I need help with my assignment for accounting. It is to do with report analysis and hypothesis testing. A good knowledge of Excel is required for this task.

Analytical review Golden Big Burgers Part I: Background Golden Big Burgers (GB) is a hamburger food chain with 20 locations operating solely in the US. The menu offerings and store operations are largely patterned after McDonald's (MCD). GB was formed in 2005 and went public in 2009. GB's common shares are publicly traded under the ticker symbol GB and it has a December 31 year-end. All GB restaurants are based on a single-building model and have approximately the same square footage. Stores 1 through 4 are located in shopping centers near college campuses and are open 18 hours a day. Stores 5 through 20 are located on college campuses and are open 24 hours a day. GB has been a client of Best Audit Firm since it went public. Management is very control conscious and maintains a strong internal control environment. GB has received an unqualified opinion every year on its financial statements since its first audit in 2005. Assume that you are the audit senior. During a meeting with the controller to discuss operating results for the year, the controller provides you with the following summary of key financial information: Amounts in thousands 2012 2011 2010 Sales $25,780 $23,409 $22,116 Less operating expenses $20,473 $18,462 $18,163 Operating margin $ 5,307 $ 4,947 $ 3,953 Operating margin percentage 20.6% 21.1% 17.9% The controller informs you that, on an aggregated basis, GB had a very good year despite the contraction of the informal, eating-out segment of the US population brought on by the recession. The recession caused a softening of GB's sales growth in early 2012. However, GB reacted quickly and reduced its prices, which resulted in improved sales. Overall sales increased 10.1% in 2012. Additionally, operating margins were 20.6% in 2012 versus 21.1% in 2011. This slight decline in operating margins in 2012 was due to reduced pricing, but was partially offset by increased customer (guest) counts of 6.9%. Analytical review - case study part I 2013 Ernst & Young Foundation (US). All Rights Reserved. SCORE No. MM4155I1 1 The controller previously provided the audit team with disaggregated information by store for 2010, 2011 and 2012 that includes sales, expenses, operating margins and customer count by store. One of the audit staff performed limited testing on this information (see working paper A0 Financial and nonfinancial). After reviewing this information, you ask the controller whether there were any significant events or changes in the stores of which you should be aware. The controller informs you of the following: Store No. 2 was converted to a 24-hour store midyear. Store No. 15 had a fire the first week of January and was closed for two and a half months. This store was completely remodeled before it reopened; however, management did not expect that the remodel would have a notable impact on sales. Stores No. 19 and No. 20 were opened on May 1, 2012 and September 1, 2012, respectively. The chief operating officer retired in March 2012 and no successor has been identified. The controller also shares with you the following insights: The retail industry utilizes comparable sales and comparable customer counts as key performance indicators. Internally, management tracks GB's results against MCD's US operations. Because of GB's appeal to college students, its sales have grown approximately 1% faster than MCD's sales. Operating margins have been approximately 0.5% better than MCD's operating margins. This is largely due to GB's lower compensation structure, since it primarily employs part-time college students. GB's average growth in customer count visits has been in line with MCD's growth. GB's third quarter press release included a statement that 2012 sales were expected to grow by approximately 10%. Approximately 5% of this growth was due to the addition of two new stores in 2012. Despite increased pressure on pricing, total operating margin dollars were better than expected. Last year, the audit team determined the scope would be 1.5% of the operating margin ($74,000 in 2011). Differences outside of this dollar threshold of plus or minus a 5% difference from expectations were appropriately investigated. The audit manager has told you, after considering the quantitative and qualitative factors and the required degree of precision, a similar approach to determining acceptable differences from expectations is appropriate in 2012; therefore, the scope has been set at $80,000 (1.5% of $5.3 million), plus or minus a 5% difference from expectations. You review some of the audit work already completed with the audit manager. This work will impact your ability to rely on key financial (actual and budgeted sales and operating results) and nonfinancial (customer count) information by store provided in management's monthly operations report for purposes of performing your analytical review procedures. Together, you note that: Internal control testing included sales and operating expenses at the store level. No significant issues were noted as a result of this testing. Analytical review - case study part I 2013 Ernst & Young Foundation (US). All Rights Reserved. SCORE No. MM4155I1 2 The audit team evaluated the accuracy of the customer count information by tracing a representative sample of the customer count data to register receipts at selected stores as part of the internal control testing. No significant issues were noted as a result of this testing. While budget information is available, the completeness, accuracy and robustness of the process have not been tested and, therefore, this information should not be used for purposes of the analytical review. Before you begin your analytical procedures, you refresh your understanding of the objectives of analytical procedures by reading PCAOB Auditing Standard No.15, paragraph 21, which states: \"Analytical procedures consist of evaluations of financial information made by a study of plausible relationships among both financial and nonfinancial data. Analytical procedures also encompass the investigation of significant differences from expected amounts.\" Based on a recent seminar you attended, you are aware the PCAOB has identified several deficiencies in performing analytical procedures among auditors in general that you want to avoid. These include the failure to: Test the data used in analytical procedures Develop and document expectations Establish a threshold of differences requiring further investigation Follow up on unexpected differences You note that while the data available for your analytical procedures has already been tested, you will be responsible for the remaining procedures. Required: Obtain a copy of McDonald's 2011 and 2012 annual reports. Review the management discussion and analysis section. Focus on comparable sales and guest counts for McDonald's US operations and company stores' operating margins for 2011 (pages 15-16) and 2012 (pages 18-19). Note that McDonald's only considers stores that have been open at least 13 months, including those temporarily closed (such as for remodels), in its comparable information statistics. - This link will take you to McDonald's annual reports: http://www.aboutmcdonalds.com/mcd/investors.html Analytical review - case study part I 2013 Ernst & Young Foundation (US). All Rights Reserved. SCORE No. MM4155I1 3 Develop and document your expectations regarding revenues for 2012 using the working papers that one of the audit staff has set up for you (Analytical_review_case_study_part_I.xls file). Use tick marks to describe any scope (you need to establish a threshold of differences from expectations requiring further follow-up), computations and explanations needed. Your analysis should include the development and documentation of analytics that consider plausible relationships between revenue with both financial and nonfinancial data. You should use formulas as appropriate to enhance the audit quality of your work. Your working papers should address the following: - Financial data: Prepare an analysis of actual 2012 sales compared to expected sales: - At an aggregate level, develop expected sales based on an understanding of industry comparables. Document your work on working paper A6 Industry comparables. Identify if additional follow up is needed for differences from expectations that exceed your scope. - At a disaggregated level by store (document your work on working paper A2 Sales): Develop expected sales based on an understanding of industry comparables. Further modify these expected sales to reflect any company specific events. Identify if follow-up is needed for any stores where differences from expectations exceed your scope. Analytical review - case study part I 2013 Ernst & Young Foundation (US). All Rights Reserved. SCORE No. MM4155I1 4 Annual Report 2011 McDonald's Corporation Highlights 2011 1 # in the Global Comparable Sales Growth 5.6 % Earnings Per Share Growth 11 %* *in constant currencies 2011 Total Shareholder Return DOW 30 34.7 % To Our Valued Shareholders: Albert Einstein once remarked that \"In the middle of difficulty lies opportunity.