McDonalds 2015 Annual Report Download - page 30

28 McDonald's Corporation 2015 Annual Report
RECONCILIATION OF RETURNS ON INCREMENTAL INVESTED CAPITAL
ROIIC is a 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 the impact of foreign currency translation. The numerator is the Company’s incremental operating income
plus depreciation and amortization from the base period.
The denominator is the weighted-average cash used for investing activities during the applicable one-or three-year period. The
weighted-average cash used for investing activities is based on a weighting applied on a quarterly basis. These weightings are used to
reflect the estimated contribution of each quarter’s investing activities to incremental operating income. For example, fourth quarter 2015
investing activities are weighted less because the assets purchased have only recently been deployed and would have generated little
incremental operating income (12.5% of fourth quarter 2015 investing activities are included in the one-year and three-year calculations). In
contrast, fourth quarter 2014 is heavily weighted because the assets purchased were deployed more than 12 months ago, and therefore
have a full-year impact on 2015 operating income, with little or no impact to the base period (87.5% and 100.0% of fourth quarter 2014
investing activities are included in the one-year and three-year calculations, respectively). Cash used for investing activities can vary
significantly by quarter, resulting in a weighted-average that may be higher or lower than the simple average of the periods presented.
Management believes that weighting cash used for investing activities provides a more accurate reflection of the relationship between its
investments and returns than a simple average.
The reconciliations to the most comparable measurements, in accordance with accounting principles generally accepted in the U.S., for
the numerator and denominator of the one-year and three-year ROIIC are as follows:
One-year ROIIC calculation (dollars in millions):
Years ended December 31, 2015 2014 Increase/
(decrease)
NUMERATOR:
Operating income $7,145.5 $7,949.2 $ (803.7)
Depreciation and amortization 1,555.7 1,644.5 (88.8)
Currency translation(1) 919.9
Change in operating income plus depreciation and
amortization (at constant foreign exchange rates) $27.4
DENOMINATOR:
Weighted-average cash used for
investing activities(2) $1,774.7
Currency translation(1) 4.1
Weighted-average cash used for investing activities
(at constant foreign exchange rates) $1,778.8
One-year ROIIC 1.5%
(1) Represents the effect of foreign currency translation by translating results
at an average exchange rate for the periods measured.
(2) 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, 2015.
Years ended December 31,
2015 2014
Cash used for
investing activities $ 1,420.0 $ 2,304.9
AS A PERCENT
Quarters ended:
March 31 87.5% 12.5%
June 30 62.5 37.5
September 30 37.5 62.5
December 31 12.5 87.5
Three-year ROIIC calculation (dollars in millions):
Years ended December 31, 2015 2012 Increase/
(decrease)
NUMERATOR:
Operating income $ 7,145.5 $ 8,604.6 $(1,459.1)
Depreciation and amortization 1,555.7 1,488.5 67.2
Currency translation(3)
1,114.4
Change in operating income plus depreciation and
amortization (at constant foreign exchange rates) $ (277.5)
DENOMINATOR:
Weighted-average cash used for
investing activities(4) $ 7,495.6
Currency translation(3) (66.8)
Weighted-average cash used for investing activities
(at constant foreign exchange rates) $ 7,428.8
Three-year ROIIC (3.7)%
(3) Represents the effect of foreign currency translation by translating results
at an average exchange rate for the periods measured.
(4) Represents three-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 four-year period ended
December 31, 2015.
Years ended December 31,
2015 2014 2013 2012
Cash used for
investing activities $1,420.0 $2,304.9 $2,673.8 $3,167.3
AS A PERCENT
Quarters ended:
March 31 87.5% 100.0% 100.0% 12.5%
June 30 62.5 100.0 100.0 37.5
September 30 37.5 100.0 100.0 62.5
December 31 12.5 100.0 100.0 87.5