<PAGE>
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the quarterly period ended March 31, 2000
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
----- -----
1,336,234,747
----------------------------
(Number of shares of common stock
outstanding as of March 31, 2000)
================================================================================
<PAGE>
McDONALD'S CORPORATION
----------------------
INDEX
-----
<TABLE>
<CAPTION>
Page Reference
<S> <C> <C>
Part I. Financial Information
Item 1 - Financial Statements
Condensed consolidated balance sheet,
March 31, 2000 (unaudited) and
December 31, 1999........................................................ 3
Condensed consolidated statement of
income (unaudited), first quarters ended March 31, 2000 and
1999..................................................................... 4
Condensed consolidated statement of
cash flows (unaudited), first quarters ended March 31, 2000
and 1999................................................................. 5
Financial comments (unaudited)........................................... 6
Item 2 - Management's Discussion and
Analysis of Financial Condition
and Results of Operations.......................................... 8
Item 3 - Quantitative & Qualitative Disclosures
About Market Risk..................................................14
Part II. Other Information
Item 6 - Exhibits and Reports on Form 8-K...................................14
(a) Exhibits
The exhibits listed in the
accompanying Exhibit Index are
filed as part of this report.......................................14
(b) Reports on Form 8-K................................................16
Signature....................................................................17
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEET
- -------------------------------------------------------------------------------------------------------------------
(unaudited)
In millions March 31, 2000 December 31, 1999
- -----------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and equivalents $ 368.0 $ 419.5
Accounts and notes receivable 664.3 708.1
Inventories, at cost, not in excess of market 79.6 82.7
Prepaid expenses and other current assets 393.1 362.0
- -----------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 1,505.0 1,572.3
- -----------------------------------------------------------------------------------------------------------------------
OTHER ASSETS 2,941.2 3,086.4
PROPERTY AND EQUIPMENT
Property and equipment, at cost 22,606.0 22,450.8
Accumulated depreciation and amortization (6,222.1) (6,126.3)
- -----------------------------------------------------------------------------------------------------------------------
NET PROPERTY AND EQUIPMENT 16,383.9 16,324.5
- -----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $20,830.1 $20,983.2
=======================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 821.6 $ 1,073.1
Accounts payable 411.4 585.7
Income taxes 210.4 117.2
Other taxes 187.9 160.1
Accrued interest 135.9 131.4
Other accrued liabilities 544.3 660.0
Current maturities of long-term debt 457.3 546.8
- -----------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 2,768.8 3,274.3
- -----------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT 6,131.2 5,632.4
OTHER LONG-TERM LIABILITIES AND MINORITY INTERESTS 566.0 538.4
DEFERRED INCOME TAXES 1,190.1 1,173.6
COMMON EQUITY PUT OPTIONS 762.9 725.4
SHAREHOLDERS' EQUITY
Preferred stock, no par value; authorized - 165.0 million shares;
issued - none
Common stock, $.01 par value; authorized - 3.5 billion shares;
issued - 1,660.6 million 16.6 16.6
Additional paid-in capital 1,315.6 1,288.3
Unearned ESOP compensation (126.1) (133.3)
Retained earnings 16,013.5 15,562.8
Accumulated other comprehensive income (1,002.9) (886.8)
Common stock in treasury, at cost; 324.4 and 309.8 million shares (6,805.6) (6,208.5)
- -----------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 9,411.1 9,639.1
- -----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $20,830.1 $20,983.2
=======================================================================================================================
</TABLE>
See accompanying Financial comments.
3
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------------
Quarters ended
In millions, except March 31
per common share data 2000 1999
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES
Sales by Company-operated restaurants $2,439.9 $2,179.1
Revenues from franchised and affiliated restaurants 903.9 856.0
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 3,343.8 3,035.1
- -------------------------------------------------------------------------------------------------------------------------------
OPERATING COSTS AND EXPENSES
Company-operated restaurants 2,033.1 1,818.0
Franchised restaurants - occupancy expenses 193.8 178.8
Selling, general, and administrative expenses 377.6 339.9
Other operating (income) expense (29.3) (13.2)
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING COSTS AND EXPENSES 2,575.2 2,323.5
- -------------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 768.6 711.6
- -------------------------------------------------------------------------------------------------------------------------------
Interest expense 100.4 105.2
Nonoperating (income) expense 5.5 5.7
- -------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE PROVISION FOR INCOME TAXES 662.7 600.7
- -------------------------------------------------------------------------------------------------------------------------------
Provision for income taxes 211.8 198.0
- -------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 450.9 $ 402.7
===============================================================================================================================
NET INCOME PER COMMON SHARE $ 0.34 $ 0.30
NET INCOME PER COMMON SHARE - DILUTED 0.33 0.29
- -------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS PER COMMON SHARE $ - $ .04875
- -------------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES 1,343.4 1,357.3
WEIGHTED AVERAGE SHARES - DILUTED 1,383.8 1,409.2
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Financial comments.
4
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------
Quarters ended
March 31
In millions 2000 1999
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 450.9 $ 402.7
Adjustments to reconcile to cash provided by operations
Depreciation and amortization 255.8 234.1
Changes in operating working capital items (8.0) 72.9
Other (31.6) 7.2
- ----------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY OPERATIONS 667.1 716.9
- ----------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Property and equipment expenditures (378.7) (336.2)
Purchases and sales of restaurant businesses and
sales of property 8.9 (87.3)
Other (47.6) (220.5)
- ----------------------------------------------------------------------------------------------------------------
CASH USED FOR INVESTING ACTIVITIES (417.4) (644.0)
- ----------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Notes payable and long-term financing issuances and repayments 242.6 317.0
Treasury stock purchases (578.7) (157.8)
Common stock dividends (66.3)
Other 34.9 95.2
- ----------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES (301.2) 188.1
- ----------------------------------------------------------------------------------------------------------------
CASH AND EQUIVALENTS INCREASE (DECREASE) (51.5) 261.0
- ----------------------------------------------------------------------------------------------------------------
Cash and equivalents at beginning of period 419.5 299.2
- ----------------------------------------------------------------------------------------------------------------
CASH AND EQUIVALENTS AT END OF PERIOD $ 368.0 $ 560.2
================================================================================================================
</TABLE>
See accompanying Financial comments.
5
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL COMMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
Basis of Presentation
The accompanying condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements contained in the
Company's 1999 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 ended March 31,
2000 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.
Comprehensive Income
Comprehensive income consists of net income and foreign currency translation
adjustments and totaled $334.8 million and $142.1 million for the first quarter
of 2000 and 1999, respectively.
Per Common Share Information
Diluted net income per common share is calculated using net income divided by
weighted average shares on a diluted basis. Weighted average shares on a diluted
basis include weighted average shares outstanding plus the dilutive effect of
stock options, calculated using the treasury stock method, of 40.4 million
shares and 51.9 million shares for the first quarter of 2000 and 1999,
respectively.
Common Equity Put Options
At March 31, 2000, 19.7 million of common equity put options were outstanding,
of which 5.7 million were sold in first quarter 2000. The options expire at
various dates through May 2001, at exercise prices between $30.11 and $44.03.
The $762.9 million total exercise price of the options outstanding was
classified in common equity put options at March 31, 2000, and the related
offset was recorded in common stock in treasury, net of premiums received.
New Accounting Standard - Financial Instruments
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, subsequently
amended by Statement No. 137, which is required to be adopted in years beginning
after June 15, 2000. The Statement will require the Company to recognize all
derivatives on the balance sheet at fair value. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of derivatives
will either be offset against the change in fair value of the hedged item
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. The Company expects to adopt the new Statement
effective January 1, 2001. Management does not anticipate that the adoption will
have a significant effect on the Company's results of operations or financial
position.
6
<PAGE>
Segment Information
McDonald's operates primarily in the quick-service hamburger restaurant
business. In addition, the Company operates other restaurant concepts: Aroma
Cafe; Chipotle Mexican Grill and Donatos Pizza. The Other Segment includes
McDonald's restaurant business operations in Canada, Africa and the Middle East
as well as the other restaurant concepts.
The following table presents the Company's revenues and operating income by
geographic segment:
Quarters ended
March 31
In millions 2000 1999
- --------------------------------------------------------------------------------
REVENUES
U.S. $1,209.6 $1,151.3
Europe 1,171.0 1,156.2
Asia/Pacific 526.6 421.6
Latin America 228.9 163.6
Other 207.7 142.4
- --------------------------------------------------------------------------------
TOTAL REVENUES $3,343.8 $3,035.1
- --------------------------------------------------------------------------------
OPERATING INCOME
U.S. $ 344.2 $ 314.8
Europe 261.8 252.8
Asia/Pacific 113.4 91.3
Latin America 29.8 31.9
Other 19.4 20.8
- --------------------------------------------------------------------------------
TOTAL OPERATING INCOME $ 768.6 $ 711.6
- --------------------------------------------------------------------------------
7
<PAGE>
Item 2. Management's Discussion And Analysis Of Financial Condition And Results
Of Operations
- --------------------------------------------------------------------------------
OPERATING RESULTS
- --------------------------------------------------------------------------------
Dollars in millions, except Quarter ended
per common share data March 31, 2000
- --------------------------------------------------------------------------------
% Increase/
Amount (Decrease)
- --------------------------------------------------------------------------------
SYSTEMWIDE SALES $9,506.7 8%
- --------------------------------------------------------------------------------
REVENUES
Sales by Company-operated restaurants 2,439.9 12
Revenues from franchised and affiliated restaurants 903.9 6
- --------------------------------------------------------------------------------
TOTAL REVENUES 3,343.8 10
- --------------------------------------------------------------------------------
OPERATING COSTS AND EXPENSES
Company-operated restaurants 2,033.1 12
Franchised restaurants - occupancy costs 193.8 8
Selling, general, and administrative expenses 377.6 11
Other operating (income) expense (29.3) N/M
- --------------------------------------------------------------------------------
TOTAL OPERATING COSTS AND EXPENSES 2,575.2 11
- --------------------------------------------------------------------------------
OPERATING INCOME 768.6 8
- --------------------------------------------------------------------------------
Interest expense 100.4 (5)
Nonoperating (income) expense 5.5 (4)
- --------------------------------------------------------------------------------
INCOME BEFORE PROVISION FOR INCOME TAXES 662.7 10
- --------------------------------------------------------------------------------
Provision for income taxes 211.8 7
- --------------------------------------------------------------------------------
NET INCOME $ 450.9 12%
================================================================================
NET INCOME PER COMMON SHARE $ 0.34 13%
NET INCOME PER COMMON SHARE-DILUTED 0.33 14
- --------------------------------------------------------------------------------
N/M Not meaningful
CONSOLIDATED OPERATING RESULTS
Impact of Foreign Currencies on Reported Results
While changing foreign currencies affect reported results, McDonald's lessens
exposures, where practical, by financing in local currencies, hedging certain
foreign-denominated cash flows and by purchasing goods and services in local
currencies.
