Income Tax Accounting Policy

McDonald's Corp., like other multi-national companies, is regularly audited by federal, state and foreign tax authorities, and tax assessments may arise several years after tax returns have been filed. Accordingly, tax liabilities are recorded when, in management's judgment, a tax position does not meet the more likely than not threshold for recognition. For tax positions that meet the more likely than not threshold, a tax liability may still be recorded depending on management's assessment of how the tax position will ultimately be settled.

McDonald's Corp. records interest and penalties on unrecognized tax benefits in the provision for income taxes.

Source: McDonald's Corp., Annual Report

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Income Tax Expense (Benefit)

McDonald's Corp., income tax expense (benefit), continuing operations

USD $ in thousands

 
12 months ended Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010 Dec 31, 2009
U.S. federal 1,238,200  1,129,900  1,173,400  1,127,100  792,000 
U.S. state 175,000  189,800  165,200  161,100  152,100 
Outside the U.S. 1,180,200  1,160,000  982,100  841,500  788,900 
Current tax provision 2,593,400  2,479,700  2,320,700  2,129,700  1,733,000 
U.S. federal 46,200  144,900  189,000  (66,800) 186,900 
U.S. state (6,700) 5,500  8,600  13,800  8,600 
Outside the U.S. (14,300) (15,900) (9,200) (22,700) 7,500 
Deferred tax provision (benefit) 25,200  134,500  188,400  (75,700) 203,000 
Provision for income taxes 2,618,600  2,614,200  2,509,100  2,054,000  1,936,000 

Source: Based on data from McDonald's Corp. Annual Reports

Item Description The company
Current tax provision The component of income tax expense for the period representing amounts of income taxes paid or payable (or refundable) for the period for all income tax obligations as determined by applying the provisions of relevant enacted tax laws to relevant amounts of taxable income (loss) from continuing operations. McDonald's Corp.'s current tax provision increased from 2011 to 2012 and from 2012 to 2013.
Deferred tax provision (benefit) The component of income tax expense for the period representing the net change in the entity's deferred tax assets and liabilities pertaining to continuing operations. McDonald's Corp.'s deferred tax provision (benefit) declined from 2011 to 2012 and from 2012 to 2013.
Provision for income taxes The sum of the current income tax expense (benefit) and the deferred income tax expense (benefit) pertaining to pretax income (loss) from continuing operations; income tax expense (benefit) may include interest and penalties on tax uncertainties based on the entity's accounting policy. McDonald's Corp.'s provision for income taxes increased from 2011 to 2012 and from 2012 to 2013.

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Effective Income Tax Rate (EITR)

McDonald's Corp., effective income tax rate (EITR) reconciliation

 
Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010 Dec 31, 2009
Statutory U.S. federal income tax rate 35.00% 35.00% 35.00% 35.00% 35.00%
State income taxes, net of related federal income tax benefit 1.30% 1.60% 1.40% 1.60% 1.60%
Benefits and taxes related to foreign operations -4.00% -4.10% -4.70% -6.90% -6.30%
Other, net -0.40% -0.10% -0.40% -0.40% -0.50%
Effective income tax rates 31.90% 32.40% 31.30% 29.30% 29.80%

Source: Based on data from McDonald's Corp. Annual Reports

Item Description The company
Effective income tax rates A ratio calculated by dividing the reported amount of income tax expense attributable to continuing operations for the period by GAAP-basis pretax income from continuing operations. McDonald's Corp.'s effective income tax rates increased from 2011 to 2012 but then slightly declined from 2012 to 2013.

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Components of Deferred Tax Assets and Liabilities

McDonald's Corp., components of deferred tax assets and liabilities

USD $ in thousands

 
Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010 Dec 31, 2009
Property and equipment 407,900  403,600  355,400  352,400  287,700 
Employee benefit plans 388,900  362,900  406,300  356,400  311,000 
Intangible assets 210,100  258,000  256,200  268,600  289,300 
Deferred foreign tax credits 192,300  179,500  173,900  310,700  152,800 
Operating loss carryforwards 154,000  92,400  71,100  56,800  65,700 
Other 347,600  319,400  372,000  358,000  428,700 
Deferred tax assets before valuation allowance 1,700,800  1,615,800  1,634,900  1,702,900  1,535,200 
Valuation allowance (172,800) (127,000) (102,000) (104,700) (118,100)
Deferred tax assets 1,528,000  1,488,800  1,532,900  1,598,200  1,417,100 
Property and equipment (1,812,400) (1,713,900) (1,651,300) (1,655,200) (1,609,400)
Other (639,800) (636,400) (541,700) (489,800) (419,100)
Deferred tax liabilities (2,452,200) (2,350,300) (2,193,000) (2,145,000) (2,028,500)
Net deferred tax assets (liabilities) (924,200) (861,500) (660,100) (546,800) (611,400)

