McDonald's Reports Increase in Quarterly Earnings Per Share
PRNewswire-FirstCall
OAK BROOK, Ill.
Jul 24, 2002
McDonald's Corporation (NYSE: MCD) today announced global results for the quarter and six months ended June 30, 2002.
* Diluted net income per common share was 39 cents for the quarter, an increase of 15%, or 12% in constant currencies. * In Europe, Systemwide sales increased 7% for the quarter and 9% for the six months in constant currencies. Europe's operating income increased 8% for the quarter and 10% for the six months in constant currencies. * U.S. Systemwide sales increased 1% for the quarter and 2% for the six months. U.S. operating income increased 7% for the quarter and 3% for the six months. Key highlights - Consolidated Dollars in millions, except per common Percent share data Increase/(Decrease) As Constant Quarters ended June 30 2002 2001 Reported Currency* Systemwide sales $10,429.9 $10,238.8 2 2 Total revenues 3,862.1 3,707.5 4 4 Operating income 845.2 772.5 9 7 Net income 497.5 440.9 13 11 Net income per common share diluted 0.39 0.34 15 12 Six months ended June 30 Systemwide sales $20,128.4 $19,888.5 1 2 Total revenues 7,459.5 7,219.2 3 5 Operating income 1,486.5 1,467.7 1 1 Income before cumulative effect of accounting change 849.2 819.2 4 3 Cumulative effect of accounting change, net of tax (98.6) - n/m n/m Net income 750.6 819.2 (8) (9) Per common share - diluted: Income before cumulative effect of accounting change 0.66 0.62 6 6 Cumulative effect of accounting change (0.08) - n/m n/m Net income 0.58 0.62 (6) (6) * Information in constant currencies excludes the effect of foreign currency translation on reported results, except for hyperinflationary economies, such as Russia, whose functional currency is the U.S. Dollar. Constant currency results are calculated by translating the current year results at prior year monthly average exchange rates. n/m Not meaningful SUMMARY COMMENTARY
Jack M. Greenberg, Chairman and Chief Executive Officer, noted, "Earnings per share for the second quarter 2002 increased 15% to $.39, the high end of our previous guidance, compared with $.34 reported for the same period last year.(1) In constant currencies, earnings per share was $.38, also in line with previous guidance.
"We expect 2002 annual earnings per share of $1.47 to $1.53, excluding $142 million of charges in the first quarter.(2) Including the charges, we expect annual earnings per share to be $1.35 to $1.41. This expectation reflects a foreign currency translation impact of neutral to up 3 cents for the year.
"Systemwide sales for the second quarter were $10.4 billion, up 2% in constant currencies. Year-to-date, Systemwide sales were $20.1 billion, also up 2% in constant currencies. We expect constant currency Systemwide sales to increase in mid-single digits for the year.
"In Europe, sales increased 7% and operating income increased 8% in constant currencies for the quarter. Our largest markets in the segment all achieved positive comparable sales, with especially good results in France. Year-to-date, Europe's sales increased 9% in constant currencies. We are excited about the opportunities in Europe and expect continued strong performance for the year.
"U.S. sales increased 1% and U.S. operating income increased 7% for the quarter. We are pleased with this increase in profits, which was driven by higher company-operated margins and effective cost controls. Year-to-date, U.S. sales increased 2%. We are intent on increasing top-line sales performance through our restaurant operations improvement process, everyday value and drive-thru initiatives as well as our successful New Tastes Menu, currently featuring our tasty Grilled Chicken Flatbread.
"In our Asia/Pacific/Middle East/Africa (APMEA) segment, Australia delivered strong results. However, the segment continues to be hurt by weak economic conditions and in Japan, by consumer concerns about food safety. In addition to our food safety and quality messages, we recently launched a new value and taste initiative in Japan, which we expect will drive incremental customer visits and improved results. Constant currency sales in this segment declined 6% for the quarter and 4% year-to-date."
(1) Second quarter 2001 earnings per share of $.34 included a $24 million, pre and after tax, non-cash asset impairment charge in Turkey. Excluding the charge, second quarter 2001 earnings per share would have been $.35. (2) The charges excluded from the guidance of $1.47 to $1.53 include a first quarter 2002 non-cash charge of $43 million, pre and after tax ($.04 per share), primarily related to the impairment of assets in Latin America and the closing of underperforming restaurants in Turkey, as a result of continued economic weakness. This guidance also excludes a first quarter 2002 non-cash charge of $99 million after tax ($.08 per share) for the cumulative effect of adopting SFAS 142, "Goodwill and Other Intangible Assets." OPERATING RESULTS
The Company operates in the food service industry and primarily operates quick-service restaurant businesses under the McDonald's brand. To capture additional meal occasions, the Company also operates other restaurant concepts under its Partner Brands: Boston Market, Chipotle and Donatos Pizzeria. In addition, McDonald's has a minority ownership in Pret A Manger. In March 2002, the Company sold its Aroma Cafe business in the U.K.