The primary currency negatively affecting reported results for the first
quarter was the Euro, which is the currency in 11 of our European markets
including France and Germany. This negative effect was partly offset by the
stronger Japanese Yen.
The following table presents the growth rates for reported results and the
results on a constant currency basis. All information in constant currencies
excludes the effect of foreign currency translation on reported results, except
for hyperinflationary economies, such as Russia, whose functional currency is
the U.S. Dollar.
- --------------------------------------------------------------------------------
Quarter ended March 31, 2000
Increase/(Decrease)
-------------------------
As In Constant
Reported Currencies*
- --------------------------------------------------------------------------------
Systemwide sales 8% 9%
- --------------------------------------------------------------------------------
Total revenues 10 13
- --------------------------------------------------------------------------------
Operating income 8 11
- --------------------------------------------------------------------------------
Net income 12 16
- --------------------------------------------------------------------------------
Net income per common share 13 17
- --------------------------------------------------------------------------------
Net income per common share-diluted 14% 17%
- --------------------------------------------------------------------------------
* Excluding the effect of foreign currency translation on reported results.
8
<PAGE>
Net Income and Net Income per Common Share - Diluted
Net income increased 12 percent and diluted net income per common share
increased 14 percent for the quarter (16 and 17 percent in constant currencies,
respectively). Weighted average shares outstanding for the quarter were lower
compared with the prior year primarily due to shares repurchased. In addition,
outstanding stock options had a less dilutive effect than in the prior year.
During the first quarter, the Company repurchased 16.6 million shares of its
common stock for $574 million.
OPERATING RESULTS
McDonald's operates primarily in the quick-service hamburger restaurant
business. In addition, the Company operates other restaurant concepts: Aroma
Cafe, Chipotle Mexican Grill and Donatos Pizza. Collectively these three
businesses are referred to as "Other Brands." Throughout this discussion, Other
Brands financial information is included in the Other segment, except where
specifically noted.
Systemwide Sales and Revenues
Systemwide sales represent sales by Company-operated, franchised and
affiliated restaurants. Total revenues include sales by Company-operated
restaurants and fees from restaurants operated by franchisees and affiliates.
These fees include rent, service fees and royalties that are based on a percent
of sales with specified minimum payments, along with initial fees.
On a global basis, the increases in sales and revenues were due to expansion
and positive comparable sales. Foreign currency translation had a negative
effect on the growth rates for both Systemwide sales and revenues. The stronger
Japanese Yen had a greater positive currency translation effect on sales
compared with revenues. This is due to our affiliate structure in Japan. Under
this structure, we record a royalty in revenues based on a percentage of Japan's
sales, whereas all of Japan's sales are included in Systemwide sales. For this
reason, sales were less negatively affected by foreign currency translation than
were revenues.
On a constant currency basis, revenues increased at a higher rate than sales
due to the higher unit growth rate of Company-operated restaurants relative to
Systemwide restaurants and the consolidation of Argentina and Indonesia for
financial reporting purposes.
- --------------------------------------------------------------------------------
Systemwide sales
Dollars in millions 2000 1999 Increase/(Decrease)
- --------------------------------------------------------------------------------
As In Constant
Reported Currencies*
- --------------------------------------------------------------------------------
Quarters ended March 31
- --------------------------------------------------------------------------------
U.S. $4,505.0 $4,283.2 5% n/a
- --------------------------------------------------------------------------------
Europe 2,305.7 2,261.8 2 12%
- --------------------------------------------------------------------------------
Asia/Pacific 1,785.6 1,511.3 18 12
- --------------------------------------------------------------------------------
Latin America 434.1 393.6 10 12
- --------------------------------------------------------------------------------
Other 476.3 372.9 28 25
- --------------------------------------------------------------------------------
Total Systemwide sales $9,506.7 $8,822.8 8% 9%
- --------------------------------------------------------------------------------
* Excluding the effect of foreign currency translation on reported results.
n/a Not applicable
U.S. sales increased due to positive comparable sales and expansion. In
Europe, expansion and positive comparable sales drove the constant currency
sales increase. This segment's results benefited from strong performances in
France, Italy and Spain. Germany and the United Kingdom also contributed
significantly to the increase.
Expansion and positive comparable sales also drove the constant currency sales
increase in Asia/Pacific. Strong performances in China and South Korea, along
with strong sales in Taiwan and several other markets, helped by the very
successful Hello Kitty promotions, drove the results. Japan also contributed
substantially to the segment's increase due to expansion. The Company has begun
to see improvement in Japan's sales trends, although its weak economy is still
negatively impacting the business.
In Latin America, expansion, partly offset by negative comparable sales, drove
the constant currency sales increase. This segment's results benefited from
positive comparable sales in Brazil, Mexico and Venezuela.
In the Other segment, Canada's strong comparable sales and expansion
contributed to the increase in sales. In addition, Other Brands contributed
$43.2 million to the increase.
9
<PAGE>
Combined Operating Margins
The combined operating margin information that follows represents margins for
the McDonald's restaurant business only.
--------------------------------------------------------
Combined operating margins Quarters ended
March 31
--------------------
2000 1999
--------------------------------------------------------
Dollars in millions
--------------------------------------------------------
Company-operated $ 403.3 $ 361.1
--------------------------------------------------------
Franchised 709.7 677.2
--------------------------------------------------------
Combined operating margins $1,113.0 $1,038.3
--------------------------------------------------------
Percent of sales/revenues
--------------------------------------------------------
Company-operated 16.8% 16.6%
--------------------------------------------------------
Franchised 78.6 79.1
--------------------------------------------------------
Combined operating margin dollars increased $75 million, or seven percent for
the quarter. The increase was primarily driven by expansion and positive
comparable sales, partly offset by weaker foreign currencies. Foreign currency
translation negatively impacted combined operating margin dollars by $34 million
or three percent. Margin dollars in the U.S. and Europe segments accounted for
about 80 percent of the combined margin dollars in both years.
Company-operated margin dollars increased 12 percent and also increased as a
percent of sales for the quarter. Payroll costs and occupancy & other expenses
decreased as a percent of sales, while food & paper costs increased as a percent
of sales.
As a percent of sales, the U.S. Company-operated margin increased for the
quarter. As a percent of sales, food & paper costs decreased, payroll costs
increased and occupancy & other operating expenses were flat.
In Europe, the Company-operated margin also increased as a percent of sales.
Payroll costs and occupancy & other operating expenses decreased as a percent of
sales, while food & paper costs increased as a percent of sales.
The increase in Asia/Pacific's Company-operated margin as a percent of sales
was primarily due to strong sales performance. In Latin America, the decline in
the Company-operated margin as a percent of sales was primarily due to difficult
economic conditions experienced by most markets, partly offset by the
consolidation of Argentina.
Franchised margin dollars increased five percent for the quarter, despite a
decline in franchised margins as a percent of applicable revenues. The decrease
in the margin as a percent of revenues was primarily due to higher occupancy
costs as a result of our strategy to lease more sites. By leasing a higher
proportion of new sites, we have reduced initial capital requirements. However,
as anticipated, this practice reduces franchised margins since the financing
costs implicit in the lease are included in occupancy expense, whereas, for
owned sites, financing costs are reflected in interest expense.
In the U.S., Asia/Pacific and Latin America, franchised margins as a percent
of revenues declined primarily due to increased occupancy costs. In addition,
the consolidation of Argentina and Indonesia contributed to the decline in
margins as a percent of revenues in Latin America and Asia/Pacific,
respectively.
Selling, General & Administrative Expenses
Selling, general & administrative expenses increased 11 percent for the
quarter, primarily due to spending to support the development of both McDonald's
restaurants and Other Brands. Selling, general & administrative expenses
included $11 million related to Other Brands. In addition, the consolidation of
Argentina and Indonesia contributed to the increase. Excluding Other Brands and
the consolidations, selling, general & administrative expenses increased six
percent for the quarter.
10
<PAGE>
Other Operating Income and Expense
---------------------------------------------------------------------
Other operating income and expense Quarters ended
March 31
--------------------
Dollars in millions 2000 1999
---------------------------------------------------------------------
Gains on sales of restaurant businesses $ 15.6 $ 11.3
---------------------------------------------------------------------
Equity in earnings of unconsolidated affiliates 26.4 21.7
---------------------------------------------------------------------
Other (12.7) (19.8)
---------------------------------------------------------------------
Total $ 29.3 $ 13.2
---------------------------------------------------------------------
Other operating income and expense consists of transactions related to
franchising and the food service business. The decrease in other expense was
primarily related to lower provisions for property dispositions in 2000 and the
absence of costs associated with the 1999 implementation of our Made For You
food preparation system.
Operating Income
Operating income increased $57 million, or eight percent for the quarter; 11
percent in constant currencies. The increase was primarily driven by higher
combined operating margin dollars and higher other operating income, partly
offset by higher selling, general & administrative expenses and weaker foreign
currencies.
- --------------------------------------------------------------------------------
Operating income Increase/(Decrease)
As In Constant
Dollars in millions 2000 1999 Reported Currencies*
- --------------------------------------------------------------------------------
Quarters ended March 31
- --------------------------------------------------------------------------------
U.S. $344.2 $314.8 9% n/a
- --------------------------------------------------------------------------------
Europe 261.8 252.8 4 15%
- --------------------------------------------------------------------------------
Asia/Pacific 113.4 91.3 24 20
- --------------------------------------------------------------------------------
Latin America 29.8 31.9 (7) (4)
- --------------------------------------------------------------------------------
Other 19.4 20.8 (7) (12)
- --------------------------------------------------------------------------------
Total operating income $768.6 $711.6 8% 11%
- --------------------------------------------------------------------------------
* Excluding the effect of foreign currency translation on reported results.
n/a Not applicable
U.S. operating income increased $29 million or nine percent for the quarter.
The increase was driven by higher combined operating margin dollars and higher
other operating income, partly offset by higher selling, general &
administrative expenses.
Europe's operating income increased 15 percent in constant currencies. This
performance was primarily due to strong results in France, Italy and Spain.
Germany and the United Kingdom also contributed to the increase.
Operating income in Asia/Pacific increased 20 percent in constant currencies.
This segment benefited from strong performances in Australia, South Korea and
Taiwan.
Latin America's operating income declined four percent in constant currencies.
