McDonalds 2007 Annual Report Download - page 36

Impairment and other charges (credits), net
On a pretax basis, the Company recorded impairment and
other charges (credits), net of $1.7 billion in 2007, $134 million
in 2006 and ($28) million in 2005 associated with impairment,
as well as certain strategic actions in 2006. McDonald’s man-
agement does not include these items when reviewing business
performance trends because we do not believe these items are
indicative of expected ongoing results.
In 2007, the Company recorded $1.7 billion of pretax impairment
charges primarily related to the Company’s sale of its Latam
businesses to a developmental licensee organization. In addi-
tion, the Company recorded a $16 million write-off of assets
associated with the Toasted Deli Sandwich products in Canada
and a net gain of $14 million as a result of the transfer of the
Company’s ownership interest in three European markets to a
developmental licensee, partly offset by a loss on the anticipated
transfer of a small market in Europe to a developmental
licensee.
In 2006, the Company recorded $134 million of pretax
impairment charges primarily related to the following items:
losses incurred on the transfers of the Company’s ownership
interest in certain markets to developmental licensees ($36 million);
the closing of certain restaurants in the U.K. in conjunction with
an overall restaurant portfolio review ($35 million); costs to buy
out certain litigating franchisees in Brazil ($29 million); asset
write-offs and other charges in APMEA ($18 million); and a loss
related to the decision to dispose of supply chain operations in
Russia ($13 million).
In 2005, the Company recorded $23 million of pretax impair-
ment charges primarily in South Korea. In addition, the Company
recorded $51 million of pretax income, primarily due to the
transfer of the Company’s ownership interest in Turkey to a
developmental licensee and a favorable adjustment to certain
liabilities established in prior years due to lower than originally
anticipated employee-related and lease termination costs.
Other operating (income) expense, net
Other operating (income) expense, net
IN MILLIONS 2007 2006 2005
Gains on sales of
restaurant businesses $ (89) $(38) $ (45)
Equity in earnings of
unconsolidated affi liates (116) (77) (53)
Asset dispositions and
other expense 194 184 201
Total $ (11) $ 69 $103
• Gains on sales of restaurant businesses
Gains on sales of restaurant businesses include gains from
sales of Company-operated restaurants as well as gains from
exercises of purchase options by franchisees with business
facilities lease arrangements (arrangements where the Company
leases the businesses, including equipment, to franchisees
who generally have options to purchase the businesses). The
Company’s purchases and sales of businesses with its franchisees
and affi liates are aimed at achieving an optimal ownership mix in
each market. Resulting gains or losses are recorded in operating
income because the transactions are a recurring part of our
business. The Company realized higher gains on sales of
restaurant businesses in 2007 primarily as a result of selling
more Company-operated restaurants in connection with our
refranchising strategy in the Company’s major markets.
• Equity in earnings of unconsolidated affi liates
Equity in earnings of unconsolidated affi liates—businesses
in which the Company actively participates but does not
control—represents McDonald’s share of each affi liate’s results.
These results are reported after interest expense and income
taxes, except for partnerships in certain markets such as the
U.S., which are reported before income taxes. Results in 2007
and 2006 increased partly due to improved results from our
Japanese affi liate.
• Asset dispositions and other expense
Asset dispositions and other expense consists of gains or
losses on excess property and other asset dispositions, provisions
for contingencies and uncollectible receivables, and other
miscellaneous expenses. In 2006, results included a gain of
$26 million related to the sale of an offi ce building in Russia and
results for 2005 refl ected a $24 million charge related to a supply
chain arrangement in Europe.
Impairment and other charges (credits), net
IN MILLIONS, EXCEPT
PER SHARE DATA
2007 2006 2005
U.S.
Europe $ (11) $ 62 $ 4
APMEA 48 (9)
Other Countries & Corporate 1,681 24 (23)
Total $1,670 $134 $ (28)
After tax
(1)
$1,606 $ 98 $ (12)
Income from continuing
operations per common
share– diluted $ 1.32 $ .08 $(.01)
(1) Certain items were not tax affected.
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