\" I believe he was telling us that even in the toughest environments, hard work and continuous improvement can pay off. I am proud to say that's what McDonald's continues to do. Our determination and pursuit of excellence drive our success in any operating environment. As this Annual Report indicates, 2011 was another strong year for McDonald's. Global comparable sales increased 5.6%, our ninth consecutive year of same store sales growth. Operating income grew 10% in constant currencies and we continued to extend our market share lead around the world. In addition, we returned $6 billion to shareholders through share repurchases and dividends paid, and we delivered a 35% total return to investors, making us the top performing company in the Dow Jones Industrial Average for 2011. Today, McDonald's is serving a record number of guests nearly 68 million people every day. Our menus are more extensive, diverse, and relevant than any time in our history. We are elevating our brand experience in entirely new ways, from digital ordering to delivery to newly reimaged restaurants. And we are strengthening our commitment to both the communities we serve and the larger world around us. In short, McDonald's is positively touching more lives and meeting the needs of more people in more ways than we ever have. Our success continues to be truly global, with all areas of the world contributing. Some highlights include the U.S. adding more than 350 million customer visits in 2011, Europe continuing to grow and now generating about 40% of our overall revenue, and Asia/Pacific, Middle East, and Africa doubling its income contribution to our business over the past six years. Such balanced growth highlights our deepening connection with customers everywhere, as well as the underlying strength of our business in today's ever increasing global economy. Our performance is driven by two key factors. The first is our ongoing commitment to the Plan to Win, which has served as our operations roadmap for the past nine years. The plan focuses on the core drivers of our business People, Products, Place, Price, and Promotion, or the five \"P's.\" It keeps us disciplined around building our brand holistically and enhancing the customer experience across our entire business from our menu and service to our value and convenience. For us, success continues to be about listening to customers and getting better at all the things large and small that matter most to them. Jim Skinner, Vice Chairman and CEO Don Thompson, President and COO Operating Income (In billions) $ 6.8 '09 $ 7.5 '10 '11 '09 $ 8.5 $ 6.8 $ 7.5 '10 $ 8.5 '11 S&P 500 14.1% 3-Year Compound Annual Total Return 14.9% DJIA (2009-2011) MCD500 S&P DJIA 21.1% 14.1% 14.9% MCD 21.1% 30.1% '09 '10 31.0% '11 '09 31.6% 30.1% '10 31.0% 31.6% '11 '09 '10 '11 '09 $ 4.11 $ 4.58 $ 4.11 $ 5.27 $ 4.58 '10 McDonald's Corporation 2011 Annual Report | 1 '11 $ 5.27 The second is the collaboration of our System partners. From our worldclass franchisees, who are dedicated to running great restaurants and being leaders in their communities; to our unparalleled global suppliers, who provide us with safe and high quality products each and every day; to our talented company employees led by President and Chief Operating Officer Don Thompson and our exceptional global leadership team. And, of course, our restaurant managers and crew the 1.7 million men and women who work to deliver the best experience every day in our more than 33,000 restaurants worldwide. All of these groups remain strongly aligned around our common goals, while making their unique contributions to our success. In addition, our talented and diverse Board of Directors provides sensible guidance and strong corporate governance as we work together to deliver shareholder value. With our entire System united and focused, we intend to keep building our business by capturing the tremendous opportunities identified in the Plan to Win. We'll do it by delivering even greater excitement around our food, beginning with our iconic core favorites Big Mac, Chicken McNuggets and French Fries and evolving our menu with new and innovative local offerings. We'll continue expanding our growing line of McCaf beverages, from specialty coffees to real fruit smoothies, differentiating our brand as a beverage destination. We'll stay focused on adding greater choice and balanced options around the world, from wraps to oatmeal to new Happy Meal alternatives, as we stay in step with our customers' needs. We also will continue to modernize our restaurants to provide a superior experience for our customers, as well as our managers and crew. We're adding new features and technologies that are making the drive-thru, ordering, and payment processes easier. In addition, we're moving ahead on our reimaging efforts, remodeling a growing number of restaurants with our contemporary new designs. With roughly 45% of our interiors and 25% of our exteriors reimaged around the world, we still have ample opportunity to keep reshaping our brand and delighting our guests with our updated restaurants. 2 | McDonald's Corporation 2011 Annual Report 104 Consecutive months of global comparable sales increases through December 2011 $ 7.5 '10 $ 6.8 '09 '11 As we keep elevating all of these aspects of our business, we're strengthening our brand as well. We will continue to use our size, scope and resources to make a positive difference for children, families, and communities around the world. Giving back is a part of our heritage, so we remain committed to taking leadership action across the broad spectrum of sustainability including nutrition and well-being, a sustainable supply chain, environmental responsibility, employee experience, and the community. As McDonald's Chief Executive, I am immensely proud of our performance and greatly appreciative of your investment in our brand. We do not take your support or our continued success for granted. We know the business environment remains challenging, with struggling economies and consumer confidence still fragile. Our gains will continue to be hard won. So we will keep heeding Mr. Einstein's words and seizing the opportunities to succeed. We remain relentlessly focused on our customers and delivering even better ways to meet their needs. With our strong System alignment, our proven Plan to Win, and our commitment to outstanding execution, I am confident we will continue to grow and deliver sustainable business results for the long-term benefit of our shareholders. As always, thank you for your investment in Brand McDonald's. I look forward to future success for this great brand. Sincerely, Jim Skinner Vice Chairman and CEO S&P 500 MCD DJIA $ 8.5 $ 7.5 '10 DJIA 2011 $ 6.8 '09 '11 S&P 500 '11 $ 8.5 $ 7.5 '10 Of course, making the McDonald's brand even more accessible is another important priority. Continuing