The decline was due to difficult economic conditions in most markets in the
region, as well as a difficult comparison with strong first quarter 1999 results
in Puerto Rico. Partly offsetting this were the strong performances in Brazil
and Venezuela as well as the consolidation of Argentina. The Company expects
profits in Latin America to improve as we progress throughout 2000.
In the Other segment, strong performances in Canada and several other markets
were offset by Other Brands operating losses of $9.1 million.
Interest Expense and Income Taxes
Lower interest expense for the quarter was primarily the result of lower
average interest rates and weaker foreign currencies, partly offset by higher
average debt levels.
The effective income tax rate was 32.0 percent for the first quarter of 2000
compared with 33.0 percent for the first quarter of 1999. For the year 2000,
the Company expects its effective income tax rate to be about 32.0 percent.
11
<PAGE>
FINANCIAL POSITION
Free cash flow - cash provided by operations less capital expenditures - for the
three months ended March 31, 2000 decreased $92.3 million to $288.4 million,
primarily due to changes in working capital items and higher capital
expenditures. Free cash flow, together with other sources of cash such as
borrowings, was used primarily for share repurchases and debt repayments. The
changes in working capital items were primarily due to timing and the capital
expenditure increase of 13% was primarily due to higher McDonald's restaurant
openings, the addition of Other Brands, and the consolidation of Argentina and
Indonesia. The Company expects to add between 1,800 and 1,900 McDonald's
restaurants this year, with about 90 percent in locations outside the U.S.
In April 2000, the Company announced a $1 billion increase in its share
repurchase program bringing the total program to $4.5 billion through 2001.
Management believes the strength of the Company's business around the world and
its strong cash flow puts the Company in a position to increase stock buybacks
while maintaining a strong credit rating. The Company believes that buying back
its stock continues to be an excellent way to provide shareholder value.
Therefore, the Company purchased $574 million, or 16.6 million shares of its
common stock in the first quarter. This brought the cumulative purchases to $1.8
billion, or 51 million shares under the three-year share repurchase program.
In November 1999, the Company announced its intention to pay cash dividends on
an annual, instead of quarterly, basis beginning in 2000. Future dividends
declared at the discretion of the Board of Directors will be paid annually in
December.
NEW ACCOUNTING STANDARD - FINANCIAL INSTRUMENTS
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities, subsequently
amended by Statement No. 137, which is required to be adopted in years beginning
after June 15, 2000. The Statement will require the Company to recognize all
derivatives on the balance sheet at fair value. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of derivatives
will either be offset against the change in fair value of the hedged item,
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. The Company expects to adopt the new Statement
effective January 1, 2001. Management does not anticipate that the adoption will
have a significant effect on the Company's results of operations or financial
position.
EURO CONVERSION
On January 1, 1999, 11 member countries of the European Union established fixed
conversion rates between their existing currencies ("legacy currencies") and one
common currency, the Euro. The Euro is trading on currency exchanges and may be
used in certain transactions such as electronic payments. Beginning in January
2002, new Euro-denominated notes and coins will be issued, and legacy currencies
will be withdrawn from circulation. The conversion to the Euro has eliminated
currency exchange rate risk for transactions between the member countries, which
for the Company, primarily consist of payments to suppliers. In addition, since
the Company uses foreign-denominated debt and derivatives to meet its financing
requirements and to minimize its foreign currency risks, certain of these
financial instruments are denominated in Euros.
The Company has restaurants located in all member countries and has been
preparing for the introduction of the Euro for the past several years. The
Company is currently addressing the issues involved with the new currency, which
include converting information technology systems, recalculating currency risk,
recalibrating derivatives and other financial instruments and revising processes
for preparing accounting and taxation records. Based on the work to date, the
Company does not believe the Euro conversion will have a significant impact on
its financial position, results of operations or cash flows.
FORWARD-LOOKING STATEMENTS
Certain forward-looking statements are included in this report. They use such
words as "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 the effectiveness of operating initiatives and advertising and
promotional efforts, the effects of the Euro conversion, as well as changes in:
global and local business and economic conditions; currency exchange and
interest rates; food, labor and other operating costs; political or economic
instability in local markets; competition; consumer preferences, spending
patterns and demographic trends; availability and cost of land and construction;
legislation and government regulation; and accounting policies and practices.
12
<PAGE>
- --------------------------------------------------------------------------------
FIRST QUARTER HIGHLIGHTS
- --------------------------------------------------------------------------------
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Quarters ended
March 31
Dollars in millions 2000 1999
- --------------------------------------------------------------------------------
<S> <C> <C>
Systemwide sales by type
Operated by franchisees $5,778.7 $5,439.9
Operated by the Company 2,439.9 2,179.1
Operated by affiliates 1,288.1 1,203.8
- --------------------------------------------------------------------------------
Systemwide sales $9,506.7 $8,822.8
- --------------------------------------------------------------------------------
Restaurant margins*
Company-operated
----------------
U.S. 16.8% 16.6%
Europe 17.6 17.4
Asia/Pacific 17.9 16.2
Latin America 12.6 14.2
Other 13.4 13.1
Total 16.8% 16.6%
Franchised
----------
U.S. 79.1% 79.9%
Europe 77.3 77.1
Asia/Pacific 82.7 83.4
Latin America 75.6 78.3
Other 76.9 76.2
Total 78.6% 79.1%
</TABLE>
*Restaurant margin information represents margins for the McDonald's restaurant
business only.
RESTAURANTS
- --------------------------------------------------------------------------------
At March 31, 2000 1999
- --------------------------------------------------------------------------------
By type
Operated by franchisees 16,360 15,316
Operated by the Company 6,547 5,693
Operated by affiliates 4,089 3,966
- --------------------------------------------------------------------------------
Systemwide restaurants 26,996 24,975
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarters ended
March 31
2000 1999
- --------------------------------------------------------------------------------
<S> <C> <C>
Additions
U.S. (5) (10)
Europe 68 49
Asia/Pacific 50 74
Latin America 61 28
Other - McDonald's (5) 14
Other Brands 21 2
- --------------------------------------------------------------------------------
Systemwide additions 190 157
- --------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There were no material changes to the disclosure made in the Annual Report
on Form 10-K for the year ended December 31, 1999 regarding this matter.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description
- -------------- -----------
(3) Restated Certificate of Incorporation, effective as of March 24,
1998, incorporated herein by reference from Form 8-K dated April
17, 1998. By-Laws, effective as of July 8, 1998, incorporated
herein by reference from Form 10-Q for the quarter ended June 30,
1998.
(4) Instruments defining the rights of security holders, including
Indentures (A):
(a) Senior Debt Securities Indenture dated as of October 19,
1996 incorporated herein by reference from Exhibit 4(a) of
Form S-3 Registration Statement (File No. 333-14141).
(i) 6 3/8% Debentures due January 8, 2028. Supplemental
Indenture No. 1 dated as of January 8, 1998,
incorporated herein by reference from Exhibit (4)(a)
of Form 8-K dated January 5, 1998.
(ii) 5.90% REset Put Securities due 2011. Supplemental
Indenture No. 2 dated as of May 11, 1998,
incorporated herein by reference from Exhibit 4(a) of
Form 8-K dated May 6, 1998.
(iii) 6% REset Put Securities due 2012. Supplemental
Indenture No. 3 dated as of June 23, 1998,
incorporated herein by reference from Exhibit 4(a) of
Form 8-K dated June 18, 1998.
(iv) Medium-Term Notes, Series F, due from 1 year to 60
years from the Date of Issue. Supplemental Indenture
No. 4 incorporated herein by reference from Exhibit
(4) (c) of Form S-3 Registration Statement (File No.
333-59145), dated July 15, 1998.
(b) 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 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 Exhibit (4)(b) of Form 8-K dated January 9,
1997.
(iii) 7.31% Subordinated Deferrable Interest Debentures due
2027. Supplemental Indenture No. 3 dated September
24, 1997, incorporated herein by reference from
Exhibit (4)(b) of Form 8-K dated September 19, 1997.
(c) Debt Securities. Indenture dated as of March 1, 1987
incorporated herein by reference from Exhibit 4(a) of Form
S-3 Registration Statement (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.
14
<PAGE>
Exhibit Number Description
- -------------- -----------
(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 (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.
(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 (File No. 33-42642), dated September 10, 1991.
(vi) 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.
(vii) 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.
(viii) Medium-Term Notes, Series E, due from nine months (U.S.
Issue)/ 184 days (Euro Issue) to 60 years from the Date of
Issue. Supplemental Indenture No. 22 incorporated herein
by reference from Exhibit 4(b) of Form S-3 Registration
Statement (File No. 33-60939), dated July 13, 1995.
(ix) 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.
(x) 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.
(10) Material Contracts
(a) Directors' Stock Plan, as amended and restated, incorporated
herein by reference from Exhibit 10(a) of Form 10-Q for the
quarter ended September 30, 1997.*
(b) Profit Sharing Program, as amended and restated, incorporated
herein by reference from Form 10-K for the year ended December
31, 1999.*
(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 Form 10-Q for the quarter
ended June 30, 1999.*
(e) 1992 Stock Ownership Incentive Plan, as amended and restated,
filed herewith.*
(f) McDonald's Corporation Deferred Income Plan, as amended and
restated, incorporated herein by reference from Form 10-Q for the
quarter ended September 30, 1999.*
(g) 1999 Non-Employee Director Stock Option Plan, incorporated herein
by reference from Form 10-Q for the quarter ended June 30, 1999.*
(h) Executive Retention Plan, incorporated herein by reference from
Form 10-K for the year ended December 31, 1998.*
15
<PAGE>
(12) Statement re: Computation of Ratios
(27) Financial Data Schedule
_____________________________________
* Denotes compensatory plan.
Other instruments defining the rights of holders of long-term debt of the
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 through May 8, 2000.
<TABLE>
<CAPTION>
Financial Statements
Date of Report Item Number Required to be Filed
-------------- ----------- --------------------
<S> <C> <C>
4/20/00 Item 7 No
</TABLE>
16
<PAGE>
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
May 8, 2000
- -----------------
17
<PAGE>
Exhibit 10(e)
McDONALD'S CORPORATION 1992 STOCK OWNERSHIP INCENTIVE PLAN AS AMENDED AND
RESTATED
THE PLAN
McDonald's Corporation, a Delaware corporation (the "Company") established the
McDonald's Corporation 1992 Stock Ownership Incentive Plan (the "Plan")
effective as of June 1, 1992. The Plan was first amended and restated,
effective as of June 1, 1995 and was subsequently amended and restated effective
as of March 19, 1997, January 20, 1998, May 1, 1999 and January 25, 2000.
