Common use of Operating Results Clause in Contracts

Operating Results. The Company operates in the food service industry and primarily operates quick-service restaurant businesses under the McDonald's brand. To capture additional meal occasions, the Company also operates other restaurant concepts under its Partner Brands: Boston Market, Chipotle and Donatos Pizzeria. In addition, McDonald's has a minority ownership in Pret A Manger. In March 2002, the Company sold its Aroma Cafe business in the U.K. Impact of Foreign Currencies on Reported Results While changing foreign currencies affect reported results, McDonald's lessens exposures, where practical, by financing in local currencies, hedging certain foreign-denominated cash flows and by purchasing goods and services in local currencies. Foreign currency translation had a minimal impact on the consolidated Systemwide sales growth rate for the quarter as the stronger Euro was offset by weaker Latin American currencies (primarily Argentine Peso, Venezuelan Bolivar, and Brazilian Real) and a weaker Japanese Yen. For the six months, foreign currency translation had a negative impact on the Systemwide sales growth rate due to the weaker Latin American currencies and Japanese Yen, partly offset by the stronger Euro. Foreign currency translation had a positive impact on the consolidated operating income growth rate for the quarter primarily due to the stronger Euro, while foreign currency translation had a minimal impact on the operating income growth rate for the six months. Cumulative Effect of Accounting Change and Asset Impairment Charges Effective January 1, 2002, the Company adopted SFAS No. 142 "Goodwill and Other Intangible Assets," which eliminates the amortization of goodwill and instead subjects it to annual impairment tests. As a result of the initial required goodwill impairment tests, the Company recorded a non-cash charge of $98.6 million after tax in first quarter 2002 to reflect the cumulative effect of this accounting change. The impaired goodwill was primarily in Argentina, Uruguay and other markets in Latin America and the Middle East, where economies have weakened significantly over the last several years. The Company also recorded $43.0 million of non-cash asset impairment charges in first quarter 2002, primarily related to the impairment of assets in existing restaurants in Chile and other Latin American markets and the closing of 32 underperforming restaurants in Turkey, as a result of continued economic weakness. In addition, in second quarter 2001, the Company recorded a $24.0 million non-cash asset impairment charge in Turkey due to an assessment of the ongoing impact of the country's significant currency devaluation on our business. Net Income and Diluted Net Income Per Common Share For the quarter, net income increased 13% (11% in constant currencies) and diluted net income per common share increased 15% (12% in constant currencies). As previously mentioned, the Company adopted the new goodwill accounting rules on January 1, 2002, resulting in a first quarter 2002 non-cash charge of $98.6 million after tax to reflect the cumulative effect of this accounting change. For the six months, income before the cumulative effect of the accounting change increased 4%, while net income, which included the charge for the cumulative effect of the accounting change, declined 8%. Diluted income per common share before the cumulative effect of the accounting change increased 6%, while diluted net income per common share declined 6% for the six months. For the quarter, excluding the 2001 non-cash asset impairment charge, net income would have increased 7% (5% in constant currencies) and diluted net income per common share would have increased 11% (9% in constant currencies). For the six months, excluding the 2002 and 2001 non-cash asset impairment charges, income before the cumulative effect of the accounting change would have increased 6% and diluted income per common share before the cumulative effect of the accounting change would have increased 8%. See Frequently Asked Questions section at the end of this release for reconciliation of reported income to adjusted income excluding special items. Weighted average shares outstanding for both periods were lower compared with the prior year due to shares repurchased. In addition, outstanding stock options had a less dilutive effect than in the prior year. During the six months, the Company repurchased 16.6 million shares of its common stock for approximately $466 million. Systemwide Sales and Revenues Systemwide sales represent sales by Company-operated, franchised and affiliated restaurants. Total revenues include sales by Company-operated restaurants and fees from restaurants operated by franchisees and affiliates. These fees include rent, service fees and royalties that are based on a percent of sales with specified minimum payments along with initial fees.

