EX-99.2 4 supplemental.htm SUPPLEMENTAL RELEASE Supplemental Release
EXHIBIT 99.2
 
McDONALD'S CORPORATION
SUPPLEMENTAL INFORMATION
QUARTER AND YEAR ENDED DECEMBER 31, 2003


 
Impact of Foreign Currencies on Reported Results
 
1
 
Revenues and Systemwide Sales
 
1
 
Operating Margins
 
8
 
Selling, General and Administrative Expenses
  
  10
 
Other Operating (Income) Expense, Net
 
10
 
Operating Income
 
12
 
Interest, Nonoperating Expense and Income Taxes
 
13
 
Outlook
 
14
 
Balance Sheet
 
16
 
Restaurant Information
 
17

 
     
 
 


SUPPLEMENTAL INFORMATION

         The purpose of this exhibit is to provide additional information related to McDonald’s Corporation’s results for the fourth quarter and year ended December 31, 2003. This exhibit should be read in conjunction with Exhibit 99.1.

Impact of Foreign Currencies on Reported Results

    Management reviews and analyzes business results excluding the effect of foreign currency translation and bases certain compensation plans on these results, because it believes they better represent the Company's underlying business trends. Results excluding the effect of foreign currency translation (also referred to as constant currency) are calculated by translating current year results at prior year average exchange rates.

  • Foreign currency translation had a positive impact on the growth rates of consolidated revenues, operating income and earnings per share for the quarter and year, due to the strengthening of several major currencies, primarily the Euro.

Revenues and Systemwide Sales

    Revenues include sales by Company-operated restaurants and fees from restaurants operated by franchisees or affiliates under joint-venture agreements. These fees include rent, service fees and/or royalties that are based on a percent of sales with specified minimum payments, along with initial fees.
 
 
  1  
 

 
REVENUES
Dollars in millions
 
 
 
 
 
 
 
Quarters ended December 31,
2003
2002
% Inc
(Dec)
 
Currency
Translation
Benefit (Loss)
 
% Inc (Dec)
Excl Currency
Translation
Benefit (Loss)
Company-operated sales:
 
 
 
 
 
 
 
U.S.
$ 932.1
$ 803.5
16
 
n/a
 
n/a
Europe
1,218.4
1,042.7
17
 
$138.2
 
4
APMEA
552.3
515.4
7
 
38.5
 
-
Latin America
217.6
171.5
27
 
16.4
 
17
Canada
176.3
128.4
37
 
28.7
 
15
Other*
301.7
271.3
11
 
0.5
 
11
Total
$3,398.4
$2,932.8
16
 
$222.3
 
8
Franchised and affiliated revenues:
 
 
 
 
 
 
 
U.S.
$ 646.6
$ 542.9
19
 
n/a
 
n/a
Europe
365.3
304.2
20
 
$ 53.6
 
2
APMEA
83.5
64.3
30
 
13.8
 
8
Latin America
20.8
23.0
(10)
 
(0.6)
 
(7)
Canada
40.0
31.5
27
 
6.5
 
6
Other*
0.8
0.5
60
 
-
 
60
Total
$1,157.0
$ 966.4
20
 
$ 73.3
 
12
Total revenues:
 
 
 
 
 
 
 
U.S.
$1,578.7
$1,346.4
17
 
n/a
 
n/a
Europe
1,583.7
1,346.9
18
 
$191.8
 
3
APMEA
635.8
579.7
10
 
52.3
 
1
Latin America
238.4
194.5
23
 
15.8
 
14
Canada
216.3
159.9
35
 
35.2
 
13
Other*
302.5
271.8
11
 
0.5
 
11
Total
$4,555.4
$3,899.2
17
 
$295.6
 
9

* Other represents non-McDonald’s brands.
n/a Not applicable

 
  2  
 
 
REVENUES
Dollars in millions
 
 
 
 
 
 
 
Years ended December 31,
2003
2002
% Inc
(Dec)
 
Currency
Translation
Benefit (Loss)
 
% Inc (Dec)
Excl Currency
Translation
Benefit (Loss)
Company-operated sales:
 
 
 
 
 
 
 
U.S.
$ 3,594.4
$ 3,172.0
13
 
n/a
 
n/a
Europe
4,498.2
3,982.2
13
 
$519.3
 
-
APMEA
2,158.2
2,114.2
2
 
103.6
 
(3)
Latin America
773.7
696.2
11
 
(61.6)
 