Unless specifically provided for in an Award (as defined herein) to the
contrary, an Award shall be governed by and subject to the applicable provisions
of the Plan in effect on the date such Award was granted, or in the case of an
amended Award, the date the Award was amended.
1. Purpose
The purpose of this Plan is to advance the interest of the Company by
encouraging and enabling the acquisition of a larger personal financial interest
in the Company by those employees upon whose judgment and efforts the Company is
largely dependent for the successful conduct of its operations. An additional
purpose of this Plan is to provide a means by which employees of the Company and
its Subsidiaries can acquire and maintain Stock ownership, thereby strengthening
their commitment to the success of the Company and their desire to remain
employed by the Company and its Subsidiaries. It is anticipated that the
acquisition of such financial interest and Stock ownership will stimulate the
efforts of such employees on behalf of the Company, strengthen their desire to
continue in the service of the Company and encourage shareholder and
entrepreneurial perspectives through employee stock ownership. It is also
anticipated that the opportunity to obtain such financial interest and Stock
ownership will prove attractive to promising new employees and will assist the
Company in attracting such employees.
2. Definitions
As used in this Plan, terms defined parenthetically immediately after their use
shall have the respective meanings provided by such definitions and the terms
set forth below shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
(a) "Award" means options, shares of restricted stock, stock appreciation
rights, performance units or stock bonuses granted under this Plan.
(b) "Award Agreement" has the meaning specified in Section 4(c)(v).
(c) "Board" means the Board of Directors of the Company.
(d) "Cause" includes termination based on the commission of any act or
acts involving dishonesty, fraud, illegality or moral turpitude.
(e) "Change in Control" shall be deemed to have occurred at such time as:
(i) any "person" (as that term is used in Sections 13(d) and
14(d)(2) of the Exchange Act) (other than any subsidiary of the Company, any
employee benefit plan of the Company or any of its subsidiaries, or any related
trust) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities representing 20% or more of
the combined voting power for election of directors of the then outstanding
securities of the Company or any successor of the Company;
(ii) during any period of two consecutive years or less, individuals
who at the beginning of such period constituted the Board of Directors of the
Company cease, for any reason, to constitute at least a majority of the Board of
Directors, unless the election or nomination for election of each new director
was approved by a vote of at least two-thirds of the directors then still in
office who were directors at the beginning of the period or whose election or
nomination for election was so approved; or
(iii) the stockholders of the Company approve any a merger,
reorganization, consolidation, or similar transaction, a plan or agreement for
the sale or other disposition of assets which, as of the date of the Company's
most recent annual or quarterly consolidated financial statements, accounted for
50% or more of the net book value of the Company's
1
<PAGE>
consolidated assets or 50% or more of the Company's consolidated revenues, or a
plan of liquidation of the Company (any of the foregoing, a "Reorganization
Transaction") that, based on information included in the proxy and other
materials distributed by the Company to its stockholders in connection with the
solicitation of such stockholder approval, is not expected to qualify as an
Exempt Reorganization Transaction.
(f) "Code" means the Internal Revenue Code of 1986, as amended, and
regulations and rulings thereunder. References to a particular section of the
Code shall include references to successor provisions.
(g) "Committee" means the committee of the Board appointed pursuant to
Section 4.
(h) "Company" has the meaning set forth in the introductory paragraph.
(i) "Disability" means, as relates to the exercise of an incentive stock
option after termination of employment, a disability within the meaning of
Section 22(e)(3) of the Code, and for all other purposes, a mental or physical
condition which, in the opinion of the Committee, renders a Grantee unable or
incompetent to carry out the job responsibilities which such Grantee held or the
tasks to which such Grantee was assigned at the time the disability was
incurred, and which is expected to be permanent or for an indefinite duration
exceeding one year.
(j) "Effective Date" means June 1, 1992.
(k) "Exempt Reorganization Transaction" means a Reorganization Transaction
that results in the persons who were the direct or indirect owners of the
outstanding voting securities of the Company immediately before such
Reorganization Transaction becoming, immediately after the consummation of such
Reorganization Transaction, the direct or indirect beneficial owners of voting
securities representing more than 70% of the combined voting power of the then-
outstanding voting securities of the surviving corporation, in substantially the
same respective proportions as such persons' ownership of the voting securities
of the Company immediately before such Reorganization Transaction.
(l) "Fair Market Value" of any security of the Company means, as of any
applicable date the price, regular way, of the security as reported on the New
York Stock Exchange Composite Tape, or if no such reported sale of the security
shall have occurred on such date, on the next preceding date on which there was
such a reported sale.
(m) "Grant Date" means the date on which an Award shall be duly granted,
as determined in accordance with Section 6(a)(i).
(n) "Grantee" means an individual who has been granted an Award.
(o) "including" or "includes" means "including, without limitation," or
"includes, without limitation."
(p) "Job Elimination" includes terminations of employment by the Company
due to corporate restructuring or reorganization, job restructuring, reductions
in force, outsourcing or replacement of jobs by technology.
(q) "Measuring Period" has the meaning specified in Section 6(f)(i)(B).
(r) "Minimum Consideration" means $.01 per share or such larger amount
determined pursuant to resolution of the Board to be capital within the meaning
of Section 154 of the Delaware General Corporation law.
(s) "1934 Act" means the Securities Exchange Act of 1934, as amended.
References to a particular section of, or rule under, the 1934 Act shall include
references to successor provisions.
(t) "Option Price" means the per share purchase price of Stock subject to
an option.
(u) "Performance Percentage" has the meaning specified in Section
6(f)(i)(C).
(v) "Plan" means the McDonald's Corporation 1992 Stock Ownership Incentive
Plan, as amended and restated in the manner set forth in the introductory
paragraph.
(w) "Retirement" means a termination of employment with the Company and
its Subsidiaries any time after attaining age 60 with at least 20 years of
Company service. For options granted on or after May 1, 1999, Retirement shall
also
2
<PAGE>
mean a termination of employment with the Company and its Subsidiaries with
combined age and years of service equal to or greater than 70.
(x) "SEC" means the Securities and Exchange Commission.
(y) "Section 16 Grantee" means a person subject to potential liability
under Section 16(b) of the 1934 Act with respect to transactions involving
equity securities of the Company.
(z) "Stock" means the common stock of the Company, par value $.01 per
share.
(aa) "Subsidiary" means (i) with respect to incentive stock options, a
corporation as defined in Section 424(f) of the Code with the Company being
treated as the employer corporation for purposes of this definition, and (ii)
for all other purposes any entity in which the Company directly or through
intervening subsidiaries owns twenty-five percent (25%) or more of the total
combined voting power or value of all classes of stock or, in the case of an
unincorporated entity, a twenty-five percent (25%) or more interest in the
capital and profits.
(bb) "10% Owner" means a person who owns stock (including stock treated as
owned under Section 424(d) of the Code) possessing more than 10% of the total
combined voting power of all classes of stock of the Company.
3. Scope of this Plan
(a) The number of shares of Stock which represented five percent (5%) of
the number of issued and outstanding shares of Stock as of June 1, 1992 was made
available and reserved for delivery on account of the exercise of Awards and
payment of benefits in connection with Awards. Effective June 1, 1995, January
20, 1998, May 20, 1999 and January 25, 2000, an additional 64 million, 30
million, 10 million and 18 million shares of Stock, respectively, were made
available and were reserved for delivery on account of the exercise of Awards
and payment of benefits in connection with Awards. Such shares may be treasury
shares or newly issued shares, as may be determined from time to time by the
Board or the Committee.
(b) Subject to adjustment as provided in Section 22, the maximum number of
Shares of Stock for which Awards may be granted to any Grantee in any three-year
period shall not exceed 5,000,000.
(c) Subject to Section 3(a) and (b) (as to the maximum number of shares of
Stock available for delivery in connection with Awards) and to Section 3(d), up
to 10,000,000 shares of restricted stock, and up to 400,000 bonus shares of
Stock may be granted under this Plan.
(d) If and to the extent an Award shall expire or terminate for any reason
without having been exercised in full, or shall be forfeited, without, in either
case, the Grantee having enjoyed any of the benefits of stock ownership (other
than voting rights or dividends that are likewise forfeited), the shares of
Stock (including restricted stock) associated with such Award shall become
available for other Awards.
4. Administration
(a) Subject to Section 4(b), this Plan shall be administered by a
committee ("Committee") of the Board of Directors. All members of the Committee
shall be "Outside Directors" as defined or interpreted for purposes of Section
162(m) of the Code. The composition of the Committee shall also be subject to
such limitations as the Board deems appropriate to permit transactions in Stock
pursuant to this Plan to be exempt from liability under Rule 16b-3 under the
1934 Act.
(b) The Board may, in its discretion, reserve to itself or delegate to
another committee of the Board any or all of the authority and responsibility of
the Committee with respect to Awards to Grantees who are not Section 16 Grantees
at the time any such delegated authority or responsibility is exercised. Such
other committee may consist of two or more directors who may, but need not be,
officers or employees of the Company or of any of its Subsidiaries. To the
extent that the Board has reserved to itself or delegated to such other
committee the authority and responsibility of the Committee, all references to
the Committee in this Plan shall be to the Board or such other committee.
(c) The Committee shall have full and final authority, in its discretion,
but subject to the express provisions of this Plan, as follows:
(i) to grant Awards,
3
<PAGE>
(ii) to determine (A) when Awards may be granted, and (B) whether or
not specific Awards shall be identified with other specific Awards, and if so
whether they shall be exercisable cumulatively with or alternatively to such
other specific Awards,
(iii) to interpret this Plan and to make all determinations necessary
or advisable for the administration of this Plan,
(iv) to prescribe, amend, and rescind rules and regulations relating
to this Plan, including rules with respect to the exercisability and
nonforfeitability of Awards upon the termination of employment of a Grantee,
(v) to determine the terms and provisions and any restrictions or
conditions (including specifying such performance criteria as the Committee
deems appropriate, and imposing restrictions with respect to stock acquired upon
exercise of an option, which restrictions may continue beyond the Grantee's
termination of employment) of the written agreements by which all Awards shall
be evidenced ("Award Agreements") which need not be identical and, with the
consent of the Grantee, to modify any such Award Agreement at any time,
(vi) to authorize foreign Subsidiaries to adopt plans as provided in
Section 15,
(vii) to delegate its duties and responsibilities under this Plan
with respect to such foreign Subsidiary plans, except its duties and
responsibilities with respect to Section 16 Grantees, and (A) the acts of such
delegates shall be treated hereunder as acts of the Committee and (B) such
delegates shall report to the Committee regarding the delegated duties and
responsibilities,
(viii) to accelerate the exercisability of, and to accelerate or
waive any or all of the restrictions and conditions applicable to, any Award, or
any group of Awards for any reason,
(ix) subject to Section 6(a)(ii), to extend the time during which
any Award or group of Awards may be exercised,
(x) to make such adjustments or modifications to Awards to Grantees
working outside the United States as are necessary and advisable to fulfill the
purposes of this Plan,
(xi) to impose such additional conditions, restrictions, and
limitations upon the grant, exercise or retention of Awards as the Committee
may, before or concurrently with the grant thereof, deem appropriate, including
requiring simultaneous exercise of related identified Awards, and limiting the
percentage of Awards which may from time to time be exercised by a Grantee, and
(xii) to prescribe rules and regulations concerning the
transferability of any Awards granted on or after June 1, 1995 and to make such
adjustments or modifications to Awards transferable pursuant to Section 8 as are
necessary and advisable to fulfill the purposes of this Plan.
