-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K80hM6a/+aV3vVfiUVWDTzgQVevrWahkL7ZrwoAPYFMLfzM8npQeHIR9a+dlGuvQ /s4rAONZOcVljfsTftNolQ== 0000063908-97-000049.txt : 19971113 0000063908-97-000049.hdr.sgml : 19971113 ACCESSION NUMBER: 0000063908-97-000049 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971113 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MCDONALDS CORP CENTRAL INDEX KEY: 0000063908 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 362361282 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-05231 FILM NUMBER: 97715151 BUSINESS ADDRESS: STREET 1: ONE MCDONALD'S PLZ CITY: OAK BROOK STATE: IL ZIP: 60521 BUSINESS PHONE: 7085753000 10-Q 1 3RD QUARTER 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-5231 ---------- ---------- ------ McDONALD'S CORPORATION ----------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 36-2361282 ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) McDonald's Plaza, Oak Brook, Illinois 60523 ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code) (630) 623-3000 -------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- 688,777,039 --------------------------------- (Number of shares of common stock outstanding as of September 30, 1997) 2 McDONALD'S CORPORATION ---------------------- INDEX ----- Page Reference Part I. Financial Information Item 1 - Financial Statements Condensed consolidated balance sheet, September 30, 1997 (unaudited) and December 31, 1996 3 Condensed consolidated statement of income (unaudited), nine months and third quarters ended September 30, 1997 and 1996 4 Condensed consolidated statement of cash flows (unaudited), nine months and third quarters ended September 30, 1997 and 1996 5 Financial comments (unaudited) 6 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Part II. Other Information Item 6 - Exhibits and Reports on Form 8-K 17 (a) Exhibits The exhibits listed in the accompanying Exhibit Index are filed as part of this report 17 (b) Reports on Form 8-K 21 Signature 22 3 PART I. FINANCIAL INFORMATION ------------------------------ Item 1. Financial Statements ----------------------------- CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited) In millions September 30, 1997 December 31, 1996 --------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash and equivalents $ 310.2 $ 329.9 Accounts receivable 427.6 467.1 Notes receivable 7.7 28.3 Inventories, at cost, not in excess of market 62.3 69.6 Prepaid expenses and other current assets 266.8 207.6 --------------------------------------------------------------------------- TOTAL CURRENT ASSETS 1,074.6 1,102.5 --------------------------------------------------------------------------- OTHER ASSETS AND DEFERRED CHARGES 1,332.2 1,184.4 --------------------------------------------------------------------------- PROPERTY AND EQUIPMENT Property and equipment, at cost 19,810.3 19,133.9 Accumulated depreciation and amortization (5,078.9) (4,781.8) --------------------------------------------------------------------------- NET PROPERTY AND EQUIPMENT 14,731.4 14,352.1 --------------------------------------------------------------------------- INTANGIBLE ASSETS-NET 834.0 747.0 --------------------------------------------------------------------------- TOTAL ASSETS $17,972.2 $17,386.0 =========================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Notes payable $ 797.6 $ 597.8 Accounts payable 490.9 638.0 Income taxes 91.3 22.5 Other taxes 138.5 136.7 Accrued interest 100.0 121.7 Other accrued liabilities 549.9 523.1 Current maturities of long-term debt 52.6 95.5 --------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 2,220.8 2,135.3 --------------------------------------------------------------------------- LONG-TERM DEBT 5,240.3 4,830.1 OTHER LONG-TERM LIABILITIES AND MINORITY INTERESTS 261.9 726.5 DEFERRED INCOME TAXES 1,033.2 975.9 COMMON EQUITY PUT OPTIONS 51.5 SHAREHOLDERS' EQUITY Preferred stock, no par value; authorized - 165.0 million shares; issued - 7.2 thousand shares 358.0 358.0 Common stock, $.01 par; authorized - 3.5 billion shares; issued - 830.3 million shares 8.3 8.3 Additional paid-in capital 677.5 574.2 Guarantee of ESOP notes (193.2) (193.2) Retained earnings 12,219.1 11,173.0 Foreign currency translation adjustment (326.3) (175.1) --------------------------------------------------------------------------- 12,743.4 11,745.2 --------------------------------------------------------------------------- Common stock in treasury, at cost; 141.5 and 135.7 million shares (3,578.9) (3,027.0) --------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 9,164.5 8,718.2 --------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $17,972.2 $17,386.0 =========================================================================== See accompanying Financial comments.
4 CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
In millions, except Nine Months Ended Quarters Ended per common share data September 30 September 30 1997 1996 1997 1996 ------------------------------------------------------------------------------- REVENUES Sales by Company-operated restaurants $6,025.8 $5,565.2 $2,158.5 $1,965.6 Revenues from franchised and affiliated restaurants 2,430.4 2,299.7 847.5 808.2 ------------------------------------------------------------------------------- TOTAL REVENUES 8,456.2 7,864.9 3,006.0 2,773.8 ------------------------------------------------------------------------------- OPERATING COSTS AND EXPENSES Company-operated restaurants 4,923.3 4,524.5 1,756.1 1,582.1 Franchised restaurants- occupancy expenses 453.3 420.1 153.9 142.2 General, administrative and selling expenses 1,056.7 985.4 375.5 347.9 Other operating (income) expense-net (90.2) (83.7) (34.9) (42.4) ------------------------------------------------------------------------------- TOTAL OPERATING COSTS AND EXPENSES 6,343.1 5,846.3 2,250.6 2,029.8 ------------------------------------------------------------------------------- OPERATING INCOME 2,113.1 2,018.6 755.4 744.0 ------------------------------------------------------------------------------- Interest expense 270.3 252.3 94.1 84.7 Nonoperating (income) expense-net 24.9 38.8 2.2 9.4 ------------------------------------------------------------------------------- INCOME BEFORE PROVISION FOR INCOME TAXES 1,817.9 1,727.5 659.1 649.9 ------------------------------------------------------------------------------- Provision for income taxes 586.3 564.9 210.2 209.3 ------------------------------------------------------------------------------- NET INCOME $1,231.6 $1,162.6 $ 448.9 $ 440.6 =============================================================================== NET INCOME PER COMMON SHARE $ 1.76 $ 1.63 $ .64 $ .62 ------------------------------------------------------------------------------- DIVIDENDS PER COMMON SHARE $ .2400 $ .2175 $ .0825 $ .0750 ------------------------------------------------------------------------------- WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 689.9 699.1 688.5 697.8 ------------------------------------------------------------------------------- See accompanying Financial comments.
5 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Nine Months Ended Quarters Ended September 30 September 30 In millions 1997 1996 1997 1996 ------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $ 1,231.6 $ 1,162.6 $ 448.9 $ 440.6 Adjustments to reconcile to cash provided by operations Depreciation and amortization 557.0 546.7 170.4 175.1 Changes in operating working capital items 26.8 12.7 179.7 106.7 Other (95.2) 0.5 (54.6) (20.7) ------------------------------------------------------------------------------- CASH PROVIDED BY OPERATIONS 1,720.2 1,722.5 744.4 701.7 ------------------------------------------------------------------------------- INVESTING ACTIVITIES Property and equipment expenditures (1,444.0) (1,599.2) (487.1) (614.7) Purchases and sales of restaurant businesses and sales of other property 27.5 37.4 (10.4) 20.0 Other (129.7) (218.8) (67.2) (132.1) ------------------------------------------------------------------------------- CASH USED FOR INVESTING ACTIVITIES (1,546.2) (1,780.6) (564.7) (726.8) ------------------------------------------------------------------------------- FINANCING ACTIVITIES Notes payable and long-term financing issuances and repayments 415.0 463.0 (81.0) 150.2 Treasury stock purchases (568.4) (395.5) (98.0) (156.0) Common and preferred stock dividends (186.3) (172.6) (63.8) (60.6) Other 146.0 83.9 71.1 1.3 ------------------------------------------------------------------------------- CASH USED FOR FINANCING ACTIVITIES (193.7) (21.2) (171.7) (65.1) ------------------------------------------------------------------------------- CASH AND EQUIVALENTS INCREASE (DECREASE) (19.7) (79.3) 8.0 (90.2) ------------------------------------------------------------------------------- Cash and equivalents at beginning of period 329.9 334.8 302.2 345.7 ------------------------------------------------------------------------------- CASH AND EQUIVALENTS AT END OF PERIOD $ 310.2 $ 255.5 310.2 $ 255.5 =============================================================================== See accompanying Financial comments.
