<PAGE> 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)
<PAGE> 2
McDONALD'S CORPORATION
----------------------
INDEX
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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
<PAGE> 3
PART I. FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
-----------------------------
<TABLE>
CONDENSED CONSOLIDATED BALANCE SHEET
<CAPTION>
(unaudited)
In millions September 30, 1997 December 31, 1996
---------------------------------------------------------------------------
<S> <C> <C>
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.
</TABLE>
<PAGE> 4
<TABLE>
CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
<CAPTION>
In millions, except Nine Months Ended Quarters Ended
per common share data September 30 September 30
1997 1996 1997 1996
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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.
</TABLE>
<PAGE> 5
<TABLE>
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<CAPTION>
Nine Months Ended Quarters Ended
September 30 September 30
In millions 1997 1996 1997 1996
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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.
</TABLE>
<PAGE> 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.
<PAGE> 7
Item 2. Management's Discussion And Analysis Of Financial Condition
--------------------------------------------------------------------
And Results Of Operations
-------------------------
<TABLE>
INCREASES (DECREASES) IN OPERATING RESULTS OVER 1996
<CAPTION>
Dollars in millions, except Nine Months Quarters
per common share data Ended September 30 Ended September 30
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 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
-----------------------------------------------------------------------
<PAGE> 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)
======================================================================== <PAGE>
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 15
<TABLE>
NINE MONTHS AND THIRD QUARTER HIGHLIGHTS
<CAPTION>
OPERATING RESULTS
---------------------------------------------------------------------------
Dollars in millions, except Nine Months Ended Quarters Ended
per common share data September 30 September 30
1997 1996 1997 1996
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
---------------------------------------------------------------------------
</TABLE>
<PAGE> 16
<TABLE>
RESTAURANTS
<CAPTION>
-------------------------------------------------------------------------
At September 30, 1997 1996
-------------------------------------------------------------------------
<S> <C> <C>
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
-------------------------------------------------------------------------
</TABLE>
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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
<PAGE> 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)
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
-----------------------------------
<PAGE>
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<PAGE>
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
<PAGE>
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
<PAGE> 23
<TABLE>
Exhibit 11
McDONALD'S CORPORATION
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Dollars and shares in millions, except per common share data
<CAPTION> Nine Months Ended Quarters Ended
September 30 September 30
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
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.
</TABLE>
<PAGE> 24
<TABLE> Exhibit 12
McDONALD'S CORPORATION
STATEMENT RE: COMPUTATION OF RATIOS
Dollars In Millions
<CAPTION> Nine Months
Ended September 30, Years Ended December 31,
------------------- --------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
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.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 310
<SECURITIES> 0
<RECEIVABLES> 435
<ALLOWANCES> 0
<INVENTORY> 62
<CURRENT-ASSETS> 1,075
<PP&E> 19,810
<DEPRECIATION> 5,079
<TOTAL-ASSETS> 17,972
<CURRENT-LIABILITIES> 2,221
<BONDS> 5,240
0
358
<COMMON> 8
<OTHER-SE> 12,377
<TOTAL-LIABILITY-AND-EQUITY> 17,972
<SALES> 6,026
<TOTAL-REVENUES> 8,456
<CGS> 4,923
<TOTAL-COSTS> 5,377
<OTHER-EXPENSES> (90)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 270
<INCOME-PRETAX> 1,818
<INCOME-TAX> 586
<INCOME-CONTINUING> 1,232
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,232
<EPS-PRIMARY> 1.76
<EPS-DILUTED> 0
</TABLE>
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.
# # #