Impact of Foreign Currencies on Reported Results
While changing foreign currencies affect reported results, McDonald's lessens exposures, where practical, by financing in local currencies, hedging certain foreign-denominated cash flows and by purchasing goods and services in local currencies.
Foreign currency translation had a minimal impact on the consolidated Systemwide sales growth rate for the quarter as the stronger Euro was offset by weaker Latin American currencies (primarily Argentine Peso, Venezuelan Bolivar, and Brazilian Real) and a weaker Japanese Yen. For the six months, foreign currency translation had a negative impact on the Systemwide sales growth rate due to the weaker Latin American currencies and Japanese Yen, partly offset by the stronger Euro. Foreign currency translation had a positive impact on the consolidated operating income growth rate for the quarter primarily due to the stronger Euro, while foreign currency translation had a minimal impact on the operating income growth rate for the six months.
Cumulative Effect of Accounting Change and Asset Impairment Charges
Effective January 1, 2002, the Company adopted SFAS No. 142 "Goodwill and Other Intangible Assets," which eliminates the amortization of goodwill and instead subjects it to annual impairment tests. As a result of the initial required goodwill impairment tests, the Company recorded a non-cash charge of $98.6 million after tax in first quarter 2002 to reflect the cumulative effect of this accounting change. The impaired goodwill was primarily in Argentina, Uruguay and other markets in Latin America and the Middle East, where economies have weakened significantly over the last several years.
The Company also recorded $43.0 million of non-cash asset impairment charges in first quarter 2002, primarily related to the impairment of assets in existing restaurants in Chile and other Latin American markets and the closing of 32 underperforming restaurants in Turkey, as a result of continued economic weakness. In addition, in second quarter 2001, the Company recorded a $24.0 million non-cash asset impairment charge in Turkey due to an assessment of the ongoing impact of the country's significant currency devaluation on our business.
Net Income and Diluted Net Income Per Common Share
For the quarter, net income increased 13% (11% in constant currencies) and diluted net income per common share increased 15% (12% in constant currencies).
As previously mentioned, the Company adopted the new goodwill accounting rules on January 1, 2002, resulting in a first quarter 2002 non-cash charge of $98.6 million after tax to reflect the cumulative effect of this accounting change. For the six months, income before the cumulative effect of the accounting change increased 4%, while net income, which included the charge for the cumulative effect of the accounting change, declined 8%. Diluted income per common share before the cumulative effect of the accounting change increased 6%, while diluted net income per common share declined 6% for the six months.
For the quarter, excluding the 2001 non-cash asset impairment charge, net income would have increased 7% (5% in constant currencies) and diluted net income per common share would have increased 11% (9% in constant currencies). For the six months, excluding the 2002 and 2001 non-cash asset impairment charges, income before the cumulative effect of the accounting change would have increased 6% and diluted income per common share before the cumulative effect of the accounting change would have increased 8%. See Frequently Asked Questions section at the end of this release for reconciliation of reported income to adjusted income excluding special items.
Weighted average shares outstanding for both periods 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 six months, the Company repurchased 16.6 million shares of its common stock for approximately $466 million.
Systemwide Sales and Revenues
Systemwide sales represent sales by Company-operated, franchised and affiliated restaurants. Total revenues include sales by Company-operated restaurants and fees from restaurants operated by franchisees and affiliates. These fees include rent, service fees and royalties that are based on a percent of sales with specified minimum payments along with initial fees.
Systemwide sales Percent Dollars in millions Increase/(Decrease) As Constant Quarters ended June 30 2002 2001 Reported Currency* U.S. $ 5,252.9 $ 5,188.6 1 n/a Europe 2,552.1 2,271.2 12 7 APMEA 1,623.3 1,733.6 (6) (6) Latin America 359.8 431.7 (17) - Canada 377.9 371.6 2 2 Partner Brands 263.9 242.1 9 9 Total Systemwide sales $10,429.9 $10,238.8 2 2 Six months ended June 30 U.S. $10,045.6 $ 9,865.1 2 n/a Europe 4,860.8 4,449.4 9 9 APMEA 3,255.4 3,516.3 (7) (4) Latin America 750.0 887.0 (15) (1) Canada 698.0 703.0 (1) 2 Partner Brands 518.6 467.7 11 11 Total Systemwide sales $20,128.4 $19,888.5 1 2 * Excluding the effect of foreign currency translation on reported results. n/a Not applicable
On a global basis, the increases in sales and revenues for the quarter and six months were due to restaurant expansion, partly offset by negative comparable sales. On a constant currency basis, revenues increased at a higher rate than sales primarily due to significantly lower sales from our affiliate in Japan. Under our affiliate structure, we record a royalty in revenues based on a percentage of Japan's sales, whereas all of Japan's sales are included in Systemwide sales. For this reason, Japan's sales decline had a larger negative impact on Systemwide sales than revenues.