6 FINANCIAL COMMENTS (UNAUDITED) BASIS OF PRESENTATION The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements in the Company's 1996 Annual Report to Shareholders. In the opinion of the Company, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation have been included. The results for the quarter and the nine months ended September 30, 1997 do not necessarily indicate the results that may be expected for the full year The results of operations of restaurant businesses purchased and sold were not material to the condensed consolidated financial statements for periods prior to purchase and sale. NET INCOME PER COMMON SHARE Net income per common share was computed using net income, reduced by preferred stock cash dividends of $6.9 million for the third quarters of 1997 and 1996 and $20.7 for the nine months ended September 30, 1997 and 1996. Adjusted net income was divided by the weighted average shares of common stock outstanding: 688.5 and 697.8 million for the third quarters ended September 30, 1997 and 1996, and 689.9 and 699.1 million for the nine months ended September 30, 1997 and 1996, respectively. In February 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings per Share, (SFAS 128), which is required to be adopted on December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods to disclose diluted net income per common share in addition to its current basic net income per common share. Pro forma diluted net income per common share amounts, calculated in accordance with SFAS 128, were $0.63 and $0.61 for the third quarters ended September 30, 1997 and 1996, and $1.71 and $1.59 for the nine months ended September 30, 1997 and 1996, respectively. ASSET IMPAIRMENT In first quarter 1996, the Company recorded a $16 million pre-tax charge to other operating (income) expense, equivalent to 2 cents per common share, related to restaurant sites in Mexico. COMMON EQUITY PUT OPTIONS In third quarter 1997, the Company sold 1.0 million common equity put options which expire at various dates in November 1997. At September 30, 1997, the $51.5 million exercise price of these options was classified in common equity put options, and the related offset was recorded in common stock in treasury, net of premiums received. 7 Item 2. Management's Discussion And Analysis Of Financial Condition -------------------------------------------------------------------- And Results Of Operations ------------------------- INCREASES (DECREASES) IN OPERATING RESULTS OVER 1996
Dollars in millions, except Nine Months Quarters per common share data Ended September 30 Ended September 30 ------------------------------------------------------------------------- SYSTEMWIDE SALES $1,580.3 7% $513.6 6% ------------------------------------------------------------------------- REVENUES Sales by Company-operated restaurants $ 460.6 8% $192.9 10% Revenues from franchised and affiliated restaurants 130.7 6 39.3 5 ------------------------------------------------------------------------- TOTAL REVENUES 591.3 8 232.2 8 ------------------------------------------------------------------------- OPERATING COSTS AND EXPENSES Company-operated restaurants 398.8 9 174.0 11 Franchised restaurants- occupancy costs 33.2 8 11.7 8 General, administrative and selling expenses 71.3 7 27.6 8 Other operating (income) expense-net (6.5) N/M 7.5 N/M ------------------------------------------------------------------------- TOTAL OPERATING COSTS AND EXPENSES 496.8 8 220.8 11 ------------------------------------------------------------------------- OPERATING INCOME 94.5 5 11.4 2 ------------------------------------------------------------------------- Interest expense 18.0 7 9.4 11 Nonoperating (income) expense-net (13.9) N/M (7.2) N/M ------------------------------------------------------------------------- INCOME BEFORE PROVISION FOR INCOME TAXES 90.4 5 9.2 1 ------------------------------------------------------------------------- Provision for income taxes 21.4 4 0.9 0 ------------------------------------------------------------------------- NET INCOME $ 69.0 6% $ 8.3 2% ========================================================================= NET INCOME PER COMMON SHARE $ .13 8% $ .02 3% ------------------------------------------------------------------------- (N/M) Not meaningful
8 CONSOLIDATED OPERATING RESULTS Net income per common share and net income increased eight and six percent, respectively, for the nine months, and three and two percent, respectively, for the quarter. Changing foreign currencies significantly reduced reported results for the nine months and quarter. Excluding the $16 million non-cash charge for the adoption of SFAS 121 in first quarter 1996 and the foreign currency translation effect, net income per common share and net income would have increased ten and eight percent, respectively, for the nine months. For the quarter, net income per common share and net income would have increased eight and six percent, respectively, excluding the negative foreign currency translation effect. During the quarter, the Company repurchased 1.5 million shares of common stock for approximately $75 million, bringing total share repurchase for the nine months to 12.2 million shares for about $575 million. Fewer shares outstanding resulted in higher increases in net income per common share compared with the increases in net income. Systemwide sales represent sales by Company-operated, franchised and affiliated restaurants. Total revenues consist of sales by Company-operated restaurants and fees from restaurants operated by franchisees and affiliates. These fees are based upon a percent of sales with specified minimum payments. On a global basis, the increases in sales and revenues for both periods were primarily due to expansion, offset in part by weaker foreign currencies. The lower number of restaurant additions for the nine months was primarily due to the previously announced satellite restaurant closings in the U.S. and fewer satellite additions outside the U.S. ----------------------------------------------------------------------- RESTAURANT ADDITIONS Nine Months Quarters Ended Ended September 30 September 30 1997 1996 1997 1996 ----------------------------------------------------------------------- U.S. 155 484 71 171 Outside the U.S. 1,069 1,127 392 557 ----------------------------------------------------------------------- Total restaurant additions 1,224 1,611 463 728 ---------------------------------------------------------------------- RESTAURANTS UNDER CONSTRUCTION At September 30 1997 1996 ----------------------------------------------------------------------- U.S. 128 191 Outside the U.S. 438 396 ----------------------------------------------------------------------- Total restaurants under construction 566 587 ----------------------------------------------------------------------- 9 Company-operated margins as a percent of sales decreased for the nine months and for the quarter. For both periods, food & paper costs and occupancy & other operating costs increased as a percent of sales, while payroll costs decreased. Franchised margin dollars comprised about two-thirds of the combined operating margins, the same as in the prior year. While franchised margins as a percent of applicable revenues decreased for both periods, franchised margin dollars increased five percent for the nine months and four percent for the quarter. ------------------------------------------------------------------------- CONSOLIDATED OPERATING MARGINS Nine Months Ended Quarters Ended September 30 September 30 1997 1996 1997 1996 ------------------------------------------------------------------------- In millions of dollars Company-operated 1,102.5 1,040.7 402.4 383.5 Franchised 1,977.1 1,879.6 693.6 666.0 Combined operating margins 3,079.6 2,920.3 1,096.0 1,049.5 As a percent of sales/revenues Company-operated 18.3 18.7 18.6 19.5 Franchised 81.3 81.7 81.8 82.4 ------------------------------------------------------------------------- The increases in general, administrative & selling expenses were primarily due to strategic global spending to support the Convenience, Value and Execution Strategies, including costs associated with expansion outside the U.S. and continued investment in developing countries, offset in part by weaker foreign currencies. In addition, the quarter included incremental U.S. marketing costs, which are also expected to affect the fourth quarter. Other operating (income) expense--net is composed of transactions related to franchising and the foodservice business. Gains on sales of restaurant businesses were lower since fewer were sold. The other category reflected lower expense for the nine months and slightly increased expense for the quarter. The lower expense for the nine months was primarily due to the $16 million charge for the adoption of SFAS 121 in first quarter 1996, and lower provisions for property dispositions in 1997. ------------------------------------------------------------------------ OTHER OPERATING (INCOME) Nine Months Ended Quarters Ended EXPENSE-NET September 30 September 30 In millions of dollars 1997 1996 1997 1996 ------------------------------------------------------------------------ Gains on sales of restaurant businesses $(37.1) $(57.1) $ (9.5) $(14.8) Equity in earnings of unconsolidated affiliates (59.5) (60.8) (26.3) (26.4) Other (income) expense 6.4 34.2 0.9 (1.2) ------------------------------------------------------------------------ Other operating (income) expense--net $(90.2) $(93.7) $(34.9) $(42.4) ======================================================================== 10 Consolidated operating income increased $94.5 million or five percent and $11.4 million or two percent for the nine months and quarter, respectively. The increases reflected higher combined operating margin dollars for both periods and higher other operating income for the nine months, offset in part by higher general, administrative & selling expenses and weaker foreign currencies in both periods. Higher interest expense in both periods reflected higher debt levels, offset in part by lower average interest rates and weaker foreign currencies. Contributing to the increase in debt levels was about $375 million of borrowings during the quarter to fund the retirement of preferred stock issued by a foreign subsidiary. Nonoperating (income) expense--net reflected lower charges for minority interests in both periods of 1997, and for the nine months ended September 30, 1996, losses associated with the reduction of the carrying value of the Company's investment in Discovery Zone common stock to zero. In addition, translation gains were lower for the nine months and higher for the quarter. The effective income tax rate was 32.3 and 31.9 percent for the nine months and quarter of 1997, respectively, compared with 32.7 and 32.2 percent for the corresponding periods of 1996. For the year 1997, the Company expects the effective tax rate to be about 32.0 percent. OPERATING RESULTS OUTSIDE THE U.S. The sales increases outside the U.S. for both periods were driven primarily by expansion, offset in part by weaker foreign currencies. Comparable sales in constant currencies were slightly negative for the nine months and slightly positive for the quarter. If exchange rates had remained at 1996 levels, sales outside the U.S. would have increased 16 percent for both periods. Severe weather in Europe in the first quarter and Asia/Pacific in the third quarter, along with weak economies in some of our major markets, negatively affected results. 