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McDonald's CEO: 'deceived' by audit of China meat plant

By Lisa Baertlein and Tom Polansek

(Reuters) - McDonald's Corp feels "a bit deceived" by the audit it received for Shanghai Husi Food Co Ltd, a China supplier that was shut down this week after a TV report showed workers mishandling meat, Chief Executive Don Thompson said on Tuesday.

"We are no longer serving product from the primary facility there that has the challenges and the issues," Thompson said on a conference call after McDonald's reported lower-than-expected quarterly earnings.

The Shanghai Food and Drug Administration on Sunday halted operations of Shanghai Husi following a Dragon TV report that showed workers picking up meat from a factory floor, as well as mixing fresh meat with meat beyond its expiration date.

The scandal also has ensnared other Shanghai Husi customers, including KFC parent Yum Brands Inc and Burger King Worldwide Inc.

Many U.S. restaurant operators and retailers rely on third-party auditors to check whether their suppliers comply with food safety rules and other regulations. It is not uncommon for suppliers at the center of food safety scandals to have received high marks on their audits.

McDonald's did not immediately comment on the timing of the Shanghai Husi audit or the name of the auditing firm that visited the now-controversial plant on its behalf.

Shanghai Husi, a unit of Illinois-based OSI Group, has supplied those McDonald's China restaurants since the early 1990s, a U.S. spokeswoman for the fast-food company said on Tuesday.

China is McDonald's third-biggest market as measured by the number of restaurants.

"I know there's a couple other facilities that they had that have been cleared now by the Chinese government," Thompson said, without elaborating.

It was not immediately clear whether McDonald's had stopped sourcing products from those other facilities.

OSI, which previously said it believed the Shanghai Husi incident to be an "isolated event," did not have an immediate response to the comments by the McDonald's CEO.

A U.S. spokeswoman for McDonald's on Monday said Shanghai Husi provided McDonald's with chicken, beef and lettuce, and that the facility shown in the television report primarily supplied McDonald's in Shanghai.

A Tokyo-based spokesman at McDonald's Holdings Co (Japan) Ltd said the company had sourced about a fifth of its Chicken McNuggets from Shanghai Husi and had halted sales of the product on Monday. Alternative chicken supplies were found in Thailand and China, he added.

McDonald's and OSI are known in the industry for having a long relationship. OSI's chairman and chief executive, Sheldon Lavin, is a member of the board of trustees for the Ronald McDonald's House Charities.

McDonald's said it is thoroughly investigating the Shanghai Husi matter.

If the problems were the result of "a higher level decision that has caused us to have a breach relative to consumer trust, we will deal with that effectively, swiftly, and appropriately," CEO Thompson said.

McDonald's shares were down 1.3 percent at $96.27 at the close of the market.

(Reporting by Lisa Baertlein in Los Angeles and Tom Polansek in Chicago; Editing by Steve Orlofsky)