Source: Based on data from McDonald's Corp. Annual Reports

Item Description The company
Deferred tax assets before valuation allowance The sum of the tax effects as of the balance sheet date of the amounts of all future tax deductions arising from temporary differences between tax basis and generally accepted accounting principles basis recognition of assets, liabilities, revenues and expenses, which can only be deducted for tax purposes when permitted under enacted tax laws (before the valuation allowance, if any, to reduce such sum amount to net realizable value). Includes any tax benefit realized in deferred tax assets for significant impacts of tax planning strategies. McDonald's Corp.'s deferred tax assets before valuation allowance declined from 2011 to 2012 but then increased from 2012 to 2013 exceeding 2011 level.
Deferred tax assets The aggregate tax effects as of the balance sheet date of all future tax deductions arising from temporary differences between tax basis and generally accepted accounting principles basis recognition of assets, liabilities, revenues and expenses, which can only be deducted for tax purposes when permitted under enacted tax laws; net of deducting the allocated valuation allowance, if any, to reduce such amount to net realizable value. McDonald's Corp.'s deferred tax assets declined from 2011 to 2012 but then increased from 2012 to 2013 not reaching 2011 level.
Net deferred tax assets (liabilities) For entities that net deferred tax assets and tax liabilities, represents the unclassified net amount of deferred tax assets and liabilities as of the balance sheet date, which result from applying the applicable enacted tax rate to net temporary differences and carryforwards pertaining to assets or liabilities. A temporary difference is a difference between the tax basis of an asset or liability and its carrying amount in the financial statements prepared in accordance with generally accepted accounting principles that will reverse in ensuing periods. McDonald's Corp.'s net deferred tax assets (liabilities) declined from 2011 to 2012 and from 2012 to 2013.

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Deferred Tax Assets and Liabilities, Classification

McDonald's Corp., deferred tax assets and liabilities, classification

USD $ in thousands

 
Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010 Dec 31, 2009
Noncurrent deferred tax liabilities 1,647,700  1,531,100  1,344,100  1,332,400  1,278,900 
Noncurrent deferred tax assets (included in other assets-miscellaneous) 621,400  603,600  606,300  590,400  541,200 
Current deferred tax assets (included in current assets-prepaid expenses and other current assets) 102,100  66,000  77,700  195,200  126,300 

Source: Based on data from McDonald's Corp. Annual Reports

Item Description The company
Noncurrent deferred tax liabilities Represents the noncurrent portion of deferred tax liabilities, which result from applying the applicable tax rate to net taxable temporary differences pertaining to each jurisdiction to which the entity is obligated to pay income tax. A noncurrent taxable temporary difference is a difference between the tax basis and the carrying amount of a noncurrent asset or liability in the financial statements prepared in accordance with generally accepted accounting principles. In a classified statement of financial position, an enterprise shall separate deferred tax liabilities and assets into a current amount and a noncurrent amount. Deferred tax liabilities and assets shall be classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. A deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to carryforwards, shall be classified according to the expected reversal date of the temporary difference. McDonald's Corp.'s noncurrent deferred tax liabilities increased from 2011 to 2012 and from 2012 to 2013.
Noncurrent deferred tax assets (included in other assets-miscellaneous) The noncurrent portion as of the balance sheet date of the aggregate carrying amount of all future tax deductions arising from temporary differences between tax basis and generally accepted accounting principles basis recognition of assets, liabilities, revenues and expenses, which can only be deducted for tax purposes when permitted under enacted tax laws; after the valuation allowance, if any, to reduce such amount to net realizable value. Deferred tax liabilities and assets shall be classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. A deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to carryforwards, shall be classified according to the expected reversal date of the temporary difference. McDonald's Corp.'s noncurrent deferred tax assets (included in other assets-miscellaneous) declined from 2011 to 2012 but then increased from 2012 to 2013 exceeding 2011 level.
Current deferred tax assets (included in current assets-prepaid expenses and other current assets) The current portion of the aggregate tax effects as of the balance sheet date of all future tax deductions arising from temporary differences between tax basis and generally accepted accounting principles basis recognition of assets, liabilities, revenues and expenses, which can only be deducted for tax purposes when permitted under enacted tax laws; after deducting the allocated valuation allowance, if any, to reduce such amount to net realizable value. Deferred tax liabilities and assets shall be classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. A deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to carryforwards, shall be classified according to the expected reversal date of the temporary difference. An unrecognized tax benefit that is directly related to a position taken in a tax year that results in a net operating loss carryforward should be presented as a reduction of the related deferred tax asset. McDonald's Corp.'s current deferred tax assets (included in current assets-prepaid expenses and other current assets) declined from 2011 to 2012 but then increased from 2012 to 2013 exceeding 2011 level.