20
Canada
631.7
505.3
25
 
71.8
 
11
Other*
1,139.2
1,029.7
11
 
1.6
 
10
Total
$12,795.4
$11,499.6
11
 
$634.7
 
6
Franchised and affiliated revenues:
 
 
 
 
 
 
 
U.S.
$ 2,444.9
$ 2,250.7
9
 
n/a
 
n/a
Europe
1,376.7
1,153.8
19
 
$208.3
 
1
APMEA
289.4
253.5
14
 
35.8
 
-
Latin America
85.1
117.7
(28)
 
(9.5)
 
(20)
Canada
146.2
128.3
14
 
16.5
 
1
Other*
2.8
2.1
33
 
-
 
33
Total
$ 4,345.1
$ 3,906.1
11
 
$251.1
 
5
Total revenues:
 
 
 
 
 
 
 
U.S.
$ 6,039.3
$ 5,422.7
11
 
n/a
 
n/a
Europe
5,874.9
5,136.0
14
 
$727.6
 
-
APMEA
2,447.6
2,367.7
3
 
139.4
 
(3)
Latin America
858.8
813.9
6
 
(71.1)
 
14
Canada
777.9
633.6
23
 
88.3
 
9
Other*
1,142.0
1,031.8
11
 
1.6
 
11
Total
$17,140.5
$15,405.7
11
 
$885.8
 
6

* Other represents non-McDonald’s brands.
n/a Not applicable


 
 
  3  
 
 
    Comparable sales represent the percent change in constant currency sales from the same period in the prior year for all Systemwide restaurants in operation at least thirteen months. Comparable sales are a key performance indicator used within the retail industry, and are reviewed by management to assess business trends for McDonald’s restaurants.

COMPARABLE SALES – McDONALD’s RESTAURANTS
 
Percent Increase / (Decrease)
 
      Quarters Ended
December 31,
 
Years Ended
December 31,
 
2003
 
2002
 
2003
 
2002
U.S.
12.5
 
(1.4)
 
6.4
 
(1.5)
Europe
2.1
 
(1.9)
 
(0.9)
 
1.0
APMEA
1.9
 
(6.1)
 
(4.2)
 
(8.5)
Latin America
1.5
 
11.2
 
2.3
 
1.0
Canada
5.6
 
(4.1)
 
-
 
(2.5)
McDonald’s Restaurants
7.4
 
(1.9)
 
2.4
 
(2.1)


  • U.S.: In 2003, the U.S. achieved its highest annual comparable sales increase since 1987. Ongoing service, value and menu initiatives drove the revenue increases for the fourth quarter and year. These initiatives included Premium Salads, McGriddles breakfast sandwiches, Chicken McNuggets made with white meat, the Dollar Menu, popular Happy Meals, extended hours, and a new marketing direction.
  • Europe: For the quarter and year, strong performance in Russia driven by expansion and strong comparable sales, along with expansion in France were partly offset by negative comparable sales in the UK. Revenues for the year were also affected by weak results in Germany, although Germany’s performance improved in the second half of the year.
  • APMEA: Positive comparable sales in Australia, expansion in China and negative comparable sales in Taiwan, Hong Kong, and South Korea impacted revenues for the quarter and year. One of the factors negatively affecting comparable sales in certain markets for the year was SARS (Severe Acute Respiratory Syndrome).
  • Latin America: Revenues increased for both periods in constant currencies primarily due to a higher percentage of Company-operated restaurants in 2003. In addition, revenues for the quarter increased as a result of the temporary closure of restaurants in Venezuela due to the national strike that began in December 2002.
 
 
  4  
 
 
    The following tables present Systemwide sales growth rates along with franchised and affiliated sales for the quarter and year. Systemwide sales include sales by all restaurants, whether operated by the Company, by franchisees or by affiliates operating under joint-venture agreements. While these amounts are not recorded as revenues by the Company, management believes that the following information is important in understanding the Company’s financial performance because they are the basis for which the Company calculates and records franchised and affiliated revenue (rent, service fees and/or royalties).
 