11 ---------------------------------------------------------------------- OPERATING RESULTS OUTSIDE Nine Months Ended Quarters Ended THE U.S. September 30 September 30 1997 1996 1997 1996 ---------------------------------------------------------------------- Percent increase SALES As reported 8 10 6 9 Excluding foreign currency translation 16 15 16 14 REVENUES As reported 13 14 13 13 Excluding foreign currency translation 19 17 21 15 OPERATING INCOME As reported 9 9 5 11 Excluding foreign currency translation 16 12 14 14 Excluding SFAS 121 charge and foreign currency translation 14 13 14 14 As a percent of sales/revenues Company-operated margins 19.2 19.8 19.9 21.0 Franchised margins 81.6 81.7 82.2 82.8 ------------------------------------------------------------------------- Revenues increased at a faster rate than sales in both periods. This was primarily due to the weakening Japanese Yen, which had a greater effect on sales than revenues due to our affiliate structure in Japan, and the higher growth rate in Company-operated versus franchised restaurants. Of the larger international markets, the following had strong sales and operating income growth on a constant currency basis for both periods of 1997: the Philippines and Taiwan in Asia/Pacific; England, Italy, Spain, and Sweden in Europe; and Argentina, Brazil and Mexico in Latin America. Our operations in Canada were negatively affected by increased competition and low consumer spending due to high unemployment; weak economies also negatively affected our operations in France and Germany, although France showed improvement in the second and third quarters. The increases in operating income outside the U.S. were driven by higher Company-operated and franchised margin dollars, for both periods, and an increase in other operating income for the nine months. Higher general, administrative & selling expenses, associated with expansion and continued investment in developing countries, and weaker foreign currencies partially offset these increases. Company-operated margins as a percent of sales declined in both periods. As a percent of sales, increases in food & paper costs and occupancy & other operating costs in both periods were offset in part by decreases in payroll costs. Franchised margins as a percent of revenues were relatively flat for the nine months and decreased for the quarter. 12 IMPACT OF FOREIGN CURRENCIES ON REPORTED RESULTS While changing foreign currencies affect reported results, McDonald's lessens exposures by financing in local currencies, hedging certain foreign-denominated cash flows and, where practical, by purchasing goods and services in local currencies. The weakening Japanese Yen, Deutsche Mark and French Franc were the primary foreign currencies that negatively affected reported results in both periods. The following table presents the 1997 results translated at 1996 rates compared with reported results. -------------------------------------------------------------------------- FOREIGN CURRENCY TRANSLATION EFFECT ON WORLDWIDE RESULTS -------------------------------------------------------------------------- Dollars in millions except per common share data -------------------------------------------------------------------------- Increase -------------------------------------------------------------------------- Adjusted Reported Change Adjusted Reported -------------------------------------------------------------------------- Nine months ended September 30, 1997 -------------------------------------------------------------------------- Systemwide sales $26,016.7 $25,107.9 $908.8 11% 7% Operating income 2,189.8 2,113.1 76.7 8 5 Net income 1,269.2 1,231.6 37.6 9 6 Net income per common share 1.81 1.76 .05 11 8 -------------------------------------------------------------------------- Quarter ended September 30, 1997 -------------------------------------------------------------------------- Systemwide sales $9,206.3 $8,799.7 $406.6 11% 6% Operating income 794.5 755.4 39.1 7 2 Net income 465.4 448.9 16.5 6 2 Net income per common share .67 .64 .03 8 3 -------------------------------------------------------------------------- U.S. OPERATING RESULTS U.S. sales increased in both periods primarily due to restaurant expansion (397 restaurants were added in the 12 months ended September 30, 1997). U.S. comparable sales were positive for both periods. This performance reflected successful marketing and promotions including Monopoly, Chicken McNuggets, Teenie Beanie Babies and Hercules and disappointing results from the price component of Campaign 55. 13 ---------------------------------------------------------------------- U.S. OPERATING RESULTS Nine Months Ended Quarters Ended September 30 September 30 1997 1996 1997 1996 ---------------------------------------------------------------------- Percent increase/(decrease) Sales 5 3 6 2 Revenues 1 3 2 1 Operating income - (3) (2) (5) ---------------------------------------------------------------------- As a percent of sales/revenues Company-operated margins 16.6 16.8 15.9 16.8 Franchised margins 81.2 81.7 81.6 82.1 ---------------------------------------------------------------------- U.S. sales increased at a faster rate than revenues primarily because the number of U.S. Company-operated restaurants decreased over the past year, while the number of franchised and affiliated restaurants increased. U.S. operating income was flat for the nine months and decreased for the quarter. In both periods, this performance reflected lower Company-operated margin dollars, higher general, administrative & selling expenses, and lower other operating income, offset in part by higher franchised margin dollars. Company-operated margins as a percent of sales declined for both periods. Cost trends as a percent of sales follow: food & paper costs increased for both periods and occupancy & other operating expenses decreased for both periods, while payroll decreased for the nine months and remained flat for the quarter. Franchised margins as a percent of revenues declined for both periods. These declines reflected slower revenue growth as a result of decreased initial franchise fees driven by fewer openings, and rent adjustments, partially offset by positive comparable sales. The margins were also negatively affected by higher occupancy costs, primarily rent expense, driven by an increase in the number of leased sites. FINANCIAL POSITION Cash provided by operations for the nine months ended September 30, 1997 was relatively flat compared with the same period in 1996, partly due to the refund of about $110 million in security deposits to U.S. owner/operators. Together with other sources of cash such as borrowings, cash provided by operations was used primarily for capital expenditures, debt repayments, share repurchases and dividends. The consolidated capital expenditure decrease of 10% for the nine months ended September 30, 1997 resulted primarily from fewer restaurant additions in 1997 compared with 1996. In the U.S., capital expenditures decreased 36% while outside the U.S. capital expenditures increased 7%. The Company expects to add about 2,100 restaurants in 1997, with about 85% being outside the U.S. 14 FORWARD-LOOKING STATEMENTS Certain forward-looking statements are included in this report. They use such words a "may," "will," "expect," "believe," "plan" and other similar terminology. These statements reflect management's current expectations and involve a number of risks and uncertainties. Actual results could differ materially due to changes in global and local business and economic conditions; legislation and governmental regulation; competition; success of operating initiatives and advertising and promotional efforts; food, labor and other operating costs; availability and cost of land and construction; accounting policies and practices; consumer preferences, spending patterns and demographic trends; political or economic instability in local markets; and currency exchange rates. 15 NINE MONTHS AND THIRD QUARTER HIGHLIGHTS
OPERATING RESULTS --------------------------------------------------------------------------- Dollars in millions, except Nine Months Ended Quarters Ended per common share data September 30 September 30 1997 1996 1997 1996 --------------------------------------------------------------------------- Systemwide sales $25,107.9 $23,527.6 $8,799.7 $8,286.1 --------------------------------------------------------------------------- U.S. sales 12,851.2 12,184.7 4,441.9 4,183.1 Operated by franchisees 9,965.0 9,422.6 3,448.6 3,232.5 Operated by the Company 2,029.4 2,085.2 692.8 703.7 Operated by affiliates 856.8 676.9 300.5 246.9 --------------------------------------------------------------------------- Sales outside the U.S. 12,256.7 11,342.9 4,357.8 4,103.0 Operated by franchisees 5,627.7 5,402.3 1,982.2 1,967.1 Operated by the Company 3,996.4 3,480.0 1,465.7 1,261.9 Operated by affiliates 2,632.6 2,460.6 909.9 874.0 --------------------------------------------------------------------------- Total revenues 8,456.2 7,864.9 3,006.0 2,773.8 U.S. 3,453.7 3,432.5 1,191.6 1,168.5 Outside the U.S. 5,002.5 4,432.4 1,814.4 1,605.3 --------------------------------------------------------------------------- Operating income 2,113.1 2,018.6 755.4 744.0 U.S. 924.8 926.4 313.4 321.2 Outside the U.S. 1,233.5 1,131.1 460.6 439.6 Corporate G&A (45.2) (38.9) (18.6) (16.8) --------------------------------------------------------------------------- Income before provision for income taxes 1,817.9 1,727.5 659.1 649.9 Net income 1,231.6 1,162.6 448.9 440.6 Net income per common share 1.76 1.63 .64 .62 --------------------------------------------------------------------------- Cash provided by operations 1,720.2 1,722.5 744.4 701.7 --------------------------------------------------------------------------- Total assets 17,972.2 16,543.1 Total shareholders' equity 9,164.5 8,554.4 ---------------------------------------------------------------------------
16 RESTAURANTS
------------------------------------------------------------------------- At September 30, 1997 1996 ------------------------------------------------------------------------- Systemwide restaurants 22,246 19,991 ------------------------------------------------------------------------- U.S. 12,249 11,852 Operated by franchisees 9,600 9,299 Operated by the Company 1,796 1,823 Operated by affiliates 853 730 ------------------------------------------------------------------------- Outside the U.S. 9,997 8,139 Operated by franchisees 4,309 3,686 Operated by the Company 2,862 2,281 Operated by affiliates 2,826 2,172 -------------------------------------------------------------------------
