Introduction
McDonald is one of the largest food retailers worldwide. McDonalds has a chain of restaurants which are all over the world. It is famous for its burgers and its fast foods. McDonalds has matured to a large corporation and continues to broaden as it sets up more of its restaurants in various countries. The following essay shows the annual report for McDonalds.
(SEC 26)
Consolidated Balance Sheet
(SEC 28)
Consolidated Statement of Cash Flows
(SEC 28) (McDonalds Corporation Annual Report 2013)
Audit Committee Report
Dear Fellow Shareholders:
The Audit Committee is composed of four Directors, each of whom meets the independence and other requirements of the New York Stock Exchange. As stated previously, Enrique Hernandez, Jr., Cary D. McMillan and Roger W. Stone qualify as the “audit committee financial experts.” The Committee has the responsibilities set out in its charter, which has been adopted by the Board of Directors and is reviewed annually.
Management is primarily responsible for the Company’s financial statements, including the Company’s internal control over financial reporting. Ernst & Young LLP, the Company’s independent auditors, is responsible for performing an audit of the Company’s annual consolidated financial statements in accordance with generally accepted accounting principles (GAAP) and the Company’s internal controls over financial reporting and for issuing reports on the statements and internal controls. Ernst & Young also reviews the Company’s interim financial statements in accordance with Statement on Auditing Standards No.100 (interim financial information). The Committee oversees the Company’s financial reporting process and internal control structure on behalf of the Board of Directors. The Committee met nine times during 2004, including meeting regularly with Ernst & Young and the internal auditors, both privately and with management present. In fulfilling its oversight responsibilities, the Committee reviewed and discussed with management and Ernst & Young the audited and interim financial statements, including Management’s Discussion and Analysis, included in the Company’s Reports on Form 10-K and Form 10-Q. These reviews included a discussion of the following:
• Critical accounting policies of the Company;
• The reasonableness of significant financial reporting judgments made in connection with the financial statements, including the quality (and not just the acceptability) of the Company’s accounting principles;
• The clarity and completeness of financial disclosures;
• The effectiveness of the Company’s internal control over financial reporting, including management’s and Ernst & Young’s reports thereon, the basis for the conclusions expressed in those reports and changes made to the Company’s internal control over financial reporting during 2004.
• Items that could be accounted for using alternative treatments within GAAP, the ramifications thereof and the treatment preferred by Ernst & Young;
• The annual management letter issued by Ernst & Young, management’s response thereto and other material written communications between management and Ernst & Young;
• Unadjusted audit differences noted by Ernst & Young during its audit of the Company’s annual financial statements; and
• The potential effects of regulatory and accounting initiatives on the Company’s financial statements.
In connection with its review of the Company’s annual consolidated financial statements, the Committee also discussed with Ernst & Young other matters required to be discussed with the auditors under Statement on Auditing Standards No. 61, as modified or supplemented (communication with audit committees) and those addressed by Ernst & Young’s written disclosures and its letter provided under Independence Standards Board Standard No. 1, as modified or supplemented (independence discussions with audit committees).
The Committee is responsible for the engagement of the independent auditors and appointed Ernst & Young to serve in that capacity during 2004 and 2005. In that connection, the Committee did the following:
• Reviewed Ernst & Young’s independence from the Company and management, including Ernst & Young’s written disclosures described above;
• Reviewed periodically the level of fees approved for payment to Ernst & Young and the pre-approved non-audit services it has provided to the Company to ensure their compatibility with Ernst & Young’s independence; and
• Reviewed Ernst & Young’s performance, qualifications and quality control procedures.
Among other matters, the Committee also did the following:
• Reviewed the scope of and overall plans for the annual audit and the internal audit program;
• Consulted with management and Ernst & Young with respect to the Company’s processes for risk assessment and risk management;
• Reviewed the adequacy of certain of the Company’s financial policies;
• Reviewed and approved the Company’s policies for the pre-approval of audit and permitted non-audit services by the independent auditors and the hiring of former employees of the independent auditors;
• In 2003, established a policy for the submission and confidential treatment of communications received from employees and third parties about accounting, internal controls and auditing matters, and reviewed reports of such communications in accordance with the policy;
• Reviewed with management the scope and effectiveness of the Company’s disclosure controls and procedures, including for purposes of evaluating the accuracy and fair presentation of the Company’s financial statements in connection with certifications made by the Chief Executive Officer and Chief Financial Officer; and
• Reviewed significant legal developments and the Company’s processes for monitoring compliance with law and Company policies.
The annual report conforms to the accounting principles of the U.S. which allow the company to make assumptions on some issues. The actual figures could differ from those estimates. The company controls and franchises restaurants all over the global market. The restaurants are either operated by the company or by franchises including developmental licenses and foreign affiliates under license agreements and conventional franchises under franchise contracts. Other resources found in the investor’s relations sector include stock ownership and significant accounting policies.