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Analyst Adjustments: Removal of Deferred Taxes

McDonald's Corp., adjustments to financial data

USD $ in thousands

 
Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010 Dec 31, 2009
Adjustment to Current Assets
Current assets (as reported) 5,050,100  4,922,100  4,403,000  4,368,500  3,416,300 
Less: Current deferred tax assets, net 102,100  66,000  77,700  195,200  126,300 
Current assets (adjusted) 4,948,000  4,856,100  4,325,300  4,173,300  3,290,000 
Adjustment to Total Assets
Total assets (as reported) 36,626,300  35,386,500  32,989,900  31,975,200  30,224,900 
Less: Current deferred tax assets, net 102,100  66,000  77,700  195,200  126,300 
Less: Noncurrent deferred tax assets, net 621,400  603,600  606,300  590,400  541,200 
Total assets (adjusted) 35,902,800  34,716,900  32,305,900  31,189,600  29,557,400 
Adjustment to Total Liabilities
Total liabilities (as reported) 20,616,600  20,092,900  18,599,700  17,341,000  16,191,000 
Less: Noncurrent deferred tax liabilities, net 1,647,700  1,531,100  1,344,100  1,332,400  1,278,900 
Total liabilities (adjusted) 18,968,900  18,561,800  17,255,600  16,008,600  14,912,100 
Adjustment to Shareholders’ Equity
Shareholders’ equity (as reported) 16,009,700  15,293,600  14,390,200  14,634,200  14,033,900 
Less: Current deferred tax assets, net 102,100  66,000  77,700  195,200  126,300 
Less: Noncurrent deferred tax assets, net 621,400  603,600  606,300  590,400  541,200 
Add: Noncurrent deferred tax liabilities, net 1,647,700  1,531,100  1,344,100  1,332,400  1,278,900 
Shareholders’ equity (adjusted) 16,933,900  16,155,100  15,050,300  15,181,000  14,645,300 
Adjustment to Net Income
Net income (as reported) 5,585,900  5,464,800  5,503,100  4,946,300  4,551,000 
Add: Deferred income tax expense (benefit) 25,200  134,500  188,400  (75,700) 203,000 
Net income (adjusted) 5,611,100  5,599,300  5,691,500  4,870,600  4,754,000 

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Adjusted Ratios: Removal of Deferred Taxes (Summary)