McDONALD’S CORPORATION
SYSTEMWIDE SALES PERCENT INCREASE /(DECREASE)
 
Quarters Ended
December 31, 2003
 
Years Ended
December 31, 2003
 
As Reported
% Inc
(Dec)
 
% Inc (Dec)
Excl Currency
Translation
Benefit (Loss)
 
As Reported
% Inc
(Dec)
 
% Inc (Dec)
Excl Currency
Translation
Benefit (Loss)
U.S.
15
 
n/a
 
9
 
n/a
Europe
20
 
4
 
18
 
2
APMEA
15
 
2
 
6
 
(2)
Latin America
14
 
7
 
(4)
 
4
Canada
30
 
9
 
17
 
4
Other*
11
 
11
 
10
 
10
Total sales
16
 
9
 
11
 
5

* Other represents non-McDonald’s brands
n/a Not applicable


 
  5  
 
 
 
FRANCHISED AND AFFILIATED SALES
Dollars in millions
 
 
 
 
 
Quarters ended December 31,
2003
2002
% Inc
(Dec)
 
Currency
Translation
Benefit (Loss)
 
% Inc (Dec)
Excl Currency
Translation
Benefit (Loss)
U.S.
 
 
 
 
 
 
 
Franchised sales
$4,570.0
$3,992.6
14
 
n/a
 
n/a
Affiliated sales
295.0
260.6
13
 
n/a
 
n/a
Total
$4,865.0
$4,253.2
14
 
n/a
 
n/a
 
 
 
 
 
 
 
 
Europe
 
 
 
 
 
 
 
Franchised sales
1,934.7
1,571.6
23
 
$281.1
 
5
Affiliated sales
173.5
154.4
12
 
25.9
 
(4)
Total
2,108.2
1,726.0
22
 
$307.0
 
4
 
 
 
 
 
 
 
 
APMEA
 
 
 
 
 
 
 
Franchised sales
692.1
530.9
30
 
99.9
 
12
Affiliated sales
692.7
644.7
7
 
70.9
 
(4)
Total
1,384.8
1,175.6
18
 
170.8
 
3
 
 
 
 
 
 
 
 
Latin America
 
 
 
 
 
 
 
Franchised sales
154.0
153.0
1
 
5.1
 
(3)
Affiliated sales
9.6
11.2
(14)
 
(0.5)
 
(10)
Total
163.6
164.2
-
 
4.6
 
(3)
 
 
 
 
 
 
 
 
Canada
 
 
 
 
 
 
 
Franchised sales
258.9
213.4
21
 
42.1
 
2
Affiliated sales
30.2
15.7
92
 
4.9
 
61
Total
289.1
229.1
26
 
47.0
 
6
 
 
 
 
 
 
 
 
Other*
 
 
 
 
 
 
 
Franchised sales
10.2
8.6
19
 
-
 
19
 
 
 
 
 
 
 
 
Total
 
 
 
 
 
 
 
Franchised sales
$7,619.9
$6,470.1
18
 
$428.2
 
11
Affiliated sales
1,201.0
1,086.6
11
 
101.2
 
1
Total
$8,820.9
$7,556.7
17
 
$529.4
 
10

* Other represents non-McDonald’s brands.
n/a Not applicable
 
  6  
 
 
FRANCHISED AND AFFILIATED SALES
Dollars in millions
 
 
 
 
 
Years ended December 31,
2003
2002
% Inc
(Dec)
 
Currency
Translation
Benefit (Loss)
 
% Inc (Dec)
Excl Currency
Translation
Benefit (Loss)
U.S.
 
 
 
 
 
 
 
Franchised Sales
$17,369.7
$16,065.4
8
 
n/a
 
n/a
Affiliated Sales
1,157.7
1,068.3
8
 
n/a
 
n/a
Total
$18,527.4
$17,133.7
8
 
n/a
 
n/a
 
 
 
 
 
 
 
 
Europe
 
 
 
 
 
 
 
Franchised Sales
7,202.7
5,934.0
21
 
$1,080.8
 
3
Affiliated Sales
670.4
560.0
20
 
103.7
 
1
Total
7,873.1
6,494.0
21
 
$1,184.5
 
3
 
 
 
 
 
 
 
 
APMEA
 
 
 
 
 
 
 
Franchised Sales
2,437.5
2,053.6
19
 
258.0
 
6
Affiliated Sales
2,567.7
2,608.5
(2)
 
173.6
 
(8)
Total
5,005.2
4,662.1
7
 
431.6
 
(2)
 
 
 
 
 
 
 
 
Latin America
 
 
 
 
 
 
 
Franchised Sales
576.4
707.2
(18)
 
(53.5)
 
(11)
Affiliated Sales
36.9
40.0
(8)
 
(1.9)
 
(3)
Total
613.3
747.2
(18)
 
(55.4)
 
(11)
 
 
 
 
 
 
 
 
Canada
 
 
 
 
 
 
 