17 PART II Item 6. Exhibits and Reports on Form 8-K ----------------------------------------- (a) - Exhibits -------------- Exhibit Number Description -------------- ----------- (3) Corrected Restated Certificate of Incorporation effective as of December 13, 1996 incorporated by reference from Form 8-K dated January 9, 1997 and By-Laws effective as of July 15, 1997 filed herewith. (4) Instruments defining the rights of security holders, including indentures (A): (a) Debt Securities. Indenture dated as of March 1, 1987 incorporated herein by reference from Exhibit 4(a) of Form S-3 Registration Statement, SEC file no. 33-12364. (i) Medium-Term Notes, Series B, due from nine months to 30 years from Date of Issue. Supplemental Indenture No. 12 incorporated herein by reference from Exhibit (4) of Form 8-K dated August 18, 1989 and Forms of Medium-Term Notes, Series B, incorporated herein by reference from Exhibit (4)(b) of Form 8-K dated September 14, 1989. (ii) Medium-Term Notes, Series C, due from nine months to 30 years from Date of Issue. Form of Supplemental Indenture No. 15 incorporated herein by reference from Exhibit 4(b) of Form S-3 Registration Statement, SEC file no. 33-34762 dated May 14, 1990. (iii) Medium-Term Notes, Series C, due from nine months (U.S. Issue)/184 days (Euro Issue) to 30 years from Date of Issue. Amended and restated Supplemental Indenture No. 16 incorporated herein by reference from Exhibit (4) of Form 10-Q for the period ended March 31, 1991. (iv) 8-7/8% Debentures due 2011. Supplemental Indenture No. 17 incorporated herein by reference from Exhibit (4) of Form 8-K dated April 22, 1991. 18 Exhibit Number Description -------------- ----------- (v) Medium-Term Notes, Series D, due from nine months (U.S. Issue)/184 days (Euro Issue) to 60 years from Date of Issue. Supplemental Indenture No. 18 incorporated herein by reference from Exhibit 4(b) of Form S-3 Registration Statement, SEC file no. 33-42642 dated September 10, 1991. (vi) 7-3/8% Notes due July 15, 2002. Form of Supplemental Indenture No. 19 incorporated herein by reference from Exhibit (4) of Form 8-K dated July 10, 1992. (vii) 6-3/4% Notes due February 15, 2003. Form of Supplemental Indenture No. 20 incorporated herein by reference from Exhibit (4) of Form 8-K dated March 1, 1993. (viii)7-3/8% Debentures due July 15, 2033. Form of Supplemental Indenture No. 21 incorporated herein by reference from Exhibit (4)(a)of Form 8-K dated July 15, 1993. (ix) Medium-Term Notes, Series E, due from nine months to 60 years from date of issue. Form of Supplemental Indenture No. 22, incorporated herein by reference from Exhibit (4) of Form 10-Q for the period ended June 30, 1995. (x) 6-5/8% Notes due September 1, 2005. Form of Supplemental Indenture No. 23 incorporated herein by reference from Exhibit 4(a) of Form 8-K dated September 5, 1995. (xi) 7.05% Debentures due 2025. Form of Supplemental Indenture No. 24 incorporated herein by reference from Exhibit (4)(a) of Form 8-K dated November 13, 1995. (b) Form of Deposit Agreement dated as of November 25, 1992 by and between McDonald's Corporation, First Chicago Trust Company of New York, as Depositary, and the Holders from time to time of the Depositary Receipts. (c) Rights Agreement dated as of December 13, 1988 between McDonald's Corporation and The First National Bank of Chicago, incorporated herein by reference from Exhibit 1 of Form 8-K dated December 23, 1988. (i) Amendment No. 1 to Rights Agreement incorporated herein by reference from Exhibit 1 of Form 8-K dated May 25, 1989. 19 Exhibit Number Description -------------- ----------- (ii) Amendment No. 2 to Rights Agreement incorporated herein by reference from Exhibit 1 of Form 8-K dated July 25, 1990. (d) Indenture and Supplemental Indenture No. 1 dated as of September 8, 1989, between McDonald's Matching and Deferred Stock Ownership Trust, McDonald's Corporation and Pittsburgh National Bank in connection with SEC Registration Statement Nos. 33-28684 and 33-28684-01, incorporated herein by reference from Exhibit (4)(a) of Form 8-K dated September 14, 1989. (e) Form of Supplemental Indenture No. 2 dated as of April 1, 1991, supplemental to the Indenture between McDonald's Matching and Deferred Stock Ownership Trust, McDonald's Corporation and Pittsburgh National Bank in connection with SEC Registration Statement Nos. 33-28684 and 33-28684-01, incorporated herein by reference from Exhibit (4)(c) of Form 8-K dated March 22, 1991. (f) 8.35% Subordinated Deferrable Interest Debentures due 2025. Indenture incorporated herein by reference from Exhibit 99.1 of Schedule 13E-4/A Amendment No. 2 dated July 14, 1995. (g) Senior Debt Securities Indenture dated as of October 19, 1996, incorporated herein by reference from Exhibit 4(a) of Form S-3 Registration Statement, SEC File No. 333-14141. (h) Subordinated Debt Securities Indenture dated as of October 18, 1996, incorporated herein by reference from Form 8-K dated October 18, 1996. (i) 7 1/2% Subordinated Deferrable Interest Debentures due 2036. Supplemental Indenture No. 1 dated as of November 5, 1996, incorporated herein by reference from Exhibit 4(b) of Form 8-K dated as of October 18, 1996. (ii) 7 1/2% Subordinated Deferrable Interest Debentures due 2037. Supplemental Indenture No. 2 dated as of January 14, 1997, incorporated herein by reference from Form 8-K dated January 9, 1997. (iii) 7.31% Subordinated Deferrable Interest Debentures due 2027. Supplemental Indenture No. 3 dated as of September 24, 1997, incorporated by reference from Form 8-K dated September 19, 1997. 20 Exhibit Number Description -------------- ----------- (10) Material Contracts (a) Directors' Stock Plan, as amended and restated, filed herewith.* (b) Profit Sharing Program, as amended and restated, incorporated herein by reference from Form 10-K for the year ended December 31, 1995.* (i) Amendment No. 1 incorporated by reference from Form 10-Q for the quarter ended June 30, 1997. (ii) Amendment No. 2 incorporated by reference from Form 10-Q for the quarter ended June 30, 1997. (iii) Amendment No. 3 incorporated by reference from Form 10-Q for the quarter ended June 30, 1997. (c) McDonald's Supplemental Employee Benefit Equalization Plan, McDonald's Profit Sharing Program Equalization Plan and McDonald's 1989 Equalization Plan, as amended and restated, incorporated herein by reference from Form 10-K for the year ended December 31, 1995.* (d) 1975 Stock Ownership Option Plan as amended and restated, incorporated herein by reference from Exhibit (10)(d) of Form 10-Q for the quarter ended March 31, 1996*. (e) 1992 Stock Ownership Incentive Plan, incorporated by reference from Form 10-Q for the quarter ended June 30, 1997*. (f) McDonald's Corporation Deferred Income Plan, as amended and restated, filed herewith.* (g) Non-Employee Director Stock Option Plan, incorporated by reference from Exhibit A on pages 25-28 of McDonald's 1995 Proxy Statement and Notice of 1995 Annual Meeting of Shareholders dated April 12, 1995.* (h) Employment Agreement filed herewith.* (11) Statement re: Computation of per share earnings. (12) Statement re: Computation of ratios. (27) Financial Data Schedule (99) Press Release dated November 10, 1997 "McDonald's Corporation's 1997 Biennial Analyst Meeting Opening Highlights" -------------------- * Denotes compensatory plan. 21 Exhibit Number Description -------------- ----------- (A) Other instruments defining the rights of holders of long-term registrant and all of its subsidiaries for which consolidated financial statements are required to be filed and which are not required to be registered with the Securities and Exchange Commission, are not included herein as the securities authorized under these instruments, individually, do not exceed 10% of the total assets of the registrant and its subsidiaries on a consolidated basis. An agreement to furnish a copy of any such instruments to the Securities and Exchange Commission upon request has been filed with the Commission. (b) Reports on Form 8-K The following reports on Form 8-K were filed for the last quarter covered by this report, and subsequently up to November 12, 1997. Financial Statements Date of Report Item Number Required to be Filed -------------- ----------- -------------------- July 9, 1997 Item 7 No July 17, 1997 Item 7 No September 19, 1997 Item 5 No October 17, 1997 Item 7 No 22 Signature ----------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. McDONALD'S CORPORATION (Registrant) By /s/ Michael L. Conley ---------------------- (Signature) Michael L. Conley Executive Vice President, Chief Financial Officer November 12, 1997 ----------------- (Date) EX-10 2 EX 10(A) - MCD'S DIRECTOR'S STOCK PLAN EXHIBIT 10(a) McDONALD'S DIRECTORS' STOCK PLAN Section 1 Introduction 1.1 The Plan. McDonald's Corporation (the "Company") first established the McDonald's Directors' Deferred Compensation Plan (the "Plan") for the members of its Board of Directors who are not officers or employees of the Company ("Outside Directors") on July 1, 1984. Effective January 19, 1995, in order to reflect the Plan's focus on creating an identity of interest between the Company's Outside Directors and its shareholders, the Plan was renamed the ``Directors' Stock Plan''. The Plan was last amended and restated effective September 19, 1996, and is hereby amended and restated effective July 15, 1997. 1.2 Purpose. The purposes of the Plan are: to advance the Company's interests by attracting and retaining well-qualified Outside Directors; to provide such individuals with incentives to put forth maximum efforts for the long term success of the Company's business; and to provide a vehicle to increase the identity of interest between Outside Directors and shareholders. Section 2 Benefits 2.1 Elected Deferred Benefits. Each Outside Director may elect in accordance with Section 3.1 to defer all or any part of the fees to be received by such Outside Director for service on the Board of Directors of the Company (including the annual retainer and Board and committee meeting fees) ("Elected Deferred Benefits"). 2.2 Deferred Fee Account. Elected Deferred Benefits shall be credited to an account ("Deferred Fee Account") of each Outside Director on a quarterly basis at such a time and in such a manner as is reasonably determined by the Controller of the Company. Each Outside Director's Deferred Fee Account may be further divided into amounts deferred pursuant to a particular year's deferral election. Amounts credited to the Deferred Fee Account(s) of each Outside Director shall be credited with income, gains and losses in the amounts and at the times such as would have occurred if amounts credited to an Outside Director's Deferred Fee Account(s) were invested in shares (including fractional shares) of common stock of McDonald's Corporation ("McDonald's Stock") as of the dates such amounts (including income, gains and losses) were credited to the Outside Director's Deferred Fee Account(s). 2.3 Stock Equivalent Benefit. In addition to the benefits described in Sections 2.1 and 2.2, each Outside Director shall receive a stock equivalent benefit which shall be determined in the manner described in this Section 2.3 ("Stock Equivalent Benefit"). On January 19, 1995, an amount equal to $17,500 multiplied by the number of an Outside Director's full years of service (up to a maximum of ten years) shall be accrued for such Outside Director's Stock Equivalent Benefit. After January 19, 1995, for each Outside Director, an amount equal to $17,500 shall be accrued for such Outside Director's Stock Equivalent Benefit at the end of each full year of service (up to a maximum of ten years). In no event shall an Outside Director receive a Stock Equivalent Benefit pursuant to this Section 2.3 which exceeds $175,000 ($17,500 multiplied by 10 years of service). In measuring full years of service, Board service shall commence as of the first Board meeting or committee meeting for which the Outside Director received compensation and end with the last Board meeting or committee meeting for which the Outside Director received compensation. Amounts accrued for an Outside Director's Stock Equivalent Benefit shall be adjusted periodically (but no less than once each year), at such time or times and in such manner as is reasonably determined by the Controller of the Company and as of the date of a distribution, in order to treat each such accrual as though it had been invested in shares of McDonald's Stock by reflecting income, gains and losses in the amounts and at the times as such would have occurred if an amount equal to such accrual were invested in shares (including fractional shares) of McDonald's Stock on the date such accrual was made. Section 3 Deferrals; Deferral Elections 3.1 Deferral Elections. A person who becomes an Outside Director in a year may elect by a written notice delivered to McDonald's Corporation within 60 days after becoming an Outside Director to receive Elected Deferred Benefits as provided in Section 2.1 with respect to fees earned in the portion of such year following the delivery of such notice to McDonald's Corporation. Each other Outside Director may elect by filing a written election with McDonald's Corporation before the beginning of a calendar year to receive Elected Deferred Benefits as provided in Section 2.1 for such calendar year. Any election made pursuant to this Section 3.1 shall be irrevocable. 