McDonald's Corp., adjusted ratios

 
Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010 Dec 31, 2009
Current Ratio
Reported current ratio 1.59 1.45 1.25 1.49 1.14
Adjusted current ratio 1.56 1.43 1.23 1.43 1.10
Net Profit Margin
Reported net profit margin 19.87% 19.82% 20.38% 20.55% 20.01%
Adjusted net profit margin 19.96% 20.31% 21.07% 20.23% 20.90%
Total Asset Turnover
Reported total asset turnover 0.77 0.78 0.82 0.75 0.75
Adjusted total asset turnover 0.78 0.79 0.84 0.77 0.77
Financial Leverage
Reported financial leverage 2.29 2.31 2.29 2.18 2.15
Adjusted financial leverage 2.12 2.15 2.15 2.05 2.02
Return on Equity (ROE)
Reported ROE 34.89% 35.73% 38.24% 33.80% 32.43%
Adjusted ROE 33.14% 34.66% 37.82% 32.08% 32.46%
Return on Assets (ROA)
Reported ROA 15.25% 15.44% 16.68% 15.47% 15.06%
Adjusted ROA 15.63% 16.13% 17.62% 15.62% 16.08%
Ratio Description The company
Adjusted current ratio A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities. McDonald's Corp.'s adjusted current ratio improved from 2011 to 2012 and from 2012 to 2013.
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by total revenue. McDonald's Corp.'s adjusted net profit margin deteriorated from 2011 to 2012 and from 2012 to 2013.
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. McDonald's Corp.'s adjusted total asset turnover deteriorated from 2011 to 2012 and from 2012 to 2013.
Adjusted financial leverage A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.
McDonald's Corp.'s adjusted financial leverage increased from 2011 to 2012 but then declined significantly from 2012 to 2013.
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity. McDonald's Corp.'s adjusted ROE deteriorated from 2011 to 2012 and from 2012 to 2013.
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. McDonald's Corp.'s adjusted ROA deteriorated from 2011 to 2012 and from 2012 to 2013.

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Adjusted Current Ratio

 
Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010 Dec 31, 2009
As Reported
Current assets (USD $ in thousands) 5,050,100  4,922,100  4,403,000  4,368,500  3,416,300 
Current liabilities (USD $ in thousands) 3,170,000  3,403,100  3,509,200  2,924,700  2,988,700 
Current ratio1 1.59 1.45 1.25 1.49 1.14
Adjusted for Deferred Taxes
Adjusted current assets (USD $ in thousands) 4,948,000  4,856,100  4,325,300  4,173,300  3,290,000 
Current liabilities (USD $ in thousands) 3,170,000  3,403,100  3,509,200  2,924,700  2,988,700 
Adjusted current ratio2 1.56 1.43 1.23 1.43 1.10

2013 Calculations

1 Current ratio = Current assets ÷ Current liabilities
= 5,050,100 ÷ 3,170,000 = 1.59

2 Adjusted current ratio = Adjusted current assets ÷ Current liabilities
= 4,948,000 ÷ 3,170,000 = 1.56

Ratio Description The company
Adjusted current ratio A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities. McDonald's Corp.'s adjusted current ratio improved from 2011 to 2012 and from 2012 to 2013.

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Adjusted Net Profit Margin

 
Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010 Dec 31, 2009
As Reported
Net income (USD $ in thousands) 5,585,900  5,464,800  5,503,100  4,946,300  4,551,000 
Revenues (USD $ in thousands) 28,105,700  27,567,000  27,006,000  24,074,600  22,744,700 
Net profit margin1 19.87% 19.82% 20.38% 20.55% 20.01%
Adjusted for Deferred Taxes
Adjusted net income (USD $ in thousands) 5,611,100  5,599,300  5,691,500  4,870,600  4,754,000 
Revenues (USD $ in thousands) 28,105,700  27,567,000  27,006,000  24,074,600  22,744,700 
Adjusted net profit margin2 19.96% 20.31% 21.07% 20.23% 20.90%

2013 Calculations

1 Net profit margin = 100 × Net income ÷ Revenues
= 100 × 5,585,900 ÷ 28,105,700 = 19.87%

2 Adjusted net profit margin = 100 × Adjusted net income ÷ Revenues
= 100 × 5,611,100 ÷ 28,105,700 = 19.96%

Ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by total revenue. McDonald's Corp.'s adjusted net profit margin deteriorated from 2011 to 2012 and from 2012 to 2013.

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Adjusted Total Asset Turnover

 
Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010 Dec 31, 2009
As Reported
Revenues (USD $ in thousands) 28,105,700  27,567,000  27,006,000  24,074,600  22,744,700 
Total assets (USD $ in thousands) 36,626,300  35,386,500  32,989,900  31,975,200  30,224,900 
Total asset turnover1 0.77 0.78 0.82 0.75 0.75
Adjusted for Deferred Taxes
Revenues (USD $ in thousands) 28,105,700  27,567,000  27,006,000  24,074,600  22,744,700 
Adjusted total assets (USD $ in thousands) 35,902,800  34,716,900  32,305,900  31,189,600  29,557,400 
Adjusted total asset turnover2 0.78 0.79 0.84 0.77 0.77

2013 Calculations

1 Total asset turnover = Revenues ÷ Total assets
= 28,105,700 ÷ 36,626,300 = 0.77

2 Adjusted total asset turnover = Revenues ÷ Adjusted total assets
= 28,105,700 ÷ 35,902,800 = 0.78

Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. McDonald's Corp.'s adjusted total asset turnover deteriorated from 2011 to 2012 and from 2012 to 2013.

