McDonald's Reports Global Results
PRNewswire-FirstCall
OAK BROOK, Ill.
Oct 22, 2002
McDonald's Corporation (NYSE: MCD) today announced global results for the quarter and nine months ended September 30, 2002.
* Diluted earnings per share were $0.38 for the quarter.
* Total revenues were $4.0 billion for the quarter and $11.5 billion for
the nine months, up 3% and 4%, respectively, in constant currencies.
* Systemwide sales totaled $10.9 billion for the quarter and
$31.0 billion for the nine months, up 1% and 2%, respectively, in
constant currencies.
* During the quarter, McDonald's repurchased $154 million of its stock.
* McDonald's announced a reallocation of capital spending for 2003, with
a focus on building sales at existing restaurants and dramatically
reducing traditional McDonald's restaurant additions to about 600.
Key highlights - Consolidated
Dollars in millions, except per common Percent
share data Increase/(Decrease)
As Constant
Quarters ended September 30 2002 2001 Reported Currency*
Systemwide sales $10,908.1 $10,629.2 3 1
Total revenues 4,047.0 3,879.3 4 3
Operating income 829.8 746.6 11 6
Net income 486.7 545.5 (11) (14)
Net income per common
share diluted 0.38 0.42 (10) (12)
Nine months ended September 30
Systemwide sales $31,036.5 $30,517.7 2 2
Total revenues 11,506.5 11,098.5 4 4
Operating income 2,316.3 2,214.3 5 3
Income before cumulative
effect of accounting
change 1,335.9 1,364.7 (2) (4)
Cumulative effect of
accounting change,
net of tax (98.6) - n/m n/m
Net income 1,237.3 1,364.7 (9) (11)
Per common share - diluted:
Income before cumulative
effect of accounting change 1.04 1.04 - (2)
Cumulative effect of
accounting change (0.08) - n/m n/m
Net income 0.96 1.04 (8) (10)
* Information in constant currencies excludes the effect of foreign
currency translation on reported results, except for
hyperinflationary economies, 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, said, "Excluding the impact of 2002 and 2001 special items(1), nine month 2002 diluted income per common share before the cumulative effect of the accounting change increased 5% to $1.07.
"This year certainly has proven to be even more challenging than we had anticipated. Yet, we are seeing continued momentum in some areas of our business and some improvement in other areas, as we continue to respond to changing worldwide economic and competitive environments. For example, our performance in France continues to be strong. In the U.S., we've seen improvements in our customers' drive-thru experience, as determined by an independent research study, as well as in our mystery shop scores. More recently, we've seen an improvement in U.S. sales in conjunction with the start of our national value campaign that began on October 4. In Brazil, we generated positive comparable sales each month throughout the quarter, giving us the strongest quarterly sales performance in years.
"In addition, we firmly believe that there are untapped growth opportunities for our existing McDonald's restaurant business. We have always focused on achieving appropriate returns on each and every dollar invested. In today's world, it's even more critical that we do so.
"Accordingly, we are taking significant actions to optimize our business in the current operating environment. First, we will dramatically reduce restaurant openings in 2003 and focus more of our considerable financial resources on our existing business in order to drive comparable sales growth, increase cash from operations and improve returns. Second, we are currently reviewing our G&A spending and are committed to limiting G&A growth to a rate less than half that of Systemwide sales growth in 2003. This is notable, as we plan to achieve this while increasing G&A spending on technology that is designed to further leverage our size in order to increase efficiency and effectiveness, while supporting future growth.
"We expect total capital expenditures of approximately $1.9 billion in 2003, which is about $100 million less than expected in 2002. This reflects a reduction in capital spent on new restaurant openings around the world of almost $500 million. We plan to invest nearly $100 million of this capital savings in new buildings for U.S. franchised restaurants in 2003, in order to give our best owner/operators additional financial flexibility to purchase more restaurants as well as to reinvest in their existing restaurants. This is in contrast to the past few years when U.S. owner/operators had the option to own new restaurant buildings. As a result of this change, the Company will collect additional rent and earn a good return. In addition, we plan to reallocate approximately $300 million of the $500 million in capital savings primarily to increase reinvestments in existing restaurants.
"In 2003, we expect to add about 600 net traditional McDonald's restaurants globally, 450 fewer than this year, and down dramatically from a high of nearly 2,000 traditional restaurant additions in 1996. In addition, we plan to add 150 to 175 net Partner Brand restaurants in 2003. In 2002, we expect to add approximately 1,300 net McDonald's restaurants, including 250 satellites, and about 90 net Partner Brand restaurants. The increase in Partner Brand additions in 2003 includes a doubling of Chipotle restaurant openings, as the concept continues to deliver strong comparable sales and excellent returns and has impressive customer brand loyalty.
"During 2003, we will continue to concentrate McDonald's restaurant openings in markets with solid returns and will significantly reduce the amount of capital we invest in Asia/Pacific/Middle East/Africa (APMEA) and Latin America, where returns have been pressured in recent years by weak economies. At the same time, we plan to significantly reduce traditional McDonald's restaurant openings in the U.S., and somewhat in Europe, and to increase investments in existing U.S. restaurants to boost comparable sales.