3.2 Payment Dates. Subject to the provisions of Sections 3.4 and 3.5, amounts deferred pursuant to elections filed after July 15, 1997 will be deferred to the "Payment Date" specified by the Outside Director at the time of election and payments will commence promptly following the Payment Date in accordance with Section 4.1. The Payment Date specified must be no earlier than the March 31st of the calendar year following the year in which the deferred amounts would otherwise have been paid and must be either: (a) March 31, June 30 or September 30 of a specified year in the future (the `` Specific Year Payment Date'') or (b) upon Retirement from the Board of Directors. ``Retirement'' means the date upon which an Outside Director ceases to be a member of the Board of Directors because of the expiration of such Outside Director's term or resignation from the Board of Directors. 3.3 Retirement Prior to Payment. If an Outside Director retires and has one or more Specific Year Payment Dates that would occur after Retirement, all amounts deferred to those Specific Year Payment Date(s) shall automatically be accelerated and payment will commence promptly after Retirement from the Board of Directors and in accordance with the provisions of Section 4.1. 3.4 Death Prior to Payment. Notwithstanding anything herein to the contrary, in the event of the Outside Director's death prior to the payment of his or her entire Deferred Fee Account(s), the Payment Date will automatically be the March 31st of the year following the death of the Outside Director. Payments will commence promptly following such Payment Date in accordance with the provisions of Section 4.1. If an Outside Director dies and has one or more Specific Year Payment Dates that would occur after death, all amounts deferred to those Specific Year Payment Date(s) shall automatically be accelerated and payment will commence promptly after the March 31st of the year following the death of the Outside Director and in accordance with the provisions of Section 4.1. 3.5 Previous Deferrals. Notwithstanding the provisions of Section 3.2, amounts deferred pursuant to elections filed prior to July 15, 1997 shall be deferred until Retirement in accordance with the terms of the Plan in effect as of the date of such deferral election. 3.6 Stock Equivalent Benefits. Stock Equivalent Benefits shall be deferred until Retirement, even though an Outside Director has elected a Specific Year Payment Date for the remainder of his or her deferral. However, in the event of the Outside Director's death prior to the payment of his or her Stock Equivalent Benefits, payments will commence promptly following the Payment Date (as determined in accordance with the provisions of Section 3.4) and shall be paid in accordance with the provisions of Section 4.1. Section 4 Payment of Benefits 4.1 Time and Method of Payment. Payments to an Outside Director, or the Outside Director's beneficiary if the Outside Director is deceased, shall automatically be paid in a lump sum promptly following the Payment Date, unless the Outside Director or the Outside Director's beneficiary files a written installment distribution election on or before December 31 of the calendar year preceding the Payment Date. An installment distribution election shall apply to all payments for that Payment Date and shall specify the period of years (up to a maximum of 15 years) over which payments are to be made. Installment payments shall be made annually in substantially equal installments over the installment period specified and shall commence promptly after the Payment Date. Each installment payment shall be computed by dividing the balance of the Deferred Fee Account(s) that is to be paid in installments by the number of payments remaining in the installment period. Once an installment election is filed for a Payment Date, it cannot be revoked. 4.2 Form of Payment. All payments shall be made in cash. However, an Outside Director may elect to receive payment in the form of shares of McDonald's Stock by filing a written request with McDonald's 30 days prior to payment. Amounts deferred pursuant to elections made prior to August 15, 1996, however, will be paid in cash. 4.3 Beneficiaries. An Outside Director shall have the right to name a beneficiary or beneficiaries who shall receive the benefits hereunder in the event of the Outside Director's death prior to the payment of his or her entire Deferred Fee Account(s). If the Outside Director fails to designate beneficiaries or if all such beneficiaries predecease the Outside Director, benefits shall be paid to the Outside Director's surviving spouse, and if none, then to the Outside Director's estate. To be effective, any beneficiary designation shall be filed in writing with McDonald's. An Outside Director may revoke an existing beneficiary designation by filing another written beneficiary designation with McDonald's. The latest beneficiary designation received by McDonald's shall be controlling. 4.4 Funding. Benefits payable under the Plan to any person shall be paid directly by the Company. The Company shall not be required to fund or otherwise segregate assets to be used for payment of benefits under the Plan. While the Company may cause investments in shares of McDonald's Stock to be made through open market purchases in amounts equal or unequal to amounts payable hereunder, the Company shall not be under any obligation to make such investments and any such investment shall remain subject to the claims of its general creditors and the amounts payable to any Outside Directors under the Plan shall not be affected by any such investment. Notwithstanding the foregoing, the Company, in its discretion, may maintain one or more trusts to hold assets to be used for payment of benefits under the Plan; provided that the assets of such trust shall be subject to the creditors of the Company in the event that the Company becomes insolvent or is subject to bankruptcy or insolvency proceedings. Any payments by such a trust of benefits provided hereunder shall be considered payment by the Company and shall discharge the Company of any further liability for the payments made by such trust. Section 5 General Provisions 5.1 Plan Administration. The Plan shall be administered by the Committee responsible for administration of the Company's Profit Sharing Program. The Committee shall have, to the extent appropriate, the same power, rights, duties and obligations with respect to the Plan as it has with respect to the Profit Sharing Program. In addition, the Committee may take such other actions as are necessary so that transactions pursuant to this Stock Plan do not result in liability under Section 16(b) of the Securities Exchange Act of 1934. 5.2 Retention Rights. Establishment of the Plan shall not be construed to give an Outside Director the right to be retained on the Board of Directors or to any benefits not specifically provided by the Plan. 5.3 Interests Not Transferable. Except as to withholding of any tax required under the laws of the United States or any state or locality and except with respect to designation of a beneficiary to receive benefits in the event of the death of an Outside Director, no benefit payable at any time under the Plan shall be subject in any manner to alienation, sale, transfer, assignment, pledge, attachment, or other legal process, or encumbrance of any kind. Any attempt by an Outside Director to alienate, sell, transfer, assign, pledge or otherwise encumber any such benefits whether current or thereafter payable, shall be void. No benefit shall, in any manner, be liable for or subject to the debts or liabilities of any person entitled to such benefits. If any person shall attempt to, or shall alienate, sell, transfer, assign, pledge or otherwise encumber his or her benefits under the Plan, or if by any reason of his or her bankruptcy or other event happening at any time, such benefits would devolve upon any other person or would not be enjoyed by the person entitled thereto under the Plan, then the Company in its discretion, may terminate the interest in any such benefits of the person entitled thereto under the Plan and hold or apply them to or for the benefit of such person entitled thereto under the Plan or his or her spouse, children or other dependents, or any of them, in such manner as the Company may deem proper. 5.4 Amendment and Termination. Subject to the provisions of Section 5.1, the Board intends the Plan to be permanent, but reserves the right at any time to modify, amend or terminate the Plan, provided, however, that benefits credited as provided herein shall constitute an irrevocable obligation of the Company. 5.5 Controlling Law. The law of Illinois, except its law with respect to choice of law, shall be controlling in all manners relating to the Plan. 5.6 Number. Words in the plural shall include the singular and the singular shall include the plural. 5.7 Value of McDonald's Stock. The market value of McDonald's Stock for purposes hereof on any day shall be the closing price of McDonald's Stock on the New York Stock Exchange Composite Tape on such day (or, if quotations for McDonald's Stock are not reported on the New York Stock Exchange Composite Tape on that day, the closing price of McDonald's Stock on the New York Stock Exchange Composite Tape on the first day preceding such day on which such quotations are so reported). Executed with effect as of the 15th day of July, 1997. McDONALD'S CORPORATION By: /s/ Stanley R. Stein ----------------------------------- EX-10 3 EX 10(F) - MCD'S DEFERRED INCOME PLAN EXHIBIT 10(f) McDONALD'S CORPORATION DEFERRED INCOME PLAN (As Amended and Restated Effective as of July 15, 1997) Section 1 Introduction 1.1 The Plan and Effective Date. The McDonald's Corporation Deferred Income Plan, formerly known as the McDonald's Corporation Deferred Incentive Plan, ("Plan") was established November 1, 1993. The Plan was amended and restated effective September 1, 1994 and was subsequently amended by the first amendment thereof effective as of February 1, 1996 and the second amendment thereof effective as of August 15, 1996 . The Plan was subsequently amended and restated effective as of January 1, 1997. The ``effective date'' of the amendment and restatement of the Plan as set forth herein is July 15, 1997 and applies to deferral elections made by Participants with respect to amounts which would otherwise be paid in 1998. 1.2 Purpose. McDonald's Corporation ("McDonald's" or the "Company") has established the Plan for its officers, regional managers, department directors and certain expatriate international country heads to retain and attract highly qualified personnel by offering the benefits of a non-qualified, unfunded plan of deferred compensation. The Company may also allow other subsidiaries or affiliates to adopt the Plan in accordance with Section 7. 1.3 Administration. The Plan shall be administered by the Compensation Committee of the Board of Directors of the Company (the "Committee"). The Committee shall have the powers set forth in the Plan and the power to interpret its provisions. Any decisions of the Committee shall be final and binding on all persons with regard to the Plan. The Committee may delegate its authority hereunder to an officer or officers of the Company. Section 2 Participation and Deferral Elections 2.1 Eligibility and Participation. Subject to the conditions and limitations of the Plan, all officers, regional managers and department directors of the Company and international country heads who are on United States payroll and who are identified as eligible by the Committee shall be eligible to participate in the Plan ("Eligible Employees"). Any Eligible Employee who makes a Deferral Election as described in Section 2.2 below shall become a participant in the Plan ("Participant") and shall remain a Participant until the entire balance of the Participant's Deferral Accounts (defined in Section 4.1 below) is distributed. 