The determination of the Committee on all matters relating to this Plan or
any Award Agreement shall be conclusive and final. No member of the Committee
shall be liable for any action or determination made in good faith with respect
to this Plan or any Award.
5. Eligibility
Awards may be granted to any full-time employee (including any officer) of the
Company or any of its domestic Subsidiaries, or any employee, officer or
director of any of the Company's foreign Subsidiaries. In selecting the
individuals to whom Awards may be granted, as well as in determining the number
of shares of Stock subject to, and the other terms and conditions applicable to,
each Award, the Committee shall take into consideration such factors as it deems
relevant in promoting the purposes of this Plan.
6. Conditions to Grants
(a) General conditions.
(i) The Grant Date of an Award shall be the date on which the
Committee grants the Award or such later date as specified in advance by the
Committee.
4
<PAGE>
(ii) The term of each Award (subject to Section 6(c) with respect to
incentive stock options) shall be a period of not more than 15 years from the
Grant Date, and shall be subject to earlier termination as herein provided.
(iii) A Grantee may, if otherwise eligible, be granted additional
Awards in any combination.
(b) Grant of options and option price. No later than the Grant Date of any
option, the Committee shall determine the Option Price of such option. The
Option Price of an option shall not be less than 100% of the Fair Market Value
of the Stock on the Grant Date. Such price shall be subject to adjustment as
provided in Section 22. The Award Agreement may provide that the option shall be
exercisable for restricted stock.
(c) Grant of incentive stock options. At the time of the grant of any
option, the Committee may designate that such option shall be made subject to
additional restrictions to permit it to qualify as an "incentive stock option"
under the requirements of Section 422 of the Code. Any option designated as an
incentive stock option:
(i) shall not be granted to a 10% Owner;
(ii) shall be for a period of not more than 10 years from the Grant
Date, and shall be subject to earlier termination as provided herein or in the
applicable Award Agreement;
(iii) shall not have an aggregate Fair Market Value (determined for
each incentive stock option at its Grant Date) of Stock with respect to which
incentive stock options are exercisable for the first time by such Grantee
during any calendar year (under this Plan and any other employee stock option
plan of the Grantee's employer or any parent or Subsidiary thereof ("Other
Plans")), determined in accordance with the provisions of Section 422 of the
Code, which exceeds $100,000 (the "$100,000 Limit");
(iv) shall, if the aggregate Fair Market Value of Stock (determined
on the Grant Date) with respect to all incentive stock options previously
granted under this Plan and any Other Plans ("Prior Grants") and any incentive
stock options under such grant (the "Current Grant") which are exercisable for
the first time during any calendar year would exceed the $100,000 Limit, be
exercisable as follows:
(A) the portion of the Current Grant exercisable for the first
time by the Grantee during any calendar year which would, when added to any
portions of any Prior Grants, be exercisable for the first time by the Grantee
during such calendar year with respect to Stock which would have an aggregate
Fair Market Value (determined as of the respective Grant Date for such options)
in excess of the $100,000 Limit shall, notwithstanding the terms of the Current
Grant, be exercisable for the first time by the Grantee in the first subsequent
calendar year or years in which it could be exercisable for the first time by
the Grantee when added to all Prior Grants without exceeding the $100,000 Limit;
and
(B) if, viewed as of the date of the Current Grant, any portion
of a Current Grant could not be exercised under the provisions of the
immediately preceding sentence during any calendar year commencing with the
calendar year in which it is first exercisable through and including the last
calendar year in which it may by its terms be exercised, such portion of the
Current Grant shall not be an incentive stock option, but shall be exercisable
as a separate option at such date or dates as are provided in the Current Grant;
(v) shall be granted within 10 years from the earlier of the date
this Plan is adopted or the date this Plan is approved by the stockholders of
the Company;
(vi) shall require the Grantee to notify the Committee of any
disposition of any Stock issued pursuant to the exercise of the incentive stock
option under the circumstances described in Section 421(b) of the Code (relating
to certain disqualifying dispositions), within 10 days of such disposition; and
(vii) shall by its terms not be assignable or transferable other than
by will or the laws of descent and distribution and may be exercised, during the
Grantee's lifetime, only by the Grantee; provided, however, that the Grantee
may, to the extent provided in this Plan and in a manner specified by the
Committee, designate in writing a beneficiary to exercise his incentive stock
option after the Grantee's death.
Notwithstanding the foregoing and Section 4(c)(v), the Committee may,
without the consent of the Grantee, at any time before the exercise of an option
(whether or not an incentive stock option), take any action necessary to prevent
such option from being treated as an incentive stock option.
(d) Grant of Shares of Restricted Stock.
5
<PAGE>
(i) The Committee may, in its discretion grant shares of restricted
stock to any individual eligible under Section 5 to receive Awards.
(ii) The Committee shall, in its discretion, determine the amount, if
any, that a Grantee shall pay for shares of restricted stock, subject to the
following sentence. Except with respect to shares of restricted stock that are
treasury shares, for which no payment need be required, the Committee shall
require the Grantee to pay at least the Minimum Consideration for each share of
restricted stock granted to such Grantee. Such payment shall be made in full by
the Grantee before the delivery of the shares and in any event no later than 10
days after the Grant Date for such shares. In the discretion of the Committee
and to the extent permitted by law, payment may also be made in accordance with
Section 10.
(iii) The Committee may, but need not, provide that all or any portion
of a Grantee's Award of restricted stock, or restricted stock acquired upon
exercise of an option shall be forfeited:
(A) except as otherwise specified in the Award Agreement, upon
the Grantee's termination of employment for reasons other than death, disability
or any other reason specified in the Award Agreement within a specified time
period after the Grant Date, or
(B) if the Company or the Grantee does not achieve specified
performance goals (if any) within a specified time period after the Grant Date
and before the Grantee's termination of employment, or
(C) upon failure to satisfy such other restrictions as the
Committee may specify in the Award Agreement; provided that subject to Sections
4(c)(viii) and 14, in no case shall such Award become nonforfeitable before the
first anniversary of the Grant Date.
(iv) If a share of restricted stock is forfeited, then (A) if the
Grantee was required to pay for such share or acquired such restricted stock
upon the exercise of an option, the Grantee shall be deemed to have resold such
share of restricted stock to the Company at the lesser of (1) the amount paid
or, if the restricted stock was acquired on exercise of an option, the Option
Price paid by the Grantee for such share of restricted stock, or (2) the Fair
Market Value of a share of Stock on the date of such forfeiture; (B) the Company
shall pay to the Grantee the amount determined under clause (A) of this sentence
as soon as is administratively practical; and such share of restricted stock
shall cease to be outstanding, and shall no longer confer on the Grantee thereof
any rights as a stockholder of the Company, from and after the later of the date
the event causing the forfeiture occurred or the date of the Company's tender of
the payment specified in clause (B) of this sentence, whether or not such tender
is accepted by the Grantee.
(v) The Committee may provide that any share of restricted stock
shall be held (together with a stock power executed in blank by the Grantee) in
escrow by the Secretary of the Company until such shares become nonforfeitable
or are forfeited. Any share of restricted stock shall bear an appropriate legend
specifying that such share is non-transferable and subject to the restrictions
set forth in this Plan and the Award Agreement. If any shares of restricted
stock become nonforfeitable, the Company shall cause certificates for such
shares to be issued or reissued without such legend.
(e) Grant of Stock Appreciation Rights. When granted, stock appreciation
rights may, but need not, be identified with shares of Stock subject to a
specific option, specific shares of restricted stock, or specific performance
units of the Grantee (including any option, shares of restricted stock, or
performance units granted on or before the Grant Date of the stock appreciation
rights) in a number equal to or different from the number of stock appreciation
rights so granted. If stock appreciation rights are identified with shares of
Stock subject to an option, with shares of restricted stock, or with performance
units, then, unless otherwise provided in the applicable Award Agreement, the
Grantee's associated stock appreciation rights shall terminate upon (i) the
expiration, termination, forfeiture or cancellation of such option, shares of
restricted stock, or performance units, (ii) the exercise of such option or
performance units, or (iii) the date such shares of restricted stock become
nonforfeitable.
(f) Grant of Performance Units.
(i) Before the grant of any performance unit, the Committee shall:
(A) determine performance goals applicable to such grant,
(B) designate a period, of not less than one year nor more than
seven years, for the measurement of the extent to which performance goals are
attained, which period may begin prior to the Grant Date (the "Measuring
Period"), and
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(C) assign a "Performance Percentage" to each level of
attainment of performance goals during the Measuring Period, with the percentage
applicable to minimum attainment being zero percent (0%) and the percentage
applicable to maximum attainment to be determined by the Committee from time to
time.
(ii) In establishing performance goals, the Committee may consider
any performance factor or factors it deems appropriate, including net income,
growth in net income, earnings per share, growth of earnings per share, return
on equity or return on capital, remaining employed for a specified period, or
any other factor. The Committee may, at any time, in its discretion, modify
performance goals in order to facilitate their attainment for any reason,
including recognition of unusual or nonrecurring events affecting the Company or
a Subsidiary or changes in applicable laws, regulations or accounting
principles. If a Grantee is promoted, demoted or transferred to a different
business unit of the Company during a Measuring Period, then, to the extent the
Committee determines the performance goals or Measuring Period are no longer
appropriate, (A) the Committee may adjust, change or eliminate the performance
goals or the applicable Measuring Period as it deems appropriate in order to
make them appropriate and comparable to the initial performance goals or
Measuring Period; or (B) make a cash payment to the Grantee in an amount
determined in accordance with the method described in Section 14(b)(iii),
substituting the effective date of such promotion, demotion or transfer for the
termination of employment referred to in Section 14(b)(iii).