"Operationally, in the U.S. we continue to focus on improving our customers' experiences with our Restaurant Operations Improvement Process, great everyday value and increased menu flexibility. We will complete the national rollout of our Dollar Menu next month and continue to run our first sustained national price-point advertising message in more than five years. The recent results we have seen from these initiatives give us confidence that sales will build as we create increased demand for Brand McDonald's.
"In Europe, we continue to attract customers with a combination of taste, value and service initiatives. In addition to continued strong performance in France, we have increased our market share against our major competitors in the U.K. And in Germany, we have maintained our share against our major competitors in the face of an overall decline in the country's informal eating-out market.
"We continue to target 2002 annual earnings per share of $1.43 or better excluding special charges(1). Achieving this target will require a significant improvement in sales trends. Including the charges, our earnings per share target is $1.31 or better. This reflects a foreign currency translation benefit of two to three cents.
"Going forward, we expect to benefit from the many actions we are taking. The level of comparable sales growth we generate and the judicious management of costs and capital spending will determine our success. Our primary focus will be optimizing our existing business, growing cash from operations and improving returns. This will include increasing our investments in existing restaurants to drive comparable sales, investing in new restaurants that generate attractive returns, investing in technology to improve long-term performance, and growing our existing Company-operated restaurant base as appropriate. The level of growth in cash from operations will depend on our operating performance and interest, tax and foreign currency exchange rates, as well as working capital needs.
"McDonald's remains in a strong financial position, with solid credit ratings. During the quarter, we repurchased $154 million of our stock, bringing year-to-date share repurchases to $620 million. In 2003, we plan to repurchase at least $500 million of McDonald's stock.
"Also, today, McDonald's Board of Directors approved a 4.4 percent increase in the annual dividend to 23.5 cents per share, payable on December 2, 2002 to shareholders of record on November 15, 2002."
(1) See "Cumulative Effect of Accounting Change" and "Special Items"
sections on page 6.
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 positive impact on the total revenues growth rate for the quarter primarily due to the stronger Euro and British Pound, partly offset by weaker Latin American currencies (primarily the Argentine Peso, Brazilian Real and Venezuelan Bolivar). For the nine months, foreign currency translation had a minimal impact on the total revenues growth rate as the stronger Euro and British Pound were offset primarily by the weaker Latin American currencies. Foreign currency translation had a positive impact on the consolidated operating income growth rate for both periods primarily due to the stronger Euro.
See the following table for the effect of foreign currency translation on consolidated reported results for the quarter and nine months.
Effect of foreign currency translation on consolidated reported results - positive/(negative) In millions, except per Quarter ended Nine months ended common share data September 30, 2002 September 30, 2002 Total revenues $55.5 $(44.6) Operating income 35.6 45.4 Net income 17.0 19.3 Net income per common share - diluted 0.01 0.02 Cumulative Effect of Accounting Change
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 test, 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.
Special Items
In first quarter 2002, the Company recorded $43.0 million (pre and after tax) of non-cash asset impairment charges in other operating expense, 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 second quarter 2001, the Company recorded a $24.0 million (pre and after tax) non-cash asset impairment charge in other operating expense due to an assessment of the ongoing impact of Turkey's significant currency devaluation on our business.
In third quarter 2001, the Company recorded charges of $84.1 million ($63.9 million after tax) primarily related to the closing of 154 underperforming restaurants in international markets and $17.4 million ($12.1 million after tax) primarily related to the write-off of certain technology investments in other operating expense. In addition, the Company recorded the following nonoperating items: a $12.4 million ($8.1 million after tax) charge primarily related to the write-off of a corporate investment and a $137.1 million (pre and after tax) gain related to the initial public offering of McDonald's Japan. The gain reflected an increase in the carrying value of our investment as a result of the cash proceeds from the IPO received by McDonald's Japan.
See the following table for a reconciliation of reported results to adjusted results excluding special items.
Reconciliation of reported
results to adjusted results
excluding special items
Net Income
Per Common Share -
Income Before Diluted, Before
Dollars in millions, except Cumulative Effect Cumulative Effect of
per common share data Accounting Change Accounting Change
%Inc/ $Inc/
Quarters ended September 30 2002 2001 (Dec) 2002 2001 (Dec)
As reported $ 486.7 $ 545.5 (11) $0.38 $0.42 (10)
McDonald's Japan IPO gain (137.1) (.10)
Charges for underperforming
restaurant closings 63.9 .05
Technology write-off and
other charges 12.1 .01
Corporate investment write-off 8.1
Total special items (53.0) (.04)
Adjusted $ 486.7 $ 492.5 (1) $0.38 $0.38 -
Nine months ended September 30
As reported $1,335.9 $1,364.7 (2) $1.04 $1.04 -
McDonald's Japan IPO gain (137.1) (.10)
Charges for underperforming
restaurant closings 63.9 .05
Asset impairment charges 43.0 24.0 .03 .02
Technology write-off and
other charges 12.1 .01
Corporate investment write-off 8.1
Total special items 43.0 (29.0) .03 (.02)
Adjusted $1,378.9 $1,335.7 3 $1.07 $1.02 5
Net Income and Diluted Net Income Per Common Share
For the quarter, net income declined $58.8 million or 11% and diluted net income per common share declined $0.04 or 10%. However, third quarter 2001 results included special items totaling $53.0 million or $0.04 per share of income.