Franchised Sales
975.5
893.0
9
 
109.7
 
(3)
Affiliated Sales
101.8
57.7
76
 
11.9
 
56
Total
1,077.3
950.7
13
 
121.6
 
1
 
 
 
 
 
 
 
 
Other*
 
 
 
 
 
 
 
Franchised Sales
41.1
38.7
6
 
-
 
6
 
 
 
 
 
 
 
 
Total
 
 
 
 
 
 
 
Franchised Sales
$28,602.9
$25,691.9
11
 
$1,395.0
 
6
Affiliated Sales
4,534.5
4,334.5
5
 
287.3
 
(2)
Total
$33,137.4
$30,026.4
10
 
$1,682.3
 
5

* Other represents non-McDonald’s brands.
n/a Not applicable
 
 
 
  7  
 
 
Operating Margins

COMPANY-OPERATED AND FRANCHISED RESTAURANT MARGINS –
McDONALD’S RESTAURANTS*
Dollars in millions
 
 
Percent
 
 
Amount
 
 
Quarters ended December 31,
2003
2002
 
2003
2002
 
% Inc/
(Dec)
Company-operated
 
 
 
 
 
 
 
U.S.
18.6
14.0
 
$ 173.2
$ 112.4
 
54
Europe
16.3
15.6
 
198.3
162.6
 
22
APMEA
9.7
8.3
 
53.3
43.0
 
24
Latin America
3.5
9.9
 
7.6
17.0
 
(55)
Canada
14.9
11.1
 
26.2
14.2
 
85
Total
14.8
13.1
 
$ 458.6
$ 349.2
 
31
 
 
 
 
 
 
 
 
Franchised
 
 
 
 
 
 
 
U.S.
79.7
78.0
 
$ 515.3
$ 423.6
 
22
Europe
75.8
76.0
 
276.9
231.3
 
20
APMEA
87.1
85.1
 
72.7
54.7
 
33
Latin America
62.2
62.6
 
13.0
14.4
 
(10)
Canada
78.0
78.7
 
31.2
24.8
 
26
Total
78.6
77.5
 
$ 909.1
$ 748.8
 
21
 
 
Percent
 
 
Amount
 
 
Years ended December 31,
2003
2002
 
2003
2002
 
% Inc/
(Dec)
Company-operated
 
 
 
 
 
 
 
U.S.
17.7
16.0
 
$ 634.8
$ 507.3
 
25
Europe
15.7
15.9
 
708.0
631.4
 
12
APMEA
9.9
11.3
 
212.7
239.3
 
(11)
Latin America
6.1
9.4
 
47.2
65.4
 
(28)
Canada
14.6
13.7
 
92.2
69.4
 
33
Total
14.5
14.4
 
$1,694.9
$1,512.8
 
12
 
 
 
 
 
 
 
 
Franchised
 
 
 
 
 
 
 
U.S.
79.5
79.1
 
$1,944.9
$1,781.2
 
9
Europe
75.8
76.7
 
1,043.8
885.0
 
18
APMEA
85.6
85.8
 
247.8
217.6
 
14
Latin America
64.3
66.9
 
54.7
78.8
 
(31)
Canada
78.2
79.2
 
114.2
101.6
 
12
Total
78.4
78.5
 
$3,405.4
$3,064.2
 
11

* Operating margin information relates to McDonald's restaurants
and excludes non-McDonald’s brands.

  • Combined: Operating margin dollars increased $269.7 million or 25% for the quarter and $523.3 million or 11% for the year. Foreign currency translation benefited the combined margin dollars by $88.6 million for the quarter and $295.8 million for the year. The U.S. and Europe segments accounted for more than 80% of the combined margin dollars in both periods of 2003 and 2002.

 
  8  
 

  • U.S.:  Company-operated margin percent increased for both periods primarily due to positive comparable sales and lower payroll as a percent of sales due to improved productivity, partly offset by higher commodity costs.
  • Europe:  For both periods, the Company-operated margin percent reflected improved margin performance in Germany and France and weak performance in the U.K.
  • APMEA:   For the quarter, strong comparable sales performance in Australia drove the Company-operated margin percent improvement. The margin percent declined for the year due to weak results in South Korea, Hong Kong and Taiwan.
  • Franchised:  For the quarter, the consolidated Franchised margin percent reflects positive comparable sales partly offset by higher occupancy costs, due in part to an increased proportion of leased sites. Positive comparable sales were offset by these higher occupancy costs for the year.
   The following table presents margin components as a percent of sales.

