McDonalds 2009 Annual Report Download - page 41

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.
Impairment and Other Charges (Credits), Net
In millions, except per share data 2009 2008 2007
Europe $ 4.3 $6.0 $ (10.7)
APMEA (0.2)
Other Countries & Corporate (65.2) 1,681.0
Total $(61.1) $6.0 $1,670.3
After tax(1) $(91.4) $3.5 $1,606.0
Income from continuing
operations per common
share—diluted $ (.08) $.01 $ 1.32
(1) Certain items were not tax affected.
In 2009, the Company recorded pretax income of
$65.2 million related primarily to the resolution of certain
liabilities retained in connection with the 2007 Latam transaction.
The Company also recognized a tax benefit in 2009 in con-
nection with this income, mainly related to the release of a tax
valuation allowance.
In 2007, the Company recorded $1.7 billion of pretax impair-
ment charges related to the Company’s sale of its Latam
businesses to a developmental licensee organization.
Other Operating (Income) Expense, Net
In millions 2009 2008 2007
Gains on sales of restaurant
businesses $(113.3) $(126.5) $ (88.9)
Equity in earnings of
unconsolidated affiliates (167.8) (110.7) (115.6)
Asset dispositions and other
expense 58.8 72.0 193.4
Total $(222.3) $(165.2) $ (11.1)
• 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 facili-
ties lease arrangements (arrangements where the Company
leases the businesses, including equipment, to franchisees who
generally have options to purchase the businesses). The Compa-
ny’s purchases and sales of businesses with its franchisees 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.
• Equity in earnings of unconsolidated affiliates
Unconsolidated affiliates and partnerships are businesses in
which the Company actively participates but does not control.
The Company records equity in earnings from these entities
representing McDonald’s share of results. For foreign affiliated
markets – primarily Japan – results are reported after interest
expense and income taxes. McDonald’s share of results for part-
nerships in certain consolidated markets such as the U.S. are
reported before income taxes. These partnership restaurants are
operated under conventional franchise arrangements and, there-
fore, are classified as conventional franchised restaurants.
• Asset dispositions and other expense
Asset dispositions and other expense consists of gains or losses
on excess property and other asset dispositions, provisions for
store closings, uncollectible receivables and other miscellaneous
income and expenses.
Gain on Sale of Investment
In 2009, the Company sold its minority ownership interest in
Redbox Automated Retail, LLC to Coinstar, Inc., the majority
owner, for total consideration of $139.8 million. In connection
with the sale, in first quarter, the Company received initial consid-
eration valued at $51.6 million consisting of 1.5 million shares of
Coinstar common stock at an agreed to value of $41.6 million
and $10 million in cash with the balance of the purchase price
deferred. In subsequent quarters, the Company sold all of its
holdings in the Coinstar common stock for $46.8 million and
received $88.2 million in cash from Coinstar as final consid-
eration. As a result of the transaction, the Company recognized a
nonoperating pretax gain of $94.9 million (after tax–
$58.8 million or $0.05 per share).
In second quarter 2008, the Company sold its minority owner-
ship interest in U.K.-based Pret A Manger. In connection with the
sale, the Company received cash proceeds of $229.4 million and
recognized a nonoperating pretax gain of $160.1 million (after
tax–$109.0 million or $0.09 per share).
Contingencies
From time to time, the Company is subject to proceedings, law-
suits and other claims related to competitors, customers,
employees, franchisees, government agencies, intellectual prop-
erty, shareholders and suppliers. The Company is required to
assess the likelihood of any adverse judgments or outcomes to
these matters as well as potential ranges of probable losses. A
determination of the amount of accrual required, if any, for these
contingencies is made after careful analysis of each matter. The
required accrual may change in the future due to new develop-
ments in each matter or changes in approach such as a change
in settlement strategy in dealing with these matters. The Com-
pany does not believe that any such matter currently being
reviewed will have a material adverse effect on its financial con-
dition or results of operations.
Franchise Arrangements
Conventional franchise arrangements generally include a lease
and a license and provide for payment of initial fees, as well as
continuing rent and royalties to the Company based upon a per-
cent of sales with minimum rent payments that parallel the
Company’s underlying leases and escalations (on properties that
are leased). Under this arrangement, franchisees are granted the
right to operate a restaurant using the McDonald’s System and, in
most cases, the use of a restaurant facility, generally for a period
of 20 years. These franchisees pay related occupancy costs
including property taxes, insurance and maintenance. Affiliates
McDonald’s Corporation Annual Report 2009 39