/SECOND ADD -- CGTU049 -- McDonald's Corporation/
Jul 25, 2000
Selling, General & Administrative Expenses
Selling, general & administrative expenses increased eight percent for the quarter and nine percent for the six months. This increase was primarily due to spending to support the development of Other Brands and the consolidation of Argentina and Indonesia. Selling, general & administrative expenses included $14.3 million and $25.2 million related to Other Brands for the quarter and six months, respectively. Excluding Other Brands and the consolidations, selling, general & administrative expenses increased two percent for the quarter and four percent for the six months.
Other Operating Income and Expense
Other operating income and expense consists of transactions related to franchising and the food service business. Equity in earnings of unconsolidated affiliates decreased for the quarter primarily as a result of a gain reported in 1999 on the sale of real estate in a U.S. partnership. The decrease in other expense was primarily related to lower provisions for property dispositions in 2000 and costs in 1999 related to the write-off of software and the implementation of our Made For You food preparation system.
Other operating income and expense Quarters ended Six months ended June 30 June 30 Dollars in millions 2000 1999 2000 1999 Gains on sales of restaurant businesses $22.3 $11.1 $37.9 $22.4 Equity in earnings of unconsolidated affiliates 33.5 52.2 59.9 73.9 Other (5.1) (55.8) (17.8) (75.6) Total $50.7 $ 7.5 $80.0 $20.7 Operating Income
Consolidated operating income decreased $7.2 million, or one percent, for the quarter, while increasing two percent in constant currencies. For the six months, consolidated operating income increased $49.8 million, or three percent; six percent in constant currencies. The increases, in constant currencies, were due to higher combined operating margin dollars and higher other operating income, partly offset by higher selling, general & administrative expenses. Operating income by segment includes the allocation of corporate selling, general & administrative expenses.
Operating income Increase/(Decrease) As In Constant Dollars in millions 2000 1999 Reported Currencies* Quarters ended June 30 U.S. $ 443.4 $ 428.4 4% n/a Europe 281.5 303.5 (7) 3% Asia/Pacific 102.5 93.9 9 7 Latin America 23.3 25.7 (9) (8) Other** 25.6 32.0 (20) (19) Total operating income $ 876.3 $ 883.5 (1)% 2% Six months ended June 30 U.S. $ 787.6 $ 743.2 6% n/a Europe 543.3 556.3 (2) 8% Asia/Pacific 215.9 185.2 17 13 Latin America 53.1 57.6 (8) (6) Other** 45.0 52.8 (15) (16) Total operating income $1,644.9 $1,595.1 3% 6% * Excluding the effect of foreign currency translation on reported results ** Includes Other Brands operating losses of $8.8 million and $17.9 million for the quarter and six months of 2000, respectively. In 1999, Other Brands operating losses were $.6 million and $1.3 million for the quarter and six months, respectively. n/a Not applicable
U.S. operating income increased $15.0 million or four percent for the quarter and $44.4 million or six percent for the six months. The increase for the quarter was driven by lower selling, general & administrative expenses and higher other operating income, while for the six months, the increase was due to higher combined operating margin dollars and higher other operating income.
Europe's operating income increased three percent for the quarter and eight percent for the six months in constant currencies. Strong results in France, Italy, Russia and Spain drove this segment's performance in both periods. Weak results in Germany had a significant impact on the segment's operating income growth rate.
Operating income in Asia/Pacific increased seven percent for the quarter and 13 percent for the six months in constant currencies. This segment benefited in both periods from strong performances in China and South Korea, while Australia's challenging comparisons and a drop in retail spending hurt results. In addition, the partial sale of our Japanese affiliate's ownership in Toys 'R' Us Japan, in connection with an initial public offering of Toys 'R' Us Japan, contributed to the increase. Japan's second quarter 1999 results benefited from a lower effective tax rate.
Latin America's operating income decreased eight percent for the quarter and six percent for the six months in constant currencies. Both periods were negatively impacted by the difficult economic conditions experienced by most markets in the region. Increases in Brazil, Mexico and Venezuela, as well as the consolidation of Argentina, partly offset the decreases in both periods.
In the Other segment, strong performances in Canada and several other markets were offset by the investment spending for Other Brands for the quarter and six months.
INTEREST, NONOPERATING EXPENSE AND INCOME TAXES
For both periods, higher interest expense was primarily due to significantly higher average debt levels, partly offset by lower average interest rates and weaker foreign currencies. The higher average debt levels were a result of the Company using its available credit capacity to fund share repurchases.
Nonoperating (income) expense reflected a gain related to the sale of a partial ownership interest in a majority owned subsidiary outside the U.S. and lower minority interest expense for the quarter and six months. In addition, nonoperating (income) expense for the quarter reflected translation gains in 2000 compared with translation losses in 1999.
The effective income tax rate was 32.0 percent for both periods of 2000 compared with 33.0 percent for both periods of 1999.
WEIGHTED AVERAGE SHARES
Weighted average shares outstanding for the second quarter and the six months were lower compared with the prior year due to shares repurchased. In addition, outstanding stock options had a less dilutive effect than in the prior year. During the first six months of 2000, the Company repurchased 35.7 million shares of its common stock for approximately $1.3 billion.
Certain forward-looking statements are included in this report. They use such words as "may," "will," "expect," "believe," "plan" and other similar terminology. These statements reflect management's current expectations and involve a number of risks and uncertainties. Actual results could differ materially due to the effectiveness of operating initiatives and advertising and promotional efforts, the effects of the Euro conversion, as well as changes in: global and local business and economic conditions; currency exchange and interest rates; food, labor and other operating costs; political or economic instability in local markets; competition; consumer preferences, spending patterns and demographic trends; legislation and governmental regulation; and accounting policies and practices.
MCDONALD'S CORPORATION CONDENSED CONSOLIDATED STATEMENT OF INCOME Dollars and shares in millions, except per common share data -------------------------------------------------------------------- Inc/(Dec) Quarters ended June 30, 2000 1999 $ % -------------------------------------------------------------------- SYSTEMWIDE SALES $10,237.6 $9,920.4 317.2 3 Revenues Sales by Company-operated restaurants 2,582.0 2,434.1 147.9 6 Revenues from franchised and affiliated restaurants 978.6 973.0 5.6 1 TOTAL REVENUES 3,560.6 3,407.1 153.5 5 Operating costs and expenses Company-operated restaurants 2,147.0 1,985.2 161.8 8 Franchised restaurants --occupancy costs 194.6 180.4 14.2 8 Selling, general & administrative expenses 393.4 365.5 27.9 8 Other operating (income) expense (50.7) (7.5) (43.2) n/m Total operating costs and expenses 2,684.3 2,523.6 160.7 6 OPERATING INCOME 876.3 883.5 (7.2) (1) Interest expense 106.2 97.5 8.7 9 Nonoperating (income) expense (2.9) 13.2 (16.1) n/m Income before provision for income taxes 773.0 772.8 0.2 - Provision for income taxes 247.1 254.7 (7.6) (3) NET INCOME $ 525.9 $ 518.1 7.8 2 NET INCOME PER COMMON SHARE $ 0.40 $ 0.38 0.02 5 NET INCOME PER COMMON SHARE-DILUTED $ 0.39 $ 0.37 0.02 5 Weighted average common shares outstanding 1,327.1 1,355.5 Weighted average common shares outstanding -diluted 1,365.5 1,405.6 n/m Not meaningful
PRNewswire -- July 25
THIRD ADD -- TABULAR MATERIAL -- TO FOLLOW
SOURCE: McDonald's Corporation