COMPANY-OPERATED COSTS AND MARGINS AS A PERCENT OF SALES –
McDONALD’S RESTAURANTS*
 
Quarters Ended
December 31,
 
Years Ended
December 31,
 
2003
 
2002
 
2003
 
2002
Food & paper
33.7
 
33.9
 
33.7
 
34.1
Payroll & employee
benefits
26.0
 
26.9
 
26.4
 
26.4
Occupancy & other
operating expenses
25.5
 
26.1
 
25.4
 
25.1
Total expenses
85.2
 
86.9
 
85.5
 
85.6
Company-operated margins
14.8
 
13.1
 
14.5
 
14.4

* Operating margin information relates to McDonald's restaurants
and excludes non-McDonald’s brands.

 
  9  
 
Selling, General & Administrative Expenses

SELLING, GENERAL & ADMINISTRATIVE EXPENSES
Dollars in millions
 
 
 
 
Years ended December 31,
2003
2002
% Inc
(Dec)
 
Currency
Translation
Benefit (Loss)
 
% Inc (Dec)
Excl Currency
Translation
Benefit (Loss)
U.S.
$ 566.8
$ 557.7
2
 
n/a
 
n/a
Europe
424.3
359.3
18
 
$57.5
 
2
APMEA
173.3
157.7
10
 
11.9
 
2
Latin America
101.8
101.5
-
 
(7.5)
 
8
Canada
53.6
49.2
9
 
6.0
 
(3)
Other*
115.1
114.3
1
 
0.6
 
-
Corporate
398.1
373.1
7
 
n/a
 
n/a
Total
$1,833.0
$1,712.8
7
 
$68.5
 
3

* Other represents non-McDonald’s brands
n/a Not applicable

  • Selling, general & administrative expenses increased 6% for the quarter and 7% for the year primarily due to higher performance-based incentive compensation, and severance and other costs associated with fewer restaurant openings. These incremental costs were partly offset by lower advertising expenses due to costs incurred to support the launch of the Dollar Menu in the U.S. in fourth quarter 2002. In addition, stronger foreign currencies increased selling, general & administrative expenses by $24.3 million for the quarter and $68.5 million for the year.
Other Operating (Income) Expense, Net

OTHER OPERATING (INCOME) EXPENSE, NET
Dollars in millions
 
Quarters Ended
December 31,
 
Years Ended
December 31,
 
2003
 
2002
 
2003
 
2002
Gains on sales of
restaurant businesses
$(12.2)
 
$(35.1)
 
$(54.5)
 
$(113.6)
Equity in earnings of
unconsolidated affiliates
(12.7)
 
5.4
 
(36.9)
 
(24.1)
Front counter service
system payments – U.S.
-
 
-
 
-
 
21.6
Significant charges
407.6
 
810.2
 
407.6
 
853.2
Other expense
131.9
 
59.8
 
215.4
 
96.2
Total
$514.6
 
$840.3
 
$531.6
 
$ 833.3
 
 
  10  
 
  • The increase in equity in earnings of unconsolidated affiliates reflected a stronger performance in the U.S. for both periods and improved results from our Japanese affiliate for the quarter.
  • Significant charges are defined as charges for actions or transactions related to the implementation of special initiatives of the Company or items that are unusual or infrequent in nature. The Company does not include these items when reviewing business performance trends, because management does not believe these are indicative of ongoing operations. Significant charges for the quarter and full year 2003 included $237.0 million related to the disposition of certain non-McDonald’s brands; $147.7 million primarily related to asset/goodwill impairment mainly in Latin America; $35.1 million related to the revitalization plan actions of our Japanese affiliate; $29.6 million for restaurant closings associated with strategic actions in Latin America; and a favorable adjustment to the 2002 charge for restaurant closings of $41.8 million due to about 85 fewer closings. Significant charges in fourth quarter 2002 included $266.9 million primarily related to market restructuring costs; $359.4 million related to restaurant closings/asset impairment for 751 restaurants ($402.4 million for the year); and $183.9 million primarily related to the termination of a technology project.
  • Other expense for both periods reflected higher losses on asset dispositions and higher provisions for uncollectible receivables in 2003 compared with 2002. In addition, the full year 2003 included about $25 million of costs in the U.S. as a result of management's decision to significantly reduce capital expenditures.