(iii) When granted, performance units may, but need not, be identified
with shares of Stock subject to a specific option, specific shares of restricted
stock, or specific stock appreciation rights of the Grantee granted under this
Plan in a number equal to or different from the number of the performance units
so granted. If performance units are identified with shares of Stock subject to
an option, shares of restricted stock, or stock appreciation rights, then,
unless otherwise provided in the applicable Award Agreement, the Grantee's
associated performance units shall terminate upon (A) the expiration,
termination, forfeiture or cancellation of such option, shares of restricted
stock, or stock appreciation rights, (B) the exercise of such option or stock
appreciation rights, or (C) the date such shares of restricted stock become
nonforfeitable.
(iv) If a Grantee commences employment after the performance goals of
a particular Measuring Period are established, the Committee may grant an Award
that is proportionately adjusted based on the period of actual service during
the Measuring Period.
(g) Grant of Stock Bonuses. The Committee may, in its discretion, grant
shares of Stock to any individual eligible under Section 5 to receive Awards,
other than executive officers of the Company.
7. Grantee's Agreement to Serve
Each Grantee who is granted an Award shall, by executing such Grantee's Award
Agreement, agree that such Grantee will remain in the employ of the Company or
any of its Subsidiaries for at least one year after the Grant Date. No
obligation of the Company or any of its Subsidiaries as to the length of any
Grantee's employment shall be implied by the terms of this Plan, any grant of an
Award hereunder or any Award Agreement. The Company and its Subsidiaries
reserve the same rights to terminate employment of any Grantee as existed before
the Effective Date.
8. Non-Transferability
Each Award (other than restricted stock) granted hereunder shall not be
assignable or transferable other than by will or the laws of descent and
distribution; provided, however, that a Grantee may, in a manner specified by
the Committee and to the extent provided in this Plan: (a) designate in writing
a beneficiary to exercise his Award after the Grantee's death; (b) transfer an
option (other than an incentive stock option), stock appreciation right or
performance unit to a revocable inter vivos trust as to which the Grantee is
both the settlor and the trustee; and (c) if the Award Agreement expressly
permits, transfer an Award (other than restricted stock or an incentive stock
option) for no consideration to any of the following permissible transferees
(each a "Permissible Transferee"): (w) any member of the Immediate Family of
the Grantee to whom such Award was granted, (x) any trust for the benefit of
members of the Grantee's Immediate Family, (y) any partnership whose partners
are members of the Grantee's Immediate Family or (z) Ronald McDonald Children's
Charities or any Ronald McDonald House; and further provided that (i) the
transferee shall remain subject to all of the terms and conditions applicable to
such Award prior to such transfer; (ii) any such transfer shall be subject to
and in accordance with the rules and regulations prescribed by the Committee in
accordance with Section 4(c)(xii) (the "Transfer Rules") and (iii) except as
otherwise expressly provided for in the Plan or in the Transfer Rules, a
Permissible Transferee shall have all the rights and obligations of the Grantee
hereunder and the Grantee shall not retain any rights with respect to the
transferred Award and further provided that the payment of any tax attributable
to the exercise of an Award shall remain the obligation of the Grantee and the
period during which an Award shall remain exercisable under Section 14 shall
depend upon the
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time and nature of the Grantee's termination of employment. For purposes of this
Section 8, "Immediate Family" includes, such Grantee's spouse, children,
grandchildren, stepchildren, parents, stepparents, grandparents, siblings ,
nieces, nephews and in-laws. Notwithstanding the foregoing, the Committee may,
from time to time, in its sole discretion designate additional individuals,
persons or classes as Permissible Transferees.
Each share of restricted stock shall be non-transferable until such share
becomes nonforfeitable.
9. Exercise
(a) Exercise of Options. Subject to Sections 4(c)(viii) and 14 and such
terms and conditions as the Committee may impose, each option shall be
exercisable in one or more installments commencing not earlier than the first
anniversary of the Grant Date of such option.
Each option shall be exercised by delivery of notice of intent to purchase
a specific number of shares of Stock subject to the option. Such notice shall be
in a manner specified by the Company. The Option Price of any shares of Stock or
shares of restricted stock as to which an option shall be exercised shall be
paid in full at the time of the exercise. Payment may, at the election of the
Grantee, be made in any one or any combination of the following:
(i) cash,
(ii) Stock held by the Grantee for at least 6 months prior to
exercise of the option, valued at its Fair Market Value at the time of exercise,
(iii) with the approval of the Committee, shares of restricted stock
held by the Grantee for at least 6 months prior to exercise of the option, each
valued at the Fair Market Value of a share of Stock at the time of exercise, or
(iv) through simultaneous sale through a broker of shares acquired on
exercise, as permitted under Regulation T of the Federal Reserve Board.
In the discretion of the Committee and to the extent permitted by law,
payment may also be made in accordance with Section 10.
If restricted stock ("Tendered Restricted Stock") is used to pay the Option
Price for Stock subject to an option, then the Committee may, but need not,
specify that (i) all the shares of Stock acquired on exercise of the option
shall be subject to the same restrictions as the Tendered Restricted Stock,
determined as of the date of exercise of the option, or (ii) a number of shares
of Stock acquired on exercise of the option equal to the number of shares of
Tendered Restricted Stock shall, unless the Committee provides otherwise, be
subject to the same restrictions as the Tendered Restricted Stock, determined as
of the date of exercise of the option.
(b) Exercise of Stock Appreciation Rights. Subject to Sections 4(c)(viii)
and 14 and such terms and conditions as the Committee may impose, each stock
appreciation right shall be exercisable not earlier than the first anniversary
of the Grant Date of such stock appreciation right, to the extent the option
with which it is identified, if any, may be exercised, to the extent the
restricted stock with which it is identified, if any, is nonforfeitable, or to
the extent the performance unit with which it is identified, if any, may be
exercised unless otherwise provided by the Committee. Stock appreciation rights
shall be exercised by delivery to the Company of written notice of intent to
exercise a specific number of stock appreciation rights. Unless otherwise
provided in the applicable Award Agreement, the exercise of stock appreciation
rights which are identified with shares of Stock subject to an option, shares of
restricted stock or performance units shall result in the cancellation or
forfeiture of such option, shares of restricted stock or performance units, as
the case may be, to the extent of such exercise.
The benefit for each stock appreciation right exercised shall be equal to:
(i) the Fair Market Value of a share of Stock on the date of such
exercise, reduced by
(ii) an amount equal to:
(A) for any stock appreciation right identified with shares of
Stock subject to an option, the Option Price of such option, unless the
Committee in the grant of the stock appreciation right specified a higher amount
or
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(B) for any other stock appreciation right, the Fair Market
Value of a share of Stock on the Grant Date of such stock appreciation right,
unless the Committee in the grant of the stock appreciation right specified a
higher amount; provided that the Committee, in its discretion, may provide that
the benefit for any stock appreciation right shall not exceed such percentage of
the Fair Market Value of a share of Stock on such Grant Date as the Committee
shall specify. The benefit upon the exercise of a stock appreciation right shall
be payable in cash, except that the Committee, may, in its discretion, provide
in the Award Agreement that benefits, with respect to any particular exercise,
may be paid wholly or partly in Stock.
(c) Exercise of Performance Units.
(i) Subject to Section 14 and such terms and conditions as the
Committee may impose, if, with respect to any performance unit, the minimum
performance goals have been achieved during the applicable Measuring Period,
then such performance unit shall vest and be exercisable commencing on the later
of (A) the first anniversary of the Grant Date or (B) the first day after the
end of the applicable Measuring Period. Performance units shall be exercised by
delivery to the Company of written notice of intent to exercise a specific
number of performance units; provided, however, that performance units not
identified with shares of Stock subject to an option, shares of restricted stock
or stock appreciation rights shall be deemed exercised on the date on which they
first become exercisable. Unless otherwise provided in the applicable Award
Agreement, the exercise of performance units which are identified with shares of
Stock subject to an option, shares of restricted stock or stock appreciation
rights shall result in the cancellation or forfeiture of such shares of Stock
subject to option, shares of restricted stock or stock appreciation rights as
the case may be, to the extent of such exercise.
(ii) The benefit for each performance unit exercised shall be
an amount equal to the product of:
(A) the Unit Value (as defined below) multiplied by
(B) the Performance Percentage attained during the Measuring
Period for such performance unit.
(iii) The Unit Value shall be, as specified by the Committee,
(A) a dollar amount,
(B) an amount equal to the Fair Market Value of a share of Stock
on the Grant Date,
(C) an amount equal to the Fair Market Value of a share of Stock
on the exercise date of the performance unit, including, if so provided in the
Award Agreement, an amount ("Dividend Equivalent Amount") equal to the value
that would result if dividends paid on a share of Stock on or after the Grant
Date and on or before the exercise date were invested in shares of Stock as of
each respective dividend payment date, or
(D) an amount equal to the Fair Market Value of a share of Stock
on the exercise date of the performance unit (plus, if so specified in the Award
Agreement a Dividend Equivalent Amount), reduced by the Fair Market Value of a
share of Stock on the Grant Date of the performance unit.
(iv) Unless expressly provided for in the Award Agreement, the
benefit upon the exercise of a performance unit shall be payable on or about
April 1st following the close of the Measuring Period.
(v) Benefits upon exercise of a performance unit shall be payable in
cash (unless deferred under the terms and conditions of the Company's Deferred
Income Plan or in accordance with such other rules and regulations as the
Committee may approve), except that the Committee, may, in its discretion,
provide in the Award Agreement that benefits, with respect to any particular
exercise, may be paid wholly or partly in Stock. In the event the Award
Agreement provides that the benefit may be paid wholly in Stock unless the
Committee, in its discretion, specifies at the time of exercise that the benefit
shall be paid partly or wholly in cash, the number of shares of Stock payable in
lieu of cash shall be determined by valuing the Stock at its Fair Market Value
on the date such benefit is to be paid.
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10. Loans and Guarantees
The Committee may, in its discretion:
(a) allow a Grantee to defer payment to the Company of all or any portion of
(i) the Option Price of an option, (ii) the purchase price of a share of
restricted stock, or (iii) any taxes associated with a benefit hereunder which
is not a cash benefit at the time such benefit is so taxable, or
(b) cause the Company to guarantee a loan from a third party to the
Grantee, in an amount equal to all or any portion of such Option Price, purchase
price, or any related taxes.
