MCDONALDS CORP | 2013 | FY | 3

The following table presents restaurant information by ownership type:
Restaurants at December 31,
2013

 
2012

 
2011

Conventional franchised
20,355

 
19,869

 
19,527

Developmental licensed
4,747

 
4,350

 
3,929

Foreign affiliated
3,589

 
3,663

 
3,619

Franchised
28,691

 
27,882

 
27,075

Company-operated
6,738

 
6,598

 
6,435

Systemwide restaurants
35,429

 
34,480

 
33,510

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Share-based compensation expense and the effect on diluted earnings per common share were as follows:
In millions, except per share data
2013

 
2012

 
2011

Share-based compensation expense
$
89.1

 
$
93.4

 
$
86.2

After tax
$
60.6

 
$
63.2

 
$
59.2

Earnings per common share-diluted
$
0.06

 
$
0.06

 
$
0.05

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The following table presents the pretax amounts affecting income and OCI for the years ended December 31, 2013 and 2012, respectively:
In millions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives in
Fair Value
Hedging
Relationships
 
Gain (Loss)
Recognized in Income
on Derivative
 
Hedged Items in
Fair Value
Hedging
 Relationships
 
Gain (Loss)
Recognized in Income on
Related Hedged Items
 
 
 
 
 
 
 
 
 
 
 
 
2013

 
2012

 
 
 
 
 
 
 
2013

 
 
 
2012
 
Interest rate
 
 
$
(29.5
)
 
$
(13.0
)
 
Fixed-rate debt
 
 
$
29.5

 
 
 
 
$
13.0

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives in
Cash Flow
Hedging
Relationships
 
Gain (Loss) Recognized in
Accumulated OCI on Derivative
(Effective Portion)
 
Gain (Loss)
Reclassified into Income
from Accumulated OCI
 (Effective Portion)
 
Gain (Loss)
Recognized in Income on
Derivative (Amount Excluded
from Effectiveness Testing and
Ineffective Portion)
 
 
 
 
 
 
 
 
 
 
 
 
2013

 
2012

 
 
2013

 
2012

 
 
2013

 
 
 
2012
 
Commodity
 
 
$
(34.1
)
 
$
35.1

 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency
 
 
(65.5
)
 
(6.4
)
 
 
$
(50.3
)
 
$
(15.8
)
 
 
$
(6.1
)
 
 
 
 
$
(12.3
)
Interest rate(1)
 
 
—

 
(4.6
)
 
 
(0.4
)
 
0.5

 
 
—

 
 
 
 
—

Total
 
 
$
(99.6
)
 
$
24.1

 
 
$
(50.7
)
 
$
(15.3
)
 
 
$
(6.1
)
 
 
 

$
(12.3
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gain (Loss)
Recognized in
Accumulated OCI
(Effective Portion)
 
 
 
Derivatives Not
Designated for
Hedge Accounting
 
Gain (Loss)
Recognized in
Income
on Derivative
Net Investment
Hedging Relationships
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2013

 
2012

 
 
 
 
 
 
 
 
 
 
2013

 
2012

Foreign currency denominated debt
 
 
$
(382.8
)
 
$
(61.7
)
 
 
 
 
 
 
Foreign currency
 
 
$
(30.2
)
 
$
(13.4
)
Foreign currency derivatives
 
 
(18.4
)
 
(23.3
)
 
 
 
 
 
 
Equity(2)
 
 
 
21.8

 
(16.2
)
Total
 
 
$
(401.2
)
 
$
(85.0
)
 
 
 
 
 
 
Total
 
 
$
(8.4
)
 
$
(29.6
)
Gains (losses) recognized in income on derivatives are recorded in Nonoperating (income) expense, net unless otherwise noted.
(1)
The amount of gain (loss) reclassified from accumulated OCI into income is recorded in Interest expense.
(2)
The amount of gain (loss) recognized in income on the derivatives used to hedge the supplemental benefit plan liabilities is primarily recorded in Selling, general & administrative expenses.