 
  11  
 

Operating Income

OPERATING INCOME (LOSS)
Dollars in millions
 
 
 
 
 
 
Quarters ended December 31,
2003
2002
% Inc
(Dec)
 
Currency
Translation
Benefit (Loss)
 
% Inc (Dec)
Excl Currency
Translation
Benefit (Loss)
U.S.
$ 502.1
$ 273.3
84
 
n/a
 
n/a
Europe
358.3
144.1
n/m
 
$ 47.4
 
n/m
APMEA
17.6
(165.3)
n/m
 
9.5
 
n/m
Latin America
(155.7)
(130.7)
(19)
 
(29.0)
 
3
Canada
48.8
20.6
n/m
 
8.0
 
98
Other*
(271.7)
(38.1)
n/m
 
(11.2)
 
n/m
Corporate
(131.9)
(307.3)
57
 
n/a
 
n/a
Total operating income (loss)
$ 367.5
$ (203.4)
n/m
 
$ 24.7
 
n/m
Years ended December 31,
2003
2002
% Inc
(Dec)
 
Currency
Translation
Benefit (Loss)
 
% Inc (Dec)
Excl Currency
Translation
Benefit (Loss)
U.S.
$1,982.1
$1,673.3
18
 
n/a
 
n/a
Europe
1,339.1
1,021.8
31
 
$181.4
 
13
APMEA
226.3
64.3
n/m
 
29.3
 
n/m
Latin America
(170.9)
(133.4)
(28)
 
(28.7)
 
(7)
Canada
163.2
125.4
30
 
19.3
 
15
Other*
(295.1)
(66.8)
n/m
 
(12.3)
 
n/m
Corporate
(412.5)
(571.7)
28
 
n/a
 
n/a
Total operating income
$2,832.2
$2,112.9
34
 
$189.0
 
25

* Other represents non-McDonald’s brands
n/a Not applicable
n/m Not meaningful


  • U.S.:  In 2002, the fourth quarter and full year included significant charges of $99.2 million, primarily related to restaurant closings/asset impairment. Fourth quarter 2003 included a favorable adjustment of $11.4 million related to the 2002 charges. In addition, higher combined operating margin dollars were partly offset by higher other operating expenses for both periods and higher selling, general & administrative expenses for the year. Selling, general & administrative expenses were lower for the quarter.
  • Europe:  In 2002, the quarter and year included significant charges of $147.8 million, primarily related to restaurant closings/asset impairment. In 2003, the quarter included a favorable adjustment of $20.0 million ($2.5 million lower in

 
  12  
 

constant currencies) related to the 2002 charges. In addition, for the quarter and year, strong performance in Russia and expansion in France were partially offset by weak results in the UK. Operating income for the year was also affected by weak results in Germany, although Germany’s performance improved in the second half of the year.

  • APMEA:  Results for both periods in 2003 included significant charges of $54.9 million ($4.6 million lower in constant currencies), primarily related to the revitalization plan actions in Japan, including a buyout of a Management Services Agreement with the founder of our affiliate in Japan, and goodwill impairment in certain markets. In 2002, the results included significant charges of $206.4 million for the quarter and $222.3 million for the year, primarily related to market restructures and restaurant closings/asset impairment. APMEA’s results for the fourth quarter 2003 also included strong comparable sales in Australia and improved performance in Japan. For the year, positive results in Australia were offset by weak results in most markets, compounded by concerns about SARS in certain markets.
  • Latin America:  Results for both periods in 2003 included significant charges of $108.9 million ($19.9 million lower in constant currencies) related to goodwill impairment and restaurant closings. In 2002, the results included significant charges of $115.2 million for the quarter and $142.3 million for the year, primarily related to restaurant closings/asset impairment. In addition, both periods in 2003 reflected weak results in Brazil and Argentina, and higher provisions for uncollectible receivables. Latin America's results for the year were negatively impacted by the national strike in Venezuela from December 2002 through mid-February 2003.

INTEREST, NONOPERATING EXPENSE AND INCOME TAXES

  • Interest expense for both periods reflected stronger foreign currencies, lower average debt levels, and lower average interest rates.
  • Nonoperating expense for the year reflected an $11 million loss on the early extinguishment of $200 million of debt in 2003 and higher foreign currency translation losses in 2003 compared with 2002.
  • The effective income tax rate for the fourth quarter 2003 was 53.0% as certain restaurant closing/asset impairment charges were not tax effected. The effective rate for the full year 2003 was 35.7%. The impairment charges increased the rate 19.5 percentage points for the fourth quarter and 2.2 percentage points for the full year 2003.

