McDonald's Announces Plans to Revitalize Its Worldwide Business and Sets New Financial Targets

(1) Return on incremental invested capital is defined as the change in operating income plus depreciation divided by the change in gross assets, and excludes the impact of changes in foreign currency exchange rates.

McDonald's Identifies Business Drivers

President and Chief Operating Officer Charlie Bell discussed McDonald's four business objectives: attracting more customers, getting existing customers to visit more often, building brand loyalty and increasing productivity to increase margins and profitability.

Bell noted, "We will achieve these objectives by concentrating on the five drivers of superior customer experiences -- people, products, place, price and promotion. Delivering on all five of these business drivers will result in enduring profitable growth for McDonald's global business."

According to the Company, just one-letter grade improvement in the operational performance of one restaurant amounts to upwards of $100,000 in additional annual sales. Therefore, raising the average performance of its restaurants by one letter grade would result in upwards of $3 billion in additional Systemwide sales.

"We have established three-year goals to measure our progress against these drivers of superior customer experiences," Bell added. "For example, McDonald's is targeting 5-point improvements in speed of service, friendliness and food scores by 2005. In addition, the Company plans to increase crew productivity by one transaction count per labor hour and to return to an all- time high in cleanliness scores and Happy Meal units sold per restaurant over the next three years."

Financial Targets

Executive Vice President and Chief Financial Officer Matthew Paull said, "Beginning in 2005, the Company is targeting annual Systemwide sales growth of 3 percent to 5 percent, annual operating income growth of 6 percent to 7 percent, and steady improvements in returns on invested capital."

He added, "We are focusing resources and efforts around the world on growing comparable sales -- while reducing restaurant additions. Our top priority is to lift operational levels of existing restaurants. We can do that without investing huge amounts of capital."

McDonald's revised capital expenditure plan of $1.2 billion for 2003 is $800 million less than in 2002 and $700 million less than previously announced. About $560 million of that $1.2 billion is for new restaurants, and $490 million is for existing restaurants. This spending reflects reductions of $600 million on new restaurants and $170 million on existing restaurants, compared with 2002.

The Company intends to strengthen its financial position by paying down $300 million to $700 million of debt this year. The Company also plans to return a significant amount of cash to shareholders, through higher dividends and share repurchase.

In concluding the meeting, Cantalupo said, "It comes down to a willingness to confront harsh realities and then having the focus and discipline to act decisively, again and again. We have set realistic growth targets, reduced planned capital expenditures significantly and established three-year goals for Company performance. We have a plan, with definite measures that we will track. We will grow by becoming better ... not just bigger."