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The following table presents the fair values of derivative instruments included on the Consolidated balance sheet as of December 31, 2013 and 2012:
  
Derivative Assets
 
Derivative Liabilities
In millions
Balance Sheet Classification
 
2013

 
2012

 
Balance Sheet Classification
 
2013

 
2012

Derivatives designated for hedge accounting
 
 
 
 
 
 
 
 
Foreign currency
Prepaid expenses and other current assets
 
$
28.3

 
$
5.0

 
Accrued payroll and other liabilities
 
$
(28.8
)
 
$
(3.5
)
Interest rate
Prepaid expenses and other current assets
 
—

 
4.2

 
 
 
 
 
 
Commodity
Miscellaneous other assets
 
—

 
35.3

 
Other long-term liabilities
 
—

 
(0.2
)
Foreign currency
Miscellaneous other assets
 
2.5

 
2.5

 
Other long-term liabilities
 
(114.7
)
 
(32.1
)
Interest rate
Miscellaneous other assets
 
24.8

 
38.1

 
Other long-term liabilities
 
(12.0
)
 
—

Total derivatives designated for hedge accounting
 
$
55.6

 
$
85.1

 
 
 
$
(155.5
)
 
$
(35.8
)
Derivatives not designated for hedge accounting
 
 
 
 
 
 
 
 
Equity
Prepaid expenses and other current assets
 
$
6.7

 
$
132.3

 
 
 
 
 
 
Foreign currency
Prepaid expenses and other current assets
 
9.3

 
1.0

 
Accrued payroll and other liabilities
 
$
(23.8
)
 
$
(6.8
)
Equity
Miscellaneous other assets
 
128.2

 
—

 
 
 
 
 
 
Total derivatives not designated for hedge accounting
 
$
144.2

 
$
133.3

 
 
 
$
(23.8
)
 
$
(6.8
)
Total derivatives
 
$
199.8

 
$
218.4

 
 
 
$
(179.3
)
 
$
(42.6
)

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The following tables present financial assets and liabilities measured at fair value on a recurring basis by the valuation hierarchy as defined in the fair value guidance: 
December 31, 2013
 
 
 
 
 
 
In millions
Level 1*

 
Level 2

 
Carrying
Value
 
Investments
$
27.6

 
 
 
 
$
27.6

Derivative assets
128.2

 
$
71.6

 
 
199.8

Total assets at fair value
$
155.8

 
$
71.6

 
 
$
227.4

Derivative liabilities
 
 
$
(179.3
)
 
 
$
(179.3
)
Total liabilities at fair value
 
 
$
(179.3
)
 
 
$
(179.3
)
 
 
 
 
 
 
 
 
December 31, 2012
 
 
 
 
 
 
In millions
Level 1*

 
Level 2

 
Carrying
Value
 
Investments
$
155.1

 
 
 
 
$
155.1

Derivative assets
132.3

 
$
86.1

 
 
218.4

Total assets at fair value
$
287.4

 
$
86.1

 
 
$
373.5

Derivative liabilities
 
 
$
(42.6
)
 
 
$
(42.6
)
Total liabilities at fair value
 
 
$
(42.6
)
 
 
$
(42.6
)
*
Level 1 is comprised of investments and derivatives that hedge market driven changes in liabilities associated with the Company’s supplemental benefit plans.

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The following table presents the 2013 activity in goodwill by segment:
In millions
U.S.

 
Europe

APMEA(1)
 
Other Countries
& Corporate(2)
 
Consolidated
 
Balance at December 31, 2012
$
1,294.2

 
$
881.4

 
$
438.7

 
$
189.7

 
$
2,804.0

Net restaurant purchases (sales)
(0.6
)
 
50.4

 
30.7

 
15.7

 
96.2

Currency translation
 
 
26.3

 
(40.7
)
 
(13.1
)
 
(27.5
)
Balance at December 31, 2013
$
1,293.6

 
$
958.1

 
$
428.7

 
$
192.3

 
$
2,872.7

(1)
APMEA represents Asia/Pacific, Middle East and Africa.
(2)
Other Countries & Corporate represents Canada, Latin America and Corporate.

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The following table presents the weighted-average assumptions used in the option pricing model for the 2013, 2012 and 2011 stock option grants. The expected life of the options represents the period of time the options are expected to be outstanding and is based on historical trends. Expected stock price volatility is generally based on the historical volatility of the Company’s stock for a period approximating the expected life. The expected dividend yield is based on the Company’s most recent annual dividend rate. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant with a term equal to the expected life.
 
Weighted-average assumptions
 
2013

2012

2011

Expected dividend yield
3.5
%
2.8
%
3.2
%
Expected stock price volatility
20.6
%
20.8
%
21.5
%
Risk-free interest rate
1.2
%
1.1
%
2.8
%
Expected life of options
(in years)
6.1

6.1

6.3

Fair value per option granted
$
11.09

$
13.65

$
12.18

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