PART B: Investor Relations
Stock Ownership
The company has established guidelines for stock ownership for the directors. It has a stock ownership and retention policy through which it enacts the stock ownership and retention requirements to the senior officers. The following outline shows stocks of some of those owning above 5% of the company’s stock.
Beneficial owner beneficial ownership class (4)
Black Rock, Inc. (1) 70,128,178 7.0%
40 East 52nd Street
New York, NY 10022
One Lincoln Street
Boston, MA 02111
The Vanguard Group, Inc. (3) 57,759,626 5.8%
100 Vanguard Blvd.
Malvern, PA 19355
Shows shares considered to be beneficially possessed by Black Rock, Inc. (Black Rock), directly or via its affiliates, as of December 31, 2013. According to a report on Schedule 13G/A filed on February 10, 2014 with SEC, it points out that Black Rock, has sole voting power with respect to 58,528,445 of the stocks and sole dispositive influence to all of the shares. The Schedule 13G/A confirms that the securities were attained in the normal course and not with the effect of altering or swaying the control of the Company.
Shows shares considered to be beneficially possessed by State Street Corporation (State Street) either directly or through its affiliates, as of December 31, 2013. In accordance with a statement on Schedule 13G filed with the SEC on 3, 2014, it indicates that State Street, has joint voting power and joint dispositive influence to all of the shares. The Schedule 13G/A confirms that the securities were attained in the normal course and not with the effect of altering or swaying the control of the Company. Shows shares considered to be beneficially possessed by The Vanguard Group, Inc. (Vanguard), either directly or through its affiliates, as of December 31, 2013. A statement on Schedule 13G shows that Vanguard, an investment consultant, has sole voting power with for 1,628,405 of the shares, sole dispositive influence for 56,237,768 of the shares and shared dispositive control for 1,521,858 of the shares. The Schedule 13G/A confirms that the securities were attained in the normal course and not with the effect of altering or swaying the control of the Company.
Accounting policies
Fifty percent of the company is owned by its affiliates the chief one being McDonald’s Japan. The revenue earned by the company comes from fees form franchised restaurants operated by foreign affiliates, conventional franchises and developmental enterprises. A sale from company operated restaurants is recognized on a cash basis. The company presents the net tax sales and other taxes related to sales. Revenue from developmental licenses and foreign affiliates include initial fees and a royalty based on percentage sales. Revenues from conventional franchises include royalty of a percentage of sales, minimum rent and initial fees. Initial fee is given at the opening of a restaurant after the company has fulfilled its duties as agreed in the franchise arrangement while royalties and rent are given during the period earned (Stock Information).
Company operated restaurants incurred advertising costs of 2013- $808.4million; 2012-$787.5 million; 2011-$768.6million in contributions made to advertising cooperatives. Franchised restaurants also met advertising costs of their own when advertising in individual markets. Production costs which include administrative and general expenses were in millions; 2013-$75.4, 2012-$113.5 and 2011-$74.4. Share based competition includes the vesting of all share based awards granted based on the grant date fair value. As of December 31st 2013 the compensation amount related to non-vested share based grants was $109 million. It is expected to be recognized in a period of 2 years. Using the straight line method, buildings and equipment are stated at a cost with amortization and depreciation included and the following estimates made, buildings last up to four years and equipment three to twelve years. Goodwill signifies the excess of cost over identifiable intangible assets and the net tangible assets of acquired restaurant businesses. The company’s goodwill comes from ownership increases in affiliates or subsidiaries and purchases of McDonald’s restaurants. It is usually submitted to the reporting unit that is expected to profit from the interactions of combination. If a restaurant is sold after 24 months of procurement the amount of goodwill written off depends on virtual fair value of the business sold paralleled to the reporting unit (each individual country). If a restaurant is sold within 24 months of procurement the goodwill is written off in totality. The company review long lived assets for impairment annually. In the U.S. the impairment level is given by the level of television market.
For international markets it’s given by the levels in the specific countries. If a restaurant is to be impaired its sum of loss is given by the carrying total of the restaurant over its fair value as gotten from an approximation of discounted future cash flows. The company manages its restaurants like a portfolio or group such that the prices are similar and they engage in similar promotional activities such that the cash flows of an individual restaurant aren’t independent of that of other restaurants in the market. The resources provide additional information on Stock ownership in the company and some of the accounting policies used. The audit differs slightly form the annual report documents.
Works Cited
McDonalds Corporation Annual Report 2013. Web. Accessed from
<http://www.sec.gov/Archives/edgar/data/63908/000006390814000019/mcd-
12312013x10k.htm>
Stock Information. 2013. Web. Accessed from
<http://www.aboutmcdonalds.com/mcd/investors/stock_information.html>