to deliver strong value across every price tier, extending our operating hours at more locations, and strategically opening new restaurants in both emerging and mature markets will make us more available more often, when and where our customers want us. Annual Report $ 6.8 '09 14.1% $ 8.5 14.9% 14.1% 21.1% 14.9% 14.1% S&P 500 MCD Combined Operating Margin 14.9% DJIA 21.1% 30.1% 21.1% '09 MCD '10 31.0% '09 '11 30.1% 31.6% '10 31.0% '09 '11 30.1% 31.6% '10 31.0% '09 '11 Earnings Per Share '10 '09 '11 '10 '09 '11 $ 4.11 31.6% $ 4.58 $ 4.11 $ 5.27 $ 4.58 $ 4.11 $ 5.27 '10 $ 4.58 '09 '11 $ 2.2 '10 '09 '11 Dividends Paid (In billions) '10 '09 '11 '10 '11 $ 5.27 $ 2.4 $ 2.2 $ 2.6 $ 2.4 $ 2.2 $ 2.6 $ 2.4 $ 2.6 McDonald's Corporation 2011 Annual Report | 3 Dear Fellow Shareholders: McDonald's Corporation continued its strong momentum in 2011, as we stayed focused on delivering an outstanding experience for our customers across the globe. Your Board of Directors is pleased with the Company's performance, achieved once again in a challenging economic environment. Maintaining success requires strong plans, adept leadership, and unwavering alignment all of which McDonald's continues to demonstrate. The Plan to Win remains the guiding strategy for the McDonald's System and continues to keep us focused on the customer and elevating the entire dining experience. Around the world, we are delivering on the Plan in highly local ways from our menus to our marketing helping to make us a more relevant and meaningful brand in all the communities we serve. Our System partners are as unified as ever, with our franchisees, suppliers, and employees all working together toward our shared goals under the Plan to Win. Vice Chairman and CEO Jim Skinner and his global leadership team continue to direct the Company in an outstanding manner. Jim is a passionate brand advocate and skilled manager of our business, with a team that is talented, seasoned, and aligned. This strong continuity of management and the consistency, stability, and focus it brings has been instrumental in our ongoing success. Taking all of this into account, we believe in McDonald's ability to keep achieving results and delivering shareholder value. With a focus on the right priorities and plans, the right people in place, and a commitment to the highest level of execution, the Company is well-positioned to drive the business further and achieve continued profitable growth. Our Board comprised of diverse and experienced leaders across the business landscape remains committed to overseeing the Company's direction and promoting strong corporate governance. We eagerly embrace our responsibilities to help ensure the strength of this great brand moving forward. Speaking on behalf of the Board of Directors, it is an honor and privilege to serve you, our shareholders. Very truly yours, Andy McKenna Chairman 4 | McDonald's Corporation 2011 Annual Report Andy McKenna Chairman Financial Report 2011 RRD2291.indd 5 3/13/12 5:36 PM 2011 Financial Report 7 8 9 25 26 27 28 29 41 42 43 44 45 46 48 6 McDonald's Corporation Annual Report 2011 6-year Summary Stock Performance Graph Management's Discussion and Analysis of Financial Condition and Results of Operations Consolidated Statement of Income Consolidated Balance Sheet Consolidated Statement of Cash Flows Consolidated Statement of Shareholders' Equity 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 Independent Registered Public Accounting Firm on Internal Control over Financial Reporting Executive Management & Business Unit Officers Board of Directors Investor Information 6-Year Summary Dollars in millions, except per share data Company-operated sales Franchised revenues Total revenues Operating income Income from continuing operations Net income Cash provided by operations Cash used for investing activities Capital expenditures Cash used for financing activities Treasury stock repurchased(9) Common stock cash dividends Financial position at year end: Total assets Total debt Total shareholders' equity Shares outstanding in millions Per common share: Income from continuing operations-diluted Earnings-diluted Dividends declared Market price at year end Company-operated restaurants Franchised restaurants Total Systemwide restaurants Franchised sales(10) 2011 $18,293 $ 8,713 $27,006 $ 8,530 $ 5,503 $ 5,503 $ 7,150 $ 2,571 $ 2,730 $ 4,533 $ 3,373 $ 2,610 2010 16,233 7,842 24,075 7,473 4,946 4,946 6,342 2,056 2,135 3,729 2,648 2,408 2009 15,459 7,286 22,745 6,841(1) 4,551(1,2) 4,551(1,2) 5,751 1,655 1,952 4,421 2,854 2,235 2008 2007 16,561 16,611 6,961 6,176 23,522 22,787 6,443 3,879(4) (3) 4,313 2,335(4,5) (3) 4,313 2,395(4,5,6) 5,917 4,876 1,625 1,150 2,136 1,947 4,115 3,996 3,981 3,949 1,823 1,766 2006 15,402 5,493 20,895 4,433(7) 2,866(7) 3,544(7,8) 4,341 1,274 1,742 5,460 3,719 1,217 $32,990 $12,500 $14,390 1,021 31,975 11,505 14,634 1,054 30,225 10,578 14,034 1,077 28,462 10,218 13,383 1,115 28,974 8,408 15,458 1,204 $ 5.27 $ 5.27 $ 2.53 $100.33 6,435 27,075 33,510 $67,648 4.58 4.58 2.26 76.76 6,399 26,338 32,737 61,147 4.11(1,2) 4.11(1,2) 2.05 62.44 6,262 26,216 32,478 56,928 3.76(3) 1.93(4,5) (3) 3.76 1.98(4,5,6) 1.63 1.50 62.19 58.91 6,502 6,906 25,465 24,471 31,967 31,377 54,132 46,943 29,392 9,301 15,280 1,165 2.29(7) 2.83(7,8) 1.00 44.33 8,166 22,880 31,046 41,380 (1) Includes pretax income due to Impairment and other charges (credits), net of $61.1 million ($91.4 million after tax or $0.08 per share) primarily related to the resolution of certain liabilities retained in connection with the 2007 Latin America developmental license transaction. (2) Includes income of $58.8 million ($0.05 per share) in Gain on sale of investment related to the sale of the Company's minority ownership interest in Redbox Automated Retail, LLC. (3) Includes income of $109.0 million ($0.09 per share) in Gain on sale of investment from the sale of the Company's minority ownership interest in U.K.- based Pret A Manger. (4) Includes pretax operating charges of $1.7 billion ($1.32 per share) due to Impairment and other charges (credits), net primarily as a result of the Company's sale of its businesses in 18 Latin American and Caribbean markets to a developmental licensee. (5) Includes a tax benefit of $316.4 million ($0.26 per share) resulting from the completion of an Internal Revenue Service (IRS) examination of the Company's 2003-2004 U.S. federal tax returns. (6) Includes income of $60.1 million ($0.05 per share) related to discontinued operations primarily from the sale of the Company's investment in Boston Market. (7) Includes pretax operating charges of $134 million ($98 million after tax or $0.08 per share) due to Impairment and other charges (credits), net. (8) Includes income of $678 million ($0.54 per share) related to discontinued operations primarily resulting from the disposal of the Company's investment in Chipotle. (9) Represents treasury stock purchases as reflected in Shareholders' equity. (10) While franchised sales are not recorded as revenues by the Company, management believes they are important in understanding the Company's financial performance because these sales are the basis on which the Company calculates and records franchised revenues and are indicative of the financial health of the franchisee base. McDonald's Corporation Annual Report 2011 7 meaningful revenues and income outside the U.S. and some manage global brands. Thus, we believe that the use of the DJIA companies as the group for comparison purposes is appropriate. Stock performance graph At least annually, we consider which companies comprise a readily identifiable investment peer group. McDonald's is included in published restaurant indices; however, unlike most other companies included in these indices, which have no or limited international operations, McDonald's does business in more than 100 countries and a substantial portion of our revenues and income is generated outside the U.S. In addition, because of our size, McDonald's inclusion in those indices tends to skew the