2.2 Deferral Elections. Any Eligible Employee may make a Deferral Election to defer receipt of all or any portion of his or her incentive under the McDonald's Target Incentive Plan ("TIP") for a calendar year. Any Eligible Employee may also make an election to defer a percentage of his or her base salary for the following calendar year in accordance with the following schedule: Maximum Deferral Category of Eligible Employee Percentage ----------------------------- ---------------- Highest paid five officers (ranked by the total of base pay and the target incentive under TIP for the current year) 90% Executive Vice Presidents 80% All other officers and regional managers 70% Department Directors 60% provided, however that the committee of officers designated by the Committee to administer the Plan (the ``Officer Committee'') may, in its discretion, grant individual requests for higher deferral percentages of base salary and provided further that the Officer Committee may, in its discretion, increase the deferral percentages of base salary for various classes of officers as may be necessary to reflect organizational or title changes. If applicable, any Eligible Employee may also make an election to defer all or a portion of his or her Three-Year Incentive award (``Three-Year Incentive'') under the 1992 Stock Ownership Incentive Plan for a calendar year. 2.3 Rules for Deferral Elections. Deferral Elections shall be made in accordance with the rules set forth below: (a) All Deferral Elections must be in writing on such forms as the Committee may prescribe and must be returned to the Committee no later than the date specified by the Committee. In no event will the return date specified by the Committee be later than the end of the year that precedes the year that the amount deferred would otherwise be made available to such Eligible Employee. (b) An individual shall be eligible to make a Deferral Election only if he or she is an Eligible Employee on the date specified by the Committee for the return of Deferral Election forms. (c) If an Eligible Employee terminates employment in the same calendar year in which he or she makes a Deferral Election, that Deferral Election (and any Deferral Elections respecting future compensation in years following the year of employment termination) will be null and void and no deferral will be made. (d) Amounts will be deferred to the "Payment Date" specified by the Eligible Employee in the Deferral Election and payments will commence within 30 days following the Payment Date in accordance with Section 5.1. The Payment Date specified must be no earlier than the March 31st of the calendar year following the year in which the deferred amounts would otherwise have been paid and must be either: (i) The 15th or last day of a specified month (but not December 31) of a specified year in the future (the "Specific Year Payment Date") or (ii) the March 31 following the year in which the Participant terminates employment (the "Employment Termination Payment Date"). If a Participant terminates employment and has one or more Specific Year Payment Dates that would occur after the Employment Termination Payment Date, all amounts deferred to those Specific Year Payment Date(s) shall automatically be accelerated and payment with commence on the Employment Termination Payment Date. Participant 401(k) McDESOP Equalization Amounts and Company Profit Sharing Equalization Credits described in Section 3 shall be deferred to the Participant's Employment Termination Payment Date, even though a Participant has elected a Specific Year Payment Date for the remainder of his or her deferral. Deferral elections made prior to September 1, 1996 shall be deferred to the date specified in the deferral election in accordance with the terms of the Plan prior to January 1, 1997. Section 3 Equalization for McDonald's Corporation Profit Sharing Program 3.1 Equalization to Adjust for Participant 401(k) McDESOP Contributions. Amounts deferred under this Plan are not considered compensation for the McDonald's Corporation Profit Sharing Program (the "Profit Sharing Program") or for the related non-qualified plans: the McDonald's 1989 Executive Compensation Plan, the McDonald's Supplemental Employee Equalization Plan and the McDonald's Profit Sharing Program Equalization Plan (the "McCAP/McEqual Plans"). The McDESOP portion of the Profit Sharing Program allows participants to contribute a percentage of their compensation as Section 401(k) contributions. Therefore, Eligible Employees who are Profit Sharing Program participants and make Deferral Elections for base salary and TIP awards under this Plan shall automatically have a portion of these deferred amounts set aside until the Participant's Termination Payment Date to adjust for the fact McDESOP Section 401(k) contributions cannot be made to the Profit Sharing Program or the related non-qualified plans for these deferred amounts (the "Participant 401(k) McDESOP Equalization Amount"). The Participant 401(k) McDESOP Equalization Amount shall be based on the amount that would have been contributed by the Participant under the McDESOP portion of the Profit Sharing Program and the related non- qualified plans if the deferral of base salary and TIP had not occurred. No Participant 401(k) McDESOP Equalization credit will be made for deferrals of Three-Year Incentive awards under this Plan. 3.2 Company Profit Sharing Equalization Credits. Amounts deferred under this Plan are not considered as compensation under the Profit Sharing Program or the McCAP/McEqual Plans. Therefore, base salary and TIP awards deferred under this Plan shall be credited with an amount equal to the Company contribution that the Participant would have received under the Profit Sharing Program and/or McCAP/McEqual Plans if such deferral had not occurred ("Company Profit Sharing Equalization Credit"). If a Participant is not eligible to participate in the Profit Sharing Program or McCAP/McEqual Plans, or is not eligible to receive a Company contribution under such plans with respect to a deferred amount, no Company Profit Sharing Equalization Credit will be made. No Company Profit Sharing Equalization Credit shall be made for Three-Year Incentive awards deferred under this Plan. 3.3 Rules for Profit Sharing Equalization Amounts. Equalization amounts under Sections 3.1 and 3.2 above (collectively referred to as "Equalization Amounts") shall be deferred until the Participant's Employment Termination Payment Date and cannot be withdrawn under Section 5.3. Equalization Amounts will become part of the Participant's Deferral Account and will be credited with earnings as part of that Deferral Account as described in Section 4.1. Section 4 Deferral Accounts 4.1 Deferral Accounts. A bookkeeping account shall be established in the Participant's name ("Deferral Account"). Each Participant's deferral account may be further divided into: (a) amounts deferred pursuant to that year's Deferral Election and earnings thereon, (b) Company Profit Sharing Equalization Credits associated with that year's Deferral Election and earnings thereon; and (c) Participant 401(k) McDESOP Equalization amounts associated with that year's Deferral Election and earnings thereon. The Committee may also authorize other divisions or subaccounts of the deferral accounts as may be necessary to reflect the terms of the plan as amended from time to time. Amounts deferred pursuant to a Deferral Election shall be credited to the Deferral Account as of the date the Participant would otherwise have received the deferred amounts in the absence of a Deferral Election. Any Equalization Amounts shall be credited to the Deferral Account as of the date the amount would have been allocated under the Profit Sharing Program or the McCAP/McEqual Plans if the deferral had not occurred. 4.2 Investment Elections and Earnings Credits. Prior to January 1, 1997, amounts deferred under the Plan shall continue to be credited with the rate of return under the investment options and procedures set forth in the Plan as in effect prior to that date. Effective on and after January 1, 1997, each Participant in the Plan shall make an investment election, as described below, and such election shall apply to the entire amount credited to the Participant's Deferral Accounts under the Plan. However, Section 16 Insiders, as defined in Section 5.5 of the Plan may not make investment elections involving McDonald's Common Stock. (For further details concerning these restrictions, see Section 5.5 of the Plan.) Participants who terminated employment prior to January 1, 1997, may file a new investment election in accordance with the provisions of this Section 4.2 effective on and after January 1, 1997, but if no new investment election is filed, Deferral Accounts for these participants will continue to be invested in accordance with the investment elections made prior to January 1, 1997. A Participant may change his investment election effective as of the first day of any month up to a maximum of twelve such investment elections each calendar year. All investment elections shall be made by filing an investment election form with the Committee at such time and in such manner as the Committee may specify. Investment elections may be split between the following equivalent rates of return in increments of 10%, provided that the percentages specified must total 100%. (a) a rate of return based upon the McDonald's Common Stock Fund under the Profit Sharing Program, after adjustment for expenses ("McDonald's Common Stock" equivalent); (b) a rate of return based upon the Insurance Contract Fund under the Profit Sharing Program, after adjustment for expenses ("Insurance Contract" equivalent); (c) a rate of return based upon the Diversified Stock Fund under the Profit Sharing Program, after adjustment for expenses ("Diversified Stock" equivalent); (d) a rate of return based upon the Multi-Asset Fund under the Profit Sharing Program, after adjustment for expenses ("Multi- Asset" equivalent); and (e) a rate of return based upon the Money Market Fund under the Profit Sharing Program, after adjustment for expenses (``Money Market'' equivalent). If a Participant who is employed fails to make an investment election, amounts shall be credited with the same rate of return as amounts for which no investment election is received under the Profit Sharing component of the McDonald's Corporation Profit Sharing Program. (Currently, this is the Money Market equivalent rate of return.) All investment elections will continue in effect for all Participants until the Participant files a new investment election. As of the 15th day (or if the fifteenth day of the month is not a business day, the next previous business day) and the last business day of each calendar month, or such additional dates as the Committee shall specify ("Valuation Date"), each Deferral Account shall be credited with earnings, gains and losses equal to the amount the Deferral Account would have earned, gained or lost, since the prior Valuation Date. 4.3 Vesting. A Participant shall be fully vested at all times in the balance of his or her Deferral Account. Section 5 Payment of Benefits 5.1 Time and Method of Payment. Payments to a Participant, or the Participant's beneficiary if the Participant is deceased, shall automatically be paid in a lump sum within 30 days following the Payment Date, unless the Participant or the Participant's beneficiary files a written installment distribution election on or before December 31 of the calendar year preceding the Payment Date. An installment distribution election shall apply to all payments for that Payment Date and shall specify the period of years (up to a maximum of 15 years) over which payments are to be made and shall also specify whether installments are to be made