Any such payment deferral or guarantee by the Company pursuant to this
Section 10 shall be on such terms and conditions as the Committee may determine;
provided that the interest rate applicable to any such payment deferral shall be
not more favorable to the Grantee than the terms applicable to funds borrowed by
the Company. Notwithstanding the foregoing, a Grantee shall not be entitled to
defer the payment of such Option Price, purchase price or any related taxes
unless the Grantee (i) enters into a binding obligation to pay the deferred
amount and (ii) except with respect to treasury shares, pays upon exercise of an
option or grant of shares of restricted stock, as the case may be, an amount
equal to or greater than the Minimum Consideration thereof. If the Committee has
permitted a payment deferral or caused the Company to guarantee a loan pursuant
to this Section 10, then the Committee may, in its discretion, require the
immediate payment of such deferred amount or the immediate release of such
guarantee upon the Grantee's termination of employment or if the Grantee sells
or otherwise transfers the Grantee's shares of Stock purchased pursuant to such
deferral or guarantee.
11. Notification under Section 83(b)
The Committee may, on the Grant Date or any later date, prohibit a Grantee from
making the election described below. If the Committee has not prohibited such
Grantee from making such election, and the Grantee shall, in connection with the
exercise of any option, or the grant of any share of restricted stock, make the
election permitted under Section 83(b) of the Code (i.e., an election to include
in such Grantee's gross income in the year of transfer the amounts specified in
Section 83(b) of the Code), such Grantee shall notify the Company of such
election within 10 days of filing notice of the election with the Internal
Revenue Service, in addition to any filing and notification required pursuant to
regulations issued under the authority of Section 83(b) of the Code.
12. Mandatory Withholding Taxes
(a) Whenever under this Plan, cash or shares of Stock are to be delivered
upon exercise or payment of an Award or upon a share of restricted stock
becoming nonforfeitable, or any other event with respect to rights and benefits
hereunder, the Company shall be entitled to require as a condition of delivery
(i) that the Grantee remit an amount sufficient to satisfy all federal, state,
and local withholding tax requirements related thereto, (ii) the withholding of
such sums from compensation otherwise due to the Grantee or from any shares of
Stock due to the Grantee under this Plan or (iii) any combination of the
foregoing provided, however, that no amount shall be withheld from any cash
payment or shares of Stock relating to an Award which was transferred by the
Grantee in accordance with this Plan and such cash payment or delivery to such
Permissible Transferee shall in no way be conditioned upon the Grantee's
remittance obligation described herein.
(b) If any disqualifying disposition described in Section 6(c)(vi) is made
with respect to shares of Stock acquired under an incentive stock option granted
pursuant to this Plan or any election described in Section 11 is made, then the
person making such disqualifying disposition or election shall remit to the
Company an amount sufficient to satisfy all federal, state, and local
withholding taxes thereby incurred; provided that, in lieu of or in addition to
the foregoing, the Company shall have the right to withhold such sums from
compensation otherwise due to the Grantee or from any shares of Stock due to the
Grantee under this Plan.
13. Elective Share Withholding
(a) Subject to Section 13(b), a Grantee may elect the withholding ("Share
Withholding") by the Company of a portion of the shares of Stock otherwise
deliverable to such Grantee upon the exercise or payment of an Award or upon a
share of restricted stock becoming nonforfeitable (each a "Taxable Event")
having a Fair Market Value equal to the minimum amount necessary to satisfy
required federal, state, or local withholding tax liability attributable to the
Taxable Event.
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(b) Each Share Withholding election by a Grantee shall be subject to
the following restrictions:
(i) any Grantee's election shall be subject to the Committee's right
to revoke such election of Share Withholding by such Grantee at any time before
the Grantee's election if the Committee has reserved the right to do so in the
Award Agreement;
(ii) the Grantee's election shall be irrevocable;
(iii) provided, however, that no election to have shares of Stock
withheld from any Award shall be effective with respect to an Award which was
transferred by the Grantee in accordance with this Plan.
14. Termination of Employment
(a) For Cause. If a Grantee has a termination of employment for Cause,
(i) the Grantee's shares of restricted stock that are forfeitable
shall thereupon be forfeited, subject to the provisions of Section 6(d)(iv)
regarding repayment of certain amounts to the Grantee; and
(ii) any unexercised option, stock appreciation right, or performance
unit shall terminate upon such termination.
(b) On Account of Death or Disability. If a Grantee has a termination
of employment on account of the Grantee's death or Disability, then, except as
otherwise provided in the Award Agreement,
(i) the Grantee's shares of restricted stock that were forfeitable
shall thereupon become nonforfeitable;
(ii) any unexercised option or stock appreciation right, whether or
not exercisable on the date of such termination of employment may be exercised,
in whole or in part, at any time within three years after such termination of
employment by the Grantee, or after the Grantee's death, by (A) his personal
representative or by the person to whom the option or stock appreciation right
is transferred by will or the applicable laws of descent and distribution, (B)
the Grantee's beneficiary designated in accordance with Sections 6(c)(vii) or 8,
(C) the then-acting trustee of the trust described in clause (b) in the first
paragraph of Section 8 (the "Trust"); or (D) a Permissible Transferee of an
Award assigned or transferred in accordance with Section 8; and
(iii) any unexercised performance unit shall be deemed exercised upon
such termination of employment by the Grantee (or, if applicable, an individual
or entity as specified in Section 14(b)(ii)) as follows: (A) the value of any
vested performance units shall be payable at the same time that payments for
that Measuring Period are made to other Grantees under the Plan; and (B) the
value of any unvested performance units shall be payable on or about April 1st
of the year following the year of such termination; provided that the value of
any unvested performance unit shall be equal to the product of the Unit Value
multiplied successively by each of the following:
(1) a fraction, the numerator of which is the number of months
(including as a whole month any partial month) that have elapsed since the
beginning of such Measuring Period until the date of such termination of
employment and the denominator of which is the number of months (including as a
whole month any partial month) in the Measuring Period (the "Time Proration
Factor"); and
(2) the percentage that would be earned under the terms of the
applicable Award Agreement assuming that the rate at which the performance goals
are achieved as of December 31 following termination would continue until the
end of the Measuring Period (the "Performance Percentage Factor").
(c) On Account of Retirement. (i) If a Grantee has a termination of employment
on account of Retirement after age 60 with 20 years or more of Company service,
any unexercised option or stock appreciation right (other than a stock
appreciation right identified with a share of restricted stock or a performance
unit) which is then exercisable or which would become exercisable within three
years of such Retirement if the Grantee remained employed by the Company or a
Subsidiary throughout such three-year period, may be exercised, in whole or in
part, by the Grantee or Permissible Transferee of an Award assigned or
transferred in accordance with Section 8, at any time within three years after
the Grantee's Retirement. (ii) If a Grantee has a termination of employment on
account of Retirement with combined age and years of Company service equal to or
greater than 70, any unexercised option, which was granted on or after May 1,
1999 and that is then exercisable or which would become exercisable within three
years of such Retirement if the Grantee remained employed by the Company or a
Subsidiary throughout such three-year period, may be exercised, in whole or in
part, by the Grantee or Permissible Transferee of an Award assigned or
transferred in accordance with Section 8, at any time within three years after
the Grantee's Retirement; provided that the Grantee executes and delivers to the
Company a
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two-year non-competition agreement (in a form reasonably satisfactory to the
Company); and further provided that the Grantee provides one-year's prior
written notice of the Grantee's intention to retire to the officer in charge of
the Benefits and Compensation Department in Oak Brook Illinois. If the Grantee
violates the provisions of the non-competition agreement during the two-year
period following Retirement, all unexercised options granted on or after May 1,
1999 will immediately terminate and will not be exercisable.
The nonforfeitability and exercisability of the Grantee's restricted stock (and
any stock appreciation rights identified therewith) shall be determined under
Section 14(f). The vesting and exercisability of the Grantee's performance units
shall be determined under Section 14(b)(iii).
(d) On Account of Termination of Employment After Age 60. If a Grantee has
a termination of employment after attaining age 60, other than a termination of
employment on account of death, Disability or Retirement, any unexercised option
or stock appreciation right (other than a stock appreciation right identified
with a share of restricted stock or a performance unit) to the extent
exercisable on the date of such termination of employment, may be exercised, in
whole or in part by the Grantee or Permissible Transferee of an Award assigned
or transferred in accordance with Section 8, at any time within one year after
the Grantee's termination of employment. The nonforfeitability and
exercisability of the Grantee's restricted stock (and any stock appreciation
rights identified therewith) shall be determined under Section 14(f). The
vesting and exercisability of the Grantee's performance units shall be
determined under Section 14(b)(iii).
(e) Special Circumstances. If a Grantee terminates employment to become an
owner-operator of a McDonald's restaurant or if a Grantee terminates after
January 15, 2000 as a result of a Job Elimination, the Grantee or Permissible
Transferee of an Award assigned or transferred in accordance with Section 8 will
receive an extension of time to exercise any unexercised Options granted on or
after May 1, 1999 and accelerated vesting of these Options based on the
following rules that incorporate age and years of Company service:
Age & Years of Additional Vesting and Time to Exercise
Company Service Options Granted On or After May 1, 1999
- --------------- ---------------------------------------
70 plus years 3 Years
60 to 69 years 2 Years
50 to 59 years 1 Year
(f) Any Other Reason. If a Grantee has a termination of employment for a
reason other than those specified in this Section 14,
(i) the Grantee's shares of restricted stock (and any stock
appreciation rights identified therewith), to the extent forfeitable on the date
of the Grantee's termination of employment, shall be forfeited on such date;
(ii) any unexercised option or stock appreciation right (other than a
stock appreciation right identified with a share of restricted stock or
performance unit) to the extent exercisable on the date of the Grantee's
termination of employment, may be exercised in whole or in part by the Grantee
or Permissible Transferee of an Award assigned or transferred in accordance with
Section 8, not later than the 30th day following the Grantee's termination of
employment; provided that if such 30th day is not a business day, such option or
stock appreciation right may be exercised not later than the first business day
following such 30th day; and
(iii) the Grantee's performance units (and any stock appreciation
rights identified therewith) shall not vest further and may not be exercised in
whole or in part by the Grantee or Permissible Transferee of an Award assigned
or transferred in accordance with Section 8; provided that the value of any
vested performance units shall be payable to the Grantee at the same time that
payments for that Measuring Period are made to other Grantees under the Plan.
(g) Extension of Term. In the event of termination of employment other
than for Cause, the term of any Award (except for an Award of performance units)
which by its terms would otherwise expire after the Grantee's termination of
employment but prior to the end of the period following the Grantee's
termination of employment described in Sections (b), (c)(i), (d) and (f) above
for exercise of Awards shall be extended so as to permit any unexercised portion
thereof to be exercised at any time by the Grantee or Permissible Transferee of
an Award assigned or transferred in accordance with Section 8 within such
period; provided, however, that in no event may the term of any Award expire
more than 15 years after the Grant Date of such Award.