results. Therefore, we believe that such a comparison is not meaningful. Our market capitalization, trading volume and importance in an industry that is vital to the U.S. economy have resulted in McDonald's inclusion in the Dow Jones Industrial Average (DJIA) since 1985. Like McDonald's, many DJIA companies generate 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, 2011. The graph assumes that the value of an investment in McDonald's common stock, the S&P 500 Index and the DJIA companies (including McDonald's) was $100 at December 31, 2006. For the DJIA companies, returns are weighted for market capitalization as of the beginning of each period indicated. These returns may vary from those of the Dow Jones Industrial Average Index, which is not weighted by market capitalization, and may be composed of different companies during the period under consideration. COMPARISON OF CUMULATIVE FIVE YEAR TOTAL RETURN $300 $250 $200 $150 $100 $50 $0 Dec '06 '07 '08 '09 '10 '11 100 136 148 154 195 263 100 105 66 84 97 99 109 74 91 104 112 McDonald's Corporation S&P 500 Index Dow Jones Industrials 100 Source: S&P Capital IQ 8 McDonald's Corporation Annual Report 2011 Management's Discussion and Analysis of Financial Condition and Results of Operations Overview DESCRIPTION OF THE BUSINESS The Company franchises and operates McDonald's restaurants. Of the 33,510 restaurants in 119 countries at year-end 2011, 27,075 were franchised or licensed (including 19,527 franchised to conventional franchisees, 3,929 licensed to developmental licensees and 3,619 licensed to foreign affiliates (affiliates) primarily Japan) and 6,435 were operated by the Company. Under our conventional franchise arrangement, franchisees provide a portion of the capital required by initially investing in the equipment, signs, seating and dcor of their restaurant business, and by reinvesting in the business over time. The Company owns the land and building or secures long-term leases for both Company-operated and conventional franchised restaurant sites. This maintains long-term occupancy rights, helps control related costs and assists in alignment with franchisees. In certain circumstances, the Company participates in reinvestment for conventional franchised restaurants. Under our developmental license arrangement, licensees provide capital for the entire business, including the real estate interest, and the Company has no capital invested. In addition, the Company has an equity investment in a limited number of affiliates that invest in real estate and operate and/or franchise restaurants within a market. We view ourselves primarily as a franchisor and believe franchising is important to delivering great, locally-relevant customer experiences and driving profitability. However, directly operating restaurants is paramount to being a credible franchisor and is essential to providing Company personnel with restaurant operations experience. In our Company-operated restaurants, and in collaboration with franchisees, we further develop and refine operating standards, marketing concepts and product and pricing strategies, so that only those that we believe are most beneficial are introduced in the restaurants. We continually review, and as appropriate adjust, our mix of Company-operated and franchised (conventional franchised, developmental licensed and foreign affiliated) restaurants to help optimize overall performance. The Company's revenues consist of sales by Companyoperated restaurants and fees from restaurants operated by franchisees. Revenues from conventional franchised restaurants include rent and royalties based on a percent of sales along with minimum rent payments, and initial fees. Revenues from restaurants licensed to affiliates and developmental licensees include a royalty based on a percent of sales, and generally include initial fees. Fees vary by type of site, amount of Company investment, if any, and local business conditions. These fees, along with occupancy and operating rights, are stipulated in franchise/license agreements that generally have 20-year terms. The business is managed as distinct geographic segments. Significant reportable segments include the United States (U.S.), Europe, and Asia/Pacific, Middle East and Africa (APMEA). In addition, throughout this report we present \"Other Countries & Corporate\" that includes operations in Canada and Latin America, as well as Corporate activities. The U.S., Europe and APMEA segments account for 32%, 40% and 22% of total revenues, respectively. The United Kingdom (U.K.), France and Germany, collectively, account for over 50% of Europe's revenues; and China, Australia and Japan (a 50%-owned affiliate accounted for under the equity method), collectively, account for over 55% of APMEA's revenues. These six markets along with the U.S. and Canada are referred to as \"major markets\" throughout this report and comprise approximately 70% of total revenues. In analyzing business trends, management considers a variety of performance and financial measures, including comparable sales and comparable guest count growth, Systemwide sales growth and returns. Constant currency results exclude the effects of foreign currency translation and are calculated by translating current year results at prior year average exchange rates. Management reviews and analyzes business results in constant currencies and bases certain incentive compensation plans on these results because we believe this better represents the Company's underlying business trends. Comparable sales and comparable guest counts are key performance indicators used within the retail industry and are indicative of acceptance of the Company's initiatives as well as local economic and consumer trends. Increases or decreases in comparable sales and comparable guest counts represent the percent change in sales and transactions, respectively, from the same period in the prior year for all restaurants, whether operated by the Company or franchisees, in operation at least thirteen months, including those temporarily closed. Some of the reasons restaurants may be temporarily closed include reimaging or remodeling, rebuilding, road construction and natural disasters. Comparable sales exclude the impact of currency translation. Growth in comparable sales is driven by guest counts and average check, which is affected by changes in pricing and product mix. Generally, the goal is to achieve a balanced contribution from both guest counts and average check. McDonald's reports on a calendar basis and therefore the comparability of the same month, quarter and year with the corresponding period of the prior year will be impacted by the mix of days. The number of weekdays and weekend days in a given timeframe can have a positive or negative impact on comparable sales and guest counts. The Company refers to these impacts as calendar shift/trading day adjustments. In addition, the timing of holidays can impact comparable sales and guest counts. These impacts vary geographically due to consumer spending patterns and have the greatest effect on monthly comparable sales and guest counts while the annual impacts are typically minimal. Systemwide sales include sales at all restaurants. While franchised sales are not recorded as revenues by the Company, management believes the information is important in understanding the Company's financial performance because these sales are the basis on which the Company calculates and records franchised revenues and are indicative of the financial health of the franchisee base. Return 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 the business units, the effectiveness of capital deployed and the future allocation of capital. The return is calculated by dividing the change in operating income plus depreciation and amortization (numerator) by the adjusted cash used for investing activities McDonald's Corporation Annual Report 2011 9 (denominator), primarily capital expenditures. The calculation uses a constant average foreign exchange rate over the periods