 
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Although the Company reported a pretax loss for the fourth quarter 2002, there was a tax provision for the quarter because the loss included certain charges that were not tax effected. The effective rate for the full year 2002 was 40.3%. The significant charges in 2002 increased the rate for the full year by 7.6 percentage points.


OUTLOOK
The information provided below is as of January 2004.

  • McDonald's expects net restaurant additions to add approximately one percentage point to sales growth in 2004 (in constant currencies). Most of this anticipated growth will result from restaurants opened in 2003.
In 2003, the Company opened 832 McDonald’s restaurants (513 traditional and 319 satellites). In 2004, the Company expects to open about 850 McDonald’s restaurants (550 traditional and 300 satellite restaurants). McDonald’s restaurant additions, net of closings, totaled 162 (27 traditional and 135 satellites) in 2003, and are expected to total about 450 (250 traditional and 200 satellite restaurants) in 2004.
  • Comparable sales represent the constant currency change in sales from the same period in the prior year for Systemwide restaurants in operation at least thirteen months. As a guideline, assuming no change in cost structure, a one percentage point increase in U.S. comparable sales impacts annual earnings per share by about 2 cents, and an increase of one percentage point in Europe’s comparable sales impacts annual earnings per share by about 1.5 cents. In 2003, comparable sales increased 2.4% worldwide and 6.4% in the U.S., while Europe's comparable sales decreased 0.9%.
  • McDonald's expects 2004 selling, general & administrative expenses to be relatively flat to up slightly in constant currencies and decline as a percent of Systemwide sales compared with 2003.
  • A significant part of McDonald's operating income is from outside the U.S., and more than 70% of total debt is denominated in foreign currencies. The Euro and the British Pound are the most significant currencies impacting our business. If the Euro and the British Pound both move 10% (compared with 2003 average rates), McDonald's annual reported earnings per share would change by about 5 to 6 cents. In 2003, foreign currency translation benefited diluted earnings per share by 7 cents.

 

 
  14   
 
 
  • For 2004, the Company expects its net debt principal repayments to be approximately $400 million – $700 million and expects interest expense to be relatively flat with 2003, reflecting stronger foreign currencies.
  • McDonald's expects the effective income tax rate for 2004 to be between 32.5% and 33.5%.
  • McDonald's expects capital expenditures for 2004 to be approximately $1.5 billion – $1.6 billion.
  • McDonald's expects to return about $1 billion to shareholders through dividends and share repurchases in 2004.

 
  15  
 

BALANCE SHEET
McDONALD’S CORPORATION
CONSOLIDATED BALANCE SHEET
Dollars in millions
 
 
 
December 31,
2003
December 31,
2002
ASSETS
 
 
   
Current assets
 
 
Cash and equivalents
$ 492.8
$ 330.4
Accounts and notes receivable
734.5
855.3
Inventories
129.4
111.7
Prepaid expenses and other current assets
528.7
418.0
Total current assets
1,885.4
1,715.4
 
 
 
Other assets
 
 
Investment in and advances to affiliates
1,089.6
1,037.7
Goodwill, net
1,665.1
1,558.5
Miscellaneous
960.3
1,075.5
Total other assets
3,715.0
3,671.7
 
 
 
Property and equipment
 
 
Property and equipment, at cost
28,740.2
26,218.6
Accumulated depreciation and amortization
(8,815.5)
(7,635.2)
Net property and equipment
19,924.7
18,583.4
Total assets
$25,525.1
$23,970.5
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
Current liabilities
 
 
Accounts payable
$ 577.4
$ 635.8
Income taxes
71.5
16.3
Other taxes
222.0
191.8
Accrued interest
193.1
199.4
Accrued restructuring and restaurant
 
 
closing costs
115.7
328.5
Accrued payroll and other liabilities
918.1
774.7
Current maturities of long-term debt
328.0
275.8
Total current liabilities
2,425.8
2,422.3
 
 
 
Long-term debt
9,402.5
9,703.6
Other long-term liabilities and
 
 
minority interests
699.8
560.0
Deferred income taxes
1,015.1
1,003.7
 
 
 
Shareholders’ equity
 
 
Common stock
16.6
16.6
Additional paid-in capital
1,837.5
1,747.3
Unearned ESOP compensation
(90.5)
(98.4)
Retained earnings
20,172.3
19,204.4
Accumulated other comprehensive income (loss)
(635.5)
(1,601.3)
Common stock in treasury
(9,318.5)
(8,987.7)
Total shareholders’ equity
11,981.9
10,280.9
Total liabilities and shareholders’ equity
$25,525.1
$23,970.5