U.S. sales increased 1% for the quarter and 2% for the six months due to expansion, partly offset by negative comparable sales for both periods.
In Europe, expansion and positive comparable sales drove the constant currency sales increases for the quarter and six months. Strong performance in France along with positive comparable sales in Germany and the U.K. were the primary contributors to the increases for both periods.
Constant currency sales results in APMEA declined due to negative comparable sales, partly offset by expansion for both periods. Strong results in Australia and expansion in China were more than offset by negative comparable sales in Japan due to weak economic conditions and consumer concerns regarding food safety. Although we are proactively communicating our strong safety and quality messages, including the fact that McDonald's Japan does not serve Japanese beef, we expect Japan's results in the near term to continue to be negatively affected by these consumer concerns.
In Latin America, constant currency sales declined due to negative comparable sales in Argentina and most other markets for both periods. We expect the weak economic conditions in many Latin American markets to continue to impact our business in the near term.
The sales increases in the Partner Brands for both periods were due to positive comparable sales and expansion.
Combined Operating Margins
The following combined operating margin information represents margins for McDonald's restaurant business only and excludes Partner Brands.
Combined operating margins Quarters ended Six months ended June 30 June 30 2002 2001 2002 2001 Dollars in millions Company-operated $ 396.7 $ 386.0 $ 747.0 $ 745.3 Franchised 786.6 771.0 1,502.5 1,471.2 Combined operating margins $1,183.3 $1,157.0 $2,249.5 $2,216.5 Percent of sales/revenues Company-operated 15.2% 15.4% 14.8% 15.2% Franchised 79.2 79.6 78.6 78.8
Combined operating margin dollars increased $26.3 million or 2% for the quarter (1% in constant currencies) and $33.0 million or 1% for the six months (2% in constant currencies). The U.S. and Europe segments accounted for more than 80% of the combined margin dollars for both periods.
Consolidated food & paper costs decreased as a percent of sales for the quarter and increased for the six months, while payroll costs were up slightly for the quarter and flat for the six months. Occupancy & other operating expenses increased as a percent of sales for both periods.
The U.S. Company-operated margin percent increased for both periods, primarily due to the elimination of goodwill amortization and a lower contribution rate to the national co-op for advertising expenses. As a percent of sales, food & paper costs decreased, payroll costs increased and occupancy & other operating expenses decreased for both periods.
Company-operated margin percentages in Europe, APMEA and Latin America decreased for both periods. In Europe, the decline was primarily due to continuing higher payroll costs as a percentage of sales for both periods. The declines in APMEA and Latin America were primarily due to negative comparable sales and difficult economic conditions in many markets.
The decline in the consolidated franchised margin percent reflects negative comparable sales and higher occupancy costs due to an increased number of leased sites. The franchised margin percent in APMEA increased for both periods primarily due to a restructuring of our ownership in the Philippines in July 2001. The restructuring resulted in the reclassification of our restaurants and related margins, which were lower than the average for the segment, from franchised to Company-operated.
Selling, General & Administrative Expenses
Selling, general & administrative expenses decreased 3% for both periods or 2% in constant currencies, primarily due to the benefit of the global change initiatives introduced in late 2001 and a reduction in certain performance-based compensation accruals. As a result of the global change initiatives, the Company expects ongoing annual selling, general & administrative expense savings of about $100 million beginning in 2002, compared with what otherwise would have been spent.