For the nine months, income before the cumulative effect of an accounting change declined $28.8 million or 2% and diluted income per common share before the cumulative effect of this accounting change was flat at $1.04. Results for the nine months 2002 included special charges of $43.0 million or $0.03 per share and results for the nine months 2001 included special items totaling $29.0 million or $0.02 of income per share.
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 nine months, net income, which included the charge for the cumulative effect of the accounting change, declined $127.4 million or 9% and diluted net income per share declined $0.08 or 8%.
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 nine months, the Company repurchased 23.1 million shares of its common stock for approximately $620 million.
Systemwide Sales and Total Revenues
Systemwide sales include sales by all restaurants, whether operated by the Company, by franchisees or by affiliates operating under joint-venture agreements. Management believes that Systemwide sales are useful in analyzing the Company's revenues because franchisees and affiliates pay rent, service fees and/or royalties that generally are based on a percent of sales with specified minimum payments, along with initial fees. These fees received from franchisees and affiliates along with sales from Company-operated restaurants are reported as revenues.
Systemwide sales
Percent
Dollars in millions Increase/(Decrease)
As Constant
Quarters ended September 30 2002 2001 Reported Currency*
U.S. $ 5,203.4 $ 5,206.5 - n/a
Europe 2,846.7 2,520.2 13 3
APMEA 1,829.9 1,828.6 - (2)
Latin America 357.7 431.4 (17) 8
Canada 400.5 391.5 2 3
Partner Brands 269.9 251.0 8 8
Total Systemwide sales $10,908.1 $10,629.2 3 1
Nine months ended September 30
U.S. $15,249.0 $15,071.6 1 n/a
Europe 7,707.5 6,969.6 11 7
APMEA 5,085.3 5,344.9 (5) (3)
Latin America 1,107.7 1,318.4 (16) 2
Canada 1,098.5 1,094.5 - 2
Partner Brands 788.5 718.7 10 10
Total Systemwide sales $31,036.5 $30,517.7 2 2
* Excluding the effect of foreign currency translation on reported
results.
n/a Not applicable
Systemwide sales and revenues may grow at different rates during a given period, primarily due to a change in the mix of Company-operated, franchised and affiliated restaurants. For example, mix is impacted by purchases and sales of restaurants between the Company and franchisees.
For the nine months ended September 30, 2002, about 30% of Systemwide sales was generated by Company-operated restaurants, while 75% of revenues was generated by Company-operated restaurants.
Total revenues
Percent
Dollars in millions Increase/(Decrease)
As Constant
Quarters ended September 30 2002 2001 Reported Currency*
U.S. $ 1,408.1 $ 1,390.8 1 n/a
Europe 1,380.7 1,267.5 9 -
APMEA 623.7 576.7 8 5
Latin America 201.2 241.3 (17) 13
Canada 172.9 161.3 7 8
Partner Brands 260.4 241.7 8 8
Total revenues $ 4,047.0 $ 3,879.3 4 3
Nine months ended September 30
U.S. $ 4,076.3 $ 4,060.8 - n/a
Europe 3,789.1 3,518.1 8 4
APMEA 1,788.0 1,631.6 10 9
Latin America 619.4 739.1 (16) 6
Canada 473.7 458.7 3 5
Partner Brands 760.0 690.2 10 10
Total revenues $11,506.5 $11,098.5 4 4
* 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 nine 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 on revenues.
U.S. sales were relatively flat for the quarter as expansion was offset by negative comparable sales, while U.S. sales increased for the nine months as expansion more than offset negative comparable sales. U.S. revenues increased for the quarter due to an increase in the Company-operated restaurant base and were relatively flat for the nine months.
In Europe, constant currency sales increased for the quarter due to expansion, partly offset by negative comparable sales, while Europe's sales for the nine months increased due to expansion and positive comparable sales. Strong results in France were partly offset in both periods by negative comparable sales in Germany, where the economy continues to contract, and negative comparable sales in the U.K. for the quarter. Our marketing messages in Germany and the U.K. during the quarter did not resonate as well with consumers as we had hoped. Further, we expect the difficult economic conditions in Germany to continue in the near term. Europe's revenue growth rates were lower than the sales growth rates for both periods primarily due to a higher percentage of franchised restaurants in 2002, compared with 2001.
Constant currency sales results in APMEA declined for both periods due to negative comparable sales, partly offset by expansion. Positive comparable sales in Australia and expansion in China were more than offset by negative comparable sales in Japan in part due to weak economic conditions and consumer concerns regarding food safety. We expect Japan's results in the near term to continue to be weak. Despite a decrease in sales, APMEA's constant currency revenues increased for the quarter and nine months primarily due to a higher percentage of Company-operated restaurants and our affiliate structure in Japan. In addition, APMEA's revenues for the nine months benefited from a restructuring of our ownership in the Philippines in July 2001 that resulted in the reclassification of restaurants and related revenues from franchised to Company-operated.
