • Page 31
    ... of shareholders' equity for each of the three years in the period ended December 31, 2015 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 32
    ... Statement of Income In millions, except per share data Years ended December 31, 2015 $ 16,488.3 8,924.7 25,413.0 2014 $ 18,169.3 9,272.0 27,441.3 2013 $ 18,874.2 9,231.5 28,105.7 REVENUES Sales by Company-operated restaurants Revenues from franchised restaurants Total revenues OPERATING COSTS...

  • Page 33
    Consolidated Statement of Comprehensive Income In millions Years ended December 31, 2015 $4,529.3 2014 $4,757.8 2013 $5,585.9 Net income Other comprehensive income (loss), net of tax Foreign currency translation adjustments: Gain (loss) recognized in accumulated other comprehensive income (AOCI...

  • Page 34
    ... In millions, except per share data December 31, 2015 2014 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 and advances to affiliates...

  • Page 35
    ... Accounts payable Income taxes Other accrued liabilities Cash provided by operations Investing activities Capital expenditures Purchases of restaurant businesses Sales of restaurant businesses and property Other Cash used for investing activities Financing activities Net short-term borrowings Long...

  • Page 36
    ... cash dividends ($3.44 per share) Treasury stock purchases Share-based compensation Stock option exercises and other (including tax benefits of $44.8) Balance at December 31, 2015 (753.8) $ (41,176.8) See Notes to consolidated financial statements. 34 McDonald's Corporation 2015 Annual Report

  • Page 37
    ... or new franchise terms. FOREIGN CURRENCY TRANSLATION Generally, the functional currency of operations outside the U.S. is the respective local currency. ADVERTISING COSTS Simplifying the Presentation of Debt Issuance Costs For the annual reporting period ended December 31, 2015, the Company early...

  • Page 38
    ...annually reviewing McDonald's restaurant assets for potential impairment, assets are initially grouped together in the U.S. at a television market level, and internationally, at a country level. The Company manages its restaurants as a group or portfolio with significant common costs and promotional...

  • Page 39
    ... of impairment). For the year ended December 31, 2015, the Company recorded fair value adjustments to its long-lived assets, primarily to goodwill, based on Level 3 inputs which includes the use of a discounted cash flow valuation approach. Certain Financial Assets and Liabilities not Measured at...

  • Page 40
    ... value hedges for the year ended December 31, 2015. Derivatives in Hedging Relationships In millions Interest rate Gain (Loss) Recognized In Earnings on Hedging Derivative 2015 2014 $ (3.4) $ (8.1) Gain (Loss) Recognized In Earnings on Hedged Items 2015 2014 $ 3.4 $ 8.1 Cash Flow Hedges The Company...

  • Page 41
    .... The Company recorded after tax adjustments to the cash flow hedging component of AOCI in shareholders' equity. The Company recorded a decrease of $11.0 million for the year ended December 31, 2015 and a net increase of $33.3 million for the year ended December 31, 2014. Based on interest rates and...

  • Page 42
    ...businesses in which the Company actively participates but does not control. The Company records equity in (earnings) losses from these entities representing McDonald's share of results. For foreign affiliated markets-primarily Japan-results are reported after interest expense and income taxes. Asset...

  • Page 43
    ...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 Rents Royalties Initial fees Revenues from franchised restaurants 2015 $ 5,860.6 2,980.7 83...

  • Page 44
    ... accounted for these adjustments in accordance with ASC 740. In early 2015, the IRS issued a Revenue Agent Report for these agreed adjustments,and the balance of unrecognized tax benefits was reduced accordingly. Also in connection with this examination, in 2014 the Company received notices...

  • Page 45
    ...21.9. Certain subsidiaries outside the U.S. also offer profit sharing, stock purchase or other similar benefit plans. Total plan costs outside the U.S. were (in millions): 2015-$53.4; 2014-$54.4; 2013-$51.2. The total combined liabilities for international retirement plans were $76.0 million and $74...

  • Page 46
    ... revenues and operating income. Corporate general and administrative expenses consists 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...

  • Page 47
    ... liability. The Company early adopted this Update and reclassified the prior year amount. The net increase in 2015 was primarily due to net issuances of $9.7 billion in connection with the Company's plan to optimize its capital structure. (4) (5) (6) McDonald's Corporation 2015 Annual Report 45

  • Page 48
    ...grant, and generally expire 10 years from the grant date. 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 2015, 2014 and 2013, the total intrinsic value of stock options exercised was $202.9 million...

  • Page 49
    ... per share data Quarters ended December 31 2015 2014 Quarters ended September 30 2015 2014 Quarters ended June 30 2015 2014 Quarters ended March 31 2015 2014 Revenues Sales by Company-operated restaurants Revenues from franchised restaurants Total revenues Company-operated margin Franchised margin...

  • Page 50
    ...'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, 2015, 2014 and 2013 and the Company's internal control over financial reporting as...

  • Page 51
    ...Corporation as of December 31, 2015 and 2014, 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, 2015. These financial statements are the responsibility of the Company's management...

  • Page 52
    ..., effective internal control over financial reporting as of December 31, 2015, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of McDonald's Corporation as...

  • Page 53
    ....mcdonalds.com. Information regarding all of the Company's executive officers is included in Part I, page 9 of this Form 10-K. The Company's management, including the CEO and CFO, confirm that there was no change in the Company's internal control over financial reporting during the quarter ended...

  • Page 54
    ...Amendment to the McDonald's Corporation Supplemental Profit Sharing and Savings Plan, effective January 1, 2005, incorporated herein by reference from Exhibit 10(c)(ii) of Form 10-K (File No. 001-05231), for the year ended December 31, 2004.** (c) (ii) 52 McDonald's Corporation 2015 Annual Report

  • Page 55
    ...), for the quarter ended March 31, 2013.** McDonald's Corporation Cash Performance Unit Plan, effective February 13, 2013, incorporated herein by reference from Exhibit 10(k) of Form 10-Q (File No. 001-05231), for the quarter ended March 31, 2013.** Form of Executive Stock Option Grant Agreement...

  • Page 56
    ...do 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. 54 McDonald's Corporation 2015 Annual Report

  • Page 57
    ... the 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/ Kevin M. Ozan Kevin M. Ozan Corporate Executive Vice President and Chief Financial Officer Signature...

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