McDonalds 2009 Annual Report Download - page 22

OPERATING INCOME
Operating income
Amount Increase/(decrease)
Increase
excluding currency
translation
Dollars in millions 2009 2008 2007 2009 2008 2009 2008
U.S. $3,232 $3,060 $ 2,842 6% 8% 6% 8%
Europe 2,588 2,608 2,125 (1) 23 817
APMEA 989 819 616 21 33 23 28
Other Countries & Corporate 32 (44) (1,704) nm 97 nm 97
Total $6,841 $6,443 $ 3,879 6% 66% 10% 62%
Latam transaction (1,641)
Total excluding Latam transaction* $6,841 $6,443 $ 5,520 6% 17% 10% 14%
nm Not meaningful.
* Results for 2007 included the impact of the Latam transaction in Other Countries & Corporate. This impact reflects an impairment charge of $1,665 million, partly offset by a benefit of
$24 million due to eliminating depreciation on the assets in Latam in mid-April 2007. In order to provide management’s view of the underlying business performance, results are also
shown excluding the impact of the Latam transaction.
Results for 2009 included $65 million of income in Other Coun-
tries & Corporate primarily related to the resolution of certain
liabilities retained in connection with the 2007 Latam transaction.
This benefit positively impacted the growth in total operating
income by 1 percentage point.
In the U.S., 2009 and 2008 results increased primarily due to
higher franchised margin dollars.
In Europe, results for 2009 and 2008 were driven by strong
performance in France, the U.K. and Russia. Positive results in
Germany and most other markets also contributed to the operat-
ing income increase in 2008.
In APMEA, results for 2009 were driven primarily by strong
results in Australia and expansion in China. Results for 2008
were driven by strong results in Australia and China, and positive
performance in most other markets.
• Combined operating margin
Combined operating margin is defined as operating income as a
percent of total revenues. Combined operating margin for 2009,
2008 and 2007 was 30.1%, 27.4% and 17.0%, respectively.
Impairment and other charges negatively impacted the 2007
combined operating margin by 7.4 percentage points.
INTEREST EXPENSE
Interest expense for 2009 decreased primarily due to lower
average interest rates, and to a lesser extent, weaker foreign
currencies, partly offset by higher average debt levels. Interest
expense for 2008 increased primarily due to higher average debt
levels, and to a lesser extent, higher average interest rates.
NONOPERATING (INCOME) EXPENSE, NET
Nonoperating (income) expense, net
In millions 2009 2008 2007
Interest income $(19) $(85) $(124)
Translation and hedging activity (32) (5) 1
Other expense 27 12 20
Total $(24) $(78) $(103)
Interest income consists primarily of interest earned on short-
term cash investments. Translation and hedging activity primarily
relates to net gains or losses on certain hedges that reduce the
exposure to variability on certain intercompany foreign currency
cash flow streams. Other expense primarily consists of gains or
losses on early extinguishment of debt, amortization of debt issu-
ance costs and other nonoperating income and expenses.
Interest income decreased for 2009 primarily due to lower
average interest rates, while 2008 decreased primarily due to
lower average interest rates and average cash balances.
GAIN ON SALE OF INVESTMENT
In 2009, the Company sold its minority ownership interest in
Redbox to Coinstar, Inc., the majority owner, for total consid-
eration of $140 million. As a result of the transaction, the
Company recognized a nonoperating pretax gain of $95 million
(after tax–$59 million or $0.05 per share).
In 2008, the Company sold its minority ownership interest in
U.K.-based Pret A Manger. In connection with the sale, the Com-
pany received cash proceeds of $229 million and recognized a
nonoperating pretax gain of $160 million (after tax–$109 million
or $0.09 per share).
PROVISION FOR INCOME TAXES
In 2009, 2008 and 2007, the reported effective income tax rates
were 29.8%, 30.0% and 34.6%, respectively.
In 2009, the effective income tax rate benefited by 0.7 per-
centage points primarily due to the resolution of certain liabilities
retained in connection with the 2007 Latam transaction.
In 2007, the effective income tax rate was impacted by about
4 percentage points as a result of the following items:
• A negative impact due to a minimal tax benefit of $62 million
related to the Latam impairment charge of $1,641 million. This
benefit was minimal due to the Company’s inability to utilize
most of the capital losses generated by this transaction
in 2007.
• A positive impact due to a benefit of $316 million resulting
from the completion of an IRS examination, partly offset by
$28 million of expense related to the impact of a tax law
change in Canada.
Consolidated net deferred tax liabilities included tax assets,
net of valuation allowance, of $1.4 billion in both 2009 and 2008.
20 McDonald’s Corporation Annual Report 2009