In Latin America, constant currency sales increased for both periods primarily due to positive comparable sales in Brazil and expansion. Revenues increased at a higher rate than sales for both periods partly due to a shift to a higher percentage of Company-operated restaurants in 2002.
The sales and revenues increases in Partner Brands for both periods were due to expansion and positive comparable sales.
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 Nine months ended
September 30 September 30
2002 2001 2002 2001
Dollars in millions
Company-operated $ 416.6 $ 419.2 $1,163.6 $1,164.5
Franchised 812.9 798.6 2,315.4 2,269.8
Combined operating margins $1,229.5 $1,217.8 $3,479.0 $3,434.3
Percent of sales/revenues
Company-operated 15.1% 15.9% 14.9% 15.4%
Franchised 79.2 79.7 78.8 79.1
Combined operating margin dollars increased $11.7 million or 1% for the quarter (2% decrease in constant currencies) and $44.7 million or 1% for the nine months (1% 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 nine months, while payroll costs and occupancy & other operating expenses increased as a percent of sales for both periods.
The U.S. Company-operated margin percent decreased for the quarter and increased for the nine months. As a percent of sales, food & paper costs and occupancy & other operating expenses decreased for both periods, while payroll costs increased. In addition, both periods benefited from the elimination of goodwill amortization and a lower contribution rate to the national co-op for advertising expenses. However, these benefits were more than offset by higher labor costs for the quarter.
The Company-operated margin percent in Europe decreased for the quarter, primarily due to negative comparable sales, and also decreased for the nine months. Payroll costs as a percent of sales increased in both periods. Company-operated margins as a percent of sales in APMEA and Latin America were relatively flat for the quarter but decreased for the nine months.
The declines in the consolidated franchised margin percent for the quarter and nine months reflect negative comparable sales and higher occupancy costs due to an increased number of leased sites. The franchised margin percent in APMEA increased for the nine months primarily due to the restructuring of our ownership in the Philippines in July 2001. The restructuring resulted in the reclassification of our restaurants and related margins, that were lower than the average for the segment, from franchised to Company-operated.
Selling, General & Administrative Expenses
Selling, general & administrative expenses increased 5% for the quarter on both a reported and constant currency basis and were relatively flat for the nine months (1% increase in constant currencies). Both periods reflected higher spending on future restaurant-related technology improvements, as well as the benefit of the global change initiatives introduced in late 2001. The nine months also included a reduction in certain performance-based compensation accruals.
Other Operating Income (Expense), Net
Other operating income (expense), net
Quarters ended Nine months ended
Dollars in millions September 30 September 30
2002 2001 2002 2001
Gains on sales of
restaurant businesses $ 38.1 $ 21.0 $ 78.5 $ 67.3
Equity in earnings of
unconsolidated affiliates 14.1 13.6 29.5 50.6
Team service system
payments - U.S. (21.6)
Other expense (32.2) (5.7) (36.4) (24.3)
Special items:
Underperforming restaurant
closings (84.1) (84.1)
Asset impairment (43.0) (24.0)
Technology write-off
and other charges (17.4) (17.4)
Total $ 20.0 $ (72.6) $ 7.0 $ (31.9)
Equity in earnings of unconsolidated affiliates included lower earnings from our Japanese affiliate for both periods. 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 team service system. Other expense increased for both periods primarily due to higher provisions for uncollectible receivables and higher losses on property dispositions, partly offset by a benefit from the elimination of goodwill amortization.
Operating Income
Consolidated operating income increased $83.2 million or 11% for the quarter, however, special charges of $101.5 million were included in third quarter 2001 operating income. Consolidated operating income increased $102.0 million or 5% for the nine months. Special charges of $43.0 million were included in operating income for the nine months 2002 and $125.5 million of special charges were included for the nine months 2001. See the table at the end of this release for a reconciliation of reported operating income to adjusted constant currency operating income excluding special items.
Operating income
Percent
Dollars in millions Increase/(Decrease)
Adjusted
As Constant
Quarters ended September 30 2002 2001 Reported Currency(1)
U.S. $ 479.9 $ 479.3 - -
Europe (2) 336.3 288.0 17 (5)
APMEA (3) 84.2 75.8 11 (8)
Latin America (4) 6.7 (22.3) n/m (75)
Canada (5) 39.3 34.7 13 2
Partner Brands (10.1) (10.4) 3 3
Corporate (6) (106.5) (98.5) (8) (26)
Total operating income $ 829.8 $ 746.6 11 (6)
Nine months ended September 30
U.S. $1,400.0 $1,370.4 2 2
Europe (2) 877.7 775.0 13 4
APMEA (3) 229.6 261.1 (12) (18)
Latin America (4) (2.7) 14.2 n/m (70)
Canada (5) 104.8 98.6 6 4
Partner Brands (28.7) (37.8) 24 24
Corporate (6) (264.4) (267.2) 1 (5)
Total operating income $2,316.3 $2,214.3 5 (1)
(1) Excluding the effect of foreign currency translation on reported
results and excluding the special items listed below.