Other Operating Income (Expense), net Other operating income (expense), net Dollars in millions Quarters ended Six months ended June 30 June 30 2002 2001 2002 2001 Gains on sales of restaurant businesses $30.3 $31.0 $40.4 $46.3 Equity in earnings of unconsolidated affiliates 7.1 25.2 15.4 37.1 Asset impairment - (24.0) (43.0) (24.0) Team service system payments-U.S. - - (21.6) - Other income (expense) 8.5 (13.1) (4.2) (18.7) Total $45.9 $19.1 $(13.0) $40.7
Equity in earnings of unconsolidated affiliates decreased for both periods, primarily due to lower earnings from our Japanese affiliate and a weaker Japanese Yen. The team service system payments consist of payments made to U.S. owner/operators in first quarter 2002 to facilitate the introduction of a new front counter system. Other income (expense) benefited from the elimination of goodwill amortization for both periods and higher gains on sales of excess property for the quarter.
Operating Income
Consolidated operating income increased 9% for the quarter, or 7% in constant currencies, and 1% for the six months both on a reported and constant currency basis. Excluding the 2002 and 2001 non-cash asset impairment charges, consolidated operating income would have increased 3% for the quarter and 2% for the six months in constant currencies. The increases were due to higher combined operating margin dollars and lower selling, general & administrative expenses for both periods, partly offset by lower other operating income for the six months.
Operating income Dollars in millions Percent Increase/(Decrease) As Constant Quarters ended June 30 2002 2001 Reported Currency(1) U.S. $ 518.0 $ 482.2 7 n/a Europe 298.5 264.2 13 8 APMEA (2) 74.2 71.6 4 - Latin America 3.8 14.2 (73) n/m Canada 37.9 35.5 7 7 Partner Brands (7.0) (12.5) 44 44 Corporate (80.2) (82.7) 3 n/a Total operating income $ 845.2 $ 772.5 9 7 Six months ended June 30 U.S. (3) $ 920.1 $ 891.1 3 n/a Europe 541.4 487.0 11 10 APMEA (2) 145.4 185.3 (22) (21) Latin America (4) (9.4) 36.5 n/m n/m Canada 65.5 63.9 3 5 Partner Brands (18.6) (27.4) 32 32 Corporate (157.9) (168.7) 6 n/a Total operating income $1,486.5 $1,467.7 1 1 (1) Excluding the effect of foreign currency translation on reported results. (2) Includes non-cash asset impairment charges in Turkey of $15.9 million in first quarter 2002 and $24.0 million in second quarter 2001. (3) Includes $21.6 million of front counter team service system payments in first quarter 2002. (4) Includes $27.1 million of non-cash asset impairment charges in first quarter 2002. n/a Not applicable n/m Not meaningful
U.S. operating income increased 7% for the quarter and 3% for the six months. The increases were due to higher combined operating margin dollars and lower selling, general & administrative expenses for both periods and higher other operating income for the quarter. Other operating income was lower for the six months primarily due to the $21.6 million of payments made to U.S. owner/operators for the front counter team service system.
Europe's operating income increased 8% for the quarter and 10% for the six months in constant currencies. Results in France, Germany and the U.K. drove this segment's performance for both periods.
APMEA's operating income decreased slightly for the quarter and decreased 21% for the six months in constant currencies, primarily due to weak results in Japan, partly offset by strong results in Australia for both periods. The segment's growth rate for the quarter was impacted by the $24.0 million non- cash asset impairment charge in Turkey in second quarter 2001. APMEA's operating income growth rate for the six months was also impacted by the $15.9 million non-cash asset impairment charge in Turkey in first quarter 2002, and a gain on the sale of real estate in Singapore in first quarter 2001. Excluding the asset impairment charges and the gain on sale of real estate, APMEA's constant currency operating income would have declined 25% in the second quarter and 17% year-to-date.
Latin America's operating results declined significantly for the quarter and six months as Argentina and most other markets continued to experience difficult economic conditions. In addition, the segment's reported operating income for the six months included $27.1 million of asset impairment charges recorded in first quarter 2002.
The increases in operating income for the Partner Brands were primarily driven by improved results for Chipotle and the elimination of goodwill amortization for both periods. Boston Market also contributed to the increase for the six months.
INTEREST, NONOPERATING EXPENSE AND INCOME TAXES
Interest expense decreased for both periods primarily due to lower average interest rates, partly offset by higher average debt levels. We expect the percentage decrease in interest expense to lessen throughout the year.
Nonoperating expense increased for both periods primarily due to foreign currency translation losses in 2002 compared with foreign currency translation gains in 2001 and higher minority interest expense in 2002.
The effective income tax rate for the second quarter decreased from 32.6% in 2001 to 32.0% in 2002 due to the impact of the $24.0 million non-cash asset impairment charge recorded in second quarter 2001 that was not tax-effected for financial reporting purposes. The effective tax rate for the six months increased from 32.3% in 2001 to 33.0% in 2002 due to the impact of the $24.0 million non-cash asset impairment charge recorded in second quarter 2001 and the $43.0 million of non-cash asset impairment charges recorded in first quarter 2002, none of which were tax-effected for financial reporting purposes. We expect the annual 2002 effective tax rate to be approximately 32.5% to 33.0%.