included in the calculation. STRATEGIC DIRECTION AND FINANCIAL PERFORMANCE The strength of the alignment between the Company, its franchisees and suppliers (collectively referred to as the System) has been key to McDonald's success. This business model enables McDonald's to consistently deliver locally-relevant restaurant experiences to customers and be an integral part of the communities we serve. In addition, it facilitates our ability to identify, implement and scale innovative ideas that meet customers' changing needs and preferences. McDonald's customer-focused Plan to Winwhich concentrates on being better, not just biggerprovides a common framework for our global business while allowing for local adaptation. Through the execution of multiple initiatives surrounding the five elements of our Plan to WinPeople, Products, Place, Price and Promotionwe have enhanced the restaurant experience for customers worldwide and grown comparable sales and customer visits in each of the last eight years. This Plan, combined with financial discipline, has delivered strong results for our shareholders. We have exceeded our long-term, constant currency financial targets of average annual Systemwide sales growth of 3% to 5%; average annual operating income growth of 6% to 7%; and annual returns on incremental invested capital in the high teens every year since the Plan's implementation in 2003, after adjusting for the loss in 2007 from the Latin America developmental license transaction. Given the size and scope of our global business, we believe these financial targets are realistic and sustainable over time, keeping us focused on making the best decisions for the long-term benefit of our System. In 2011, we remained focused on customers' needs and accelerated efforts within the Plan to Win where the greatest opportunity exists. The Company's key global priorities of optimizing our menu, modernizing the customer experience, and broadening accessibility to our Brand represent areas where we are intensifying our efforts to drive the business further. Initiatives supporting these priorities resonated with consumers, driving increases in sales and customer visits despite challenging economies and a contracting Informal Eating Out (IEO) segment in many markets. As a result, every area of the world contributed to 2011 global comparable sales and guest counts increasing 5.6% and 3.7%, respectively. Specific menu pricing actions across our system reflect local market conditions as well as other factors, notably the food away from home and food at home inflation indices. In our Companyoperated restaurants, we manage menu board prices to ensure value at all price points, increase profitability and mitigate inflation, all while trying to maintain guest count momentum. In order to accomplish these objectives, we utilize a strategic pricing tool that balances price, product mix and promotion. Franchisees also have access to, and many utilize, this strategic pricing tool. In general, we believe franchisees employ a similar pricing strategy. In 2011, we increased average price at Company-operated restaurants in each area of the world, although increases varied by market and region. We look to optimize product mix by utilizing a menu with entry-point value, core, premium and fourth-tier offerings. We also introduce new products that meet customer needs, which can expand average check and increase guest counts. 10 McDonald's Corporation Annual Report 2011 In the U.S., we grew sales, guest counts and market share with comparable sales up for the ninth consecutive year, rising 4.8% in 2011, while comparable guest counts rose 3.3%. These results were achieved despite a slight decline in the IEO segment. We remained focused on maximizing our core business while providing customers with affordable products and value throughout our menu including options available on the Dollar Menu at breakfast and the rest of the day. We highlighted core menu items like Chicken McNuggets that featured new sauces, breakfast products including our new Fruit & Maple Oatmeal, additions to the McCaf beverage line and limited-time offerings such as the McRib sandwich. The national launch of the McCaf Frozen Strawberry Lemonade and Mango Pineapple real-fruit smoothie provided meaningful extensions to the McCaf beverage line. Convenient locations also continued to provide a competitive advantage with extended hours and efficient drivethru service. Modernizing the customer experience remained a focus with the expansion of our major remodeling program to enhance the appearance and functionality of our restaurants and make our restaurants more relevant to our customers' daily lives. Over 900 existing restaurants were remodeled during 2011 with the majority adding drive-thru capacity to capture additional guest counts. We also completed our two-year, Systemwide roll-out of a new point-of-sale system. This allows us to continue expanding our menu offerings while making it easier for our crew to fulfill every order accurately. In Europe, comparable sales rose 5.9%, marking the eighth consecutive year of comparable sales increases, and comparable guest counts rose 3.4%. Major contributors were the U.K., France, Russia and Germany. Initiatives that helped drive our business included leveraging our tiered menu featuring everyday affordable prices, menu variety including new and limited-time offerings, and reimaging over 900 restaurants. We continue to expand our coffee business and have over 1,500 McCaf locations, which in Europe are generally separate areas inside the restaurants that serve specialty coffees, indulgent desserts and snacks. We completed the rollout of the new drive-thru customer order display system in over 4,500 restaurants. In addition, we increased our accessibility and convenience with extended operating hours. We offered new premium menu items such as the 1955 burger and expanded McWraps across several European markets. In many markets, we have continued to offer a fourth-tier platformsuch as Little Tasters in the U.K.a range of tasty and appealing items in smaller portion sizes. Finally, we continued building customer trust in our brand through communications that emphasized the quality and origin of McDonald's food and our commitment to sustainable business practices. In APMEA, our momentum continued with nearly every country delivering positive comparable sales, led by China and Australia. Comparable sales rose 4.7% and comparable guest counts rose 4.3% with performance driven by strategies emphasizing value, breakfast, convenience, core menu extensions, desserts and promotional food events. Australia launched a Value Lunch program that features meals at discounted price points for certain hours while China and Japan concentrated on affordability by continuing their Value Lunch platforms. New menu items such as real-fruit smoothies and frapps in Australia and the extension of the Value Breakfast program in China were popular with customers. Japan executed another successful U.S. themed burger promotion and celebrated its 40th anniversary by offering popular core menu items at reduced prices. Desserts continue to play a meaningful role as we seek to deliver on customers' menu expectations through products such as the McFlurry and unique delivery storefronts like the dessert kiosks in China, where we are now one of the largest ice cream retailers. Our breakfast business continues to evolve and is now offered in approximately 75% of APMEA restaurants. In Japan, rotational breakfast items, including the Chicken Muffin and Tuna Muffin, were offered during several months, while Australia launched new breakfast menu items such as bagel sandwiches. Nearly two-thirds of APMEA restaurants are now offering some form of extended operating hours and over 4,600 restaurants are open 24 hours. Delivery is offered in many APMEA markets and is now available in over 1,500 restaurants, including nearly 500 in China. McDonald's Japan was negatively impacted by the natural disaster last March and as a