(2) Includes $36.2 million of charges in third quarter 2001 related to
the closing of underperforming restaurants.
(3) Includes asset impairment charges in Turkey of $15.9 million in
first quarter 2002 and $24.0 million in second quarter 2001, and
$11.4 million of charges in third quarter 2001 primarily related to
the closing of underperforming restaurants.
(4) Includes $27.1 million of asset impairment charges in first quarter
2002 and $35.4 million of charges in third quarter 2001 related to
the closing of underperforming restaurants.
(5) Includes $4.2 million of charges in third quarter 2001 related to
the closing of underperforming restaurants.
(6) Includes $14.3 million of charges in third quarter 2001 primarily
related to the write-off of certain technology investments.
n/m Not meaningful
U.S. operating income was relatively flat for the quarter. Lower combined operating margin dollars were offset by lower selling, general & administrative expense and higher other operating income. For the nine months, U.S. operating income increased 2% due to higher combined operating margin dollars and lower selling, general & administrative expenses. Other operating income was lower for the nine months due to the $21.6 million of payments made to U.S. owner/operators for the front counter team service system.
Europe's adjusted operating income decreased 5% for the quarter and increased 4% for the nine months in constant currencies. Both periods reflect strong results in France and weak results in Germany. In addition, the U.K. contributed to the increase for the nine months.
APMEA's adjusted operating income decreased 8% for the quarter and 18% for the nine months in constant currencies, primarily due to weak results in Japan and Hong Kong, partly offset by strong results in Australia for both periods. The segment's growth rate for the nine months was also negatively impacted by a gain on the sale of real estate in Singapore in first quarter 2001.
Latin America's adjusted operating results declined significantly for the quarter and nine months as Argentina and most other markets continue to experience difficult economic conditions.
The increases in operating income for Partner Brands were primarily driven by improved results for Chipotle and the elimination of goodwill amortization for both periods.
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.
Nonoperating expense for both periods reflected foreign currency translation losses in 2002 compared with foreign currency translation gains in 2001. In addition, nonoperating expense in 2001 included a write-off of a corporate investment.
The effective income tax rate increased from 27.3% in 2001 to 32.0% in 2002 for the quarter and from 30.4% in 2001 to 32.7% in 2002 for the nine months due to the following special items that were not tax-effected for financial reporting purposes: the Turkey asset impairment charge recorded in second quarter 2001, the Japan IPO gain and certain restaurant closing charges recorded in third quarter 2001, and the asset impairment charges recorded in first quarter 2002. We expect the annual 2002 effective tax rate to be about 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 and technology 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 third quarter earnings release, McDonald's Corporation will broadcast its conference call with members of management live over the Internet at 10:30 a.m. Central Time. Interested parties are invited to listen by logging on to http://www.mcdonalds.com/corporate/investor and selecting "Webcasts."
McDONALD'S CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
Dollars and shares in millions, except per common share data
--------------------------------------------------------------------
Inc/(Dec)
Quarters ended September 30, 2002 2001 $ %
--------------------------------------------------------------------
Revenues
Sales by Company-operated
restaurants $3,019.3 $2,876.9 142.4 5
Revenues from franchised
and affiliated restaurants 1,027.7 1,002.4 25.3 3
TOTAL REVENUES 4,047.0 3,879.3 167.7 4
Operating costs and expenses
Company-operated restaurants 2,584.8 2,440.8 144.0 6
Franchised restaurants
--occupancy costs 214.2 203.4 10.8 5
Selling, general &
administrative expenses 438.2 415.9 22.3 5
Other operating (income)
expense, net (20.0) 72.6 (92.6) n/m
Total operating costs
and expenses 3,217.2 3,132.7 84.5 3
OPERATING INCOME 829.8 746.6 83.2 11
Interest expense 93.8 110.6 (16.8) (15)
McDonald's Japan IPO gain - (137.1) 137.1 n/m
Nonoperating expense, net 20.7 22.6 (1.9) (8)
Income before provision
for income taxes 715.3 750.5 (35.2) (5)