FORWARD-LOOKING STATEMENTS
Certain forward-looking statements are included in this release. They use such words as "may," "will," "expect," "believe," "plan" and other similar terminology. These statements reflect management's current expectations regarding future events and operating performance and speak only as of the date of this release. These forward-looking statements involve a number of risks and uncertainties. The following are some of the factors that could cause actual results to differ materially from those expressed in or underlying our forward-looking statements: the effectiveness of operating initiatives and advertising and promotional efforts, 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. The foregoing list of important factors is not exclusive.
The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
RELATED COMMUNICATIONS
In conjunction with its second quarter earnings release, McDonald's Corporation will broadcast its conference call with members of management live over the Internet on Wednesday, July 24, 2002, at 11:00 a.m. Central Time. Interested parties are invited to listen by accessing http://www.mcdonalds.com/corporate/investor and clicking the quarterly earnings webcast listing under "Latest Investor Webcast." Separately, an archived replay of this call will be available on McDonald's website for a limited time.
FOR ACCESS TO CONFERENCE CALL: Where: http://www.mcdonalds.com/ When: 11:00 a.m. CT, Wednesday, July 24, 2002 McDONALD'S CORPORATION CONDENSED CONSOLIDATED STATEMENT OF INCOME Dollars and shares in millions, except per common share data -------------------------------------------------------------------- Inc/(Dec) Quarters ended June 30, 2002 2001 $ % -------------------------------------------------------------------- SYSTEMWIDE SALES $10,429.9 $10,238.8 191.1 2 Revenues Sales by Company-operated restaurants 2,869.0 2,738.2 130.8 5 Revenues from franchised and affiliated restaurants 993.1 969.3 23.8 2 TOTAL REVENUES 3,862.1 3,707.5 154.6 4 Operating costs and expenses Company-operated restaurants 2,453.9 2,341.6 112.3 5 Franchised restaurants --occupancy costs 206.0 197.9 8.1 4 Selling, general & administrative expenses 402.9 414.6 (11.7) (3) Other operating (income) expense, net (45.9) (19.1) (26.8) n/m Total operating costs and expenses 3,016.9 2,935.0 81.9 3 OPERATING INCOME 845.2 772.5 72.7 9 Interest expense 93.4 117.1 (23.7) (20) Nonoperating expense, net 20.6 1.7 18.9 n/m Income before provision for income taxes 731.2 653.7 77.5 12 Provision for income taxes 233.7 212.8 20.9 10 NET INCOME 497.5 440.9 56.6 13 NET INCOME PER COMMON SHARE-DILUTED $ 0.39 $ 0.34* 0.05 15 Weighted average common shares outstanding-diluted 1,290.6 1,311.1 n/m Not meaningful *Diluted earnings per share would have remained at $0.34 had SFAS 142 been adopted in 2001. McDONALD'S CORPORATION CONDENSED CONSOLIDATED STATEMENT OF INCOME Dollars and shares in millions, except per common share data -------------------------------------------------------------------- Inc/(Dec) Six months ended June 30, 2002 2001 $ % -------------------------------------------------------------------- SYSTEMWIDE SALES $20,128.4 $19,888.5 239.9 1 Revenues Sales by Company-operated restaurants 5,547.5 5,352.4 195.1 4 Revenues from franchised and affiliated restaurants 1,912.0 1,866.8 45.2 2 TOTAL REVENUES 7,459.5 7,219.2 240.3 3 Operating costs and expenses Company-operated restaurants 4,763.5 4,585.0 178.5 4 Franchised restaurants --occupancy costs 408.7 394.8 13.9 4 Selling, general & administrative expenses 787.8 812.4 (24.6) (3) Other operating (income) expense, net 13.0 (40.7) 53.7 n/m Total operating costs and expenses 5,973.0 5,751.5 221.5 4 OPERATING INCOME 1,486.5 1,467.7 18.8 1 Interest expense 185.7 238.0 (52.3) (22) Nonoperating expense, net 32.4 20.0 12.4 n/m Income before