McDonald's reviews capital structure, CFO retiring

By Nichola Groom

LOS ANGELES (Reuters) - McDonald's Corp. (MCD.N: Quote, Profile, Research, Stock Buzz) on Tuesday said it would make a decision about a possible increase in its debt level this fall and announced the retirement of Chief Financial Officer Matthew Paull.

The fast-food chain, which is the world's biggest restaurant company, also reported a second-quarter net loss after taking a big charge for the sale of 1,600 Latin American restaurants to a franchisee.

Without the charge, earnings per share were up 27 percent, in line with a better-than-expected forecast the company gave last week. The results continued the strong performance McDonald's has logged in recent years as a variety of new products, extended restaurant hours and other initiatives have helped revitalize sales.

Chief Executive Jim Skinner on a conference call with analysts to discuss McDonald's quarterly results said the company was focused on ways to increase its free cash flow, which it has been using to return cash to shareholders through billions of dollars of dividends and stock buybacks. It plans to return at least $5.7 billion in 2007 and 2008.

Selling more restaurants to franchisees, which minimizes McDonald's capital investment and insures a stable royalty stream, is one way the company is doing that, Skinner said, though it is also looking into borrowing more.

"The credit markets are friendlier, especially in a business model like ours," he said, adding that McDonald's was "not wedded" to its current capital structure. "We are preparing to discuss these topics with the board and are exploring all of our options." Any such decision would be made in the next few months, Skinner said.

Paull said McDonald's would not give up its investment-grade status but "could run the company well with something lower" than its current 'A' rating, slightly below the mid-point of the investment-grade range.

McDonald's had total long-term debt on its balance sheet of $8.8 billion and total assets of $29.5 billion as of March 31.