Provision for income taxes 228.6 205.0 23.6 12
NET INCOME 486.7 545.5 (58.8) (11)
NET INCOME PER
COMMON SHARE-DILUTED $ 0.38 $ 0.42* (0.04) (10)
Weighted average common
shares outstanding-diluted 1,280.5 1,305.8
n/m Not meaningful
* Diluted earnings per share would have remained at $0.42 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)
Nine months ended September 30, 2002 2001 $ %
--------------------------------------------------------------------
Revenues
Sales by Company-operated
restaurants $ 8,566.8 $ 8,229.3 337.5 4
Revenues from franchised
and affiliated restaurants 2,939.7 2,869.2 70.5 2
TOTAL REVENUES 11,506.5 11,098.5 408.0 4
Operating costs and expenses
Company-operated restaurants 7,348.3 7,025.8 322.5 5
Franchised restaurants
--occupancy costs 622.9 598.2 24.7 4
Selling, general &
administrative expenses 1,226.0 1,228.3 (2.3) -
Other operating (income)
expense, net (7.0) 31.9 (38.9) n/m
Total operating costs
and expenses 9,190.2 8,884.2 306.0 3
OPERATING INCOME 2,316.3 2,214.3 102.0 5
Interest expense 279.5 348.6 (69.1) (20)
McDonald's Japan IPO gain - (137.1) 137.1 n/m
Nonoperating expense, net 53.1 42.6 10.5 25
Income before provision
for income taxes and
cumulative effect of
accounting change 1,983.7 1,960.2 23.5 1
Provision for income taxes 647.8 595.5 52.3 9
Income before cumulative
effect of accounting change 1,335.9 1,364.7 (28.8) (2)
Cumulative effect of
accounting change, net
of tax (98.6) - (98.6) n/m
NET INCOME $ 1,237.3 $ 1,364.7 (127.4) (9)
PER COMMON SHARE-DILUTED:
Income before cumulative
effect of accounting change $ 1.04 $ 1.04* - -
Cumulative effect of
accounting change $ (0.08) $ - (0.08) n/m
Net income $ 0.96 $ 1.04 (0.08) (8)
Weighted average common
shares outstanding-diluted 1,286.8 1,313.4
n/m Not meaningful
* Diluted earnings per share would have been $1.06 had SFAS 142
been adopted in 2001.
McDONALD'S SYSTEMWIDE SALES
Dollars in millions
------------------------------------------------------------------------
% Inc/(Dec)
As Constant
Quarters ended September 30, 2002 2001 Reported Currency*
------------------------------------------------------------------------
U.S.
Operated by franchisees $ 4,105.3 $ 4,104.8 -
Operated by the Company 827.2 802.9 3
Operated by affiliates 270.9 298.8 (9)
5,203.4 5,206.5 - n/a
Europe
Operated by franchisees 1,623.1 1,412.3 15
Operated by the Company 1,065.6 992.4 7
Operated by affiliates 158.0 115.5 37
2,846.7 2,520.2 13 3
APMEA
Operated by franchisees 555.0 521.3 6
Operated by the Company 557.9 510.2 9
Operated by affiliates 717.0 797.1 (10)
1,829.9 1,828.6 - (2)
Latin America
Operated by franchisees 173.8 218.0 (20)
Operated by the Company 171.9 204.6 (16)
Operated by affiliates 12.0 8.8 36
357.7 431.4 (17) 8
Canada
Operated by franchisees 247.9 219.2 13
Operated by the Company 137.0 125.5 9
Operated by affiliates 15.6 46.8 (67)
400.5 391.5 2 3
Partner Brands
Operated by franchisees 10.2 9.7 5
Operated by the Company 259.7 241.3 8
269.9 251.0 8 8
Systemwide
Operated by franchisees 6,715.3 6,485.3 4
Operated by the Company 3,019.3 2,876.9 5
Operated by affiliates 1,173.5 1,267.0 (7)
$10,908.1 $10,629.2 3 1
* Excluding the effect of foreign currency translation on reported
results.
n/a Not applicable
McDONALD'S SYSTEMWIDE SALES
Dollars in millions
------------------------------------------------------------------------
% Inc/(Dec)
As Constant
Nine months ended September 30, 2002 2001 Reported Currency*
------------------------------------------------------------------------
U.S.
Operated by franchisees $12,072.8 $11,845.5 2
Operated by the Company 2,368.5 2,365.6 -
Operated by affiliates 807.7 860.5 (6)
15,249.0 15,071.6 1 n/a
Europe
Operated by franchisees 4,362.4 3,879.4 12
Operated by the Company 2,939.5 2,761.1 6
Operated by affiliates 405.6 329.1 23
7,707.5 6,969.6 11 7
APMEA
Operated by franchisees 1,522.7 1,496.0 2
Operated by the Company 1,598.8 1,428.3 12
Operated by affiliates 1,963.8 2,420.6 (19)
5,085.3 5,344.9 (5) (3)
Latin America
Operated by franchisees 554.2 674.8 (18)
Operated by the Company 524.7 624.9 (16)
Operated by affiliates 28.8 18.7 54
1,107.7 1,318.4 (16) 2
Canada
Operated by franchisees 679.6 680.7 -
Operated by the Company 376.9 360.4 5
Operated by affiliates 42.0 53.4 (21)
1,098.5 1,094.5 - 2
Partner Brands
Operated by franchisees 30.1 29.7 1
Operated by the Company 758.4 689.0 10
788.5 718.7 10 10
Systemwide
Operated by franchisees 19,221.8 18,606.1 3
Operated by the Company 8,566.8 8,229.3 4
Operated by affiliates 3,247.9 3,682.3 (12)
$31,036.5 $30,517.7 2 2
* Excluding the effect of foreign currency translation on reported
results.
