McDonalds 2009 Annual Report Download - page 15

Consolidated Operating Results
Operating results
2009 2008 2007
Dollars in millions, except per share data Amount
Increase/
(decrease) Amount Increase/ (decrease) Amount
Revenues
Sales by Company-operated restaurants $ 15,459 (7)% $ 16,561 —% $ 16,611
Revenues from franchised restaurants 7,286 5 6,961 13 6,176
Total revenues 22,745 (3) 23,522 3 22,787
Operating costs and expenses
Company-operated restaurant expenses 12,651 (7) 13,653 (1) 13,742
Franchised restaurants—occupancy expenses 1,302 6 1,230 8 1,140
Selling, general & administrative expenses 2,234 (5) 2,355 — 2,367
Impairment and other charges (credits), net (61) nm 6 nm 1,670
Other operating (income) expense, net (222) (35) (165) nm (11)
Total operating costs and expenses 15,904 (7) 17,079 (10) 18,908
Operating income 6,841 6 6,443 66 3,879
Interest expense 473 (9) 523 27 410
Nonoperating (income) expense, net (24) 69 (78) 25 (103)
Gain on sale of investment (95) 41 (160) nm
Income from continuing operations before
provision for income taxes 6,487 5 6,158 72 3,572
Provision for income taxes 1,936 5 1,845 49 1,237
Income from continuing operations 4,551 6 4,313 85 2,335
Income from discontinued operations (net of taxes of $35) 60
Net income $ 4,551 6 % $ 4,313 80% $ 2,395
Income per common share—diluted
Continuing operations $ 4.11 9 % $ 3.76 95% $ 1.93
Discontinued operations 0.05
Net income $ 4.11 9 % $ 3.76 90% $ 1.98
Weighted-average common shares outstanding—
diluted 1,107.4 1,146.0 1,211.8
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 guidance on the impair-
ment or disposal of long-lived assets. As a result, the Company
recorded an impairment charge of $1.7 billion in 2007, sub-
stantially 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 deprecia-
tion expense with respect to Latam effective April 17, 2007. In
connection 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 $97 million at December 31, 2009 and $142 million at
December 31, 2008. The change in the balance was primarily a
result of the resolution of certain of these liabilities as well as the
impact of foreign currency translation. The Company mitigates
the currency impact to income of these foreign currency denomi-
nated liabilities 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 2009 13