result, continued to face some challenges throughout 2011. However, we remain confident that the market will continue to drive long-term profitable growth. Our approach to offering affordable value to our customers is complemented by a focus on driving operating efficiencies and effectively managing restaurant-level food and paper costs by leveraging our scale, supply chain infrastructure and risk management practices. Our ability to execute our strategies in every area of the world, grow comparable sales and control selling, general & administrative expenses resulted in combined operating margin (operating income as a percent of total revenues) of 31.6% in 2011, an improvement of 0.6 percentage points over 2010. In 2011, strong global sales and margin performance grew cash from operations, which rose $808 million to $7.2 billion. Our substantial cash flow, strong credit rating and continued access to credit provide us flexibility to fund capital expenditures and debt repayments as well as return cash to shareholders. Capital expenditures of approximately $2.7 billion were invested in our business primarily to open new restaurants and reimage existing restaurants. Across the System, 1,150 restaurants were opened and over 2,500 existing locations were reimaged. In addition, we returned $6.0 billion to shareholders consisting of $3.4 billion in share repurchases and $2.6 billion in dividends. Cash from operations continues to benefit from our heavily franchised business model as the rent and royalty income received from owner/operators is a very stable revenue stream that has relatively low costs. In addition, the franchise business model is less capital intensive than the Company-owned model. We believe locally-owned and operated restaurants maximize brand performance and are at the core of our competitive advantages, making McDonald's not just a global brand but also a locally-relevant one. HIGHLIGHTS FROM THE YEAR INCLUDED: Comparable sales grew 5.6% and guest counts rose 3.7%, building on 2010 increases of 5.0% and 4.9%, respectively. Revenues increased 12% (8% in constant currencies). Operating income increased 14% (10% in constant currencies). Combined operating margin increased 0.6 percentage points to 31.6%. Diluted earnings per share was $5.27, an increase of 15% (11% in constant currencies). Cash provided by operations increased $808 million to $7.2 billion. One-year ROIIC was 37.6% and three-year ROIIC was 37.8% for the period ended December 31, 2011 (see reconciliation on page 25). The Company increased the quarterly cash dividend per share 15% to $0.70 for the fourth quarterbringing our current annual dividend to $2.80 per share. The Company returned $6.0 billion to shareholders through share repurchases and dividends paid. OUTLOOK FOR 2012 We will continue to drive success in 2012 and beyond by enhancing the customer experience across all elements of our Plan to Win. Our global System continues to be energized by our ongoing momentum and significant growth opportunities. We hold a strong competitive position in the market place, and we intend to further differentiate our brand by striving to become our customers' favorite place and way to eat and drink. Growing market share will continue to be a focus as we execute our three global priorities: optimizing our menu, modernizing the customer experience and broadening our accessibility. The menu efforts will include expanding destination beverages and desserts and enhancing our food image. The customer experience efforts will include accelerating our interior and exterior reimaging efforts and providing our restaurant teams with the appropriate tools, training, technology and staffing. The accessibility efforts will include increasing the level and variety of conveniences provided to our customers through greater proximity, extended operating hours and stronger value platforms. We will execute these priorities to increase McDonald's brand relevance with operational and financial discipline. Consequently, we are confident we can again meet or exceed our long-term constant currency financial targets. In the U.S., our 2012 initiatives focus on balancing core menu classics with new products and promotional food events such as Chicken McBites, made with bite-sized pieces of premium chicken breast, Blueberry Banana Nut Oatmeal, and additional McCaf beverage offerings such as the Cherry Berry Chiller. We will continue offering value across the menu at breakfast and the rest of the day. Opportunities around additional staffing at peak hours during the breakfast and lunch day parts and increasing restaurants that operate 24 hours per day will allow us to broaden accessibility to our customers. In addition, our plans to elevate the brand experience include leveraging our new point-of-sale system with other technology enhancements such as using hand-held order takers and advancements to improve our front counter service system. We also will expand our major remodel program to another 800 locations in 2012. Our business plans in Europe are focused on building market share with the right mix of guest counts, average check, strategic restaurant reimaging and expansion. We will increase our local relevance by complementing our tiered menu with a variety of promotional food events as well as new snack and dessert options. In 2012, we will reimage approximately 900 restaurants as we progress towards our goal of having 90% of our interiors and over 65% of our exteriors reimaged by the end of the year. We will leverage service innovations by continuing the deployment of technologies such as updating the point-of-sale system, self-order kiosks and hand-held order devices to enhance the customer experience and help drive increased transactions and labor efficiency. We will also continue working to reduce our McDonald's Corporation Annual Report 2011 11 impact on the environment with energy management tools that enable us to use green energy in markets where available. In addition, the U.K. will be the proud host of our Olympic sponsorship, marking the ninth consecutive time that McDonald's will serve as the Official Restaurant of the Olympic Games. In 2012, our European business will continue to face headwinds due to economic uncertainty and additional government-initiated austerity measures implemented in many countries. While we will closely monitor consumer reactions to these measures, we remain confident that our business model will continue to drive profitable growth. In APMEA, we will continue our efforts to become our customers' first choice for eating out by continuing to provide robust value platforms and focusing on menu variety, restaurant experience and convenience. Value will continue to be a key growth driver as we reinforce the affordability of our menu to consumers across all dayparts, by building on our successful Value Lunch platforms and expanding our breakfast offerings. The markets will continue to execute against a combination of core menu items, promotional food events, desserts and limitedtime offerings to provide a balanced mix of products to our customers. We will grow our business by opening approximately 750 new restaurants and reimaging about 475 existing restaurants while elevating our focus on service and operations to drive efficiencies. In China, we will continue to build a foundation for long-term growth by opening 225 to 250 restaurants in 2012 toward our goal of reaching 2,000 restaurants by the end of 2013. Convenience initiatives will focus on expanding delivery service across the region and building on the success of our extended operating hours. We continue to maintain strong financial discipline by effectively managing spending in order to maximize financial performance. In making capital allocation decisions, our goal is to make investments that elevate the McDonald's experience and drive sustainable growth in sales and market share while earning strong returns. We remain committed to returning all of our free cash flow (cash from operations less capital expenditures) to shareholders over the long-term via dividends and share repurchases. McDonald's does not provide specific guidance on diluted earnings per share. The following information is provided to assist in analyzing the Company's results: Changes in Systemwide sales are driven by comparable sales and net restaurant unit expansion. The Company expects net restaurant additions to add approximately 2 percentage points to 2012 Systemwide sales growth (in constant currencies), most of which will be due to about 870 net traditional restaurants added in 2011. 