n/a Not applicable
McDONALD'S COMPARABLE SALES
McDONALD'S RESTAURANT BUSINESS*
-------------------------------------------------------------------------
Percent Increase/(Decrease)
Quarters ended Nine months ended
September 30 September 30
2002 2001 2002 2001
-------------------------------------------------------------------------
U.S. (2.8) 0.6 (1.6) (0.1)
Europe (1.3) (1.2) 2.0 (2.8)
APMEA (8.1) (4.2) (9.2) (3.5)
Latin America 3.6 (3.3) (2.1) (2.4)
Canada (0.9) (0.1) (2.0) 1.4
Brand McDonald's (3.0) (0.9) (2.1) (1.4)
* 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 OPERATING MARGINS
COMPANY-OPERATED AND FRANCHISED RESTAURANT MARGINS -
McDONALD'S RESTAURANT BUSINESS**
------------------------------------------------------------------------
% Inc/(Dec)
Quarters ended Percent Amount As Constant
September 30, 2002 2001 2002 2001 Reported Currency*
------------------------------------------------------------------------
Company-operated
U.S. 15.5 15.9 $ 128.5 $ 127.3 1 n/a
Europe 17.1 18.9 182.0 187.7 (3) (10)
APMEA 12.2 12.2 68.0 62.4 9 5
Latin America 10.1 10.1 17.4 20.7 (16) (7)
Canada 15.1 16.8 20.7 21.1 (2) (1)
Total 15.1 15.9 $ 416.6 $ 419.2 (1) (4)
Franchised
U.S. 79.6 79.9 $ 462.5 $ 469.9 (2) n/a
Europe 77.6 78.4 244.5 215.6 13 3
APMEA 86.1 88.3 56.7 58.7 (3) (7)
Latin America 69.3 68.4 20.3 25.1 (19) (1)
Canada 80.6 81.8 28.9 29.3 (1) -
Total 79.2 79.7 $ 812.9 $ 798.6 2 (1)
------------------------------------------------------------------------
% Inc/(Dec)
Nine months ended Percent Amount As Constant
September 30, 2002 2001 2002 2001 Reported Currency*
------------------------------------------------------------------------
Company-operated
U.S. 16.7 16.2 $ 394.9 $ 383.8 3 n/a
Europe 16.0 16.8 468.8 464.5 1 (2)
APMEA 12.3 13.2 196.3 188.3 4 3
Latin America 9.2 11.1 48.4 69.5 (30) (26)
Canada 14.6 16.2 55.2 58.4 (5) (4)
Total 14.9 15.4 $1,163.6 $1,164.5 - (1)
Franchised
U.S. 79.5 79.9 $1,357.6 $1,354.1 - n/a
Europe 76.9 77.1 653.7 583.6 12 8
APMEA 86.1 85.9 162.9 174.6 (7) (7)
Latin America 68.1 68.6 64.4 78.3 (18) (6)
Canada 79.4 80.5 76.8 79.2 (3) (1)
Total 78.8 79.1 $2,315.4 $2,269.8 2 1
* 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
McDONALD'S CORPORATION OPERATING MARGINS
COMPANY-OPERATED MARGINS AS A PERCENT OF SALES -
McDONALD'S RESTAURANT BUSINESS*
-------------------------------------------------------------------------
Quarters ended Nine months ended
September 30 September 30
2002 2001 2002 2001
-------------------------------------------------------------------------
Food & paper 33.9 34.5 34.2 34.3
Payroll & employee
benefits 26.2 25.4 26.2 26.0
Occupancy & other
operating expenses 24.8 24.2 24.7 24.3
Total expenses 84.9 84.1 85.1 84.6
Company-operated margins 15.1 15.9 14.9 15.4
* Operating margin information relates to McDonald's restaurant
business and excludes Partner Brands.
McDONALD'S RESTAURANT INFORMATION
SYSTEMWIDE RESTAURANTS
-----------------------------------------------------------------------
At September 30, 2002 2001 Inc/(Dec)
-----------------------------------------------------------------------
U.S.* 13,337 12,953 384
Europe
United Kingdom 1,208 1,150 58
Germany* 1,181 1,114 67
France 945 884 61
Spain 328 294 34
Italy 326 303 23
Sweden 243 234 9
Netherlands 212 207 5
Poland 193 185 8
Austria 156 155 1
Other 1,169 1,096 73
Total Europe 5,961 5,622 339
APMEA
Japan* 3,876 3,718 158
Australia 720 711 9
China 523 392 131
South Korea 360 289 71
Taiwan 359 341 18
Philippines 237 231 6
Hong Kong 212 185 27
Other 1,240 1,188 52
Total APMEA 7,527 7,055 472
Latin America
Brazil 577 556 21
Mexico 250 218 32
Argentina 204 214 (10)
Other 586 558 28
Total Latin America 1,617 1,546 71
Canada* 1,264 1,181 83
Partner Brands
Boston Market 657 674 (17)
Chipotle 212 152 60
Donatos 208 191 17
Aroma Cafe - 43 (43)
Total Partner Brands 1,077 1,060 17
Systemwide restaurants 30,783 29,417 1,366
Countries 121 121 -
* Includes satellites at September 30, 2002: U.S. 1,096; Japan 1,887;
Canada 315; Germany 49. At September 30, 2001: U.S. 989; Japan 1,737;
Canada 286; Germany 26.
