Correction: Fitch Ratings Lwrs McDonald's Rtg To 'AA-'; Changes Rtg Outlook To Stable.Business Editors
NEW YORK--(BUSINESS WIRE)--May 15, 2002
(This is an amended version of a press release from May 14, 2002, containing additional ratings information.)
Fitch Ratings Fitch Ratings
An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. has lowered its rating of McDonald's Corporation's senior notes to 'AA-' from 'AA' and the subordinated debt Subordinated Debt
A loan (or security) that ranks below other loans (or securities) with regard to claims on assets or earnings. Also known as "junior security" or "subordinated loan". to 'A+' from 'AA-' due to gradual deterioration in credit protection measures largely driven by increasing leverage from continued significant common stock repurchases Stock repurchase
A firm's repurchase of outstanding shares of its common stock. . In addition, there has been softness in the company's generation of cash flow that began to slide in 2000. McDonald's 'F1+' commercial paper rating is affirmed reflecting the company's solid liquidity and strong financial flexibility. The Rating Outlook has been changed to Stable from Negative.
McDonald's ratings continue to incorporate its leading position in the global quick service restaurant industry, exceptional brand awareness, extensive real estate holdings, franchise income and broad geographic diversity.
In the fourth quarter of 2001, McDonald's restructured its operations to reduce the number of United States' operating divisions and downsize Downsize
Reducing the size of a company by eliminating workers and/or divisions within the company.
When a company downsizes, it is attempting to find ways to improve efficiency and increase profitability.
It is sometimes referred to as trimming the fat. its workforce. The restructuring is expected to result in annual general and administrative savings of approximately $100 million globally. The company is also improving quality, service and cleanliness Cleanliness
See also Orderliness.
Cleverness (See CUNNING.)
unkempt herself, demands cleanliness from others, especially children. [Ger. Folklore: Leach, 137]
continually “washes” itself. at United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. restaurants through a new Restaurant Operations Improvement Process that measures restaurant performance through on-site graded evaluations, mystery shops, customer and employee surveys and an 800 customer feedback telephone number. Management believes that these changes will distinguish McDonald's from its competitors and ultimately translate into improved operating performance.
McDonald's credit measures have been pressured by weaker operating results and ongoing share repurchase Share Repurchase
A program by which a company buys back its own shares from the marketplace, reducing the number of outstanding shares. This is usually an indication that the company's management thinks the shares are undervalued. activity, which has been partially debt-financed. Financial leverage as measured by adjusted debt/EBITDAR increased to 3.4 times (x) for 2001 from 3.0x for 2000 and 2.7x for 1999. Fixed charge coverage has declined to 4.1x from 5.3x over the same period. Fitch expects that going forward McDonald's share repurchase activity will be financed with internally-generated cash flow and that leverage will gradually decline over the next several years.
In 2001, McDonald's same-store restaurant sales and profitability softened due to a combination of factors including the prolonged effects of mad cow-related fears in Europe, margin pressure in the United States due to rising costs in a competitive pricing environment and soft economies in Asia and Latin America Latin America, the Spanish-speaking, Portuguese-speaking, and French-speaking countries (except Canada) of North America, South America, Central America, and the West Indies. . In 2002, Fitch expects to see gradual improvement in European comparable sales which turned positive in the first quarter of 2002 after four quarters of negative comparable sales in 2001. In the Asia/Pacific and Latin American regions, the economic difficulties in many of those countries will continue to negatively impact McDonald's sales and profitability. In the United States, pricing competition will continue to pressure McDonald's margins, but this will be partially offset by cost savings from the restructuring. Overall, Fitch expects EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become margins to moderately rebound from 2001.