McDonalds 2008 Annual Report Download - page 27

CONSOLIDATED OPERATING RESULTS
Operating results
2008 2007 2006
Dollars in millions, except per share data Amount
Increase/
(decrease) Amount Increase/ (decrease) Amount
Revenues
Sales by Company-operated restaurants $ 16,561 —% $ 16,611 8% $ 15,402
Revenues from franchised restaurants 6,961 13 6,176 12 5,493
Total revenues 23,522 3 22,787 9 20,895
Operating costs and expenses
Company-operated restaurant expenses 13,653 (1) 13,742 6 12,905
Franchised restaurants—occupancy expenses 1,230 8 1,140 8 1,058
Selling, general & administrative expenses 2,355 — 2,367 3 2,296
Impairment and other charges, net 6nm 1,670 nm 134
Other operating (income) expense, net (165) nm (11) nm 69
Total operating costs and expenses 17,079 (10) 18,908 15 16,462
Operating income 6,443 66 3,879 (12) 4,433
Interest expense 523 27 410 2 402
Nonoperating (income) expense, net (78) 25 (103) (16) (123)
Gain on sale of investment (160) nm
Income from continuing operations before provision for
income taxes 6,158 72 3,572 (14) 4,154
Provision for income taxes 1,845 49 1,237 (4) 1,288
Income from continuing operations 4,313 85 2,335 (19) 2,866
Income from discontinued operations (net of taxes of $35 and $102) nm 60 nm 678
Net income $ 4,313 80% $ 2,395 (32)% $ 3,544
Income per common share–diluted
Continuing operations $ 3.76 95% $ 1.93 (16)% $ 2.29
Discontinued operations nm 0.05 nm 0.54
Net income $ 3.76 90% $ 1.98 (30)% $ 2.83
Weighted-average common shares outstanding–diluted 1,146.0 1,211.8 1,251.7
nm Not meaningful.
In August 2007, the Company completed the sale of its busi-
nesses in Brazil, Argentina, Mexico, Puerto Rico, Venezuela and
13 other countries in Latin America and the Caribbean, which
totaled 1,571 restaurants, to a developmental licensee orga-
nization. The Company refers to these markets as “Latam.” As a
result of the Latam transaction, the Company receives royalties in
these markets instead of a combination of Company-operated
sales and franchised rents and royalties.
Based on approval by the Company’s Board of Directors on
April 17, 2007, the Company concluded Latam was “held for sale”
as of that date in accordance with the requirements of SFAS
No. 144, Accounting for the Impairment or Disposal of Long-lived
Assets. As a result, the Company recorded an impairment charge
of $1.7 billion in 2007, substantially all of which was noncash. The
charge included $896 million for the difference between the net
book value of the Latam business and approximately $675 million
in cash proceeds received. This loss in value was primarily due to a
historically difficult economic environment coupled with volatility
experienced in many of the markets included in this transaction.
The charges also included historical foreign currency translation
losses of $769 million recorded in shareholders’ equity.
The Company recorded a tax benefit of $62 million in 2007 in
connection with this transaction. As a result of meeting the “held
for sale” criteria, the Company ceased recording depreciation
expense with respect to Latam effective April 17, 2007. In con-
nection with the sale, the Company agreed to indemnify the buyers
for certain tax and other claims, certain of which are reflected as
liabilities on McDonald’s Consolidated balance sheet, totaling
$142 million at December 31, 2008 and $179 million at
December 31, 2007. The change in the balance was primarily due
to foreign currency translation. The Company mitigates the cur-
rency impact to income through the use of forward foreign
exchange agreements.
The buyers of the Company’s operations in Latam entered into
a 20-year master franchise agreement that requires the buyers,
among other obligations to (i) pay monthly royalties commencing at
a rate of approximately 5% of gross sales of the restaurants in
these markets, substantially consistent with market rates for similar
license arrangements; (ii) commit to adding approximately 150
new McDonald’s restaurants by the end of 2010 and pay an initial
fee for each new restaurant opened; and (iii) commit to specified
annual capital expenditures for existing restaurants.
McDonald’s Corporation Annual Report 2008 25