McDONALD'S RESTAURANT INFORMATION
RESTAURANT ADDITIONS
-----------------------------------------------------------------------
Quarters ended Nine months ended
September 30 September 30
2002 2001 2002 2001
-----------------------------------------------------------------------
U.S. 114 74 238 149
Europe 66 27 167 162
APMEA 72 68 206 284
Latin America 19 (28) 36 36
Canada 19 13 41 27
Partner Brands 29 13 2 52
Systemwide additions 319 167 690 710
SYSTEMWIDE RESTAURANTS
-----------------------------------------------------------------------
At September 30, 2002 2001 Inc/(Dec)
-----------------------------------------------------------------------
U.S.
Operated by franchisees 10,648 10,342 306
Operated by the Company 1,986 1,902 84
Operated by affiliates 703 709 (6)
13,337 12,953 384
Europe
Operated by franchisees 3,403 3,211 192
Operated by the Company 2,275 2,182 93
Operated by affiliates 283 229 54
5,961 5,622 339
APMEA
Operated by franchisees 2,122 1,930 192
Operated by the Company 2,216 1,907 309
Operated by affiliates 3,189 3,218 (29)
7,527 7,055 472
Latin America
Operated by franchisees 709 726 (17)
Operated by the Company 866 779 87
Operated by affiliates 42 41 1
1,617 1,546 71
Canada
Operated by franchisees 780 755 25
Operated by the Company 434 358 76
Operated by affiliates 50 68 (18)
1,264 1,181 83
Partner Brands
Operated by franchisees 52 51 1
Operated by the Company 1,025 1,009 16
1,077 1,060 17
Systemwide
Operated by franchisees 17,714 17,015 699
Operated by the Company 8,802 8,137 665
Operated by affiliates 4,267 4,265 2
30,783 29,417 1,366
McDONALD'S CORPORATION
RECONCILIATION OF REPORTED OPERATING INCOME TO ADJUSTED
CONSTANT CURRENCY OPERATING INCOME EXCLUDING SPECIAL ITEMS
Dollars in millions
--------------------------------------------------------------------------
Quarters ended Nine months ended
September 30 September 30
% Inc/ % Inc/
2002 2001 (Dec) 2002 2001 (Dec)
--------------------------------------------------------------------------
Consolidated
As reported $829.8 $746.6 11 $2,316.3 $2,214.3 5
Charges for
underperforming
restaurant closings 84.1 84.1
Non-cash asset
impairment charges 43.0 24.0
Technology write-off
and other charges 17.4 17.4
Currency effect (35.6) (43.0)
Adjusted constant
currency $794.2 $848.1 (6) $2,316.3 $2,339.8 (1)
Europe
As reported $336.3 $288.0 17 $ 877.7 $ 775.0 13
Charges for
underperforming
restaurant closings 36.2 36.2
Currency effect (29.0) (32.5)
Adjusted constant
currency $307.3 $324.2 (5) $ 845.2 $ 811.2 4
APMEA
As reported $ 84.2 $ 75.8 11 $ 229.6 $ 261.1 (12)
Charges for
underperforming
restaurant closings 8.3 8.3
Non-cash asset
impairment charges 15.9 24.0
Technology write-off
and other charges 3.1 3.1
Currency effect (3.7) (2.8)
Adjusted constant
currency $ 80.5 $ 87.2 (8) $ 242.7 $ 296.5 (18)
Latin America
As reported $ 6.7 $(22.3) n/m $ (2.7) $ 14.2 n/m
Charges for
underperforming
restaurant closings 35.4 35.4
Non-cash asset
impairment charges 27.1
Currency effect (3.4) (9.5)
Adjusted constant
currency $ 3.3 $ 13.1 (75) $ 14.9 $ 49.6 (70)
Canada
As reported $ 39.3 $ 34.7 13 $ 104.8 $ 98.6 6
Charges for
underperforming
restaurant closings 4.2 4.2
Currency effect 0.5 1.8
Adjusted constant
currency $ 39.8 $ 38.9 2 $ 106.6 $ 102.8 4
Corporate
As reported $(106.5) $(98.5) (8) $ (264.4) $(267.2) 1
Technology write-off
and other charges 14.3 14.3
Adjusted constant
currency $(106.5) $(84.2) (26) $ (264.4) $(252.9) (5)
Photo: http://www.newscom.com/cgi-bin/prnh/19990916/MCDLOGOAP Archive: http://photoarchive.ap.org/
PRN Photo Desk, 888-776-6555 or +1-212-782-2840
SOURCE: McDonald's Corporation
CONTACT: Investors, Mary Healy, +1-630-623-6429, or Media, Anna
Rozenich, 630-623-7316, both of McDonald's Corporation
Web site: http://www.mcdonalds.com/