12 McDonald's Corporation Annual Report 2011 The Company does not generally provide specific guidance on changes in comparable sales. However, as a perspective, assuming no change in cost structure, a 1 percentage point increase in comparable sales for either the U.S. or Europe would increase annual diluted earnings per share by about 3-4 cents. With about 75% of McDonald's grocery bill comprised of 10 different commodities, a basket of goods approach is the most comprehensive way to look at the Company's commodity costs. For the full year 2012, the total basket of goods cost is expected to increase 4.5-5.5% in the U.S. and 2.5-3.5% in Europe, with more pressure expected in the first half. The Company expects full-year 2012 selling, general & administrative expenses to increase about 6% in constant currencies, driven by certain technology investments, primarily to accelerate future restaurant capabilities, and costs related to the 2012 Worldwide Owner/Operator Convention and Olympics. The Company expects the magnitude of the increase to be confined to 2012. Fluctuations will be experienced between quarters due to the timing of certain items such as the Worldwide Owner/Operator Convention and the Olympics. Based on current interest and foreign currency exchange rates, the Company expects interest expense for the full year 2012 to increase approximately 6-8% compared with 2011. A significant part of the Company's operating income is generated outside the U.S., and about 40% of its total debt is denominated in foreign currencies. Accordingly, earnings are affected by changes in foreign currency exchange rates, particularly the Euro, British Pound, Australian Dollar and Canadian Dollar. Collectively, these currencies represent approximately 65% of the Company's operating income outside the U.S. If all four of these currencies moved by 10% in the same direction, the Company's annual diluted earnings per share would change by about 24 cents. The Company expects the effective income tax rate for the fullyear 2012 to be 31% to 33%. Some volatility may be experienced between the quarters resulting in a quarterly tax rate that is outside the annual range. The Company expects capital expenditures for 2012 to be approximately $2.9 billion. About half of this amount will be used to open new restaurants. The Company expects to open more than 1,300 restaurants including about 450 restaurants in affiliated and developmental licensee markets, such as Japan and Latin America, where the Company does not fund any capital expenditures. The Company expects net additions of about 900 restaurants. The remaining capital will be used for reinvestment in existing restaurants. Nearly half of this reinvestment will be used to reimage more than 2,400 locations worldwide, some of which will require no capital investment from the Company. Consolidated Operating Results Operating results 2011 Amount Dollars in millions, except per share data Revenues Sales by Company-operated restaurants Revenues from franchised restaurants Total revenues Operating costs and expenses Company-operated restaurant expenses Franchised restaurants-occupancy expenses Selling, general & administrative expenses Impairment and other charges (credits), net Other operating (income) expense, net Total operating costs and expenses Operating income Interest expense Nonoperating (income) expense, net Gain on sale of investment Income before provision for income taxes Provision for income taxes Net income Earnings per common sharediluted Weighted-average common shares outstanding diluted 2010 2009 Increase/ (decrease) Increase/ (decrease) Amount $ 18,293 8,713 27,006 Amount 13% 11 12 14,838 1,481 2,394 (4) (233) 18,476 8,530 493 25 13,060 1,378 2,333 29 (198) 16,602 7,473 451 22 14 8 3 nm (18) 11 14 9 13 8,012 2,509 $ 5,503 $ 5.27 $ 16,233 7,842 24,075 14 22 11% 15% 7,000 2,054 $ 4,946 $ 4.58 5% 8 6 3 6 4 nm 11 4 9 (5) nm nm 8 6 9% 11% 1,080.3 1,044.9 $ 15,459 7,286 22,745 12,651 1,302 2,234 (61) (222) 15,904 6,841 473 (24) (95) 6,487 1,936 $ 4,551 $ 4.11 1,107.4 nm Not meaningful. IMPACT OF FOREIGN CURRENCY TRANSLATION ON REPORTED RESULTS While changes in foreign currency exchange rates affect reported results, McDonald's mitigates exposures, where practical, by financing in local currencies, hedging certain foreign-denominated cash flows, and purchasing goods and services in local currencies. In 2011, foreign currency translation had a positive impact on consolidated operating results driven by the stronger Euro and Australian Dollar as well as most other currencies. In 2010, foreign currency translation had a positive impact on consolidated operating results driven by stronger global currencies, primarily the Australian Dollar and Canadian Dollar, partly offset by the weaker Euro. In 2009, foreign currency translation had a negative impact on consolidated operating results, primarily caused by the weaker Euro, British Pound, Russian Ruble, Australian Dollar and Canadian Dollar. Impact of foreign currency translation on reported results In millions, except per share data Revenues Company-operated margins Franchised margins Selling, general & administrative expenses Operating income Net income Earnings per common sharediluted 2011 $27,006 3,455 7,232 2,394 8,530 5,503 5.27 Reported amount 2010 2009 $24,075 3,173 6,464 2,333 7,473 4,946 4.58 $22,745 2,807 5,985 2,234 6,841 4,551 4.11 2011 $ 944 134 213 (55) 301 195 0.19 Currency translation benefit/(cost) 2010 2009 $ 188 35 (14) (12) 13 13 0.01 $(1,340) (178) (176) 75 (273) (164) (0.15) McDonald's Corporation Annual Report 2011 13 NET INCOME AND DILUTED EARNINGS PER COMMON SHARE In 2011, net income and diluted earnings per common share were $5.5 billion and $5.27. Foreign currency translation had a positive impact of $0.19 on diluted earnings per share. In 2010, net income and diluted earnings per common share were $4.9 billion and $4.58. Results included after tax charges due to Impairment and other charges (credits), net of $25 million or $0.02 per share, primarily related to the Company's share of restaurant closing costs in McDonald's Japan (a 50%-owned affiliate) in conjunction with the strategic review of the market's restaurant portfolio, partly offset by income related to the resolution of certain liabilities retained in connection with the 2007 Latin America developmental license transaction. Foreign currency translation had a positive impact of $0.01 per share on diluted earnings per share. In 2009, net income and diluted earnings per common share were $4.6 billion and $4.11. Results benefited by after tax income due to Impairment and other charges (credits), net of $91 million or $0.08 per share, primarily due to the resolution of certain liabilities retained in connection with the 2007 Latin America developmental license transaction. Results also benefited by an after tax gain of $59 million or $0.05 per share due to the sale of the Company's minority ownership interest in Redbox, reflected in Gain on sale of investment. Results were negatively impacted by $0.15 per share due to the effect of foreign currency translation. The Company repurchased 41.9 million shares of its stock for $3.4 billion in 2011 and 37.8 million shares of its stock for nearly $2.7 billion in 2010, driving reductions of over 3% and 2% of total shares outstanding, respectively, net of stock option exercises. REVENUES The Company's revenues consist of sales by Company-operated restaurants and fees from restaurants operated