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Adjusted Financial Leverage

 
Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010 Dec 31, 2009
As Reported
Total assets (USD $ in thousands) 36,626,300  35,386,500  32,989,900  31,975,200  30,224,900 
Shareholders’ equity (USD $ in thousands) 16,009,700  15,293,600  14,390,200  14,634,200  14,033,900 
Financial leverage1 2.29 2.31 2.29 2.18 2.15
Adjusted for Deferred Taxes
Adjusted total assets (USD $ in thousands) 35,902,800  34,716,900  32,305,900  31,189,600  29,557,400 
Adjusted shareholders’ equity (USD $ in thousands) 16,933,900  16,155,100  15,050,300  15,181,000  14,645,300 
Adjusted financial leverage2 2.12 2.15 2.15 2.05 2.02

2013 Calculations

1 Financial leverage = Total assets ÷ Shareholders’ equity
= 36,626,300 ÷ 16,009,700 = 2.29

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted shareholders’ equity
= 35,902,800 ÷ 16,933,900 = 2.12

Ratio Description The company
Adjusted financial leverage A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.
McDonald's Corp.'s adjusted financial leverage increased from 2011 to 2012 but then declined significantly from 2012 to 2013.

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Adjusted Return On Equity (ROE)

 
Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010 Dec 31, 2009
As Reported
Net income (USD $ in thousands) 5,585,900  5,464,800  5,503,100  4,946,300  4,551,000 
Shareholders’ equity (USD $ in thousands) 16,009,700  15,293,600  14,390,200  14,634,200  14,033,900 
ROE1 34.89% 35.73% 38.24% 33.80% 32.43%
Adjusted for Deferred Taxes
Adjusted net income (USD $ in thousands) 5,611,100  5,599,300  5,691,500  4,870,600  4,754,000 
Adjusted shareholders’ equity (USD $ in thousands) 16,933,900  16,155,100  15,050,300  15,181,000  14,645,300 
Adjusted ROE2 33.14% 34.66% 37.82% 32.08% 32.46%

2013 Calculations

1 ROE = 100 × Net income ÷ Shareholders’ equity
= 100 × 5,585,900 ÷ 16,009,700 = 34.89%

2 Adjusted ROE = 100 × Adjusted net income ÷ Adjusted shareholders’ equity
= 100 × 5,611,100 ÷ 16,933,900 = 33.14%

Ratio Description The company
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity. McDonald's Corp.'s adjusted ROE deteriorated from 2011 to 2012 and from 2012 to 2013.

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Adjusted Return On Assets (ROA)

 
Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010 Dec 31, 2009
As Reported
Net income (USD $ in thousands) 5,585,900  5,464,800  5,503,100  4,946,300  4,551,000 
Total assets (USD $ in thousands) 36,626,300  35,386,500  32,989,900  31,975,200  30,224,900 
ROA1 15.25% 15.44% 16.68% 15.47% 15.06%
Adjusted for Deferred Taxes
Adjusted net income (USD $ in thousands) 5,611,100  5,599,300  5,691,500  4,870,600  4,754,000 
Adjusted total assets (USD $ in thousands) 35,902,800  34,716,900  32,305,900  31,189,600  29,557,400 
Adjusted ROA2 15.63% 16.13% 17.62% 15.62% 16.08%

2013 Calculations

1 ROA = 100 × Net income ÷ Total assets
= 100 × 5,585,900 ÷ 36,626,300 = 15.25%

2 Adjusted ROA = 100 × Adjusted net income ÷ Adjusted total assets
= 100 × 5,611,100 ÷ 35,902,800 = 15.63%

Ratio Description The company
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. McDonald's Corp.'s adjusted ROA deteriorated from 2011 to 2012 and from 2012 to 2013.

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