provision for income taxes 1,268.4 1,209.7 58.7 5 Provision for income taxes 419.2 390.5 28.7 7 Income before cumulative effect of accounting change 849.2 819.2 30.0 4 Cumulative effect of accounting change, net of tax (98.6) - (98.6) n/m NET INCOME $ 750.6 $ 819.2 (68.6) (8) PER COMMON SHARE-DILUTED: Income before cumulative effect of accounting change $ 0.66 $ 0.62* 0.04 6 Cumulative effect of accounting change $ (0.08) $ - (0.08) n/m Net income $ 0.58 $ 0.62 (0.04) (6) Weighted average common shares outstanding-diluted 1,291.3 1,317.9 n/m Not meaningful * Diluted earnings per share would have been $0.63 had SFAS 142 been adopted in 2001. McDONALD'S CORPORATION SYSTEMWIDE SALES Dollars in millions ------------------------------------------------------------------------ % Inc/(Dec) As Constant Quarters ended June 30, 2002 2001 Reported Currency* ------------------------------------------------------------------------ U.S. Operated by franchisees $ 4,156.1 $ 4,074.3 2 Operated by the Company 816.0 816.9 - Operated by affiliates 280.8 297.4 (6) 5,252.9 5,188.6 1 n/a Europe Operated by franchisees 1,436.6 1,255.8 14 Operated by the Company 981.0 908.2 8 Operated by affiliates 134.5 107.2 25 2,552.1 2,271.2 12 7 APMEA Operated by franchisees 490.5 486.2 1 Operated by the Company 518.8 452.6 15 Operated by affiliates 614.0 794.8 (23) 1,623.3 1,733.6 (6) (6) Latin America Operated by franchisees 181.6 224.6 (19) Operated by the Company 169.8 205.4 (17) Operated by affiliates 8.4 1.7 n/m 359.8 431.7 (17) - Canada Operated by franchisees 234.0 245.0 (4) Operated by the Company 129.6 123.1 5 Operated by affiliates 14.3 3.5 n/m 377.9 371.6 2 2 Partner Brands Operated by franchisees 10.1 10.1 - Operated by the Company 253.8 232.0 9 263.9 242.1 9 9 Systemwide Operated by franchisees 6,508.9 6,296.0 3 Operated by the Company 2,869.0 2,738.2 5 Operated by affiliates 1,052.0 1,204.6 (13) $10,429.9 $10,238.8 2 2 * Excluding the effect of foreign currency translation on reported results. n/a Not applicable n/m Not meaningful McDONALD'S CORPORATION SYSTEMWIDE SALES Dollars in millions ------------------------------------------------------------------------ % Inc/(Dec) As Constant Six months ended June 30, 2002 2001 Reported Currency* ------------------------------------------------------------------------ U.S. Operated by franchisees $ 7,967.5 $ 7,740.7 3 Operated by the Company 1,541.3 1,562.7 (1) Operated by affiliates 536.8 561.7 (4) 10,045.6 9,865.1 2 n/a Europe Operated by franchisees 2,739.3 2,467.1 11 Operated by the Company 1,873.9 1,768.7 6 Operated by affiliates 247.6 213.6 16 4,860.8 4,449.4 9 9 APMEA Operated by franchisees 967.7 974.7 (1) Operated by the Company 1,040.9 918.1 13 Operated by affiliates 1,246.8 1,623.5 (23) 3,255.4 3,516.3 (7) (4) Latin America Operated by franchisees 380.4 456.8 (17) Operated by the Company 352.8 420.3 (16) Operated by affiliates 16.8 9.9 70 750.0 887.0 (15) (1) Canada Operated by franchisees 431.7 461.5 (6) Operated by the Company 239.9 234.9 2 Operated by affiliates 26.4 6.6 n/m 698.0 703.0 (1) 2 Partner Brands Operated by franchisees 19.9 20.0 (1) Operated by the Company 498.7 447.7 11 518.6 467.7 11 11 Systemwide Operated by franchisees 12,506.5 12,120.8 3 Operated by the Company 5,547.5 5,352.4 4 Operated by affiliates 2,074.4 2,415.3 (14) $20,128.4 $19,888.5 1 2 * Excluding the effect of foreign currency translation on reported results. n/a Not applicable n/m Not meaningful COMPARABLE SALES - McDONALD'S RESTAURANT BUSINESS* ------------------------------------------------------------------------- Percent Increase/(Decrease) Quarters ended Six months ended June 30 June 30 2002 2001 2002 2001 ------------------------------------------------------------------------- U.S. (1.6) (2.2) (0.9) (0.5) Europe 2.7 (2.1) 3.9 (3.6) APMEA (11.7) (1.1) (9.8) (3.2) Latin