 
  16  
 
 
RESTAURANT INFORMATION

SYSTEMWIDE RESTAURANTS
 
 
 
At December 31,
2003
2002
Inc/(Dec)
 
 
 
 
U.S*
13,609
13,491
118
 
 
 
 
Europe
 
 
 
Germany*
1,244
1,211
33
United Kingdom
1,235
1,231
4
France
1,008
973
35
Spain
336
333
3
Italy
326
329
(3)
Other
2,037
1,993
44
Total Europe
6,186
6,070
116
 
 
 
 
APMEA
 
 
 
Japan*
3,773
3,891
(118)
Australia
729
726
3
China
576
546
30
Taiwan
346
350
(4)
South Korea
344
357
(13)
Other
1,707
1,685
22
Total APMEA
7,475
7,555
(80)
 
 
 
 
Latin America
 
 
 
Brazil
549
584
(35)
Mexico
281
261
20
Other
748
760
(12)
Total Latin America
1,578
1,605
(27)
 
 
 
 
Canada*
1,339
1,304
35
 
 
 
 
Other**
942
1,083
(141)
 
 
 
 
Systemwide restaurants
31,129
31,108
21
 
 
 
 
Countries
119
119
-

* At December 31, 2003 reflected the following satellites: U.S. 1,307; Germany
90; Japan 1,814; Canada 350. At December 31, 2002: U.S. 1,159; Germany
62; Japan 1,895; Canada 330;.
** Represents non-McDonald’s brands.
 
 
  17  
 

SYSTEMWIDE RESTAURANTS BY TYPE
 
 
 
At December 31,
2003
2002
Inc/(Dec)
 
 
 
 
U.S.
 
 
 
Operated by franchisees
10,860
10,685
175
Operated by the Company
2,034
2,102
(68)
Operated by affiliates
715
704
11
 
13,609
13,491
118
 
 
 
 
Europe
 
 
 
Operated by franchisees
3,614
3,499
115
Operated by the Company
2,307
2,286
21
Operated by affiliates
265
285
(20)
 
6,186
6,070
116
 
 
 
 
APMEA
 
 
 
Operated by franchisees
2,284
2,182
102
Operated by the Company
2,245
2,218
27
Operated by affiliates
2,946
3,155
(209)
 
7,475
7,555
(80)
 
 
 
 
Latin America
 
 
 
Operated by franchisees
585
658
(73)
Operated by the Company
972
912
60
Operated by affiliates
21
35
(14)
 
1,578
1,605
(27)
 
 
 
 
Canada
 
 
 
Operated by franchisees
776
789
(13)
Operated by the Company
472
450
22
Operated by affiliates
91
65
26
 
1,339
1,304
35
 
 
 
 
Other*
 
 
 
Operated by franchisees
13
51
(38)
Operated by the Company
929
1,032
(103)
 
942
1,083
(141)
 
 
 
 
Systemwide
 
 
 
Operated by franchisees
18,132
17,864
268
Operated by the Company
8,959
9,000
(41)
Operated by affiliates
4,038
4,244
(206)
 
31,129
31,108
21

* For 2003, reflected the sale of Donatos Pizzeria and the closing of all Donatos and Boston Market international locations.


FORWARD-LOOKING STATEMENTS
Certain forward-looking statements are included in this exhibit. They use such words as "may," "will," "expect," "believe," "plan" and other similar terminology. These statements reflect management's current expectations regarding future events and operating performance and speak only as of the date of this exhibit. These forward-looking statements involve a number of risks and uncertainties. The following are some of the factors that could cause actual results to differ materially from those expressed in or
 
 
   18  
 
 
 
 
underlying our forward-looking statements: effectiveness of operating initiatives; success in advertising and promotional efforts; changes in global and local business and economic conditions, including their impact on consumer confidence; fluctuations in currency exchange and interest rates; food, labor and other operating costs; political or economic instability in local markets, including the effects of war and terrorist activities; competition, including pricing and marketing initiatives and new product offerings by the Company's competitors; consumer preferences or perceptions concerning the Company's product offerings; spending patterns and demographic trends; availability of qualified restaurant personnel; severe weather conditions; existence of positive or negative publicity regarding the Company or its industry generally; effects of legal claims; cost and deployment of capital; changes in future effective tax rates; changes in governmental regulations; and changes in applicable accounting policies and practices. The foregoing list of important factors is not all inclusive.

The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.



















 
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