quarterly or annually. Installment payments shall be made in substantially equal installments over the installment period specified and shall commence within 30 days after the Payment Date. Each installment payment shall be computed by dividing the balance of the Deferral Account(s) that is to be paid in installments by the number of payments remaining in the installment period. Once an installment election is filed for a Payment Date, it cannot be revoked. However, because the method of payment described above is more flexible, Deferral Elections made in 1993 which specified a five year installment payment shall be null and void, and shall be paid in a lump sum, unless the Participant or the Participant's beneficiary files a written installment election prior to December 31 of the calendar year preceding the Payment Date. 5.2 Form of Payment. All payments shall be made in cash. However, a Participant who has elected a McDonald's Common Stock based return may elect to receive payment in the form of shares of McDonald's Common Stock by filing a written request with the Committee prior to December 31 of the calendar year preceding the Payment Date. 5.3 Early Withdrawals and Acceleration of Installment Payments. A Participant shall have the right to withdraw in cash any portion of the balance of his or her Deferral Accounts (except for the Equalization Amounts of the Participant's Deferral Accounts under Sections 4.1(b) and (c) and amounts which were not withdrawable under the terms of the Plan prior to September 1, 1994) at any time prior to the applicable Payment Date, subject to the Committee's consent and a 10% forfeiture penalty on the amount requested. A Participant who is receiving installment payments may accelerate payment of any unpaid amount, subject to the Committee's consent and 10% forfeiture penalty on the amount accelerated. The withdrawal or accelerated installment (reduced by the 10% forfeiture penalty) shall be paid within 30 days of the Valuation Date next following the date the election to withdraw or accelerate payments is approved by the Committee. Withdrawals and accelerated installments shall be made first from the earliest maturing Deferral Account and shall be taken pro rata from the investment rate equivalents elected by the Participant. Withdrawals shall be subject to such procedures as the Committee shall establish from time to time. 5.4 Withholding of Taxes. The Company shall withhold any applicable Federal, state or local income tax from payments due under the Plan in accordance with such procedures as the Company may establish. Generally, any Social Security taxes, including the Medicare portion of such taxes, shall be withheld and paid at the time incentive payments under the Target Incentive Plan, long term incentive plan or base salary payments would otherwise have been paid to the Participant. The Company shall also withhold any other employment taxes as necessary to comply with applicable laws. 5.5 Limitations For Section 16 Insiders. A "Section 16 Insider" shall include any Participant who has been deemed to be subject to Section 16 of the Securities Exchange Act of 1934 (the "Exchange Act") by the Board of Directors of the Company. Notwithstanding any provision of the Plan to the contrary, the Deferral Account of each Section 16 Insider is subject to the following limitations: (a) An Eligible Employee who is a Section 16 Insider at the time he or she makes a Deferral Election may elect a McDonald's Common Stock based return and at the same time must also specify the Payment Date and whether the payment will be in a lump sum or the specific installment period that will apply. The election of a McDonald's Common Stock based return is irrevocable and cannot be changed by an investment election at a later date. A Participant who is a Section 16 Insider may not make a withdrawal or accelerate installments under Section 5.3 of any Deferral Account(s) that are credited with a McDonald's Common Stock based return. Section 16 Insiders who elect a McDonald's Common Stock based return and a form of payment will not be able to change those elections, even if the Plan is amended at a later date to provide increased flexibility. (b) A Section 16 Insider who elects to invest in McDonald's Common Stock based return shall also elect, at the time the deferral is made, whether the distribution will be paid in cash or in the form of McDonald's Common Stock. This provision applies only to deferral elections made on and after August 15, 1996. Amounts deferred under all deferral elections made prior to August 15, 1996 will be paid in cash. However, for these cash distributions only, to the extent that a Section 16 Insider uses the cash distribution to purchase shares of McDonald's Common Stock on the open market in one or more transactions within seven months after the date such amounts are distributed, the Company shall reimburse the Section 16 Insider for all reasonable brokerage fees and other transaction costs incurred in connection with such purchases upon presentation of satisfactory evidence thereof not later than 60 days after the date of each transaction. (c) If any Participant becomes a Section 16 Insider after making a Deferral Election under the Plan, any Deferral Account that is being credited with a McDonald's Common Stock based return shall automatically be converted to any non-McDonald's Common Stock based investment return specified by the Participant on an investment election form as of the Valuation Date immediately preceding the date the Participant is designated a Section 16 Insider by the Board of Directors. This automatic change to non-McDonald's Common Stock based returns will be made to preserve the Participant's right to make investment choices for investment options that do not involve McDonald's Common Stock, make early withdrawals and elect accelerated installments under Section 5.3. (d) Elections to invest in McDonald's Common Stock based returns can be made by Section 16 Insiders only at the time the deferral election is made. Investment elections which would result in a transfer into the McDonald's Common Stock based return at a later date are not permitted for Section 16 Insiders. In addition, the Committee may take such other actions as are necessary so that transactions by Section 16 Insiders do not result in liability under Section 16(b) of the Exchange Act. 5.6 Beneficiary. A Participant shall have the right to name a beneficiary or beneficiaries who shall receive the balance of a Participant's Deferral Account in the event of the Participant's death prior to the payment of his or her entire Deferral Account. If no beneficiary is named by a Participant or if he or she survives all of the named beneficiaries, the Deferral Account shall be paid to the same beneficiary or beneficiaries to which the Deferral Account would have been paid if it were in the Participant's Profit Sharing Fund Account under the Profit Sharing Program as of the date of the Participant's death. To be effective, any beneficiary designation shall be filed in writing with the Committee. A Participant may revoke an existing beneficiary designation by filing another written beneficiary designation with the Committee. The latest beneficiary designation received by the Committee shall be controlling. Section 6 Miscellaneous 6.1 Funding. Benefits payable under the Plan to any Participant shall be paid directly by the Company. The Company shall not be required to fund, or otherwise segregate assets to be used for payment of benefits under the Plan. While the Company may, in the discretion of the Committee, make investments (a) in shares of McDonald's Common Stock through open market purchases or (b) in other investments in amounts equal or unequal to amounts payable hereunder, the Company shall not be under any obligation to make such investments and any such investment shall remain an asset of the Company subject to the claims of its general creditors. Notwithstanding the foregoing, the Company may maintain one or more trusts ("Trust") to hold assets to be used for payment of benefits under the Plan. Any payments by a Trust of benefits provided to a Participant under the Plan shall be considered payment by the Company and shall discharge the Company of any further liability under the Plan for such payments. 6.2 Account Statements. The Company shall provide Participants with statements of the balance of their Deferral Accounts under the Plan at least annually. The Committee may, in their discretion, also issue statements as of the March 31, June 30, September 30 and December 31 Valuation Dates, or as of any other Valuation Date that the Committee deems appropriate. 6.3 Employment Rights. Establishment of the Plan shall not be construed to give any Eligible Employee the right to be retained in the Company's service or to any benefits not specifically provided by the Plan. 6.4 Interests Not Transferable. Except as to withholding of any tax under the laws of the United States or any state or locality and the provisions of Section 5.6, no benefit payable at any time under the Plan shall be subject in any manner to alienation, sale, transfer, assignment, pledge, attachment, or other legal process, or encumbrance of any kind. Any attempt to alienate, sell, transfer, assign, pledge or otherwise encumber any such benefits, whether currently or thereafter payable, shall be void. No person shall, in any manner, be liable for or subject to the debts or liabilities of any person entitled to such benefits. If any person shall attempt to, or shall alienate, sell, transfer, assign, pledge or otherwise encumber benefits under the Plan, or if by any reason of the Participant's bankruptcy or other event happening at any time, such benefits would devolve upon any other person or would not be enjoyed by the person entitled thereto under the Plan, then the Company, in its discretion, may terminate the interest in any such benefits of the person entitled thereto under the Plan and hold or apply them to or for the benefit of such person entitled thereto under the Plan or such individual's spouse, children or other dependents, or any of them, in such manner as the Company may deem proper. 6.5 Forfeitures and Unclaimed Amounts. Unclaimed amounts shall consist of the amounts of the Deferral Accounts of a Participant that cannot be distributed because of the Committee's inability, after a reasonable search, to locate a Participant or the Participant's beneficiary, as applicable, within a period of two (2) years after the Payment Date upon which the payment of benefits become due. Unclaimed amounts shall be forfeited at the end of such two-year period. Penalties charged for withdrawals under Section 5.3 shall also be forfeited in the year in which the penalty is charged. These forfeitures will reduce the obligations of the Company under the Plan. After an unclaimed amount has been forfeited, the Participant or beneficiary, as applicable, shall have no further right to the Participant's Deferral Account. 6.6 Controlling Law. The law of Illinois, except its law with respect to choice of law, shall be controlling in all matters relating to the Plan to the extent not preempted by ERISA. 6.7 Action by the Company. Except as otherwise specifically provided herein, any action required of or permitted by the Company under the Plan shall be by resolution of the Board of Directors of the Company or by action of any member of the Committee or person(s) authorized by resolution of the Board of Directors of the Company. Section 7 Employer Participation 7.1 Adoption of Plan. Any subsidiary or affiliate of the Company ("Employer") may, with the approval of the Committee and under such terms and conditions as the Committee may prescribe, adopt the corresponding portions of the Plan by resolution of its board of directors. The Committee may amend the Plan as necessary or desirable to reflect the adoption of the Plan by an Employer, provided however, that an adopting Employer shall not have the authority to amend or terminate the Plan under Section 8. 