America (4.3) (2.2) (4.9) (1.9) Canada (2.1) 0.7 (2.7) 2.3 Brand McDonald's (2.5) (1.9) (1.7) (1.7) * Comparable sales represent the percent change in constant currency sales from the same period in the prior year for restaurants in operation at least thirteen months. McDONALD'S CORPORATION TOTAL REVENUES Dollars in millions ---------------------------------------------------------------------- % Inc/(Dec) As Constant Quarters ended June 30, 2002 2001 Reported Currency* ---------------------------------------------------------------------- U.S. $1,401.9 $1,399.6 - n/a Europe 1,262.1 1,155.7 9 5 APMEA 580.3 520.1 12 10 Latin America 201.0 243.2 (17) 3 Canada 162.6 156.5 4 5 Partner Brands 254.2 232.4 9 9 Total $3,862.1 $3,707.5 4 4 ---------------------------------------------------------------------- % Inc/(Dec) As Constant Six months ended June 30, 2002 2001 Reported Currency* ---------------------------------------------------------------------- U.S. $2,668.2 $2,670.0 - n/a Europe 2,408.4 2,250.6 7 7 APMEA 1,164.3 1,054.9 10 12 Latin America 418.2 497.8 (16) 2 Canada 300.8 297.4 1 4 Partner Brands 499.6 448.5 11 11 Total $7,459.5 $7,219.2 3 5 * Excluding the effect of foreign currency translation on reported results. n/a Not applicable McDONALD'S CORPORATION OPERATING MARGINS OPERATING MARGINS - McDONALD'S RESTAURANT BUSINESS** ------------------------------------------------------------------------ % Inc/(Dec) Quarters ended Percent Amount As Constant June 30, 2002 2001 2002 2001 Reported Currency* ------------------------------------------------------------------------ Company-operated U.S. 17.8 16.5 $ 144.9 $ 134.7 8 n/a Europe 15.9 16.5 155.6 150.1 4 - APMEA 12.2 13.1 63.3 59.4 7 4 Latin America 7.4 10.5 12.6 21.5 (41) (45) Canada 15.7 16.5 20.3 20.3 - 1 Total 15.2 15.4 $ 396.7 $ 386.0 3 1 Franchised U.S. 80.2 80.6 $ 470.0 $ 469.6 - n/a Europe 77.1 77.3 216.8 191.2 13 8 APMEA 85.6 84.6 52.7 57.1 (8) (10) Latin America 67.0 68.8 20.9 26.0 (20) (10) Canada 79.4 81.1 26.2 27.1 (3) (2) Total 79.2 79.6 $ 786.6 $ 771.0 2 1 ------------------------------------------------------------------------ % Inc/(Dec) Six months ended Percent Amount As Constant June 30, 2002 2001 2002 2001 Reported Currency* ------------------------------------------------------------------------ Company-operated U.S. 17.3 16.4 $ 266.4 $ 256.5 4 n/a Europe 15.3 15.6 286.8 276.8 4 3 APMEA 12.3 13.7 128.3 125.9 2 2 Latin America 8.8 11.6 31.0 48.8 (36) (34) Canada 14.4 15.9 34.5 37.3 (8) (5) Total 14.8 15.2 $ 747.0 $ 745.3 - - Franchised U.S. 79.4 79.9 $ 895.1 $ 884.2 1 n/a Europe 76.6 76.4 409.2 368.0 11 11 APMEA 86.1 84.6 106.2 115.9 (8) (7) Latin America 67.4 68.6 44.1 53.2 (17) (8) Canada 78.6 79.8 47.9 49.9 (4) (2) Total 78.6 78.8 $1,502.5 $1,471.2 2 3 * Excluding the effect of foreign currency translation on reported results. ** Operating margin information relates to McDonald's restaurant business and excludes Partner Brands. n/a Not applicable COMPANY-OPERATED MARGINS AS A PERCENT OF SALES - McDONALD'S RESTAURANT BUSINESS* ------------------------------------------------------------------------- Quarters ended Six months ended June 30 June 30 2002 2001 2002 2001 ------------------------------------------------------------------------- Food & paper 33.9 34.2 34.4 34.2 Payroll & employee benefits 26.3 26.2 26.2 26.2 Occupancy & other operating expenses 24.6 24.2 24.6 24.4 Total expenses 84.8 84.6 85.2 84.8 Company-operated margins 15.2 15.4 14.8 15.2 * Operating margin information relates to McDonald's restaurant business and excludes Partner Brands. McDONALD'S CORPORATION RESTAURANT INFORMATION SYSTEMWIDE RESTAURANTS ----------------------------------------------------------------------- At June 30, 2002 2001 Inc/(Dec) ----------------------------------------------------------------------- U.S.