by franchisees. Revenues from conventional franchised restaurants include rent and royalties based on a percent of sales along with minimum rent payments, and initial fees. Revenues from franchised restaurants that are licensed to foreign affiliates and developmental licensees include a royalty based on a percent of sales, and generally include initial fees. In 2011 and 2010, constant currency revenue growth was driven primarily by positive comparable sales as well as expansion. Revenues Amount Dollars in millions Company-operated sales: U.S. Europe APMEA Other Countries & Corporate Total Franchised revenues: U.S. Europe APMEA Other Countries & Corporate Total Total revenues: U.S. Europe APMEA Other Countries & Corporate Total 2011 2010 2009 $ 4,433 7,852 5,061 947 $18,293 $ 4,229 6,932 4,297 775 $16,233 $ 4,295 6,721 3,714 729 $15,459 5% 13 18 22 13% (2)% 3 16 6 5% 5% 8 11 17 8% (2)% 5 9 (3) 4% $ 4,096 3,034 958 625 $ 8,713 $ 3,883 2,637 769 553 $ 7,842 $ 3,649 2,553 623 461 $ 7,286 5% 15 25 13 11% 6% 3 23 20 8% 5% 9 14 8 8% 6% 8 11 16 8% $ 8,529 10,886 6,019 1,572 $27,006 $ 8,112 9,569 5,066 1,328 $24,075 $ 7,944 9,274 4,337 1,190 $22,745 5% 14 19 18 12% 2% 3 17 12 6% 5% 8 11 14 8% 2% 6 9 4 5% In the U.S., revenues in 2011 and 2010 were positively impacted by the ongoing appeal of our iconic core products and the success of new products, as well as continued focus on everyday value, convenience and modernizing the customer experience. New products introduced in 2011 included Fruit & Maple Oatmeal and additions to the McCaf beverage line, while new products introduced in 2010 included McCaf frapps and smoothies as well as the Angus Snack Wraps. Refranchising activity negatively impacted revenue growth in 2010. Europe's constant currency increase in revenues in 2011 was primarily driven by comparable sales increases in Russia (which is 14 Increase/(decrease) McDonald's Corporation Annual Report 2011 2011 2010 Increase/(decrease) excluding currency translation 2011 2010 entirely Company-operated), the U.K., France and Germany, as well as expansion in Russia. The 2010 increase was primarily driven by comparable sales increases in the U.K., France and Russia, as well as expansion in Russia, partly offset by the impact of refranchising activity primarily in the U.K. In APMEA, the constant currency increase in revenues in 2011 was primarily driven by comparable sales increases in China and most other markets. The 2010 increase was primarily driven by comparable sales increases in China, Australia and most other markets. In addition, expansion in China contributed to the increases in both years. The following tables present comparable sales, comparable guest counts and Systemwide sales increases: Comparable sales and guest count increases Sales U.S. Europe APMEA Other Countries & Corporate Total 4.8% 5.9 4.7 10.1 5.6% 2011 Guest Counts Sales 3.8% 4.4 6.0 11.3 5.0% 3.3% 3.4 4.3 4.5 3.7% 2010 Guest Counts 5.3% 2.7 4.9 8.3 4.9% Sales 2009 Guest Counts 2.6% 5.2 3.4 5.5 3.8% 0.5% 2.8 1.4 2.4 1.4% Systemwide sales increases Excluding currency translation 2011 5% 14 16 17 11% U.S. Europe APMEA Other Countries & Corporate Total 2010 4% 3 15 13 7% 2011 5% 9 7 12 7% 2010 4% 7 7 13 6% 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 health of the franchisee base. The following table presents Franchised sales and the related increases: Franchised Sales Amount Dollars in millions U.S. Europe APMEA Other Countries & Corporate Total 2011 $29,739 17,243 13,041 7,625 $67,648 2010 $28,166 15,049 11,373 6,559 $61,147 RESTAURANT MARGINS Franchised margins Franchised margin dollars represent revenues from franchised restaurants less the Company's occupancy costs (rent and depreciation) associated with those sites. Franchised margin dollars represented about two-thirds of the combined restaurant margins in 2011, 2010 and 2009. Franchised margin dollars increased $768 million or 12% (9% in constant currencies) in 2011 and $479 million or 8% (8% in constant currencies) in 2010. Positive comparable sales were the primary driver of the constant currency growth in franchised margin dollars in both years. Increase 2009 $26,737 14,573 9,871 5,747 $56,928 2011 6% 15 15 16 11% 2010 5% 3 15 14 7% Increase excluding currency translation 2011 6% 9 6 12 7% 2010 5% 8 7 15 7% Franchised margins In millions U.S. Europe APMEA Other Countries & Corporate Total 2011 $3,436 2,400 858 538 $7,232 2010 $3,239 2,063 686 476 $6,464 2009 $3,031 1,998 559 397 $5,985 Percent of revenues U.S. Europe APMEA Other Countries & Corporate Total 83.9% 79.1 89.5 86.1 83.0% 83.4% 78.2 89.3 86.0 82.4% 83.1% 78.3 89.6 86.1 82.1% In the U.S., the franchised margin percent increase in 2011 and 2010 was primarily due to positive comparable sales, partly offset by higher occupancy costs. In Europe, the franchised margin percent increase in 2011 was primarily due to positive comparable sales, partly offset by McDonald's Corporation Annual Report 2011 15 higher occupancy costs. Europe's franchised margin percent decreased in 2010 as positive comparable sales were more than offset by higher occupancy expenses, the cost of strategic brand and sales building initiatives and the refranchising strategy. In APMEA, the franchised margin percent increase in 2011 was primarily due to a contractual escalation in the royalty rate for Japan in addition to positive comparable sales in most markets, partly offset by a negative impact from the strengthening of the Australian dollar. The 2010 decrease was primarily driven by a negative impact from the strengthening of the Australian dollar. The franchised margin percent in APMEA and Other Countries & Corporate is higher relative to the U.S. and Europe due to a larger proportion of developmental licensed and/or affiliated restaurants where the Company receives royalty income with no corresponding occupancy costs. Company-operated margins Company-operated margin dollars represent sales by Companyoperated restaurants less the operating costs of these restaurants. Company-operated margin dollars increased $282 million or 9% (5% in constant currencies) in 2011 and increased $366 million or 13% (12% in constant currencies) in 2010. The constant currency growth in Company-operated margin dollars in 2011 was driven by positive comparable sales partially offset by higher costs, primarily commodity costs, in all segments. Positive comparable sales and lower commodity costs were the primary drivers of the constant currency growth in Company-operated margin dollars in 2010. Company-operated margins In millions U.S. Europe APMEA Other Countries & Corporate Total 2011 $ 914 1,514 876 151 $3,455 2010 $ 902 1,373 764 134 $3,173 2009 $ 832 1,240 624 111 $2,807 Percent of sales U.S. Europe APMEA Other Countries & Corporate Total 20.6% 19.3 17.3 16.0 18.9% 21.3% 19.8 17.8 17.2 19.6% 19.4% 18.4 16.8 15.2 18.2% In the U.S., the Company-operated margin percent decreased in 2011 due to higher commodity and occupancy costs, partially offset by positive comparable sales. The margin percent increased in 2010 due to lower commodity costs and positive comparable sales, partly offset by higher labor costs. Refranchising also had a positive impact on the margin percent in 2010. Europe's Company-operated margin percent decreased in 2011 primarily due to higher commodity, labor, and occupancy costs, partially offset by positive comparable sales. The margin percent increased in 2010 primarily due to positive comparable sales and lower commodity costs, partly offset by higher labor costs. In APMEA, the Company-operated margin percent in 2011 reflected positive comparable sales, offset by higher commodity, labor and occupancy costs. Acceleration of new restaurant openings in China negatively impacted the margin percent. Similar to 16 McDonald's Corporation Annual Report 2011 other markets, new restaurants in China initially open with lower margins that grow significantly over time. The APMEA margin percent increased in 2010 due to positive comparable sales and lower commodity costs, partly offset by higher