7.2 Withdrawal from the Plan by Employer. Any such Employer shall have the right, at any time, upon the approval of and under such conditions as may be provided by the Committee, to withdraw from the Plan by delivering to the Committee written notice of its election so to withdraw. Upon receipt of such notice by the Committee, the portion of the Deferral Accounts of Participants and beneficiaries attributable to credits made while the Participants were employees of such withdrawing Employer, plus any net earnings, gains and losses or such credits, shall be distributed from the Trust at the direction of the Committee in cash at such time or times as the Committee, in its sole discretion, may deem to be in the best interest of such employees and their beneficiaries. To the extent the amounts held in the Trust for the benefit of such Participants and beneficiaries are not sufficient to satisfy the Employer's obligation to such Participants and their beneficiaries accrued on account of their employment with the Employer, the remaining amount necessary to satisfy such obligation shall be an obligation of the Employer, and the Company shall have no further obligation to such Participants and beneficiaries with respect to such amounts. Section 8 Amendment and Termination The Company intends the Plan to be permanent, but reserves the right at any time by action of its Board of Directors or by the Committee (in accordance with the restrictions in the following sentence) to modify, amend or terminate the Plan, provided however, that any amendment or termination of the Plan shall not reduce or eliminate any Deferral Account accrued through the date of such amendment or termination. The Committee shall have the same authority to adopt amendments to the Plan as the Board of Directors of the Company in the following circumstances: (a) to adopt amendments to the Plan which the Committee determines are necessary or desirable for the Plan to comply with or to obtain benefits or advantages under the provisions of applicable law, regulations or rulings or requirements of the Internal Revenue Service or other governmental or administrative agency or changes in such law, regulations, rulings or requirements; and (b) to adopt any other procedural or cosmetic amendment that the Committee determines to be necessary or desirable that does not materially change benefits to Participants or their beneficiaries or materially increase the Company's or adopting Employers' credits to the Plan. The Committee shall provide notice of amendments adopted by the Committee to the Board of Directors of the Company on a timely basis. Executed in multiple originals this 31st day of July, 1997. McDONALD'S CORPORATION /s/ Stanley R. Stein ------------------------------------ By: Stanley R. Stein Title: Executive Vice President EX-10 4 EX 10(H) - EMPLOYMENT AGREEMENT EXHIBIT 10(h) EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Employment Agreement") is entered into as of this 8th day of July, 1997, by and between McDonald's Corporation, a Delaware corporation ("Employer") and Edward H. Rensi ("Employee"). WHEREAS, Employee and Employer desire to enter into this Employment Agreement pertaining to the remaining terms of Employee's employment by Employer; NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows: 1. Employment. Employer hereby agrees to continue employing Employee, and Employee hereby accepts such continued employment by Employer, upon the terms and conditions herein set forth until August 1, 1998. The primary place of employment shall be at Employer's principal office, located in Oak Brook, Illinois. Employee hereby voluntarily resigns his employment with Employer effective August 1, 1998. 2. Duties. Employee has relinquished the title of President and his position as an officer of the Employer. Employee will serve as an internal consultant to help finalize the development of a new production system. Employee shall remain a member of Employer's Board of Directors until Employer's 1998 annual meeting, at which time Employee agrees to resign this position. 3. Base Salary. Employer shall pay to Employee for all remaining services to be performed by Employee during Employee's active employment hereunder an annualized Base Salary of $790,000, payable in substantially equal bi-monthly payments of approximately $32,917 minus taxes and other deductions, until August 1, 1998. 4. Bonus. Employer shall pay Employee a bonus, on or about January 3, 1998, of $325,000, minus taxes and other deductions. 5. Profit Sharing. Employee shall receive a profit sharing contribution at the same rate as other employees for 1997 and 1998, based upon his qualified earnings during those respective years and consistent with Employer's Profit Sharing Plan. 6. Termination. Upon Employee's August 1, 1998, termination of employment with Employer, Employee shall have the right to exercise the following categories of stock options as of his termination date and for five years thereafter: a) all options exercisable as of Employee's termination date; and b) all options that will become exercisable within five years following Employee's termination date. 7. Insurance Benefits. Employee's group health insurance benefits shall continue, subject to all applicable conditions, until August 30, 1998. Upon termination of employment, Employee may exercise his rights for continuation of group health coverage under COBRA S4980(B) of the Internal Revenue Code of 1986, as amended, and upon expiration of such rights Employee will be permitted to purchase, at his own expense, Employer's retiree health insurance policy subject to all terms and conditions of that policy, as amended from time to time, provided that such retiree policy continues to be offered by Employer. 8. Stock Option Grants. Employee shall receive no stock option grants from the signing of this agreement onward. 9. Car. At the time of Employee's termination, he will have the option to purchase his company car, as is, at a price to be determined at Employer's sole discretion. IN WITNESS WHEREOF, Employee has hereunto set his hand, and Employer has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. McDONALD'S CORPORATION By: /s/ Stanley R. Stein -------------------------------- Title: Executive Vice President /s/ Edward H. Rensi ------------------------------------ Edward H. Rensi EX-11 5 STMT RE: COMPUTATION OF PER SHARE EARNINGS 23 Exhibit 11 McDONALD'S CORPORATION STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS Dollars and shares in millions, except per common share data
Nine Months Ended Quarters Ended September 30 September 30 1997 1996 1997 1996 ---- ---- ---- ---- Net income $1,231.6 $1,162.6 $448.9 $440.6 Preferred stock dividends (20.7) (20.7) (6.9) (6.9) Net income available to common shareholders $1,210.9 $1,141.9 $442.0 $433.7 ======== ======== ====== ====== Weighted average number of common shares outstanding during the period (A) 689.9 699.1 688.5 697.8 Additional shares related to potentially dilutive securities 16.4 19.1 15.9 17.9 ------- ------- ------- ------- Adjusted weighted average common shares 706.3 718.2 704.4 715.7 ======= ======= ======= ======= Fully diluted net income per common share $ 1.71 $ 1.59 $ .63 $ .61 ------- ------- ------- ------- NOTES: (A) Refer to Condensed consolidated statement of income on page 4 and to Financial comments - Net income per common share on page 6 of this report.
EX-12 6 STMT RE: COMPUTATION OF RATIOS 24 Exhibit 12 McDONALD'S CORPORATION STATEMENT RE: COMPUTATION OF RATIOS Dollars In Millions
Nine Months Ended September 30, Years Ended December 31, ------------------- -------------------------------------------------- 1997 1996 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- ---- ---- EARNINGS AVAILABLE FOR FIXED CHARGES - Income before provision for income taxes $1,817.9 $1,727.6 $2,251.0 $2,169.1 $1,886.6 $1,675.7 $1,448.1 - Minority interest in operating results of majority-owned subsidiaries, including fixed charges related to redeemable preferred stock, less equity in undistributed operating results of less-than-50% owned affiliates 21.0 27.9 39.6 19.6 6.6 6.9 5.3 - Provision for income taxes of 50% owned affiliates included in consolidated income before provision for income taxes 48.7 53.5 73.2 73.3 34.9 34.2 29.4 - Portion of rent charges (after reduction for rental income from subleased properties) considered to be representative of interest factors* 110.0 97.9 130.9 103.8 83.4 71.6 70.1 - Interest expense, amortization of debt discount and issuance costs, and depreciation of capitalized interest* 315.3 287.9 392.2 388.8 346.0 358.0 413.8 --------------------------------------------------------------------------- $2,312.9 $2,194.8 $2,886.9 $2,754.6 $2,357.5 $2,146.4 $1,966.7 =========================================================================== FIXED CHARGES - Portion of rent charges (after reduction for rental income from subleased properties) considered to be representative of interest factors* $110.0 $97.9 $130.9 $103.8 $83.4 $71.6 $70.1 - Interest expense, amortization of debt discount and issuance costs, and fixed charges related to redeemable preferred stock* 319.5 302.8 410.4 403.4 343.9 349.3 405.4 - Capitalized interest* 15.3 16.4 23.5 22.8 21.0 20.7 20.5 --------------------------------------------------------------------------- $444.8 $417.1 $564.8 $530.0 $448.3 $441.6 $496.0 =========================================================================== RATIO OF EARNINGS TO FIXED CHARGES 5.20 5.26 5.11 5.20 5.26 4.86 3.96 =========================================================================== *Includes amounts of the Registrant and its majority-owned subsidiaries, and one-half of the amounts of 50%-owned affiliates.
EX-27 7 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 310 0 435 0 62 1,075 19,810 5,079 17,972 2,221 5,240 0 358 8 12,377 17,972 6,026 8,456 4,923 5,377 (90) 0 270 1,818 586 1,232 0 0 0 1,232 1.76 0
EX-99 8 PRESS REL DATED 11/10/97 EXHIBIT 99 FOR IMMEDIATE RELEASE FOR MORE INFORMATION CONTACT: 11/10/97 Investors: Mary Healy 630/623-6429 Media: Chuck Ebeling 630/623-6150 McDONALD'S CORPORATION'S 1997 BIENNIAL ANALYST MEETING OPENING HIGHLIGHTS OAK BROOK, IL -- At McDonald's biennial meeting with security analysts today, Mike Quinlan, Chairman and Chief Executive Officer, discussed his outlook for the future with the 150 analysts and portfolio managers in attendance. Quinlan remarked, "Outside the U.S., McDonald's has more than 40 percent of all globally branded quick-service restaurant locations and more than 60 percent of the sales. In the U.S., we are clearly the number one quick- service restaurant and our average restaurant volumes are significantly higher than our competitors. "I am committed to lengthening our lead around the world through expansion and increased sales at existing restaurants. Through expansion alone, we will continue to add the equivalent of a multi-billion dollar Fortune 500 business each year. My vision for McDonald's five years from now is to be in an even stronger global leadership position . . . more profitable . . . and more respected than we are today. We will accomplish this through outstanding service, menu innovation and great value. "We have the people, the resources, the strengths and the commitment to achieve double-digit earnings per share growth - in the range of 10 to 15 percent - in each of the next five years, assuming a stable U.S. dollar." McDonald's is the largest and best-known global foodservice retailer, with more than 22,000 restaurants in 106 countries. On any day, even as the market leader, McDonald's serves less than one percent of the world's population. # # # -----END PRIVACY-ENHANCED MESSAGE-----