Operating Results. The Company operates in the food service industry and primarily operates quick-service restaurant businesses under the McDonald's brand. To capture additional meal occasions, the Company also operates other restaurant concepts under its Partner Brands: Boston Market, Chipotle and Donatos Pizzeria. In addition, McDonald's has a minority ownership in Pret A Manger. In March 2002fourth quarter 2001, the Company sold approved a plan to dispose of its Aroma Cafe business in the U.K. and completed the sale in March 2002. The segments presented in all tables and related discussion reflect the Company's current management structure. Previously, McDonald's restaurant operations in Canada, the Middle East and Africa, as well as the Partner Brands were included in the Other segment. The newly created APMEA segment includes results for McDonald's restaurant operations in Asia/Pacific, the Middle East and Africa, while Canada and the Partner Brands are presented as individual operating segments. In addition, U.S. and Corporate selling, general & administrative expenses reflect a realignment of certain home office departments' responsibilities for all periods presented. Impact of Foreign Currencies on Reported Results While changing foreign currencies affect reported results, McDonald's lessens exposures, where practical, by financing in local currencies, hedging certain foreign-denominated cash flows and by purchasing goods and services in local currencies. Foreign currency translation had a minimal impact on the consolidated Systemwide sales growth rate for the quarter as the stronger Euro was offset by weaker Latin American currencies (primarily Argentine Peso, Venezuelan Bolivar, and Brazilian Real) and a weaker Japanese Yen. For the six months, foreign currency translation had a negative impact on the Systemwide sales growth rate due to the weaker Latin American currencies and Japanese Yen, partly offset by the stronger Euro. Foreign currency translation had a positive impact on the consolidated operating income growth rate reported results for the quarter primarily due to the stronger weaker Euro, while foreign currency translation had a minimal impact on the operating income growth rate for the six monthsJapanese Yen and Brazilian Real. Cumulative Effect of Accounting Change and Asset Impairment Charges Effective January 1, 2002, the Company adopted SFAS No. 142 "Goodwill and Other Intangible Assets," which eliminates the amortization of indicates that goodwill and instead subjects it will no longer be amortized but will be subject to annual impairment tests. As a result of the initial first of required goodwill impairment tests, the Company recorded a non-cash charge of $98.6 million after tax in the first quarter 2002 to reflect for the cumulative effect of this accounting change. The impaired goodwill was primarily in Argentina, Uruguay and other markets in Latin America and the Middle East, where economies have weakened significantly over the last several years. The Company also recorded $43.0 million of non-cash asset impairment charges in the first quarter 2002quarter, primarily related to the impairment of assets in existing restaurants in Chile and other Latin American markets and the closing of 32 underperforming restaurants in Turkey, as a result of continued economic weakness. In addition, in second quarter 2001, the Company recorded a $24.0 million non-cash asset impairment charge in Turkey due to an assessment of the ongoing impact of the country's significant currency devaluation on our business. Net Income and Diluted Net Income Per Common Share For the quarter, net income increased 13% (11% in constant currencies) and diluted net income per common share increased 15% (12% in constant currencies). As previously mentioned, the Company adopted the new goodwill accounting rules on January 1, 2002, resulting in a first quarter 2002 non-cash charge of $98.6 million after tax to reflect the cumulative effect of this accounting change. For the six months, income Income before the cumulative effect of the goodwill accounting change increased 4declined 7%, while net income, which included the $98.6 million after-tax charge for the cumulative effect of the goodwill accounting change, declined 8%33% for the quarter. Diluted income per common share before the cumulative effect of the accounting change increased 6%declined 7% to 27 cents, while diluted net income per common share declined 631% to 20 cents for the six monthsquarter. For Excluding the quarter, excluding the 2001 non-cash asset impairment charge, net income would have increased 7% (5% in constant currencies) and diluted net income per common share would have increased 11% (9% in constant currencies). For the six months, excluding the 2002 and 2001 non-cash $43.0 million of asset impairment charges, income before the cumulative effect of the accounting change would have increased 64% and diluted income per common share before the cumulative effect of the accounting change would have increased 8%. See Frequently Asked Questions section at the end of this release for reconciliation of reported income 7% to adjusted income excluding special items31 cents. Weighted average shares outstanding for both periods the quarter were lower compared with the prior year due to shares repurchased. In addition, outstanding stock options had a less dilutive effect than in the prior year. During the six months, the The Company repurchased 16.6 11.9 million shares of its common stock during the quarter for approximately $466 331 million. Systemwide Sales and Revenues Systemwide sales represent sales by Company-operated, franchised and affiliated restaurants. Total revenues include sales by Company-operated restaurants and fees from restaurants operated by franchisees and affiliates. These fees include rent, service fees and royalties that are based on a percent of sales with specified minimum payments along with initial fees.. ---------------------------------------------------------------------------------------------------------------------- Systemwide sales Percent Dollars in millions Increase/(Decrease) ---------------------------------------------------------------------------------------------------------------------- Quarters ended March 31 2002 2001 As Constant Reported Currency* ---------------------------------------------------------------------------------------------------------------------- U.S. $4,792.7 $4,676.5 2 n/a ---------------------------------------------------------------------------------------------------------------------- Europe 2,308.7 2,178.2 6 10 ----------------------------------------------------------------------------------------------------------------------