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15. Equity Incentive Plans of Foreign Subsidiaries
The Committee may authorize any foreign Subsidiary to adopt a plan for granting
Awards ("Foreign Equity Incentive Plan"). All awards granted under such Foreign
Equity Incentive Plans shall be treated as grants under this Plan. Such Foreign
Equity Incentive Plans shall have such terms and provisions as the Committee
permits not inconsistent with the provisions of this Plan and which may be more
restrictive than those contained in this Plan. Awards granted under such
Foreign Equity Incentive Plans shall be governed by the terms of this Plan
except to the extent that the provisions of the Foreign Equity Incentive Plans
are more restrictive than the terms of this Plan, in which case such terms of
the Foreign Equity Incentive Plans shall control.
16. Securities Law Matters
(a) If the Committee deems necessary to comply with the Securities Act of
1933, the Committee may require a written investment intent representation by
the Grantee and may require that a restrictive legend be affixed to certificates
for shares of Stock.
(b) If based upon the opinion of counsel for the Company, the Committee
determines that the exercise or nonforfeitability of, or delivery of benefits
pursuant to, any Award would violate any applicable provision of (i) federal or
state securities law or (ii) the listing requirements of any national securities
exchange on which are listed any of the Company's equity securities, then the
Committee may postpone any such exercise, nonforfeitability or delivery, as the
case may be, but the Company shall use its best efforts to cause such exercise,
nonforfeitability or delivery to comply with all such provisions at the earliest
practicable date.
17. Funding
Benefits payable under this 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 this Plan.
18. No Employment Rights
Neither the establishment of this Plan, nor the granting of any Award shall be
construed to (a) give any Grantee the right to remain employed by the Company or
any of its Subsidiaries or to any benefits not specifically provided by this
Plan or (b) in any manner modify the right of the Company or any of its
Subsidiaries to modify, amend, or terminate any of its employee benefit plans.
19. Rights as a Stockholder
A Grantee shall not, by reason of any Award (other than restricted stock) have
any right as a stockholder of the Company with respect to the shares of Stock
which may be deliverable upon exercise or payment of such Award until such
shares have been delivered to him. Shares of restricted stock held by a Grantee
or held in escrow by the Secretary of the Company shall confer on the Grantee
all rights of a stockholder of the Company, except as otherwise provided in this
Plan. The Committee, in its discretion, at the time of grant of restricted
stock, may permit or require the payment of cash dividends thereon to be
deferred and, if the Committee so determines, reinvested in additional
restricted stock to the extent shares are available under Section 3 or otherwise
reinvested. Stock dividends and deferred cash dividends issued with respect to
restricted stock shall be treated as additional shares of restricted stock that
are subject to the same restrictions and other terms as apply to the shares with
respect to which such dividends are issued. The Committee may, in its
discretion, provide for crediting to and payment of interest on deferred cash
dividends.
20. Nature of Payments
Any and all grants, payments of cash, or deliveries of shares of Stock hereunder
shall constitute special incentive payments to the Grantee and shall not be
taken into account in computing the amount of salary or compensation of the
Grantee for the purposes of determining any pension, retirement, death or other
benefits under (a) any pension, retirement, profit-sharing, bonus, life
insurance or other employee benefit plan of the Company or any of its
Subsidiaries or (b) any agreement between the Company or any Subsidiary, on the
one hand, and the Grantee, on the other hand, except as such plan or agreement
shall otherwise expressly provide.
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21. Non-Uniform Determinations
Neither the Committee's nor the Board's determinations under this Plan need be
uniform and may be made by the Committee or the Board selectively among persons
who receive, or are eligible to receive, Awards (whether or not such persons are
similarly situated). Without limiting the generality of the foregoing, the
Committee shall be entitled, among other things, to make non-uniform and
selective determinations, to enter into non-uniform and selective Award
Agreements as to (a) the identity of the Grantees, (b) the terms and provisions
of Awards, and (c) the treatment, under Section 14, of terminations of
employment. Notwithstanding the foregoing, the Committee's interpretation of
Plan provisions shall be uniform as to similarly situated Grantees.
22. Adjustments
The Committee shall make equitable adjustment of:
(a) the aggregate numbers of shares of Stock, shares of restricted
stock, and bonus stock available under Sections 3(a) and 3(c),
(b) the number of shares of Stock, shares of restricted stock, stock
appreciation rights or performance units covered by an Award,
(c) the Option Price,
(d) the Fair Market Value of Stock to be used to determine the amount
of the benefit payable upon exercise of stock appreciation rights or performance
units, and
(e) the maximum number of shares of Stock for which Awards may be granted
to any Grantee in any three year period under Section 3(b),
to reflect a stock dividend, stock split, reverse stock split, share
combination, recapitalization, merger, consolidation, acquisition of property or
shares, separation, asset spin-off, reorganization, stock rights offering,
liquidation or similar event, of or by the Company.
All unexercised Options granted on or after May 1, 1999, which are held by a
Grantee shall become immediately exercisable upon the occurrence of a Change in
Control. Upon the approval by the stockholders of the Company of a plan of
liquidation for the Company, any unexercised options, stock appreciation rights
and performance units theretofore granted shall thereupon become exercisable,
and any shares of restricted stock that have not become nonforfeitable shall
become nonforfeitable.
23. Amendment of this Plan
The Board may from time to time in its discretion amend or modify this Plan
without the approval of the stockholders of the Company, except as such
stockholder approval may be required (a) to permit the grant of Awards under,
and transactions in Stock pursuant to, this Plan to be exempt from liability
under Section 16(b) of the 1934 Act or (b) under the listing requirements of any
national securities exchange on which are listed any of the Company's equity
securities.
24. Termination of this Plan
This Plan shall terminate on the tenth (10th) anniversary of the Effective Date
or at such earlier time as the Board may determine. Any termination, whether in
whole or in part, shall not affect any Award then outstanding under this Plan.
25. No Illegal Transactions
This Plan and all Awards granted pursuant to it are subject to all laws and
regulations of any governmental authority which may be applicable thereto; and
notwithstanding any provision of this Plan or any Award, Grantees shall not be
entitled to exercise Awards or receive the benefits thereof and the Company
shall not be obligated to deliver any Stock or pay any benefits to a Grantee if
such exercise, delivery, receipt or payment of benefits would constitute a
violation by the Grantee or the Company of any provision of any such law or
regulation.
14
<PAGE>
26. Controlling Law
The law of the State of Illinois, except its law with respect to choice of law,
shall be controlling in all matters relating to this Plan.
27. Severability
If all or any part of this Plan is declared by any court or governmental
authority to be unlawful or invalid, such unlawfulness or invalidity shall not
serve to invalidate any portion of this Plan not declared to be unlawful or
invalid. Any Section or part of a Section so declared to be unlawful or invalid
shall, if possible, be construed in a manner which will give effect to the terms
of such Section or part of a Section to the fullest extent possible while
remaining lawful and valid.
Executed this 28th day of April, 2000.
McDONALD'S CORPORATION
By: /s/ Stanley Stein
Executive Vice President
15
<PAGE>
Exhibit 12
McDONALD'S CORPORATION
STATEMENT RE: COMPUTATION OF RATIOS
Dollars In Millions
<TABLE>
<CAPTION>
Three months
ended March 31, Years ended December 31
2000 1999 1999 1998 1997 1996 1995
----------------- ----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS AVAILABLE FOR FIXED CHARGES
- - Income before provision for income taxes $662.7 $600.7 $2,884.1 $2,307.4(1) $2,407.3 $2,251.0 $2,169.1
- - 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 2.3 5.1 21.9 23.7 28.3 39.6 19.6
- - Provision for income taxes of 50% owned
affiliates included in consolidated income
before provision for income taxes 24.4 16.1 72.8 99.9 69.0 73.2 73.3
- - Portion of rent charges (after reduction
for rental income from subleased
properties) considered to be representative
of interest factors* 46.2 42.8 178.5 161.3 145.9 130.9 103.8
- - Interest expense, amortization of debt
discount and issuance costs, and
depreciation of capitalized interest* 115.4 118.5 440.1 461.9 424.8 392.2 388.8
----------------- ----------------------------------------------------
$851.0 $783.2 $3,597.4 $3,054.2 $3,075.3 $2,886.9 $2,754.6
----------------- ----------------------------------------------------
FIXED CHARGES
- - Portion of rent charges (after reduction
for rental income from subleased
properties) considered to be representative
of interest factors* $ 46.2 $ 42.8 $ 178.5 $ 161.3 $ 145.9 $ 130.9 $ 103.8
- - Interest expense, amortization of debt
discount and issuance costs, and fixed
charges related to redeemable preferred
stock* 109.4 115.6 431.3 453.4 426.1 410.4 403.4
- - Capitalized interest* 3.5 2.7 14.7 18.3 23.7 23.5 22.8
----------------- ----------------------------------------------------
$159.1 $161.1 $ 624.5 $ 633.0 $ 595.7 $ 564.8 $ 530.0
================= ====================================================
RATIO OF EARNINGS TO FIXED CHARGES 5.35 4.86 5.76 4.82(2) 5.16 5.11 5.20
================= ====================================================
</TABLE>
* Includes amounts of the Registrant and its majority-owned subsidiaries, and
one-half of the amounts of 50%-owned affiliates.
(1) Includes $160.0 million pre-tax special charge and $161.6 million of Made
For You costs for a pre-tax total of $321.6 million.
(2) Excluding the special charge and Made For You costs, the ratio of earnings
to fixed charges for the year ended December 31, 1998 was 5.33.
1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 368
<SECURITIES> 0
<RECEIVABLES> 664
<ALLOWANCES> 0
<INVENTORY> 80
<CURRENT-ASSETS> 1,505
<PP&E> 22,606
<DEPRECIATION> 6,222
<TOTAL-ASSETS> 20,830
<CURRENT-LIABILITIES> 2,769
<BONDS> 6,131
0
0
<COMMON> 17
<OTHER-SE> 16,200
<TOTAL-LIABILITY-AND-EQUITY> 20,830
<SALES> 2,440
<TOTAL-REVENUES> 3,344
<CGS> 2,033
<TOTAL-COSTS> 2,227
<OTHER-EXPENSES> (29)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 100
<INCOME-PRETAX> 663
<INCOME-TAX> 212
<INCOME-CONTINUING> 451
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 451
<EPS-BASIC> .34
<EPS-DILUTED> .33
</TABLE>