* 13,223 12,879 344 Europe United Kingdom 1,194 1,144 50 Germany 1,165 1,103 62 France 932 872 60 Italy 324 308 16 Spain 322 289 33 Sweden 241 233 8 Netherlands 211 207 4 Poland 193 185 8 Austria 155 151 4 Other 1,158 1,103 55 Total Europe 5,895 5,595 300 APMEA Japan* 3,873 3,680 193 Australia 717 704 13 China 493 368 125 Taiwan 356 341 15 South Korea 344 273 71 Philippines 236 243 (7) Hong Kong 202 182 20 Other 1,234 1,196 38 Total APMEA 7,455 6,987 468 Latin America Brazil 575 566 9 Mexico 241 213 28 Argentina 205 216 (11) Other 577 579 (2) Total Latin America 1,598 1,574 24 Canada* 1,245 1,168 77 Partner Brands** 1,048 1,047 1 Systemwide restaurants 30,464 29,250 1,214 Countries 121 120 1 * Includes satellites at June 30, 2002: U.S. 1,034; Japan 1,866; Canada 311. At June 30, 2001: U.S. 983; Japan 1,705; Canada 283. ** Restaurants at June 30, 2002: Boston Market 648; Chipotle 203; Donatos Pizzeria 197. At June 30, 2001: Aroma Cafe 42; Boston Market 691; Chipotle 137; Donatos Pizzeria 177. McDONALD'S CORPORATION RESTAURANT INFORMATION RESTAURANT ADDITIONS ----------------------------------------------------------------------- Quarters ended Six months ended June 30 June 30 2002 2001 2002 2001 ----------------------------------------------------------------------- U.S. 75 68 124 75 Europe 70 85 101 135 APMEA 94 147 134 216 Latin America 7 26 17 64 Canada 7 6 22 14 Partner Brands* 19 13 (27) 39 Systemwide additions 272 345 371 543 * Decrease for the six months in 2002 was primarily due to sale of Aroma U.K. in March, 2002. SYSTEMWIDE RESTAURANTS ----------------------------------------------------------------------- At June 30, 2002 2001 Inc/(Dec) ----------------------------------------------------------------------- U.S. Operated by franchisees 10,549 10,261 288 Operated by the Company 1,975 1,872 103 Operated by affiliates 699 746 (47) 13,223 12,879 344 Europe Operated by franchisees 3,366 3,173 193 Operated by the Company 2,250 2,196 54 Operated by affiliates 279 226 53 5,895 5,595 300 APMEA Operated by franchisees 2,093 2,086 7 Operated by the Company 2,156 1,705 451 Operated by affiliates 3,206 3,196 10 7,455 6,987 468 Latin America Operated by franchisees 707 732 (25) Operated by the Company 849 800 49 Operated by affiliates 42 42 0 1,598 1,574 24 Canada Operated by franchisees 784 745 39 Operated by the Company 411 356 55 Operated by affiliates 50 67 (17) 1,245 1,168 77 Partner Brands Operated by franchisees 53 53 - Operated by the Company 995 994 1 1,048 1,047 1 Systemwide Operated by franchisees 17,552 17,050 502 Operated by the Company 8,594 7,923 671 Operated by affiliates 4,318 4,277 41 30,464 29,250 1,214 FREQUENTLY ASKED QUESTIONS Can you explain the difference between reported income and adjusted income figures for the second quarter and six months ended June 30? RECONCILIATION OF REPORTED INCOME TO ADJUSTED INCOME EXCLUDING SPECIAL ITEMS Dollars in millions, except per common share data ----------------------------------------------------------------------- Net Income Diluted EPS 2002 2001 % Inc 2002 2001 % Inc ----------------------------------------------------------------------- Quarter ended June 30 As Reported $497.5 $440.9 13 $0.39 $0.34 15 2001 Turkey non-cash asset impairment charge - 24.0 n/m - .01 n/m Adjusted $497.5 $464.9 7 $0.39 $0.35 11 Six months ended June 30 As Reported* $849.2 $819.2 4 $0.66 $0.62 6 2002 non-cash asset impairment charges 43.0 - n/m .03 - n/m 2001 Turkey non-cash asset impairment charge - 24.0 n/m - .02 n/m Adjusted* $892.2 $843.2 6 $0.69 $0.64 8 n/m Not meaningful *Before the cumulative effect of the goodwill accounting change.Photo: http://www.newscom.com/cgi-bin/prnh/19990916/MCDLOGO
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SOURCE: McDonald's Corporation
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Web site: http://www.mcdonalds.com/